Financial Services (Banking Reform) Bill
(Limited Text - Ministerial Extracts only)
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Lord Deighton
That this House do not insist on its Amendment 41, to which the Commons have disagreed for their Reason 41A.
“PART 4
CONDUCT OF PERSONS WORKING IN FINANCIAL SERVICES SECTOR
Amendments of FSMA 2000
Professional standards After section 65 of FSMA 2000 insert—
“65A Professional standards
(1) The regulator will raise standards of professionalism in financial services by mandating a licensing regime based on training and competence.
(2) This licensing regime must—
(a) apply to all approved persons exercising controlled functions, regardless of financial sector;
(b) specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules;
(c) make provisions in connection with—
(i) the granting of a licence;
(ii) the refusal of a licence;
(iii) the withdrawal of a licence; and
(iv) the revalidation of a licensed person of a prescribed description whenever the appropriate regulator sees fit, either as a condition of the person continuing to hold a licence or of the person’s licence being restored;
(d) be evidenced by individuals holding an annual validation of competence;
(e) include specific provision for a Senior Persons Regime in relation to activities involving the exercise of a significant influence over a controlled function under section 59 of the Act.
(3) In section 59, for “authorised” substitute “licensed” throughout the section.””
Commons Disagreement and Reason
The Commons disagree to Lords Amendment No. 41 for the following reason—
41A Because Lords Amendments Nos. 42 to 57 make more appropriate provision about the standards of those working in the financial services sector, and Lords Amendment No. 41 is incompatible with the provision made by those Lords Amendments.
The Commercial Secretary to the Treasury (Lord Deighton) (Con)
My Lords, I am recommending that your Lordships do not insist on this amendment and I of course support the reason the other place has put forward. I hope that I will be able to convince your Lordships, and especially the noble Lord, Lord Tunnicliffe, that the amendments the Government put forward in this House address the concerns of the noble Lord and the Official Opposition.
In essence, the Opposition are seeking to bring in a regime of annual licensing for bankers operated by the regulators, which would be supported by requirements about professional qualifications and minimum levels of competence. They also seek a code of conduct for bankers. I am grateful to the noble Lord for his constructive and thoughtful contribution to the debate on these professional training standards. First, I will set out how the amendments tabled by the Government, following the PCBS recommendations, already deliver the improved professionalism and higher standards of conduct that Amendment 41 seeks. Then I will explain the ways in which Amendment 41 is incompatible with the PCBS proposals, which had at their heart the need for banks to take responsibility for standards in their organisations, which is essential if the culture of banking is to improve.
First, on the code of conduct, Lords Amendment 54, tabled in Committee, already provides for the regulators to make rules of conduct for all bank staff. The regulators will be able to create a set of banking standards rules for people working in banks, just as the PCBS recommended. These banking standards rules will be able to do everything that a code of conduct would do.
Secondly, on ensuring a minimum standard of professionalism and qualifications, Lords Amendment 45 provides for banks and PRA-regulated investment firms to check that candidates for regulatory pre-approval to perform a specified function are fit and proper before they submit an application to the regulator for that approval. As part of this process, they will have to have regard to whether the candidate has obtained a qualification, has been trained or is undergoing training, or possesses a level of competence set out in the regulator’s rules. The regulator will of course have to confirm that those candidates are fit and proper, including by virtue of having the appropriate qualifications, before approving candidates to specified functions.
Thirdly, Lords Amendment 53, which provides for the new certification regime recommended by the parliamentary commission, requires banks and PRA-regulated investment firms to certify that candidates for significant-harm functions are fit and proper, including by having regard to whether the employee has obtained the qualifications, training or competence set out in a regulator’s rules. This certification will have to happen each year, so there will be an ongoing requirement to consider the training and competence of their staff.
In sum, the government amendments provide for a code of conduct, emphasis on ensuring that candidates for working in functions that could significantly harm the bank have minimum qualifications and annual certification. Those are the three central elements of Lords Amendment 41.
I will explain briefly why Amendment 41 is incompatible with, not complementary to, the PCBS proposals. Lords Amendment 41 would impose the requirement for annual validation and checking on the regulator, not the banks. The whole thrust of the PCBS recommendations was that primary responsibility for maintaining standards should reside with the banks themselves. The PCBS said:
“Banks should not be able to offload their duties and responsibilities for monitoring and enforcing individual behaviour on to the regulator or on to professional bodies. The tools at their disposal have the potential to be much more usable, effective and proportionate for the majority of cases than external enforcement”.