Financial Services (Banking Reform) Bill

(Limited Text - Ministerial Extracts only)

Monday 8th July 2013 Commons Chamber

Objectives of Prudential Regulation Authority

[The Financial Secretary to the Treasury (Greg Clark)]

I beg to move amendment 1, in page 1, line 20, after ‘body’ insert ‘or of a member of a ring-fenced body’s group’.

[Mr Speaker]

With this it will be convenient to discuss the following:

Government amendments 2 to 4.

Amendment 17, in clause 4, page 9, leave out lines 8 to 21 and insert—

‘Reviews

142J Reviews of ring-fencing

‘(1) The Treasury must make arrangements for the carrying out of reviews of the effects of the operation of the provision made by or under this Part in relation to ring-fenced bodies, including ring-fencing rules made by the PRA and the FCA. Such arrangements shall be set out in a statutory instrument subject to approval by resolution of both Houses of Parliament.

(2) The first review must be completed before the end of the period of two years beginning with the date on which section 4 of the Financial Services (Banking Reform) Act 2013, so far as it inserts this section, comes into force.

(3) Subsequent reviews must be completed before the end of the period of two years beginning with the date on which the previous review was completed.

(4) Not less than nine months, nor more than 12 months, before the date on which a review is due to be completed, the PRA and the FCA must publish a joint assessment of the impact of the operation of their ring-fence rules.

(5) For the purposes of this section a review is completed when the report of it is published.

142JA Persons by whom reviews are to be conducted

‘(1) The Treasury shall appoint not fewer than five persons to conduct a review of whom one is to chair it.

(2) A person may not be appointed to chair a review unless the chairman of the Treasury Committee of the House of Commons has notified the Treasury that, in the chairman’s opinion, the person is likely to act independently of the Treasury, the PRA and the FCA in carrying out the review.

(3) The persons appointed to conduct a review must include at least one person with substantial experience in central banking or financial regulation at a senior level.

(4) The reference in subsection (2) to the Treasury Committee of the House of Commons—

(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and

(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;

and any question arising under paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.

142JB Reports of review

‘(1) The persons appointed to conduct a review must give the Treasury a report of the review.

(2) The report must include an assessment of the extent to which the provision made by or under this Part in relation to ring-fenced bodies, including ring-fencing rules made by the PRA and by the FCA, are facilitating the advancement by the PRA of the objective in section 2B(3)(c) and by the FCA of the continuity objective.

(3) If the report is made before section 4 of the Financial Services (Banking Reform) Act 2013, so far as it inserts section 142JD, has come into force it must also include a recommendation as to whether or not section 4 of that Act should be brought into force to that extent.

(4) The report must include—

(a) recommendations to the Treasury as to the provision that should be included in orders and regulations under this Part, and

(b) recommendations to the PRA and the FCA about the provision that should be included in ring-fencing rules.

(5) The Treasury must lay a copy of the report before Parliament and publish it in such manner as it thinks fit.’.

Government amendment 6, page 9, line 21, at end insert—

‘Group restructuring powers

142JA Cases in which group restructuring powers become exercisable

(1) The appropriate regulator may exercise the group restructuring powers only if it is satisfied that one or more of Conditions A to D is met in relation to a ring-fenced body that is a member of a group.

(2) Condition A is that the carrying on of core activities by the ring-fenced body is being adversely affected by the acts or omissions of other members of its group.

(3) Condition B is that in carrying on its business the ring-fenced body—

(a) is unable to take decisions independently of other members of its group, or

(b) depends on resources which are provided by a member of its group and which would cease to be available in the event of the insolvency of the other member.

(4) Condition C is that in the event of the insolvency of one or more other members of its group the ring-fenced body would be unable to continue to carry on the core activities carried on by it.

(5) Condition D is that the ring-fenced body or another member of its group has engaged, or is engaged, in conduct which is having, or would apart fro m this section be likely to have, an adverse effect on the advancement by the appropriate regulator—

(a) in the case of the PRA, of the objective in section 2B(3)(c), or

(b) in the case of the FCA, of the continuity objective.

(6) The appropriate regulator may not exercise the group restructuring powers in relation to any person if—

(a) either regulator has previously exercised the group restructuring powers in relation to that person, and

(b) the decision notice in relation to the current exercise is given before the second anniversary of the day on which the decision notice in relation to the previous exercise was given.

(7) In this section and sections 142JB to 142JG “the appropriate regulator” means—

(a) where the ring-fenced body is a PRA-authorised person, the PRA;

(b) where it is not, the FCA.

142JB Group restructuring powers

(1) In this Part “the group restructuring powers” means one or more of the powers conferred by this section.

(2) Where the appropriate regulator is the PRA, the powers conferred by this secti on are as follows—

(a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of the steps mentioned in subsection (5),

(b) in relation to any member of the ring-fenced body’s group which isa PRA-authorised person, power to impose a requirement on the PRA-authorised person requiring it to take any of the steps mentioned in subsection (6),

(c) in relation to any member of the ring-fenced body’s group which is an authorised person but not a PRA-authorised person, power todirect the FCA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and

(d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6).

(3) Where the appropriate regulator is the FCA, the powers conferred by this section are as follows—

(a) in relation to the ring-fenced body, power to impose a requirement on the ring-fenced body requiring it to take any of thesteps mentioned in subsection (5),

(b) in relation to any member of the ring-fenced body’s group which is an authorised person but not a PRA-authorised person, power to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6),

(c) in relation to any member of the ring-fenced body’s group which is a PRA-authorised person, power to direct the PRA to impose a requirement on the authorised person requiring it to take any of the steps mentioned in subsection (6), and

(d) in relation to a qualifying parent undertaking, power to give a direction under this paragraph to the parent undertaking requiring it to take any of the steps mentioned in subsection (6).

(4) A parent undertaking of a ring-fenced body by reference to which the group restructuring powers are exercisable is for the purposes of this Part a “qualifying parent undertaking” if —

(a) it is a body corporate which is incorporated in the United Kingdom and has a place of business in the United Kingdom, and

(b) it is not itself an authorised person.

(5) The steps that the ring-fenced body may be required to take are—

(a) to dispose of specified property or rights to an outside person;

(b) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the ring-fenced body to an outside person;

(c) otherwise to make arrangements discharging the ring-fenced body from specified liabilities.

(6) The steps that another authorised person or a qualifying parent undertaking may be required to take are—

(a) to dispose of any shares in, or securities of, the ring-fenced body to an outside person;

(b) to dispose of any interest in any other body corporate that is a member of the ring-fenced body’s group to an outside person;

(c) to dispose of other specified property or rights to an outside person;

(d) to apply to the court under Part 7 for an order sanctioning a ring-fencing transfer scheme relating to the transfer of the whole or part of the business of the authorised person or qualifying parent undertaking to an outside person.

(7) In subsections (5) and (6) “outside person” means a person who, after the implementation of the disposal or scheme in question, will not be a member of the group of the ring-fenced body by reference to which the powers are exercised (whether or not that body is to remain a ring-fenced body after the implementation of the disposal or scheme in question).

(8) It is immaterial whether a requirement to be imposed on an authorised person by the appropriate regulator, or by the other regulator at the direction of the appropriate regulator, is one that the regulator imposing it could impose under section 55L or 55M.

142JC Procedure: preliminary notices

(1) If the appropriate regulator proposes to exercise the group restructuring powers in relation to any authorised person or qualifying parent undertaking (“the person concerned”), the regulator must give each of the relevant persons a first preliminary notice stating—

(a) that the regulator is of the opinion that the group ring-fencing powers have become exercisable in relation to the person concerned, and

(b) its reasons for being satisfied as to the matters mentioned in section 142JA(1).

(2) Before giving a first preliminary notice, the regulator must—

(a) give the Treasury a draft of the notice,

(b) provide the Treasury with any information that the Treasury may require in order to decide whether to give their consent, and

(c) obtain the consent of the Treasury.

(3) The first preliminary notice must specify a reasonable period (which may not be less than 14 days) within which any of the relevant persons may make representations to the regulator.

(4) The relevant persons are—

(a) the person concerned,

(b) the ring-fenced body, if not the person concerned, and

(c) any other authorised person who will, in the opinion of the appropriate regulator, be significantly affected by the exercise of the group restructuring powers.

(5) After considering any representations made by any of the relevant persons, the regulator must either—

(a) with the consent of the Treasury, give each of the persons a second preliminary notice, or

(b) give each of them a notice stating that it has decided not to exercise its group restructuring powers.

(6) A second preliminary notice is a notice stating—

(a) that the regulator proposes to exercise the group restructuring powers, and

(b) the manner in which it proposes to do so.

(7) The second preliminary notice must specify a reasonable period (which may not be less than 14 days) within which any of the relevant persons may make representations to the regulator about the proposals.

(8) The regulator must after considering any representations made in response to the second preliminary notice give each of the relevant person s a third preliminary notice stating—

(a) whether it has made any revisions to the proposals, and

(b) if so, what the revisions are.

142JD Procedure: warning notice and decision notice

(1) If the appropriate regulator has given a third preliminary notice, it must either—

(a) if it still proposes to exercise the group restructuring powers, give each of the relevant persons a warning notice during the warning notice period, or

(b) before the end of the warning notice period, give each of them a notice stating that it has decided not to exercise the powers.

(2) The “warning notice period” is the period of 6 months beginning with the first anniversary of the day on which the third preliminary notice was given.

(3) Before giving a warning notice under subsection (1)(a), the appropriate regulator must —

(a) give the Treasury a draft of the notice,

(b) provide the Treasury with any information that the Treasury may require in order to decide whether to give their consent, and

(c) obtain the consent of the Treasury.

(4) The action specified in the warning notice may be different from that specified in the third preliminary notice if—

(a) the appropriate regulator considers that different action is appropriate as a result of any change in circumstances since the third preliminary notice was given, or

(b) the person concerned consents to the change.

(5) The regulator must, in particular, have regard to anything that—

(a) has been done by the person concerned since the giving of the third preliminary notice, and

(b) represents action that would have been required in pursuance of the proposals in that notice.

(6) If the regulator decides to exercise the group restructuring powers it must give each of the relevant persons a decision notice.

(7) The decision notice must allow at least 5 years from the date of the decision notice for the completion of—

(a) any disposal of shares, securities or other property that is required by the notice, or

(b) any transfer of liabilities for which the notice requires arrangements to be made.

(8) The giving of consent for the purpose of subsection (4)(b) does not affect any right to refer to the Tribunal the matter to which any decision notice resulting from the warning notice relates.

(9) “The relevant persons” has the same meaning as in section 142JC.

142JE References to Tribunal

(1) A notified person who is aggrieved by—

(a) the imposition by either regulator of a requirement as a result of section 142JB(2)(a) or (b) or (3)(a) or (b),

(b) a requirement to be imposed as a result of the giving by one regulator to the other of a direction under section 142JB(2)(c) or (3)(c), or

(c) the giving by either regulator of a direction under section 142JB(2)(d) or (3)(d),

may refer the matter to the Tribunal.

(2) “Notified person” means a person to whom a decision notice under section 142JD(6) was given or ought to have been given.

142JF Subsequent variation of requirement or direction

(1) A regulator may at any time with the consent of the person concerned vary—

(a) a requirement imposed by it as a result of section 142JB(2)(a) or (b) or (3)(a) or (b), or

(b) a direction given by it as a result of section 142JB(2)(c) or (d) or (3)(c) or (d).

(2) The person concerned may at any time apply to the appropriate regulator for the variation of—

(a) a requirement imposed by it as a result of section 142JB(2)(a) or (b)or (3)(a) or (b), or

(b) a direction given by it as a result of section 142JB(2)(c) or (d) or (3)(c) or (d).

(3) Sections 55U, 55V, 55X and 55Z3 apply to an application under subsection (2) as they apply to an application for the variation of a requirement imposed by the appropriate regulator under section 55L or 55M.

142JG Consultation etc. between regulators

(1) Where a notice under section 142JC or a warning notice or decision notice under section 142JD relates to a requirement to be imposed in pursuance of a direction to be given as a result of section 142JB(2)(c) or (3)(c), the appropriate regulator must—

(a) consult the other regulator before giving the notice, and

(b) give a copy of the notice to the other regulator.

(2) The appropriate regulator must consult the other regulator before varying under section 142JF a direction given as a result of section 142JB(2)(c) or (3)(c).

(3) Directions given by the FCA as a result of section 142JB(3)(c) are subject to any directions given to the FCA under section 3I.

142JH Relationship with regulators’ powers under Parts 4A and 12A

(1) Subsection (2) applies in relation to—

(a) a ring-fenced body which is a member of a mixed group, and

(b) a parent undertaking of such a ring-fenced body.

(2) A regulator may not exercise its general powers in relation to the ring-fenced body or parent undertaking so as to achieve either of the results in subsection (3).

(3) Those results are—

(a) that no existing group member is a parent undertaking of the ring-fenced body;

(b) that the ring-fenced body is not a member of a mixed group.

(4) In subsection (3)(a) “existing group member” means a person who is a member of the ring-fenced body’s group at the time when the requirement is imposed or the direction given.

(5) Except as provided by subsections (1) to (4), the provisions of sections 142JA to 142JG do not limit the general powers of either regulator.

(6) For the purposes of this section, a regulator’s “general powers” are its powers under the following provisions—

(a) section 55L or 55M (imposition of requirements in connection with Part 4A permission);

(b) section 192C (power to direct qualifying parent undertaking).

(7) For the purposes of this section, a ring-fenced body is a member of a mixed group if a member of the ring-fenced body’s group carries on an excluded activity.

Failure of parent undertaking to comply with direction

142JI Power to impose penalty or issue censure

(1) This section applies if a regulator is satisfied that a person who is or has been a qualifying parent undertaking as defined in section 142JB(4) (“P”) has contravened a requirement of a direction given to P by that regulator as a result of section 142JB(2)(d) or (3)(d).

(2) The regulator may impose a penalty of such amount as it considers appropriate on—

(a) P, or

(b) any person who was knowingly concerned in the contravention.

(3) The regulator may, instead of imposing a penalty on a person, publish a statement censuring the person.

(4) The regulator may not take action against a person under this section after the end of the limitation period unless, before the end of that period, it has given a warning notice to the person under section 142JJ.

(5) “The limitation period” means the period of 3 years beginning with the first day on which the regulator knew of the contravention.

(6) For this purpose a regulator is to be treated as knowing of a contravention if it has information from which the contravention can reasonably be inferred.

(7) The requirements that a regulator may be required to impose as a result of a direction under section 142JB(2)(c) or (3)(c) include requirements that t he regulator would not but for the direction have power to impose.

142JJ Procedure and right to refer to Tribunal

(1) If a regulator proposes to take action against a person under section 142JI, it must give the person a warning notice.

(2) A warning notice about a proposal to impose a penalty must state the amo unt of the penalty.

(3) A warning notice about a proposal to publish a statement must set out the terms of the statement.

(4) If the regulator decides to take action against a person under section 142JI, it must give the person a decision notice.

(5) A decision notice about the imposition of a penalty must state the amount of the penalty.

(6) A decision notice about the publication of a statement must set out the terms of the statement.

(7) If the regulator decides to take action against a person under section 142JI, the person may refer the matter to the Tribunal.

142JK Duty on publication of statement

After a statement under section 142JI(3) is published, the regulator must send a copy of the statement to—

(a) the person in respect of whom it is made, and

(b) any person to whom a copy of the decision notice was given under section 393(4).

142JL Imposition of penalties under section 142JI: statement of policy

(1) Each regulator must prepare and issue a statement of policy with respect to—

(a) the imposition of penalties under section 142JI, and

(b) the amount of penalties under that section.

(2) A regulator’s policy in determining what the amount of a penalty should be must include having regard to—

(a) the seriousness of the contravention,

(b) the extent to which the contravention was deliberate or reckless, and

(c) whether the person on whom the penalty is to be imposed is an individual.

(3) A regulator may at any time alter or replace a statement issued under this section.

(4) If a statement issued under this section is altered or replaced, the regulator must issue the altered or replacement statement.

(5) In exercising, or deciding whether to exercise, a power under section 142JI(2) in the case of any particular contravention, a regulator must have regard to any statement of policy published under this section and in force at a time when the contravention occurred.

(6) A statement under this section must be published by the regulator concerned in the way appearing to the regulator to be best calculated to bring it to the attention of the public.

(7) A regulator may charge a reasonable fee for providing a person with a copy of the statement published under this section.

(8) A regulator must, without delay, give the Treasury a copy of any statement which it publishes under this section.

(9) Section 192I applies in relation to a statement under this section as it appl ies in relation to a statement under section 192H.’

Amendment (a) to Government amendment 6, at the end of subsection (5) to new section 142JA, insert—

‘(5A) Condition E is that the appropriate regulator judges that there are serious failures in the culture and standards of the ring-fenced body or another member of its group.

(6) When judging whether there are serious failures in the culture and standards of the ring-fenced body or another member of its group, the appropriate regulator must take account of the recommendations in the five reports of the Parliamentary Commission on Banking Standards.’.

Amendment (b), in the title of new section 142JC, leave out ‘notices’ and insert ‘notice’.

Amendment (c) to Government amendment 6, in subsection (1) of new section 142JC, leave out ‘first’.

Amendment (d), in subsection (2) of new section 142JC, leave out ‘first’.

Amendment (e), in subsection (2)(b) of new section 142JC, leave out from ‘require’ to end.

Amendment (f), in subsection (3) of new section 142JC, leave out ‘first’.

Amendment (g),  in subsection (3) of new section 142JC, leave out ‘14 days’ and insert ‘6 weeks’.

Amendment (h),  leave out from subsection (5) to end of new section 142JC.

Amendment (i), in subsection (1) of new section 142JD, leave out from ‘must’ and insert

‘At the end of the period for making representations required under section 142JC(3), the regulator’.

Amendment (j),  at end of subsection (1), insert—

‘(1A) If, following representations, the regulator makes revisions to the proposals, it must inform the relevant persons of those revisions.’.

Amendment (k), in subsection (2) of new section 142JD, leave out from ‘beginning’ to end of subsection and insert

‘at the end of the period for making representations required under section 142JC(3).’.

Amendment (l), in subsection (3) of new section 142JD, leave out from ‘require’ to end of subsection.

Amendment (m), in subsection (4) of new section 142JD, leave out ‘third’.

Amendment (n), in subsection (4)(a) of new section 142JD, leave out ‘third’.

Amendment (o), in subsection (5)(a) of new section 142JD, leave out ‘third’.

Amendment (p), in subsection (7), leave out from ‘must’ to end of subsection and insert

‘specify the period for completion of the actions required by the notice.’.

Amendment 18, page 9, line 21, at end insert—

‘Full separation

142JD General requirement of separation

‘(1) Where the members of any group include one or more ring-fenced bodies and one or more other bodies, the members of the group must, before the end of the period of five years beginning with the relevant commencement date, take steps to secure that there are no members of the group that are ring-fenced bodies.

(2) If in the case of any group steps to secure that there are no members of the group that are ring-fenced bodies are not taken within the period specified in subsection (1)—

(a) at the end of that period the Part 4A permission of each member of the group that is a ring-fenced body shall be treated as having been cancelled to the extent that it relates to a core activity, and

(b) after the end of that period the appropriate regulator must refuse to give any member of the group a Part 4A permission to carry on a core activity.

(3) At the end of the period specified in subsection (1)—

(a) section 142H(1)(b) and (4) to (7), and

(b) section 142JC,

cease to have effect.

(4) In subsection (1) “the relevant commencement date” means the day appointed for the coming into force of section 4 of the Financial Services (Banking Reform) Act 2013 so far as it inserts this section.’.

Amendment 19, page 9, line 21, at end insert—

‘Power to order full separation

142JC Power to order separation in case of particular groups

‘(1) Where—

(a) the members of a group include one or more ring-fenced bodies and one or more other bodies, and

(b) it appears to the appropriate regulator that the conduct of any one or more of the members of the group is such that there is a significant risk that the appropriate regulator will not be able to advance the objective in section 2B(3)(c) (in the case of the PRA) or the continuity objective (in the case of the FCA) otherwise than by acting under this section,

the appropriate regulator may give a notice to each of the members of the group.

(2) The notice must state that the appropriate regulator proposes to require the taking of relevant steps in relation to the group before the date specified in the notice.

(3) In this section “relevant steps” means steps to secure one of the following results—

(a) that there is no member of the group with a Part 4A permission to carry on a regulated activity of a description specified in the notice;

(b) that no member of the group is a ring-fenced body;

(c) that there is no member of the group with a Part 4A permission to carry on a regulated activity which is not a ring-fenced body.

(4) The notice must—

(a) specify a period, of not less than 3 months, during which any member of the group may make representations to the appropriate regulator in relation to its proposal, and

(b) name an independent reviewer who is to report on the conduct of the members of the group and the appropriateness of the proposal made by the appropriate regulator.

(5) A person may not be named as the independent reviewer without the consent of the chairman of the Treasury Committee of the House of Commons; and the reference in this subsection to the Treasury Committee of the House of Commons—

(a) if the name of that Committee is changed, is to be treated as a reference to that Committee by its new name, and

(b) if the functions of that Committee (or substantially corresponding functions) become functions of a different Committee of the House of Commons, is to be treated as a reference to the Committee by which the functions are exercisable;

and any question arising under this paragraph (a) or (b) is to be determined by the Speaker of the House of Commons.

(6) After receiving any representations made in relation to the proposal by members of the group and the report of the independent reviewer, the appropriate regulator must decide whether it intends to implement the proposal.

(7) If the appropriate regulator decides that it does intend to implement the proposal, it must publish notice of the proposal, and of its decision to implement it, at least 60 days before it is implemented.

(8) A person who is aggrieved by the decision of the appropriate regulator that it intends to implement the proposal may refer the matter to the Tribunal.

(9) The proposal may not be implemented without the consent of the Treasury; and the Treasury must publish their decision on any application made by the appropriate regulator for consent, together with their reasons for the decision, at least 60 days before it is implemented.

(10) Once the Treasury has consented to the implementation of the proposal and either—

(a) any reference to the Tribunal under subsection (8) has been dismissed, or

(b) the period for making such a reference to the Tribunal has expired without a reference having been made,

the appropriate regulator may implement the proposal by giving notice to the members of the group requiring the taking of the relevant steps specified in the proposal before the date so specified.

(11) If the relevant steps have not been taken by the specified date, the appropriate regulator may—

(a) in a case where the relevant steps are aimed at securing the result in paragraph (a) of subsection (3), take the action specified in subsection (12),

(b) in a case where the relevant steps are aimed at securing the result in paragraph (b) of subsection (3), take the action specified in subsection (13), or

(c) in a case where the relevant steps are aimed at securing the result in paragraph (c) of subsection (3), take the action specified in subsection (14).

(12) The action referred to in paragraph (a) of subsection (11) is—

(a) to cancel the Part 4A permission of any member of the group to carry on the regulated activity specified in the notice, and

(b) to refuse to give a Part 4A permission to any member of the group to carry on that activity.

(13) The action referred to in paragraph (b) of subsection (11) is—

(a) to cancel the Part 4A permission of any member of the group that is a ring-fenced body to the extent that it relates to a core activity, and

(b) to refuse to give any member of the group a Part 4A permission to carry on a core activity.

(14) The action referred to in paragraph (c) of subsection (11) is—

(a) to cancel the Part 4A permission of any member of the group that is not a ring-fenced body, and

(b) to refuse to give a Part 4A permission to any member of the group that is not a ring-fenced body.’.

Government amendments 7 to 16.

[Greg Clark]

This group deals with some of the recommendations of the first report of the Parliamentary Commission on Banking Standards, which was published on 21 December last year. The Government agreed to bring forward amendments on Report to implement those recommendations, and those amendments are amendments 1 to 4, 6 to 10 and 11 to 16. I will turn to them in a few moments, but the amendment proposed by my hon. Friend the Member for Chichester (Mr Tyrie) relates to his parliamentary commission’s final report on standards and culture, which was published on 19 June, and it therefore provides a perfect opportunity—as I suspect my hon. Friend intended—to say something about that further report and how the Government intend to implement its recommendations.

The Government warmly endorse the report. It is a landmark piece of work and I commend its unflinching, clear-sighted assessment of the damage done to the reputation of banking in this country and all around the world.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

The parliamentary commission requested the Government to consider giving their response—and tabling amendments —well in advance of this Report stage, yet that has been given only this afternoon. Why are we faced with having to absorb this document at very short notice?

[Greg Clark]

I pay tribute to the hon. Gentleman for the long hours he has devoted to the work of that commission. The Government did indeed make a commitment on Second Reading and before then to make use of the Bill before us to take forward the recommendations of the commission. It was always intended that that should be at the House of Lords stages of the Bill, but I will have more to say about that in a few moments. We will absolutely give the required time to consider those amendments and to make use of a Bill that is before the House, enabling us to respond rather than wait for a further piece of legislation.

The commission’s central judgment is absolutely right:

“High standards in banking should not be a substitute for global success. On the contrary, they can be a stimulus to it.”

When I visited Germany late last year, I picked up a copy of Handelsblatt and was struck by a double-page spread with a picture of the City of London and the headline, in English, “City of shame”. That shows the impact of the events of the financial crisis and subsequently on the reputation of this country’s banking system. Exactly as the commission says, if we are to restore the system’s global success, as we must, it is imperative that we improve its standards.

Therefore, in response to the commission’s report, I can confirm today that the Government will strengthen individual accountability by introducing a tough new regime that is recommended to cover the behaviour of senior bank staff; introducing new rules to promote higher standards for all bank staff; introducing a criminal offence for reckless misconduct by senior bankers—those found guilty could face a jail sentence; working with the regulators to implement the commission’s proposals on pay, specifically to allow bonuses to be deferred for up to 10 years and enable 100% clawback of bonuses where banks receive state aid; and reversing the burden of proof so that senior staff are held accountable for regulatory breaches within their areas of responsibility. We will also ask the regulators to implement the commission’s key recommendations on corporate governance. That will ensure that firms have to have the correct systems in place to identify risks and maintain standards on ethics and culture.

We will support competition in the banking sector by providing the Prudential Regulation Authority with what the commission asked for, which was a secondary competition objective to strengthen its role in ensuring that we have banking markets that benefit from the vigorous competition that delivers good outcomes for consumers. That will be in addition to the Financial Conduct Authority’s existing competition objective. In addition to introducing seven-day account switching later this year, the Government will ask the new payments regulator, once established, urgently to examine account portability and whether the big banks should give up ownership of the payment systems. The Government have also implemented the commission’s recommendation to conduct a review to look into the case for splitting RBS into a good bank and a bad bank containing its risky assets.

When the commission’s final report was published on 19 June, I undertook to provide an accelerated Government response by way of a Command Paper before the summer recess.

[Mr Love]

The press release that was—

[Mr Speaker]

The Minister may wish to reply, because it is important to be clear about the context in which the observations he is making are made. That is central to this matter, and it is difficult to rule on it unless there is some clarity on the subject. I am grateful to the right hon. Gentleman for his point of order and let us hear what the Minister has to say.

[Greg Clark]

I thought that I had explained the context at the beginning, which was that the amendment tabled by my hon. Friend the Member for Chichester deals specifically with the recommendations of the final report on the culture. As I said, I suspected that he had tabled the amendment in order to afford us the opportunity to debate these matters. I will move on to deal with the other amendments in the group if the House would prefer it.

[Mr Love]

May I seek some guidance from the Chair? I was about to ask a question pertinent to the discussion—

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[Greg Clark]

Of course, and today and tomorrow we will go into some further detail on that point. Let me mention one such finding, however: the Government do not agree with the proposal to abolish UK Financial Investments. I will mention various others later. We brought forward the publication of the response, which, just before the report was published, was intended to take place just before the summer recess, because I thought it was germane to the discussions in the House and I encouraged my officials to work their best to try to make it available for today and tomorrow. It has been sent to Members.

Giving a Government response to an 11-month long, 571-page commission report in just 13 working days is, I think, quite an achievement and I thank my officials for losing a nice weekend watching the tennis to do that. I had hoped that it would help the debate.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

This is a very interesting situation. The Minister talks about the 13-day deadline and said that we had to get this done. Correct me if I am wrong, Mr Speaker, but I thought that the Government decided when the Report stage of a Bill was to be held, so the deadline was rather self-imposed. Why on earth are we wasting this Commons consideration of the Bill in Committee and on Report when he could not get his act together either to table amendments or to get a response together in time for us to properly use our time on Report?

[Greg Clark]

The hon. Gentleman is perfectly aware that the standard response time for a Command Paper responding to a report is two calendar months. That would have taken us into the recess, which clearly is not possible, so we would have had to respond after the recess. I think he is being churlish when I have asked my officials to move at great speed to respond in a very short space of time—13 working days—to make the response available. I thought it was better for us to have it for these debates than to have it next week or in September. I am grateful to my officials for their alacrity, even if he is not.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I join my right hon. Friend in commending his officials for their amazingly speedy response. The only thing I would ask is that we should have plenty of time on Lords amendments. We had an excellent discussion in Committee, but unfortunately it was on a Bill that will be completely different from the one that is ultimately passed. To maintain the supremacy of this House, I feel it is important that we should have a proper discussion of and decision on the amendments that will be made in the other place.

[Greg Clark]

My hon. Friend, who was a distinguished member of the Public Bill Committee, is absolutely right. I have given assurances to the House before that we will have enough time to consider these very important matters, and we always have done. In Committee, we arranged things in such a way that we were able to consider every line of the Bill and every amendment and new clause with time to spare. When I saw the amendments that had been tabled, I made representations through the usual channels to extend what in the original programme motion had been a one-day Report and Third Reading. I had said that I would reflect on the volume of amendments and was able to secure an extra half day of consideration. I repeat that assurance—when the amendments return from the House of Lords, it is absolutely right that this House should have the chance to consider them all at leisure and thoroughly. My hon. Friend has my assurance on that.

Let me turn to amendments 1, 2 and 3. In Committee, I gave a number of undertakings that I would table amendments on Report. One such commitment related to the effectiveness of the ring fence, which is the common denominator of the amendments in this group. The hon. Member for Nottingham East (Chris Leslie) will immediately spot that amendments 1, 2, 3 and 4 act on a commitment I gave to the Committee that in turn reflected the recommendations of the first report of the PCBS, on which the hon. Member for Edmonton (Mr Love) and my hon. Friend the Member for Chichester served.

For Members who did not have the privilege of being part of our discussions in Committee, let me set the context. The Independent Commission on Banking set three objectives for the ring fence: first, to insulate essential day-to-day banking services against shocks originating elsewhere in the financial system; secondly, to make banks more resolvable; and, thirdly, to curtail the perceived implicit Government guarantees to banks, which follows from the first two. The Bill turns those ring-fencing objectives into law by making them part of the statutory objectives of the regulators—the PRA and the FCA.

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[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The new structure that the Minister is outlining looks good on paper, but the key to its success is the role of the PRA. How will he stop the problem of the revolving door that arose with the Financial Services Authority afflicting the PRA, because that would completely undermine the ring fence he intends to put in place?

[Greg Clark]

The hon. Gentleman makes a good point. He will know from our proceedings during the passage of the Financial Services Act 2012 that we needed to reverse the catastrophic decision to take supervision of the banking system away from the Bank of England, which had always exercised that role with authority and commanded respect not only in this country but throughout the world. That Act corrected the situation, and the PRA is part of the Bank of England, as he knows, so we have restored that authority.

[Guy Opperman (Hexham) (Con)]

Does the Minister agree that higher banking standards and the PRA’s new role were enthusiastically endorsed at the multi-level banking seminar in support of regional banking that we held in Gateshead only last month?

[Greg Clark]

My hon. Friend’s ingenious intervention allows me to pay tribute to the excellent event he hosted in Gateshead at which there was palpable enthusiasm for challenger banks entering the market, especially ones with a regional focus. He and I share an ambition that the north-east should be the home of such a bank, which would do wonders for the region’s economy, with its strong, vibrant business culture. The area would benefit from the local knowledge of such an institution. The PRA and the FCA were represented at the discussion, and he is right to reflect that everyone who was present on that Friday was enthusiastic about the steps the PRA is taking to make it easier for challenger banks to come forward.

[Chris Leslie]

If the Government are so enthusiastic about the concept of regional banking, will the Minister explain to the hon. Member for Hexham (Guy Opperman) why their report, which came out at lunchtime, explicitly rules out any review of a structural arrangement involving regional banking for the Royal Bank of Scotland?

[Chris Leslie]

Perhaps the hon. Gentleman did not hear me first time round. I am tempted to repeat myself, but it is important that he realises that his right hon. Friend the Minister has ruled out such an arrangement for RBS.

[Greg Clark]

The right way to approach this is to make it possible for regional banks to enter the market across the board, which is precisely what the PRA is doing. It has reduced the demands that entrant banks must satisfy to establish themselves as a business and speeded up the authorisation process, which is all to the good.

[Guy Opperman]

Does the Minister recall that in April last year, the Labour party, taking its lead from the hon. Member for Nottingham East (Chris Leslie), who is sat in a sedentary, chuntering position on the Opposition Benches, voted against the implementation of the competition regulations that would have made regional banks happen?

[Mr Speaker]

Order. The notion of somebody sitting not in a sedentary position is a challenging one, but I am grateful to the hon. Gentleman for raising his point while on his feet, rather than from his seat.

[Greg Clark]

It is certainly true that the hon. Member for Nottingham East is seated, and it is also true that he was chuntering. My hon. Friend the Member for Hexham (Guy Opperman) has done the House a service in reminding it of the voting record of the hon. Member for Nottingham East, seated or otherwise.

The amendments clarify that the PRA must seek to minimise damage to the continuity of core services caused by the failure of a ring-fenced bank or any other member of its corporate group; an investment bank could, for example, suffer losses that threatened the whole group with bankruptcy. Amendment 1 requires the PRA to minimise the harm to the continuous provision of core services caused by the failure of other group members, as well as of the ring-fenced bank itself.

Amendment 2 clarifies that the failure of a group company includes its insolvency. Amendments 3 and 4 reflect those same changes in the remit of the FCA, in the unlikely event that the FCA ever became the prudential regulator of any ring-fenced bank. I hope that the House will welcome those amendments, which the Committee that scrutinised the Bill and the Parliamentary Commission on Banking Standards suggested.

[Mr Love]

I thank the right hon. Gentleman for being so generous in giving way. I want to take him back to the discussion about regional banking, because one of the parliamentary commission’s recommendations was that the Government should consider measures to break up RBS into regional banking. I seek his reassurance that the Government have not forgotten that recommendation.

[Greg Clark]

It delights me to hear the hon. Gentleman refer to today’s publication; it confirms what I thought and hoped, which was that the publication would inform the debate. I think that tomorrow we will come on to clauses that deal with precisely those matters.

[Caroline Lucas (Brighton, Pavilion) (Green)]

Does the Minister understand the disappointment of those, including me, who believe that the proposals do not go far enough, and that we should look at full legal separation of investment and retail banking, and not just ring-fencing? If we do not, we risk sending a message to the public that politicians still have a surprisingly high degree of trust in the very banks and bankers who caused so much harm to our economy.

[Greg Clark]

I do not agree with that. We will come on to talk about what the commission referred to as the electrification of the ring fence, and whether it is appropriate to have a power to break up the whole system, so I will address that in a second, if I may. Amendments 6 to 10 concern that electrification of the ring fence, to use the memorable phrase of my hon. Friend the Member for Chichester—or, I dare say, the whole commission.

[Mr McFadden]

The Minister is being generous in giving way. I would like to take him back to the intervention by my hon. Friend the Member for Edmonton (Mr Love). Will the Minister confirm that paragraph 5.11 of the publication that his Department published today states:

“The Government does not believe that the case for breaking RBS’s core operations into multiple entities meets the objectives of maximising the banks’ ability to support the British economy”?

In layperson’s terms, the Government have today rejected the notion that their review will look at regional banks, as distinct from a good bank/bad bank split. Is that how we should read that?

[Greg Clark]

No. The right hon. Gentleman has not got it quite right. We are absolutely enthusiastic about creating regional banks, and the exchange that I had with my hon. Friend the Member for Hexham, and the changes made by the regulator to the approvals process, underline that. The right hon. Member for Wolverhampton South East (Mr McFadden) asks a specific question about whether RBS, in which we, of course, have a very substantial stake, should be broken up in that way. It is important that we have regard to value for the taxpayer. I suspect that we will talk about these things tomorrow, but I confirm that it is the Government’s view that we should not damage the potential value to the taxpayer in that way.

As members of the Bill Committee will recall, I made a commitment to introduce on Report amendments to implement electrification, and here they are. The amendments give powers to the regulator, with the consent of the Treasury, to require a group to separate completely its retail and wholesale banking operations. The regulator would be able to require the group either to sell its interests in ring-fenced or non-ring-fenced entities, or to transfer specified businesses to outside ownership. The regulator will be able to require separation if it is satisfied either that the group’s ring-fenced bank is not sufficiently independent of the rest of the group or that the conduct of any member of the group is such that it undermines the regulator’s ability to achieve its new statutory objective to ensure the continuity of core services.

The amendments set out a process for the exercise of that power. The first step is that the regulator must notify all affected members of a group that it is minded to exercise its powers and how it proposes to do so. The affected bank has the right to make representations following the receipt of each notice. Following that stage, the regulator is required to allow members of the group at least a year to take action to rectify the position. If, after that period, the regulator wishes to proceed it must issue a warning notice before a requirement to separate is imposed. The regulator would then allow five years to complete the separation required in line with the disposals required under competition law, particularly state aid interventions.

As the parliamentary commission recommended, the Treasury’s approval is required before that action can be taken. We agree with the commission that providing for a deterrent against any bank that seeks to game or evade the ring fence is a sensible reinforcement in keeping with the recommendations of the Independent Commission on Banking. Government amendments 11,12, 13 and 14 make technical adjustments to ensure that all the necessary components of structural reform comply with the ring fence and are brought within the scope of the ring-fencing transfer scheme.

[Richard Fuller (Bedford) (Con)]

I am grateful to my right hon. Friend for his clear explanation of how the ring fence will work. He is discussing time frames that make sense in benign economic circumstances, but some of the problems with the interaction of retail and investment banking came about in circumstances of great financial trauma. Is he confident that the measures he has proposed will work in those circumstances as well?

[Greg Clark]

My hon. Friend makes a good point. The use of state aid is often a response in the context of difficult circumstances. That was certainly the case in the financial crisis, and it happens in other industries as well. Five years is the standard period for these arrangements to be executed or completed, and that is the reason, anticipating an intervention from my hon. Friend, that period was chosen. I dare say, however, that that there can be reflection on that: my hon. Friend the Member for Chichester may have a different view that he may wish to share with the House later.

Government amendments 15 and 16 reflect concerns expressed both by the Commission and in Committee that the use of ring-fencing transfer schemes to restructure groups could provide unscrupulous banks with an opportunity to shirk their responsibilities, such as liability with past misconduct. The requirement for PRA approval is a substantial safeguard against that, but Government amendment 16 requires that before the PRA can consent to a ring-fencing transfer scheme it must commission an independent report to assess whether anyone other than the bank itself would be adversely affected by the transfer. Government amendment 15 requires the PRA to “have regard” to that report in deciding whether to approve a ring-fencing transfer.

The hon. Member for Nottingham East will of course have more to say about amendments tabled by the Opposition, but his first amendment was debated extensively in Committee. It requires a review of ring-fencing every two years. I am certainly not set against an independent review. Indeed, the Bill builds in future reviews, including the PRA being able to report annually on the operation of the ring fence, and being able to report every five years on whether the detailed rules it has made are still delivering the objectives of the ring fence. Requiring another review specifically to look at the case for full separation risks in many ways achieving the opposite of the Bill’s intention, which is to secure consensus, as far as that can be established, and to provide for a stable regulatory structure.

It would be paradoxical for such a review to be confined to looking at ring-fencing or full separation, but not any other remedy for deficiencies that the review might uncover. Amendment 18 is identical to an amendment that was debated in Committee. The Government’s position is clear: in the Bill, we are following the advice of the commission chaired by Sir John Vickers, which considered the case for full separation—that relates to the point made by the hon. Member for Brighton, Pavilion (Caroline Lucas)—and rejected it. It is a different policy. I know that it has some distinguished advocates, but it is a different policy. Of course, any future Government could adopt it, but they should do so properly, through thorough analysis and following parliamentary and public scrutiny.

It is worth reminding ourselves briefly of the history of the proposals before us. They were not invented during the past few weeks or months. They go right back to 2010, when the Government established the Independent Commission on Banking under the chairmanship of Sir John Vickers. The commission produced three reports, instigated two public consultations, considered 1,500 pages of written submissions and hosted more than 300 separate meetings. The Government produced a response and a White Paper, on which they again consulted fully before coming to Parliament. At each stage there was full cost-benefit analysis. Now in Parliament each detail of the policy is being debated—and has been debated in Committee—and in many cases improved.

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[Mr Love]

The parliamentary commission consulted widely and there was considerable concern about the weaknesses and the ring-fencing that had been suggested by Vickers. That resulted in a proposal for electrification. Is the right hon. Gentleman secure in the view that we have electrified the fence enough on the basis of the amendments he is proposing today?

[Greg Clark]

I will be even more secure when I have persuaded the hon. Gentleman, as I hope to do. He, being a fair man, will reflect on the fact that his distinguished commission undertook pre-legislative scrutiny of the proposals made by Sir John Vickers and his commissioners. Sir John did not recommend that there should be the power to separate. In fact, he has been persuaded by the institution-specific power of separation that his commission proposed, but has reflected in evidence to his commission that to go further and introduce a system-wide power is a separate matter and should come before Parliament in an explicit way rather than, as would be the case here, through a statutory instrument following an independent review.

The proposals before us, most fair-minded colleagues would concede, fall very far short of the degree of scrutiny and rigorous assessment, including by the hon. Gentleman’s commission, that the current proposals have gone through. Parliament would not have the ability to present amendments to proposals and at that stage to take account of the recommendations even of the independent review. So the procedures proposed are less than adequate to the scale of the policy change that would be embodied in them. If we are to be serious about the need to respect the views and the role of Parliament—as I have made clear, these are important matters—we must accept that the only right and proper and democratic way of legislating for full separation is by coming back to Parliament with full primary legislation, including the rigorous process that we have undertaken.

[Stephen Barclay (North East Cambridgeshire) (Con)]

I very much agree with the case that my right hon. Friend is making. Is there not a danger with a fixation on structure, which the review advocated by the Opposition would promote, that we work less on making the existing electrification work and getting the behaviours right, and instead allow a focus on structure and the further review? As with any structure, it is possible to ratchet up, but it is also possible to ratchet down, and it would allow a nibbling of the electrification, which would not be constructive.

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[Greg Clark]

My hon. Friend has some experience of these matters. I think that the debates about structure are important and that structural reform will make an essential contribution to making the system safe for the purposes of taxpayers. However, having looked into it, I think that to have hanging over the system the sword of Damocles—the origins of the metaphor were the subject of an erudite debate in the Commission—would introduce an uncertainty into proceedings that might distract from the important work of implementing the existing provisions.

[Mr Love]

The reality is that we are seeking to balance conflicting issues. One respects the Government’s view that Parliament should be supreme in this regard, but the alternative argument, of course, is the one that the Minister has just put to us, about the sword of Damocles keeping the feet of the banking industry to the fire. We know that the industry has not been entirely with us in relation to setting up the ring-fencing arrangements and that it needs some encouragement to make it work effectively.

[Greg Clark]

The hon. Gentleman gets to the nub of the matter, because of course any attempt to evade the ring fence or to nibble the electric fence, as dangerous to health as that would be, could be undertaken only on the part of a particular institution, not the system. That is why we agreed with the commission’s report—it was not part of the Vickers report—that it was necessary, for exactly the reasons the hon. Gentleman mentions, to have a sanction against that type of behaviour, and that is what we have done.

A further power to separate the whole system could not be triggered by an individual and could not punish the actions of an individual institution. That is why I think that is a very different policy. It commands the support of some very distinguished and influential people. The Glass–Steagall approach, which of course the policy is modelled on, has its place in history, but I think that history also reveals that the Glass–Steagall arrangements were not immune to the very dangers my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) pointed to. It is a good job my hon. Friend the Member for Chichester secured his amendment to the programme motion, because we are having a very interesting debate, but I would like to conclude, because there are other amendments that hon. Members would like to speak to. On that point, however, I urge the House not to allow at this stage the introduction of a very different policy into the Bill.

Let me turn to the amendments tabled by my hon. Friend the Member for Chichester, who I dare say will speak for himself in a few moments. I know that some of them were tabled to afford us the opportunity to discuss his commission’s report, and I think that this is now established as a very relevant opportunity. I will of course listen carefully to what he says. I am confident that the amendment the Government have tabled in response to the commission’s report can be improved during the Bill’s passage to take into account whatever concerns are embodied in his amendments.

Amendment (a) to Government amendment 6 would add a new condition under which the separation powers could be used: namely, when the regulator

“judges that there are serious failings in the culture and standards of the ring-fenced body or another member of its group.”

Of course, under the Government’s amendment the regulator would have the ability to separate the group if its conduct threatened to undermine the regulator’s ability to meet its continuity objective, but I think that, as the commission’s extensive deliberations showed, cultural failings might be present in banks that can result, for example, in significant harm to individual consumers or groups of consumers but nevertheless do not have systemic consequences. I think that the relevance of the proposed new power to take into account the culture is adequately covered under the provisions already in the Bill.

Amendments (b) to (p) concern the procedures for exercising the separation power. They would remove from the process: the second and third preliminary notice stages that extend to six weeks the time for banks to make representations; the requirement that the group be given a minimum of five years to effect separation; and the requirement for Treasury consent before a group can be required to separate. It is, of course, essential that a clear process be established for the exercise of the separation power. As I have said, I will listen carefully to what my hon. Friend says about reducing the number of warnings, which I think is the essence of what he is recommending, and about departing from the standard practice in financial services of allowing 14 days, rather than the six weeks that he proposes, for representations.

[Mr McFadden]

I want to compare the Minister’s six-year timetable with the one that the hon. Member for Chichester (Mr Tyrie) has set out in his amendments. What would be the difference for an individual group between moving to full separation under the Minister’s timetable and its doing so under the timetable that would apply if the amendments tabled by the hon. Member for Chichester were accepted?

[Greg Clark]

As I have said, I shall hear from my hon. Friend. I do not think there is any difference of intent between us; we have accepted the commission’s recommendation. We have taken the period of five years because that is the standard time for the disposal of assets when they are required through competition law proceedings.

I am certainly concerned, however, that the banks should be given a chance to address the concerns, and that chance would be lost if amendment (k) were followed. If amendment (p) were followed, we would deny banks the five-year period for divestments to be made that is typical under competition law. But as I have said, I remain open to considering these matters further during the Bill’s passage. I am confident that it can be improved to meet the concern, as I know that there is no disagreement in principle between me and my hon. Friend on the issue.

The requirement for Treasury consent follows from the commission’s own recommendation, without which the regulator could, on its own initiative, instigate radical structural reforms.

Amendment 19 is retabled as an alternative to Government amendment 6, providing for the specific full separation power. As I explained in Committee when the amendment was previously debated—when the hon. Member for Nottingham East was channelling my hon. Friend the Member for Chichester, as he frequently did—it suffers from technical flaws. That is why I committed to introducing a Government amendment to deliver its objectives.

Specifically, amendment 19 is rather vague, giving the regulator power to require a group to take steps to separate without specifying what those steps are. It also lacks provision for a minimum period over which groups must execute a separation, leaving the risk of the regulator’s ordering a rushed disposal that could be destabilising to the system.

The Government amendment is intended to address those technical problems, although I have signalled our willingness to make any further improvements that may be necessary as the Bill progresses. I hope that my hon. Friend the Member for Chichester will be able to withdraw his amendment at this stage, pending further consideration.

[Chris Leslie]

It is characteristic of the Minister, with his emollient tones, sometimes to give the impression of smoothing over all these issues. He is ever the swan on the surface, yet beneath the water line the chaotic paddling is evident from the Government’s response to the work of the parliamentary commission. That response was rushed out today, in accordance with the Government’s own artificial deadline of a debate on Report, which they could have scheduled so that we had time to consider where the Government stood on some of these issues.

Even the Minister’s hon. Friends did not seem to realise what he was recommending today on RBS—ruling out a review that might consider a regional banking network, for example. The message did not get through to the Government’s own Back Benchers. I do not know whether that is a whipping issue or whether other channels need to be reviewed, but something is not quite right. It would be remiss of me to pass over the fact that we are debating this Bill on Report having had in Committee no consideration of all the hard effort undertaken by the poor souls who had to serve on the Parliamentary Commission on Banking Standards. Hours, days, weeks and months of their lives went by, never necessarily to be regained. There was no response to that in Committee and there has been barely a nod in its direction on Report.

[Greg Clark]

This is uncharacteristically ungenerous of the hon. Gentleman, as in Committee he tabled a whole set of amendments drafted by the parliamentary commission, saving him, I dare say, a lot of weekend drafting work. I think he might want to thank members of the commission and note that the recommendations from its first report were exhaustively considered in Committee.

[Chris Leslie]

The right hon. Gentleman is right. Of course I thank them, but it is my sympathy for them that now requires us to speak in their favour. The Government ignored all those amendments. It is true: I have been channelling the wishes of the hon. Member for Chichester (Mr Tyrie) and, indeed, the rest of the commission. They dutifully drafted all those amendments and they were then totally ignored by the Government. The Government set up the parliamentary commission. They did not want to go for a broader independent inquiry; they wanted to take this route. They set up all the members to do all the work and have all the hearings. Their final report was more than a ream of paper— 570 pages. Not a jot of those amendments was accepted by the Government in Committee, and, significantly, the same applies on Report.

Let us be clear about this. House of Commons consideration of this Bill is not worth anything; all the business is to be done in the other place by members of the commission who are there. It will go to them in October, presumably they will consider it in October and November, and then we will get a little chunk of time at the end of the process for Commons consideration of Lords amendments. I hope that the Minister will allow us a little more latitude to have a look at what is put into the Bill at that time.

[Greg Clark]

I think the hon. Gentleman is labouring under a misapprehension. The amendments in this group are a response to the commission’s first report. The essence of this Bill is the ring-fencing of the banking system. This is a response to the independent commission to which the parliamentary commission responded. The amendments implement these changes. The Government always made it clear that the final report on standards and culture would be taken on board during the Bill’s passage through the House of Lords. The situation is exactly as envisaged and perfectly orderly. He is not seeing the wood for the trees. This is about the ring-fencing of banks.

[Chris Leslie]

Well, pardon me for daring to suggest that the Government have got this totally upside down and the wrong way round. They set up the commission and asked its members to come forward with recommendations, as they dutifully did, for which I thank them, and then ignored them in the Commons Committee and Report stages. That means that it is all to be debated in the detail that is required when the Bill reaches the House of Lords.

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[Mark Garnier]

I, too, pay tribute to the members of the parliamentary commission, with whom I served for 10 months. Huge numbers of people were involved as well as huge amounts of effort. One statistic that has not come out yet is that we apparently asked 9,198 questions of our witnesses, so we certainly got stuck into it in a big way. It was truly a tour de force, as Members can see from the 571-page document I have in my hand.

The Commission was an incredibly important piece of work. We have been trying to deal with the fundamental loss of trust in banking and what pleased me enormously was that one of the passages quoted relatively early in the report, on page 83, was from one of our big banks, Lloyds Banking Group, and was about trust. Let me read it out:

“Trust goes to the heart of what banking is about. Customers need to be able to trust their bank to look after their savings. They need to trust their bank to manage their financial transactions smoothly; trust that their bank will be diligent and not provide levels of credit or mortgage that are more than the customer can re-pay; and trust their bank to provide products that genuinely meet the customer’s needs and which the customer can understand.”

That has been crucial to the problem we have had: of course we considered LIBOR and all the various scandals, but at the end of the day there is a fundamental mistrust between the consumer, who is not very well educated, and the banks, which are well educated. In part, we are seeking to resolve that misbalance of trust.

I urge the Minister not to be shy in legislating to help build that trust. As TheCityUK wrote, again cited on page 83:

“The sustainability of the UK’s position as the pre-eminent global financial services centre is grounded in the integrity of its financial markets and probity of market participants.”

That is key to the debate about ring-fencing, criminal sanctions and the various other important measures available to the Government in the arms race in which we are involved—ranging from the gun locker of the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso) to my offshore nuclear deterrent—to ensure that the people who run the banks pay attention and take seriously their role in looking after those institutions. I speak as someone who spent 17 years as an investment banker and 10 years as a hedge fund manager. As I have now gone into politics, I have the hat trick of holding the three most unpopular jobs on the planet—I plan to become a traffic warden when I leave this place.

We hear threats from the banking community that if we over-regulate, that community will get up and go, but there are two incredibly important points to consider, the first of which is: where would the banks go? They do not have a big range of options. A bank that wanted to go to the far east, for example, would face several problems, not least of which is the fact that were HSBC to up sticks and go to Singapore—this would apply to the remainder of the major four banks—its balance sheet would be about 1,100% of the country’s gross domestic product, and no regulator would enthusiastically receive a bank of such a size. Secondly, we should remember that several factors in this country are incredibly important to banks, such as our robust, transparent and tried-and-tested legal system. We are a member of the single market, which gives banks access to the whole of Europe; we speak English, which is the language of the international business and banking community; and we are also at the centre of the time zones.

Our regulatory regime is also absolutely crucial. A great deal of our work was to try to get rid of the implicit guarantee whereby the Government are seen as standing behind the banks in case they fall over. That guarantee can be worth anything up to £40 billion a year, depending on the stage of the cycle, and that gives the big four banks an advantage. The problem is that that anti-competitive advantage represents another barrier to entry for challenger banks, so we need to get rid of the implicit guarantee. However, by regulating firmly, well and efficiently, and by winning the race to the top on regulation, we will replace the implicit guarantee with a cheaper funding rate for the UK banks, because they will see large amounts of international capital coming to the UK to take advantage of the protection that our regulatory and legal regimes provide. I therefore urge the Minister not to be shy about coming forward and to consider carefully the amendments proposed by my hon. Friend the Member for Chichester (Mr Tyrie), which reflect the recommendations of the Parliamentary Commission on Banking Standards and have a great deal of merit.

[Greg Clark]

We have had a fascinating, high-quality debate. I am grateful for the contributions of all hon. Members, but especially for those of the Members who served with such distinction on the Parliamentary Commission on Banking Standards: my hon. Friend the Member for Wyre Forest (Mark Garnier); the right hon. Member for Wolverhampton South East (Mr McFadden); the hon. Member for Edmonton (Mr Love), who is no longer in the Chamber; the Chair of the commission, my hon. Friend the Member for Chichester (Mr Tyrie); and the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso). With the help of Members of the other place, they laboured hard to produce a report that not only will stand the test of time, but will be a reference document for many generations in this country and throughout the world. The report will be seen as a major contribution to addressing the less tangible aspects of culture and standards, which is something that has eluded regulators throughout the world. I am sure that the report will be read with a great deal of interest.

The report’s central judgment includes the acute point that for too long questions of standards and culture have been contracted out to regulators, rather than being an intrinsic part of the institutions themselves. That aspect of the report stood out as the essence of the required change, because it should no longer be simply for the regulators to decide on such questions, as the culture throughout the institutions should reflect the correct standards that we expect.

I spoke at length at the beginning of the debate, so I shall deal briefly with several of the points that hon. Members raised. I was asked about timetabling. On Second Reading, I made two commitments, the first of which was that the House would have adequate time to consider all provisions, including amendments proposed by the parliamentary commission. I hope that hon. Members will concede that I have been true to that in Committee and throughout our two days on Report, and I repeat that that commitment remains as the Bill goes to the other place. I also said explicitly on Second Reading that the recommendations of the commission’s final report on standards and culture would be reflected in amendments to be made in the House of Lords. Of course, those measures will subsequently be considered by this House, so our intention has not changed. It was right to expedite the response to the report so that it was available much more quickly than usual. It has been useful in informing today’s discussions, as will be the case tomorrow, and it will be available to their lordships during their consideration of the Bill.

The hon. Member for Nottingham East (Chris Leslie) asked several specific questions, including about whether Government amendment 8 contained a typo. It does not, but it would require more than the four minutes remaining for me to explain why, so I hope that he will trust me on that at least. The upper tribunal is not a new invention; it is the court that considers all references made under FSMA for adjudication.

The hon. Gentleman made a substantive point about the notice period, as did my hon. Friend the Member for Chichester and the right hon. Member for Wolverhampton South East. I was asked whether an elongated process in some way diminishes the effectiveness of the ring fence. Our intention was—and is—to implement faithfully the parliamentary commission’s recommendation on the institution-specific ring-fencing rule. As I assured my hon. Friend the Member for Chichester, I am confident that if the Government’s proposals can be improved during the Bill’s passage, all his concerns about the use of the power can be addressed. In fact, the procedure under consideration has been described as pressing the nuclear button.

[Mr Tyrie]

I think that was a concession, so I am extremely grateful to the Minister. I am also grateful that the response was published at the earliest opportunity—it could have been delayed, so at least we have had a chance to look at it. That shows us that the Government are listening, and the response will be helpful in the other place. Above all, it gives us more confidence that there will be full implementation of the proposals. The Government have indicated their general support for them, so I hope that we will not have to go through a rigmarole to get the necessary provisions on the statute book.

[Greg Clark]

I am grateful for my hon. Friend’s intervention. I always take praise when it comes—especially from him, as he is often very flinty in issuing it. I do not think that what I said amounts to a concession, because it has always been our intention to reflect the spirit of his suggestion.

Let me make an important point on the process that my hon. Friend describes. In his amendments, he does not have a time period in mind for the exercise of the power.

[Mr McFadden]

rose—

[Greg Clark]

I have one minute left, so the right hon. Gentleman will understand that I cannot give way. The proposal that there be five years to implement the action has been discussed with the regulators; it reflects best regulatory practice. In point of fact, if there were no time limit in the Bill, which is what one of the amendments tabled by my hon. Friend would ensure, that would render the use of the power without limit, so I think we are in the same territory—the right territory—in wanting to specify that there should be a limit. It should be clearly understood that there is a limit to the use of the electrification powers, in terms of a timetable, and a deadline for action. Of course it is right that the regulators should advise on the appropriate use of that. In terms of the amendment—

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19:00

Division 46

Ayes: 225

---

Labour: 213
Scottish National Party: 4
Social Democratic & Labour Party: 2
Democratic Unionist Party: 1
Plaid Cymru: 1
Independent: 1
Alliance: 1
Green Party: 1
Liberal Democrat: 1

Noes: 274

---

Conservative: 234
Liberal Democrat: 40

Amendments made: 7, page 13, line 10, leave out from beginning to ‘any’ and insert—

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It is incumbent on us as policy makers in this House, and on regulators who have responsibility for the issue, to look at Britain’s specific circumstances as a global financial centre with a medium-sized economy, so that we keep the strengths that that entails without the rest of the economy, taxpayers or the Government being held to ransom.

[Greg Clark]

It is a pleasure to respond to this important debate. First, I should like to correct a grievous omission in my previous remarks. During my paean to the members of the parliamentary commission, I neglected to include my hon. Friend the Member for Wyre Forest (Mark Garnier), who was behind me and therefore was invisible to me. He has been in the Chamber throughout this debate and his contribution is no less sterling and distinguished than those of the other parliamentary commission members whom I did mention. I apologise.

The new clause requires the Treasury to set a leverage target for the

“overall leverage of the…financial system”.

I welcome what I think is the spirit of the new clause. Problems with risk weights clearly contributed to the financial crisis; the right hon. Member for Wolverhampton South East (Mr McFadden) made that point. Those problems must be addressed if risk weights are to have a place in the regulatory regime of the future.

I also share the concerns raised by the parliamentary commission about the importance of having a robust minimum leverage ratio required by the regulator. As my right hon. Friend the Member for Wokingham (Mr Redwood) said, there is clearly support among Members on both sides of the House for that notion. We have consistently argued for a binding minimum leverage ratio to be implemented internationally, to supplement the risk-weighting requirements.

As has been said, the Basel III standard of 3% will come into force in 2018, following an observation period beforehand and a final calibration of the leverage ratio in 2017. Of course, national supervisors must be equipped to respond to new risks as they emerge in banks and financial markets. The PRA, in this country, is empowered to ensure that banks’ risk models are appropriately conservative and, where necessary, to set higher capital requirements.

As every hon. Member will be aware, the PRA has recently announced that major UK banks need to set out and implement plans to improve their leverage ratios and so to migrate further towards the new Basel III standard even now. The FPC has already been given a number of directive powers, including a counter-cyclical capital buffer and the power to set time-varying sectoral capital requirements. The Government have also made clear their intention to give the FPC the power to vary through time the baseline leverage ratio requirement, always subject to its never being below the requirement determined by Basel III.

Let me address the new clause, in whose support the hon. Member for Nottingham East (Chris Leslie) spoke. The first thing to say is that it requires the Treasury to give the Bank of England a target for the overall leverage of the UK’s financial system; I think I understand the hon. Gentleman correctly when I see an allusion to the inflation target perhaps given to the Bank of England. I have to say, though, that that pulls in the opposite direction to the parliamentary commission’s recommendation, which calls for the FPC—in other words, the Bank of England—to be given the power to determine leverage ratios. In its first and final reports, it noted that

“the leverage ratio is a complex and technical decision best made by the regulator and it certainly should not be made by politicians.”

The new clause cuts across the views of the parliamentary commission, if delivering that recommendation were its intention.

Moreover, the new clause would require a target for the overall leverage of the UK’s financial system. Again, this is not quite the right approach. Banks should certainly be subject to individual leverage requirements to ensure that they have sufficient capital to absorb losses, but an average leverage ratio for the entire financial sector could serve to conceal the risks in particular institutions. It would seem perverse to require the Treasury to set a target for overall leverage and so create an onus on the FPC to allow some banks to remain highly leveraged as long as this is offset by smaller or more conservative institutions running with less leverage. A system-wide average, or net, leverage ratio might be of little value in tackling excesses of leverage, and it could be positively counter-productive.

Another feature of the new clause would be dangerous. The proposal for a target requires the FPC to pursue action to meet the target. It is suggested that the FPC take action to increase leverage in the system when it is less than the target level that the Government are required to set. I am not clear how or why the FPC would want to do that. The target approach seems to me to be wrong. Financial stability is not like price stability; it cannot be boiled down to a single, symmetrical target. As a recent Bank of England paper concluded:

“No single set of indicators can ever provide a perfect guide to systemic risks, or to the appropriate policy responses…Judgement will, therefore, play a material role in all FPC decisions and policy will not be mechanically tied to any specific set of indicators.”

We need to apply caution in any consideration of enshrining in law a system that focuses on one target for systematic financial stability. Goodhart’s law is relevant in these circumstances:

“When a measure becomes a target, it ceases to be a good measure.”

I therefore hope that on reflection the hon. Gentleman will withdraw his new clause.

[Chris Leslie]

I am grateful for the quality of the debate that has taken place in the short time we have had.

I am glad that we tabled this new clause on leverage, because otherwise we would not have had the opportunity to start to focus on the issue. I understand what the right hon. Member for Wokingham (Mr Redwood) said about getting the balance right and the care and caution that are needed as we move towards what we want, which is a better, safer level of leverage within the overall system. It is worth reiterating that we want to do this only to make sure that banks do not over-extend themselves and become so lopsided that when they topple over they are not able to absorb the losses should things take a turn for the worse.

I am particularly grateful for the contribution from my right hon. Friend the Member for Wolverhampton South East (Mr McFadden), who rightly pointed out that saying that we need action either on leverage or on getting lending going into the real economy does not represent opposite poles of the argument. It is not as clear as that. Some are arguing not only that the extra capital could be lent out but, as he said, that compensation ratios, as they are sometimes known—the remuneration levels within banks—could also be tackled. Given that we are the major financial centre worldwide, we should not just be leaving this to international regulators. We certainly should not be leaving it to the European Union completely to decide these things for us. We have a duty in the UK to make sure that we think these things through properly and spend much more time on them.

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19:57

Division 47

Ayes: 211

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Labour: 201
Scottish National Party: 4
Social Democratic & Labour Party: 2
Democratic Unionist Party: 1
Plaid Cymru: 1
Independent: 1
Alliance: 1
Green Party: 1

Noes: 271

---

Conservative: 231
Liberal Democrat: 38
Independent: 1

New Clause 2

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[Mr Ruffley]

I shall make two brief points. First, I congratulate my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) on drawing attention to something very important to the House—that it is this Government who have got behind the idea that there should be, in certain limited circumstances, a custodial sentence for breach of a new criminal offence. It is worth reminding ourselves that although the crash occurred in autumn 2008, the then Labour Government had 2009 and the first five months of 2010 to do something about it, but it is this Government who have made their intentions clear regarding custodial sentences. For that, Ministers should be congratulated.

The second and final point is that we cannot let this debate pass without reminding ourselves of the fact that existing criminal law was not being enforced in relation to the allegations of LIBOR rigging. The Parliamentary Commission on Banking Standards came into existence as a direct result of the allegations about rigging the LIBOR market. The custodial sentences available for those activities were not seriously taken on board by the Serious Fraud Office, for in 2011, it is said, the SFO inquired into whether existing criminal offences had been committed by those manipulating the LIBOR market, and concluded that they had not.

This time last year the Chancellor of the Exchequer told the House that he would ask the Serious Fraud Office to take another look to see whether criminal offences had been committed under existing criminal law. Leading counsel advised me and I said in the Chamber that there were, on the face of it, breaches of section 2 of the Theft Act 1968 through false accounting, the common law offence of conspiracy to defraud, breach of the Proceeds of Crime Act 2002, and possibly even breaches under the Fraud Act 2006.

Although the Minister clearly cannot intervene in investigations by the Serious Fraud Office because prosecutorial authorities are quite separate from the Executive, which has always been the case and will, I am sure, continue to be the case for centuries to come, it would be useful for him to indicate what the state of play is in relation to breaches of existing criminal law that might give rise to custodial sentences in the case of those engaged in LIBOR rigging.

[Greg Clark]

It is a pleasure to respond to this well-informed debate. I start by welcoming the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) to the Opposition Dispatch Box. She proved rather more persuasive in Committee than her hon. Friend the Member for Nottingham East (Chris Leslie), as I was able to accept at least one of her amendments. I think that it was a single word, but I am sure that it was an excellent one, historically so.

We are considering a large group of amendments, as has been evident in the range of the debate, and it has given us the opportunity to have an initial discussion of the parliamentary commission’s recommendations on questions of individual accountability and corporate governance. We agree with the recommendations that have been made. The commission’s report has at its heart the essential point that the UK banking system depends totally on the trust it commands. If it cannot count on the trust of its customers, it cannot truly serve businesses and people, which is the only purpose of banking. If it cannot count on the trust of businesses and people in this country, it cannot possibly sustain a reputation for international pre-eminence, which is what we all want to see.

The commission’s conclusions are comprehensive. Never again must directors of banks be able to preside expensively over failure or misconduct and then claim that they simply did not know what was going on. Never again must banks simply, as the commission sees it, contract out ethical judgments to the regulator. Never again must senior bankers be able to make one-way bets with the money of ordinary working people and walk away financially unscathed, leaving taxpayers with a crippling bill.

Specifically, we will enact the new senior persons regime that the commission proposes and introduce new banking standards rules to require high standards among all staff. We will introduce the new criminal offence of reckless misconduct that has been suggested for senior bankers. We will reverse the burden of proof so that the bosses are held accountable for breaches within their areas of responsibility. We will work with the regulators to implement the commission’s proposals to defer bonuses for up to 10 years and to enable 100% clawback of bonuses where banks receive state aid. We will ask the regulators to implement the commission’s recommendations on corporate governance to ensure that firms have the correct systems in place to identify risks and maintain standards of ethics. As I have said in earlier debates, where legislation is required, we will propose amendments in the autumn in the other place.

Let me deal specifically with today’s amendments and new clauses. New clause 2 was ably moved by my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay). In a powerful speech delivered without notes, he explained that the new clause seeks to reverse the burden of proof when taking action against a senior person where there are regulatory failings by a firm in that person’s area of responsibility. As the hon. Member for Edmonton (Mr Love) pointed out, that is one of the parliamentary commission’s recommendations, but I think that my hon. Friend campaigned for that even before the commission reported, drawing on his own experience as a regulator. I say to the hon. Member for Kilmarnock and Loudoun that my hon. Friend needs no tawdry trinket of the Government accepting his amendment to be lionised in this House for the contribution he has made. We very much accept the thrust of his recommendation and that of the parliamentary commission.

The PCBS put it this way:

“Senior managers of banks will no longer be able to hide behind an accountability firewall, where they are too distant from the consequences of their responsibilities to be held directly accountable when things go wrong.”

At present, the regulator has to be able to show that the person knew what was going on. That cannot be right. It means that while regulators can take action against the firm’s junior employees who might be implicated, they are unable to pin responsibility on someone higher up the chain just because, as the Commission put it, the e-mail trail goes cold when it reaches their level of management. I will take on board the case my hon. Friend made on whether it is necessary to require the corporate offence to be committed, and we will reflect on that before the Bill goes to the Lords.

New clause 3 reproduces a new clause that was considered in Committee, when I predicted that the parliamentary commission would have something to say about the approved persons regime and a code of conduct. My predictions proved uncannily accurate. The commission’s recommendation that the approved persons regime should be replaced is, of course, a major feature of its report, which we accept. We will bring forward amendments to introduce the new senior persons regime to replace FSMA’s approved persons regime. As the commission recommends, the new regime will ensure that key responsibilities within banks are assigned to specific individuals who are aware of those responsibilities and have formally accepted them. As part of the regime, we will implement the commission’s more detailed recommendations, including reversing the burden of proof, which I have just mentioned, and allowing regulators to make the approval of senior persons subject to conditions and time limits.

The regulators will also be able to make rules about the conduct of senior persons, replacing the current system of statements of principle and codes of practice. The new clauses will put in place new arrangements for regulating the conduct of individuals who are not covered by the senior persons regime. The arrangements will include provisions to allow the regulators to make rules covering financial services employees whose appointments are not subject to regulatory pre-approval.

My hon. Friend the Member for Bedford (Richard Fuller) is absolutely right: it is plausible that the deficiencies in the approved persons regime may affect not just the banking sector but other parts of the financial services industry. The relevant FSMA provisions apply to all parts of the sector, so it might be operationally simpler to apply the regime to the industry as a whole. The Government will consider, with the regulators, whether the relevant provisions should allow for the wider application that my hon. Friend has in mind.

As the hon. Member for Kilmarnock and Loudoun said, new clause 3 would not deliver the extent of the reforms that the Parliamentary Commission on Banking Standards is seeking. On that basis, I hope that the hon. Lady will withdraw the new clause.

New clause 4 also reflects a debate that we had in Committee. The commission did not recommend the introduction of a fiduciary duty or duty of care, but it did recommend an alternative route. It said that the Department for Business, Innovation and Skills should consult on changing the duties of the directors of ring-fenced banks, to prioritise the safety and soundness of the firm first, over the interests of shareholders.

The Government strongly believe that bank directors must maintain an awareness of their responsibility to safeguard the security and stability of the firm. Changes that will support a focus on stability and soundness—for example, giving directors specific duties under the proposed senior persons regime—will help. We will indeed consult on whether changing directors’ duties will help further to accomplish those intentions. I hope that that will reassure the hon. Lady.

A duty of care specifically towards customers across the financial sector is difficult to make sense of, as we have previously discussed. Would it mean, for example, that a bank had a duty of care not just to its own customers and those of its competitors but, as the proposed duty is to customers across the financial sector, the customers of an insurance company with no relevance to the firm itself? The new clause has been tabled to confirm the Government’s intentions on the wider duties of banks and their directors, and I hope that the hon. Lady is satisfied.

New clause 5 refers to remuneration. Of course, the Government have already taken significant steps in that regard; under the remuneration code, large parts of bonuses must be deferred and paid in shares, and cash bonuses must be limited. However, it is a question of not just the quantum of bonuses, but how they are decided in the first place. Next year, shareholders will have a binding vote on executive pay.

We strongly support the proposals made by the parliamentary commission. In particular, the commission has recommended that the regulator should have the power to require a substantial part of remuneration to be deferred for up to 10 years when that is necessary for effective long-term risk management. There is a subtle but critical distinction between the commission’s recommendation and the new clause. The power should be with the regulator to determine whether and in what circumstances to require extended deferral; my hon. Friend the Member for North East Cambridgeshire made that point.

The commission has commented that no single deferral period is appropriate but that it should be determined in accordance with the nature of each business and the risks and activities of the employee in question. The Government agree and will ask the PRA to consider the powers that it has to extend deferral periods as part of its consultation on implementing the commission’s proposals. I hope that that commitment will reassure the hon. Member for Kilmarnock and Loudoun and that she will not feel the need to press the matter further.

New clause 7 deals with protections for whistleblowers. As the hon. Lady said, we debated this in Committee, so I do no want to detain the House further today other than to reassure her that, as I explained on that occasion, these provisions already exist in legislation. Disclosures about criminal offences are already covered by the Employment Rights Act 1996. Disclosures about regulatory breaches are covered by FSMA. This proposal would cover, for example, disclosures about the breaches of the regulatory requirements in relation to the ring-fence. I assume that the second requirement is designed to give effect to the commission’s proposal that a non-executive board member, preferably the chairman, should be given specific responsibility under the senior persons regime. Again, the powers to enact this are already available to the regulator under FSMA, and we have indicated that we support the thrust of these recommendations.

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[Chris Leslie]

When?

[Greg Clark]

This summer.

New clause 11 concerns the new criminal offence of reckless misconduct recommended by the parliamentary commissioner. As we have already announced, we agree with the commission’s recommendations and will over the summer draft amendments to create such a legally watertight criminal offence, including compliance with the European convention on human rights. As my hon. Friend the Member for Bedford suggested, the commission did not recommend retrospectivity, and these provisions are intended to enact its recommendations. I hope that he will understand that.

My hon. Friend the Member for Bury St Edmunds (Mr Ruffley) was absolutely right to point out that it was of course this Government who first raised the possibility of criminal sanctions for managerial misconduct in July last year. We are grateful to the commission for its extensive work. We will follow its advice on misconduct committed by persons covered by the regime that is being set up. The commission noted the legal challenges involved in mounting a successful prosecution, but we absolutely agree that the creation of this offence should be justified by the signal that it sends and the potential deterrent effects it can have. We have to make it clear that reckless behaviour by those in charge of our banks cannot be tolerated.

New clause 13 proposes to create a new financial services crime unit. A similar amendment was discussed at some length in Committee. I can assure hon. Members that the Government fully recognise the importance of tackling financial crime. There is to be a dedicated command within the new National Crime Agency responsible for directing the national response to economic and financial crimes. The economic crime command will have a clear remit to reduce the threat from economic and financial crimes, working collaboratively across the different sectors. Substantial progress has already been made in establishing the National Crime Agency and driving early operational success against criminals who seek to engage in economic and financial crimes.

The Government accept the broad recommendations of the parliamentary commission on each of these matters. We will be acting quickly to take the opportunity afforded by this Bill to make amendments that are legally watertight and likely to pass into law in the early part of next year, just six months after the parliamentary commission’s extensive report. In acting in this way, we are keeping faith not only with the recommendations of the parliamentary commission but with the urgency of the need to enact these reforms, which I commend to the House.

[Stephen Barclay]

We have had a full and constructive debate that builds on the cross-party nature of the work of the banking commission. That has been reflected in the consensual tone of hon. Members’ speeches. I am very reassured by the comments of my right hon. Friend the Minister about the Government’s willingness to look at the outcome that new clause 2 seeks, which is in line with the comments made by Members across the House. For that reason, I will not press the new clause to a vote but ask leave to withdraw it.

Clause, by leave, withdrawn.

New Clause 4

Duty of Care

‘At all times when carrying out core activities a ring-fenced body shall—

(a) be subject to a fiduciary duty towards its customers in the operation of core services; and

(b) be subject to a duty of care towards it customers across the financial services sector.’.—(Cathy Jamieson.)

Brought up, and read the First time.

Question put, That the clause be read a Second time.

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21:34

Division 48

Ayes: 217

---

Labour: 205
Scottish National Party: 4
Democratic Unionist Party: 3
Social Democratic & Labour Party: 2
Plaid Cymru: 1
Independent: 1
Alliance: 1
Green Party: 1

Noes: 272

---

Conservative: 232
Liberal Democrat: 38
Independent: 1

Bill to be further considered tomorrow.