(6 years, 7 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Mr Deputy Speaker (Sir Lindsay Hoyle)
I call Martin Whitfield to move the motion, with up to 15 minutes to speak to it.
Martin Whitfield (East Lothian) (Lab)
I beg to move,
That this House welcomes the public disclosure of the Section 166 report into the conduct of RBS Global Restructuring Group (GRG); is concerned about the fundamental difference of tone and emphasis between the summary produced by the Financial Conduct Authority (FCA) and the full report; believes this calls into question the strength and independence of the regulator; notes that the concerns raised in the debate on 18 January with regard to the financial services sector, which is not limited to RBS and its advisors, not only persist, but are amplified by the conclusions in the report; calls on HM Treasury to instruct the FCA to move on to phase 2 of the investigation into the root causes of the conduct of RBS GRG by a body independent to the FCA; and once again calls for an independent inquiry into the financial services sector and the associated industries that have allowed misconduct to thrive, and the establishment of an independent mechanism for redress for businesses.
I would like to start by paying tribute to the Backbench Business Committee for enabling this debate to take place and to the enthusiastic work of the all-party parliamentary group on fair business banking and finance, of which I am vice-chair and which is led by the hon. Member for Thirsk and Malton (Kevin Hollinrake). I would also like to take the opportunity to thank the hon. Members for Stirling (Stephen Kerr), for Edinburgh West (Christine Jardine), for Glasgow South West (Chris Stephens) and for Dumfries and Galloway (Mr Jack), who supported my application for this debate. I also thank those who have travelled down today to listen to the debate live from the Public Gallery.
This debate follows on from the one led by my hon. Friend the Member for Norwich South (Clive Lewis) in January. It demonstrates what an important issue this is for not only our individual constituents but the whole economy. For many, the foundation of the problem is illustrated by bank closures. Indeed, in my constituency, bank closures and the disappointing remission of free-to-use ATM machines are breaking down trust in the banking industry. Ensuring that consumers have access to finance is fundamental to the ethos of community banking.
Today’s debate rightly shifts attention to financial misconduct and considers the section 166 report, but it also stands as a timely reminder to the entire banking sector that the consumer must always be at the centre of its operations. Access to finance is so important to local businesses in East Lothian and across the UK. Whether wronged by commercial lending policies not fit for purpose or hit disproportionality by bank closures, businesses are being badly let down by the industry.
Regarding financial misconduct, a lot has happened since January, and we are not simply here to cover an old story.
Layla Moran (Oxford West and Abingdon) (LD)
I am extremely grateful to the hon. Gentleman for giving way. Does he agree that it is not just businesses that suffer? It is also families and people’s mental health. Nigel and Julie Morgan, who are here with us today listening to the debate, have been adversely affected by this issue for years. It is that which we have to bear in mind.
Martin Whitfield
I am grateful for the hon. Lady’s intervention. It is right to say that, behind every one of these statistics, there are individuals, families, businesses and employees—who have their own families—who have suffered as a result of all this. I will come on to that in a moment.
The release of the section 166 report into Royal Bank of Scotland’s Global Restructuring Group not only underlined the toxic culture that existed in the GRG but, critically, identified the systemic failures that allowed such conduct to thrive.
Today I intend to focus on three key points. The first is dispute resolution, which has been covered extensively, and the all-party parliamentary group will deliver a report on it in the near future. Secondly, I would like to look at the associated industries involved in this scandal. Thirdly, there is the need for a full public inquiry into the treatment of businesses by financial institutions.
As the debate progresses, I would ask hon. Members to keep at the forefront of their minds the very simple notion of the balance of power and, indeed, the abuse of power, because that is ultimately what we are addressing here, not just with RBS but across the entire ecosystem of commercial lending. We have only to look at the HBOS Reading fraud to understand how corrupt the system can be and how that can thrive if it goes unchecked year after year.
Kate Green (Stretford and Urmston) (Lab)
I congratulate my hon. Friend on opening this important debate. Does he agree that one issue is the continuing refusal of many in the banking sector to accept their responsibility and their determined deflection of blame back to their customers?
Martin Whitfield
My hon. Friend makes a very important point. There is genuine anger about banking businesses not taking responsibility for their actions and not looking to rectify the damage that was done in the past. That is what is fundamentally undermining the confidence that people and businesses have in the banking sector.
Damian Green (Ashford) (Con)
The hon. Gentleman will obviously concentrate most of the time on activities inside banks themselves. Will he also touch on one of the issues raised by my constituents, who, like many others, have been affected by this—the activities of insolvency practitioners? There seem to be deep problems there as well.
Martin Whitfield
I am grateful for the right hon. Gentleman’s intervention. I am just moving on to talk about the fact that although there are very legitimate objectives at the turnaround units that many banks have operated, they are so easily manipulated to carry out systematic asset stripping of small and medium- sized enterprises. Indeed, it is the surveyors, insolvency practitioners, turnaround consultants, Law of Property Act receivers, lawyers and accountants that support financial institutions and enable and facilitate the systematic abuse that was so clearly laid bare in the section 166 report who must also be held to account for these failings.
Norman Lamb (North Norfolk) (LD)
The hon. Gentleman mentioned the section 166 report. I understand that the second phase has now been brought in-house into the Financial Conduct Authority. Promontory has ended its role. There is a concern on the part of many people that there will be a lack of transparency. There is a concern about a further possible cover-up of really serious wrongdoing.
Martin Whitfield
Again, I am really grateful for that insightful interjection. There clearly is a concern about transparency. Beyond the single events—tragic as many of these are—the overall story and picture that people are taking away about our banking industry is its being heavily influenced by hidden-door decisions, by delayed reports and by people, frankly, trying to protect themselves rather than shining a light on what has been happening to try to make the system better for the future.
Here we are again, talking about past misconduct. However, this is the catch, and it was mentioned early on: for business owners across the country who have lost their livelihoods, their homes, their marriages and, quite often, their health, this is not an issue of past misconduct; it greets them every single day when they wake up and haunts them at night when they go to sleep.
The impact of this scandal has been so profoundly damaging that people have taken the appalling decision to end their lives because they cannot face things any more. It is the responsibility of this House and of the financial services—it is genuinely the responsibility of everyone—to ensure that there are answers to these questions so that, hopefully, and at last, some people and some families can find some peace.
Nick Herbert (Arundel and South Downs) (Con)
The hon. Gentleman rightly draws attention to the appalling stress that has been placed on individuals. That has happened in my constituency due to RBS and the Britannia building society acting entirely unfairly towards my constituents. Apart from the behaviour of the banks, is there not an issue about the ability of such individuals to obtain redress, and the failure of our institutions—such as the FCA and the ombudsman—to be able to offer satisfactory relief to individuals so badly affected?
Martin Whitfield
Again, that is an excellent intervention. It is almost as if planned, because I am about to turn to the question of dispute resolution.
The FCA’s recent consultation into extending the Financial Ombudsman Service clearly sets out the complex landscape of commercial disputes, but it also identifies what it can and cannot do as a regulator to bridge this gap. The all-party group is very clear that it cannot possibly support the proposed extension of the Financial Ombudsman Service as a stand-alone solution to problems that have beset the business community for so long. Even with extended powers, it will not be sufficient to cover complex cases or those that sit outside the regulatory perimeters. The FCA’s consultation makes it very clear that it has limited powers and that a complete solution must include action by the Government and this Parliament. It is not an either/or; we need both.
David Hanson (Delyn) (Lab)
This is not a partisan point, but one about the current and previous Governments: schemes executed by the Government, such as the enterprise finance guarantee scheme, have been misused by RBS, but RBS has been retained under some element of public ownership, if not control, so will my hon. Friend call on the Government to look at the schemes they have operated and at their performance in helping to support colleagues and constituents such as mine?
Martin Whitfield
Again, I am grateful for that intervention. Clearly, at the end of the day, this goes to the question of a public examination of what has happened and where things have gone wrong. RBS is obviously still held by the public through the shares we bought when we bailed it out, but even without that, there is still a responsibility to make sure that the banking and financial sectors apply rules and laws equitably, fairly and transparently, and do not seek to put down small and medium-sized businesses to their own benefit.
Joanna Cherry (Edinburgh South West) (SNP)
I endorse what the hon. Gentleman is saying because there is a real issue about redress. The lives of my constituents Mr and Mrs Neave have been ruined by this UK banking episode. I have seen their reams of correspondence with the FCA and the ombudsman, yet all these organisations ever seem to say is that there is no case to answer. People then turn to their MPs, but there is nothing we can do. Is not the time ripe for the UK Government to ensure redress, perhaps by way of a tribunal process or something like that?
Martin Whitfield
Absolutely. On dispute resolution, the introduction of a tribunal would be an important and essential step forward, giving access to people and businesses that at the moment struggle to gain access to the courts.
Bambos Charalambous (Enfield, Southgate) (Lab)
My constituent Mr Kashourides, who has no confidence in the FCA or the ombudsman, has himself brought legal action against RBS, but he has been asked by a judge to pay £150,000 as a surety for costs, because the lawyers that RBS employs are very expensive. Does my hon. Friend agree that a tribunal would be the best way forward?
Martin Whitfield
Absolutely. The cost of bringing a case to get rectification is so important.
The FCA has repeatedly said that it does not have the powers to deal with commercial lending and that it is up to Parliament to decide if it wants those powers to be extended. However, in various statements, the Treasury has repeatedly stated that this is a matter for the FCA and that if the FCA feels it needs more powers, it should ask for them. All that is happening is that this hot potato is being kicked between two different areas, and we are not getting answers that, in reality, are satisfactory to anyone. I would appreciate clarification from the FCA on the parameters of what it needs in order for it to ask for more powers. At the moment, we are seeing the widespread and systematic destruction of British businesses, which in my mind certainly seems to qualify as a reason to request additional powers.
The lack of mechanisms for redress and of action in general has severely undermined public confidence in the integrity of our system, and it is time that we tackled this head-on. We are therefore calling today for a full public inquiry into the ecosystem of commercial lending, and particularly into the treatment of businesses in financial distress. This cross-departmental issue covers both the Department for Business, Energy and Industrial Strategy and the Treasury, so it is too wide-reaching to come under the remit of just one Select Committee in Parliament.
I will briefly turn to the role of professional advisers and the wider issue of commercial funding. I welcome the focus that section 166 has placed on the inherent conflict of interest that exists between financial institutions, surveyors, lawyers and insolvency practitioners. For too long, we have focused solely on financial institutions, but not on the professionals that support them, often in the form of secondments from within the walls of the very financial institutions themselves. Frankly, it beggars belief that this is an accepted industry practice. The mechanisms involved in taking control of businesses and their assets are operated via LPA receivers and insolvency practitioners.
Alex Sobel (Leeds North West) (Lab/Co-op)
Does my hon. Friend agree with me that these professional practitioners are quite often working hand in glove with the banks? Does he also agree that the fees, particularly in insolvency practice, are very high, which, on top of the issue with the banks, can push businesses under?
Martin Whitfield
I am grateful to my hon. Friend for that intervention, and I would draw attention to the very basic case of those owning a business that has constantly paid back its loans on time and maintained contact with the bank, who may suddenly, through a simple slip of a pen in the valuation or revaluation of the business by part of the bank’s organisation, find themselves in breach of their loans—and they lose their business. That is not a question for the shareholders or for the directors; with a movement of a pen, their business becomes the bank’s.
RBS has been at pains to point out that the Promontory report did not find any evidence of deliberate under- valuations, but in any event the report could not in many cases find any evidence about how valuations were conducted, and there is a suggestion that they were simply made up. These valuations could then be used to appoint an insolvency practitioner, subject to huge costs, and a cosy relationship between a surveyor, an insolvency practitioner and a bank suddenly means that another family business has been lost.
Jo Stevens (Cardiff Central) (Lab)
My constituent Kashif Shabir, whom I have spoken about in several debates on this issue, has been the victim of exactly that, with Lloyds bank and Alder King surveyors in Bristol, resulting in the loss of his £10 million business. Does my hon. Friend agree with me that the bosses of both those organisations, Mr Horta-Osório and Mr Martyn Jones, should now proactively take steps to offer—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. The hon. Lady must sit down. I am really sorry to interrupt the hon. Lady, who I appreciate is making a very important point. I must point out, however, that the hon. Member for East Lothian (Martin Whitfield), who is moving the motion, is supposed to take about 15 minutes. He has a lot to say that is of importance, and he has been very generous in allowing interventions, but hon. Members must not think I have not noticed that the people who have intervened will then go away, while the people who have indicated that they wish to take part in the debate will have only four minutes and may need to stay in the Chamber until the end of the debate, which is patently unfair. I cannot allow a long intervention. It is perfectly proper for the hon. Lady to ask a quick question, but it is not in order for hon. Members to make an intervention in lieu of a speech, thus preventing other Members from making a speech. I am trying to ensure fairness, and it is really quite difficult to do so. As I had not previously warned hon. Members, I will allow the hon. Lady to finish her intervention—I realise that she has something important to say—and I will allow the hon. Gentleman to respond to it and to finish his speech. I hope that everyone has got the picture: this is the only way to try to be fair to everyone.
Jo Stevens
I apologise, Madam Deputy Speaker. Does my hon. Friend agree that the banks and the surveyors should proactively take steps now to offer redress to my constituent and to many other constituents of Members on both sides of the House?
Martin Whitfield
Absolutely. I agree with that proposal, because the banks and the surveyors have professional responsibilities to their clients and those they serve, and such responsibilities apply equally by omission as by action.
To conclude, from its early inception, banking was engineered to become a focal hub of community engagement. There was a societal bond of trust, which was represented by the strong institutions on our high streets. In recent years, however, this has become synonymous with mistrust and deceit. Consumers right across the country have been let down not just by a few specific banks, but by an industry that has developed and become polluted by a toxic culture of misconduct.
Several hon. Members rose—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. As I have said, we are pushed for time this afternoon. There will therefore be a time limit on Back-Bench speeches, initially of five minutes although it may have to be reduced.
Mr William Wragg (Hazel Grove) (Con)
I congratulate the hon. Member for East Lothian (Martin Whitfield) on securing this debate, and I pay tribute to my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) who chairs the all-party group on fair business banking and finance.
I would normally begin by saying what a pleasure it is to speak in such a debate, but although it is always a pleasure to speak with you in the Chair, Madam Deputy Speaker, I do not feel that such a sentiment is appropriate, given the seriousness of the issues we are discussing. It is clearly far from a pleasure for thousands of business owners up and down the country who have had their lives and livelihoods destroyed by a broken, and in places rotten, banking system. As I have done previously, I shall refer in particular to one of my constituents, Mr Eric Topping, whose business was destroyed by the iniquity we are debating today.
There is clearly no easy solution to the mess we are in—it is hard to find a solution to get the redress that so many victims deserve, to rebuild crushed livelihoods, or to restore public faith in the system. There are, however, three steps to take, each of which might help in part. First, we need some form of acknowledgement that what my constituent, Mr Topping, has suffered is an outrage and an injustice. His complaint was dismissed out of hand because the issue occurred in 1998, and therefore outside the “relevant period” that was set arbitrarily at between 2008 and 2013. Whatever form of redress the Government, regulators or banks come up with, they must consider events before 2008 and the narrow scope of the FCA’s skilled persons reports. They must also look beyond RBS GRG, and into its precursor bodies such as the “specialised lending service”, and any other sham department, in whatever bank, that was engaged in systematic and organised fraudulent asset stripping.
Secondly, it is clear that the Financial Ombudsmen Service lacks teeth as a method of redress, given that in most instances it can look only at cases involving microbusinesses with 10 employees or fewer. With claims capped at £150,000, thousands of SMEs affected by this scandal cannot apply. There is a clear problem for businesses with more than 10 employees, as their only option is to go to the courts. That is too expensive and places small businesses against international financial institutions, which is a complete mismatch.
In a move that would be laughable if it were not so unjust, in the bank’s final letter to Mr Topping, RBS’s director of operations suggested that he seek redress through the Financial Ombudsmen Service, and helpfully enclosed a leaflet to that effect. RBS knew, however, that Mr Topping’s business was too large to come within the scope of the ombudsmen’s remit, and by suggesting such a move it was either incompetent in its advice or it was simply mocking him—I am not sure which is worse.
Proposals for enlarging the remit of the ombudsman are not the answer—as I have said, it lacks teeth—and there is a gap in the current structure that must be filled. It is necessary to have a completely independent system or tribunal that sits outside the regulatory structure and has sufficient powers and knowledge to deal with complex financial disputes that include contracts, insolvency and all associated issues. Such a system must be able to address the backlog of legacy cases and ensure that those who have been mistreated are given an outlet through which their grievances can be heard, and suitable redress awarded. Any system will need to address the statute of limitations so that victims are not barred from taking action.
Finally, as I have said, these issues are no longer just about RBS or even the banks themselves, and it is clear that we have had a systemic failure. This issue has become too wide ranging for either the Treasury, the Business, Energy and Industrial Strategy Committee, or even the excellent all-party group on fair business banking and finance to deal with, and it is now of such scale and complexity that it demands a full public inquiry. A scandal such as this, just like LIBOR before it, is yet another reason why people and businesses lose faith in the banking sector. Faith in the banks is essential for faith in our whole economy, but SMEs, which are the lifeblood of that economy, are now reluctant to borrow from such institutions. A full public inquiry would be to the benefit of financial institutions, the business community and the wider economy. We must draw a line under the past, obtain redress for our constituents who have been the victims of financial misconduct and create an environment in which trust in financial institutions can be restored.
Clive Efford (Eltham) (Lab)
I congratulate my hon. Friend the Member for East Lothian (Martin Whitfield) on securing this debate.
My constituents were private tenants who had lived above a shop for many years and brought up their children. In 2007, they decided to buy the property when it came up for sale at auction. They were customers of NatWest, which agreed that they could have a mortgage for 10 years. They bought the property on 6 July 2007, and were contacted by the bank to pay valuation fees. The valuation should have informed the bank that my constituents needed a regulated mortgage, since they occupied more than 40% of the property. On 9 July, NatWest informed my constituents that they needed to open a joint bank account, take out a one-year business loan and pay £4,000 in fees for the privilege. That was due to the fact that the premises included a shop. One year later they were allowed to take out a two-year loan, again with more arrangement fees. They thought that was normal, because they did not understand that they should have had a regulated mortgage contract.
This debate is about small and medium-sized enterprises, but my constituents were forced to become an SME, and they were treated appallingly by NatWest. They did not understand the system, and the bank took full advantage of that. They continued to pay the loan without any defaults. After the two-year loan period expired, the bank attempted to contact them, but that was cancelled due to the snow. They finally met up five months after the two-year loan had expired in 2011. In May 2011, the bank told my constituents that they were in default. That resulted in a complaint to the bank, which found in favour of my constituents. However, the bank continued to pursue them, asking them to sell the property.
My constituents made a further complaint, and on 19 January 2012 they received a response from the bank’s complaints department, which said that it was nothing to do with anything they had done, but that:
“The bank needs to rebalance its exposure in the property area. We have twice as much property funding as any of our competitors and this needs to be managed down to more normal levels.”
It was nothing to do with anything my constituents had done wrong; it was what the bank had done wrong, yet my constituents were forced to pay for it. While that was going on, the bank tried to close one of my constituents’ bank accounts, and from then on they were harried into selling the property. It was put on the market for £700,000, but because they were under pressure, they finally had to sell it for £585,000. They were never given the opportunity to live in that property and plan ahead with any confidence.
My constituents finally went to the Financial Ombudsman and requested a disclosure of documents. They discovered that they were being dealt with by none other than the Royal Bank of Scotland Global Restructuring Group, despite having taken out the original loan with NatWest. GRG convinced the ombudsman not to investigate the case and to leave it to the GRG disputes resolution process. When my constituents asked how the involvement of GRG came about, they were told that it was due to the involvement of a specialist relationship manager. GRG claims that the account was never transferred to it and states that the SRM consulted GRG during the relevant period of 2008 to 2013. Therefore, GRG did not recognise my constituents, and they were not part of the review process. My constituents were never informed of any of this; it came to light because they complained and asked for documents to be disclosed by the ombudsman. GRG also convinced the ombudsman not to look at any documents going back further than 2013.
NatWest is part of the RBS group, but it operates under a separate licence. How is it possible for two separate banking organisations to share customers’ information in this way? Is that a matter of concern to the FCA? Are NatWest and RBS GRG at fault for not keeping my constituents informed? The bank made the initial error when it forced my constituents to take a loan for one year, then two years, then no years—it simply failed to renew it—and then foreclosed on my constituents because it was overexposed in the property market. My constituents approached the FCA, but they do not know where their case now is. The FCA has to hold an inquiry into this matter. We have to get to the bottom of it on behalf of people who are just being bullied by the banks.
Mr Alister Jack (Dumfries and Galloway) (Con)
I thank the Backbench Business Committee for granting this very important debate and I thank the all-party group on fair business banking for securing it. There are literally thousands of victims of this banking scandal. They are victims not of banks, but of bankers and their advisers who colluded with them—make no mistake about it.
This has not been a golden era for British banking and neither has the FCA covered itself in glory. It has presided over ad hoc redress schemes that are simply not fit for purpose. It has allowed banks to be judge, jury and executioner. It could learn from the best British regulator, the Takeover Panel. If one goes to the Takeover Panel for a decision on a Thursday, one receives it on a Friday. The FCA has allowed the banks to set up their own redress schemes, which have gone on too slowly for too long and have been too small in terms of financial retribution.
Victims have been fighting this situation for years. Their lives have been destroyed: it is not just livelihoods, some have lost or taken their lives. Families have been torn apart and businesses have been lost. Frankly, they have been the victim of banking piracy. I said that in the Treasury Committee yesterday and I say it again today. If the other banks have a pile six inches high, RBS-GRG has a mountain. It set up a scheme of £400 million. Some £100 million of that has been allocated to costs, leaving only £300 million to pay people back. It has paid out £150 million so far, but that does not even scratch the surface. GRG was a profit centre. In 2011, it made £1.2 billion in profit. Considering the profits it has made by knocking on people’s doors and taking their businesses away from them, £300 million is just scratching the surface. It is paltry and pathetic.
The fact that these crimes were committed is not something I am imagining. Excellent reports are available from Tomlinson and Promontory, as has been discussed. We knew crimes had been committed, but what the victims have not seen is any form of justice. I do not just mean financial justice. I mean prosecutions. For banking to clean up its act and for this not to happen again in the future there need to be more prosecutions.
In the first debate secured by the all-party group on fair business banking, I spoke of my own experience. I know at first hand how GRG behaved. I was not a victim. It came twice to try to take a very good asset away from us. The business was making a profit in each of the months when it came and it has made a profit in every month since. That did not, however, stop it trying to come up with artificial breach covenants and other trumped up reasons to try to create fees. I understand that people were under pressure. If they were not in a robust position after the financial downturn, they were, I am afraid, taken to the cleaners.
I will conclude by saying that the worst offender was RBS GRG. The perception is still there that it cannot be trusted to do the right thing. Proper redress for the victims would be a very good place to start.
Norman Lamb (North Norfolk) (LD)
It is a pleasure to follow the hon. Member for Dumfries and Galloway (Mr Jack) and I agree with every word he said. I congratulate the hon. Member for East Lothian (Martin Whitfield) on securing the debate and I thank the Backbench Business Committee for granting it.
The case for both an independent tribunal and a full public inquiry is overwhelming: the destruction of businesses, the destruction of lives, the ruin it has caused for families and the appalling treatment of whistleblowers. Brave people chose to speak out, risking everything. My constituent Mark Wright has seen his career and his health destroyed. He is a brave man still left waiting. What I would say to the Minister is this: this issue unites the House. There is complete agreement on both sides of the House on the need for something to happen. We have been debating this matter for quite some time and I do not really feel any sense of progress being made. I am afraid to say that I have lost confidence in the FCA’s ability to get to the bottom of the extreme wrongdoing that we have witnessed across our banking sector. This issue causes so much anger among people across our country. There is a sense that the elite got away with it without any consequences. I therefore say to the Minister: take seriously the sentiment on both sides of the House and call a public inquiry without further delay.
I want to raise an additional issue, which has the potential for further scandal: the risk that victims of the shareholder action against RBS and victims of GRG could face further loss as a result of the behaviour claims management companies and the failure of regulation and the policing of those regulations by the Ministry of Justice. The regulations were brought in by the Compensation Act 2006. Any claims management company that operates as a business needs to be regulated, yet the claims management company that worked on the shareholders’ action has never been regulated at all. This has been brought into sharp focus because of the action in that case. There has been a settlement of £200 million, but victims are still waiting for most of the money to be distributed. There are concerns about a £20 million bill from a firm called Evaluesafety linked to a certain Gerard Walsh, who has been involved from the very start. He has a track record of personal and business insolvency and has faced allegations of fraud, yet when concerns are raised with the MOJ it seems satisfied by assurances given by a lawyer associated with Gerard Walsh that everything is fine and that regulation is not relevant in this case. However, lawyers have advised the action group company that it comes within the regulatory remit and yet the MOJ does nothing.
I am really concerned about a double jeopardy here: people who have already lost through the appalling behaviour of RBS are now at risk of losing again with the settlement money leaking out all over the place, potentially improperly, and the victims left still waiting. The Ministry of Justice is doing nothing to get to grips with this. These are Government regulations passed through this House. The MOJ—I urge the Minister to have words with his ministerial colleagues—needs to get a grip. There are criminal sanctions where there is a failure to properly register in the regulation system. These people, if they are taking money out of the settlement pot away from innocent victims, need to be pursued. I do not know what the solution is and I do not know the full facts of the case, but I absolutely know that it needs to be investigated as a matter of urgency.
This is a long-running scandal. So many people have lost out so badly that we will only restore confidence in the banking system and in the system of regulation if we have a full public inquiry. The Government need to order it now.
Neil O’Brien (Harborough) (Con)
I congratulate the hon. Member for East Lothian (Martin Whitfield) and the all-party group on fair business banking on securing the debate. I follow very powerful speeches by the right hon. Member for North Norfolk (Norman Lamb) and my hon. Friend the Member for Dumfries and Galloway (Mr Jack).
A constituent of mine, Mark Nicholson, had an experience with HSBC that raises exactly the issue as many of the RBS cases. He has been in dispute with that bank for eight long, stressful years. His business initially had a cash-flow problem, through no fault of his, and the bank turned his secured loan first into an overdraft and then offered him a nine-year loan. However, despite complying with every single condition, the promised nine-year loan was never forthcoming and he was instead put on a treadmill and offered a series of short, one-year loans at increasingly high interest rates, with increasingly high charges.
In 2014, the Financial Ombudsman Service ruled against HSBC, telling it to restructure the loan and to repay all the charges. Instead of complying with the spirit of the ruling, the bank seized on a lack of detail in it to offer my constituent an onerous loan. After a second ruling, he is still in dispute. The bank is refusing to share the details of how it has calculated the demands that it is making of him, and at the end of this month he faces a court hearing in which he could lose the house that he has lived in for nearly 30 years. It is exactly as my right hon. Friend the Member for Loughborough (Nicky Morgan) said of RBS: it is a case of the pursuit of profits through made-up fees, high interest rates and the attempt to acquire equity and property. I have written to John Flint, the chief executive of HSBC, to support my constituent in this matter, and I plead with him to think again about the way in which his bank is treating my constituent.
The theme of today’s debate is the other institutions that surround this important problem. Although the Financial Ombudsman Service has done good work and has helped some people, we must ask two questions: first, does it have the power and authority to make large financial institutions fear it and comply with its rulings? For my constituent and others, we can see that that is not the case. Secondly, does it have the technical capacity to cope with some of the more complex cases that it faces? Another constituent is involved in a technical insurance case, and the Financial Ombudsman Service has not been able to do what we need it to do, which is to level the playing field between large financial institutions with a lot of firepower and ordinary members of the public.
Let me quote some of the things that Channel 4’s “Dispatches” discovered when it did an undercover investigation into what was going on in the Financial Ombudsman Service. It talked to trainers and people working within the organisation. Here are some quotes from what it heard:
“Training was not adequate. We rushed through complicated financial issues and processes. I often didn’t know what I was doing.”
“I’m not proud to admit it but I’ve done it myself—just taken a chance and just slung stuff through, with any old decision.”
“For more complex cases, the right decision isn’t always reached. Legitimate claims are being missed.”
“even now I look at an investment case and I don’t know what to ask for.”
“Sometimes I’ve not even heard of the products. I have to Google what it is first.”
“11,000 cases fell into a black hole. Two years later we find out they’ve not been looked at and we had to work our way through them all.”
“Some post was two years old. There were cases saying I am going to lose my house.”
That is simply not good enough. We need to replace the FOS with something that is fit for purpose, because my constituent also faces losing his house.
It is worth noting that over the last eight years we have made a lot of progress on reforming the financial system. We have introduced measures to increase competition and to encourage challenger banks. We have seen the ring-fencing of retail banking from investment banking. We have replaced the failed tripartite system and ended “too big to fail”. We have higher capital requirements, the bank levy and the tougher claw-back regime. A lot has been done, but a lot more needs to be done. The next step now should be to replace the Financial Ombudsman Service, which could do more to help our constituents, with something that has proper expertise and the ability to make large financial institutions, which so often behave in a cruel, high-handed way, frightened of it and get justice for our constituents.
Kevin Brennan (Cardiff West) (Lab)
This is an important debate and I congratulate all the hon. Members who have contributed to it so far. Banks occupy a very special and important position in our economy and society. Without them, the economy could not function efficiently. However, they also operate in such a way that they borrow short and lend long, and they always have done. As a result, banks hold a degree of responsibility and trust when they take people’s moneys into their care. I am afraid that over the past few decades, as other hon. Members have described, a culture has been allowed to develop under Governments of different colours to allow banks to basically follow the principle that “Greed is good,” as so well elucidated in 1980s film “Wall Street”. Ultimately, everything that has been described today—the disasters that have been brought upon our constituents—has been born out of the greed of bankers operating not in the interests of our constituents, but to line their own pockets.
Dr David Drew (Stroud) (Lab/Co-op)
Does my hon. Friend accept that the situation is 10 times worse when the bank no longer exists? I have constituents who are still trying to work through HBOS, which is now part of Lloyds, which has washed its hands of it.
Kevin Brennan
I absolutely accept that; it is completely the case. I want to mention briefly some of my constituents who have been affected by what has been described today and by other practices that should be incorporated in the public inquiry that other hon. Members have called for. By the way, RBS has today been fined $4.9 billion by the American authorities for its activities when it was expecting to pay something like $12 billion, so if there is concern in the Treasury about the cost of a public inquiry, we have $7.1 billion available, given the assumption that was made by RBS, that could be levied on just one of the banks that we are talking about today to cover the cost of any public inquiry. I hope that the Treasury boffins have taken notice of that statistic.
My constituent Mike McGrath was also a victim of the kind of asset stripping we have heard about today. He can show quite clearly that Lloyds bank lied to the Financial Ombudsman Service to obtain a favourable judgment for itself and so that my constituents’ complaint was not upheld. The decision arrived at by the Financial Ombudsman Service was based on the probability of the evidence, but that evidence was incomplete, inconclusive or contradictory because Lloyds bank did not provide all the evidence that it should have done to the Financial Ombudsman Service. There was detrimental evidence that would have allowed the adjudicator to find in favour of my constituent—as the law should require them to do. Customers should have the right to complain to the Financial Ombudsman Service and get it to adjudicate quickly, fairly and at little cost. That is why it exists, but Lloyds bank, and I believe others have done the same, has concealed detrimental evidence to prevent that from happening. This left my constituent with the only option of expensive court litigation, which he could little afford, having been ruined and bankrupted by his own bank.
This allowed Lloyds Wholesale Banking Recoveries in Bristol, with the aid of their appointed Law of Property Act receiver, Alder King, which we heard about earlier from my hon. Friend the Member for Cardiff Central (Jo Stevens), to strip the customer’s assets, knowing that the customer had in fact given the true account of the facts to the FOS and would have had their complaint upheld had Lloyds bank been truthful. My constituent can show that this has happened on more than one occasion. He believes not only that there should be a public inquiry, but that the Treasury Committee should look at the wider issues that have been raised in this debate and by this scandal for all the people who have been affected by different banks’ actions when the banks were bailed out by the Government.
Banks are still engaged in other practices that should be part of any inquiry. That includes what a constituent, Mr Iqbal Hassan, came to see me about last week—the way that a bank can suddenly close down their customers’ bank accounts without any notice. In his case, he simply got a text message saying that there were insufficient funds in his bank account and that it had been frozen. He then showed me the letter of apology he received from the bank. The letter gave absolutely no explanation of why the bank—it was Barclays bank in this case— had shut down his bank account. In fact, it said that it did not know why it had happened, but then, a day after that, it closed it completely. Many practices of that kind are going on.
There is also the negligence of banks in relation to customers being defrauded, often over the telephone. They rely on the concept of gross negligence on the part of their customers, which is completely unacceptable. A constituent—I will not name them here, because it is very difficult when this happens—at first lost over £40,000 as a result of this kind of fraud. Fortunately, through the help that I was able to give and through the help of people like Richard Emery—I commend him for his work on this kind of banking fraud—we were able to recover most of my constituent’s money. However, there are many similar cases in which Members’ constituents are not being refunded money that has been transferred from their accounts to accounts in other banks, which are taking no responsibility for giving harbour to criminals by holding their accounts and paying out money that has been stolen from our constituents.
We should have a public inquiry, and I urge the Minister to talk to his Treasury Minister colleagues about it. I know that he may not be able to make an announcement during today’s debate, but I hope he will go away and talk to his colleagues about the requirement for a proper, fully empowered public inquiry to investigate this scandal.
Giles Watling (Clacton) (Con)
It is an honour to follow the hon. Member for Cardiff West (Kevin Brennan). Let me thank the hon. Member for East Lothian (Martin Whitfield) and my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), along with the all-party parliamentary group on fair business banking and finance, for securing the debate. This is an incredibly significant issue. As we have heard this afternoon, it has affected many of our constituents, and one of my own, Julia Barrington-Fuller, has informed me that she has been caught up in this terrible episode.
I am here to support a motion that will ensure that if it all goes wrong, such victims of banking malpractice, who, by definition, tend to have limited financial resources, can have sufficient access to justice. I am also here to support a motion that will help us to learn the necessary lessons from this painful episode, while beefing up and altering the powers of the Financial Conduct Authority, which is not up to scratch. Above all, I am here to support a motion that will increase confidence in our financial system, in which small and medium-sized enterprises currently seem to have little faith, as they are reluctant to borrow from financial institutions. That, in turn, has a negative impact on productivity and growth, and anything that has a detrimental impact on the Great British economy is simply unacceptable.
It is clear to me that passing the motion would go a long way to deliver change by creating an environment in which some of our financial institutions are no longer able to abuse hard-working business owners. That is, unfortunately, what we saw in Ms Barrington-Fuller’s case. There have been clear examples of mis-selling during her dealings with the Royal Bank of Scotland. For example, she asked RBS for a fixed-rate loan in 2008, but was instead given an agreement that included swap protection for 10 years. That meant that her business was now fully exposed to interest-rate variance, leaving it with crippling monthly swap payments of £7,000 per quarter, on top of her loan repayments. Moreover, the continuation of the loan agreement was dependent on an RBS renewal after five years, which was then refused. As a result the swap agreement was broken, and the penalties for breaking that agreement were levied—penalties that Ms Barrington-Fuller was told did not exist when she took out her loan.
Those penalties and charges forced Julia Barrington-Fuller and her brothers to close their family business, while RBS is continuing to seek a repayment of £250,000, along with any moneys outstanding on the loan and six years’ interest. In her words,
“these people are deceiving small businesses and ruining lives for their own personal gain.”
Jeremy Lefroy (Stafford) (Con)
Does my hon. Friend agree that poor lending practices and the selling of interest-rate swaps, combined with no examination whatsoever—absolutely no redress apart from, perhaps, repayment of the cost of the swaps—has forced some of our constituents, such as my constituent Mr Steve Gray, to close their businesses?
Giles Watling
I do agree, and that is why I am supporting the motion today. Julia Barrington-Fuller requested an agreement, but that was not the agreement that she finally received. We must have an inquiry into this misconduct; we must ensure that there is sufficient compensation for victims; and we must ensure that the Financial Conduct Authority is truly fit for purpose. We can only rebuild trust in our financial services by ensuring that institutions are held responsible in situations like the one I have described.
We hear too often about how our banks have been caught up in yet another scandal, the victims of which are not the bankers themselves but the hard-working people who rely on them to support their aspirations. People like Julia Barrington-Fuller and her brothers, who ran a successful business, are now struggling in circumstances not of their making. It is so disappointing that we are constantly revisiting this situation, especially in the case of RBS. This is a bank that the taxpayers paid £45 billion to bail out, and which now appears to be seeking to exploit those very taxpayers. It seems that the banks have learned nothing from the 2008 crash, an episode that Simon Jack of the BBC described this morning as
“the biggest banking debacle in UK corporate history.”
Indeed it was. It would appear that, if anything, all that the banks have done is move from a period of selling risky products to a period of mis-selling. Banks cannot be allowed to conduct their business in that way.
What is, perhaps, more ironic is that the loan that Julia Barrington-Fuller and her brothers took out was taken out as a matter of convenience rather than necessity. I understand that they did not need it as such. However, because of RBS misconduct, it was not long before they were in serious financial trouble, which led to their being put into RBS’s Global Restructuring Group. GRG, as we all know, was supposedly there to deal with firms that were in financial trouble, but there was no attempt to rescue the firms once they were put there. Instead, it is alleged, its focus was on liquidating companies rather than supporting them through further prudent lending. That is not good for business, and not good for the country as a whole.
Chris Elmore (Ogmore) (Lab)
It is a pleasure to follow the hon. Member for Clacton (Giles Watling). A constituent of mine was affected by this issue 10 years ago, and I agree with the hon. Gentleman that the banks have learnt nothing in that time. It has taken more than a decade for some people to obtain any sort of redress, and that is clearly wrong.
I congratulate my hon. Friend the Member for East Lothian (Martin Whitfield) on securing the debate. It is important that we are now debating the idea of redress and the misconduct of other organisations linked to the banking sector. In the time that I have, I shall focus on the failures of regulatory bodies and how their inaction has thus far failed victims of that misconduct. One of those victims is my constituent Mr Alun Richards, a customer of Lloyds Banking Group. Although much publicity has been given to the actions of RBS, Mr Richards’s case shows that Lloyds too should shoulder the blame. I have repeatedly detailed in the House the misconduct of which Mr Richards has been a victim at the hands of Lloyds bank, its Bristol recoveries unit and the estate agent Alder King, but for those who are unaware of the case, I will summarise it briefly.
Mr Richards was once a successful, and award-winning, farmer and businessman in west Wales. After setting up an account with Lloyds, however, he was soon left destitute when, without warning, it chose to transfer his account to its recoveries unit in Bristol. While the account remained at the unit, Lloyds managers John Holliday and Andrew Pavey allowed chartered surveyors Jonathan Miles and Julian Smith, of Bristol-based Alder King Estates, to act as Lloyds bank managers. Although no secondment agreement was in place, Miles and Smith were suddenly judge, jury and executioner of Mr Richards’s account. A further surveyor, Martin Jones of Swansea-based Lambert Smith Hampton, may also have made decisions despite conflicting interests.
Despite that gross misconduct, the Royal Institution of Chartered Surveyors refused to take action against its members—Miles, Smith and Jones—even when it became apparent that they might have made a management decision and appointed fellow Alder King surveyors as Law of Property Act receivers. Since the incident, Mr Richards has met representatives of the RICS twice. I have written to them many times, but the response on each occasion has been that it is not their problem. When Mr Richards has met them, they have dismissed his concerns and the misconduct of its members. The Association of Property & Fixed Charge Receivers, which represents LPA receivers, and the Insolvency Practitioners Association have also ignored all the claims. Meanwhile, the Solicitors Regulation Authority has refused to consider the actions of its member Richard Hillier of the Bristol-based firm of solicitors TLT, who may have acted with conflicted interests whilst simultaneously representing Lloyds Bank, Alder King and LPA receivers Andrew Hughes and Julian Smith. On top of that, the Association of Chartered Certified Accountants has ignored claims regarding a member of its organisation in Swansea.
In my view, this represents regulatory failure. What has happened to Mr Richards over the last 10 years is more than just an injustice; it has left him without the business that he worked for, and without the career and financial security that he obviously deserves. The misconduct that has taken place across the UK—on, I would argue, an industrial scale—has been swept away by those who have been tasked yet are reluctant to investigate. We need redress for the victims of misconduct and this begins with the regulatory bodies, including the regulatory bodies investigating those members that Members of this House have raised complaints about. I have written to all these organisations, but my letters are often ignored or receive brief, passive responses telling me my concerns and my constituents’ concerns are simply not relevant.
The only way we can move forward is by having an inquiry, having more and better regulation, and ensuring our constituents receive the money they have lost. Mr Richards—who is in the Gallery today—is owed several millions of pounds in redress. This is the only real way forward if we are to help our constituents to get the redress the deserve.
Bob Stewart (Beckenham) (Con)
To be honest, I am surprised, if not shocked, that we are having to debate British banking misconduct in 2018. I suppose I must have been naive to believe for so much of my life that all banks, which I have always assumed to be pillars of the establishment, would deal properly, fairly and ethically with their customers. I assumed that one of their primary purposes was to help their customers to succeed in their businesses. It seems I was wrong in so many cases.
Equally, my eyes have been opened with regard to the Financial Conduct Authority. That body operates independently of the Government and its purpose is clear from its title: it is the financial regulatory body for banks in the United Kingdom and is supposed to ensure that they operate fairly as well as legally. But it clearly is not doing its job in the way it regulates how so many banks deal with small and medium-sized enterprises. The body is paid for by charging fees to members of the financial services industry. I am afraid that I must wonder whether that could sometimes influence the way it acts, or perhaps does not act, at least in some cases.
The reason I am speaking today in this debate is that the D’Eye family, all of whom are constituents of mine, have been hit for six by the Royal Bank of Scotland’s Global Restructuring Group and Dunbar Bank, owned by Zurich. From the story I have been told, Dean D’Eye and his family, and also his friends, have been terrorised by insolvency professionals working for GRG and Dunbar Bank. That is disgraceful. In my view, banks such as Dunbar and RBS, which have taken part in what I consider to be unethical piracy, must be brought to book. The FCA must play a much bigger part in doing this, rather than standing idly by.
We in Parliament have a duty to insist that loans and funding for our small businesses are regulated fairly, ethically and with sympathy for people trying to make a living and to boost our economy. We also need a mechanism to ensure that past wrongs are put right. To get all this, it looks like we may need a public inquiry. If that is the case, I fully support one being set up as soon as possible.
Several hon. Members rose—
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I am afraid that we must now reduce the time limit to four minutes. I am sorry for not giving the next speaker, the hon. Member for Mitcham and Morden (Siobhain McDonagh), any notice of that.
Siobhain McDonagh (Mitcham and Morden) (Lab)
Thank you, Madam Deputy Speaker. To attempt to stay within the time limit, I will abbreviate my contribution. I rise to speak on behalf of two constituents, Mr S and Mr A, who I believe may be in the Public Gallery today, both of whom I have attempted to assist, without success. They have both had a very difficult time.
Mr S is a former owner of a successful club and restaurant business in Chelsea and banked with RBS until 1998. In 1993, his account was suddenly moved to the Specialised Lending Services division of RBS, which was subsequently renamed Global Restructuring Group. Mr S felt bullied by the bank to appoint its manager as a shadow director. In the eight months of this new management, £500,000 went out of his account and to date remains unaccounted for. His club lost its licence and was forced to close. Prior to the bank’s intervention, the value of the business was £2.25 million. At that point, it was just £100,000.
Mr S then spent £25,000 on obtaining a new licence before RBS Specialised Lending Services suddenly ordered payment of £500,000. The bank forced the business to close and tried to develop it for profit. Mr S was evicted from the neighbouring maisonette and made homeless. The bank’s actions lost Mr S his home, his business and, ultimately, his wife. Twenty years on, Mr S is still traumatised and has still not recovered financially.
My second constituent is Mr A, the former owner of an estate company in Kent. In this case, the bank was HSBC. The bank agreed to provide partial funding for a £2.2 million development project that started in 2007. It was approximately 75% complete when HSBC stopped the period funding payments. The UK economy was suffering and HSBC’s policy was to treat construction projects as a “restricted sector” for loans. This restriction came into effect in early 2008. To continue funding that project, HSBC applied to its central committee in Calcutta, assuring Mr A that his case was nothing more than a formality. To enable the project to continue, Mr A personally funded a further £150,000, exhausting his resources. It took a full year until HSBC confirmed that there would be no further funding. The works stopped, the site was set on fire by local vandals and Mr A was forced to issue court proceedings. Two weeks before the trial, HSBC took action to place the business into receivership, signing a consent order to stop the trial, which was accepted by the High Court, bankrupting Mr A.
Mr A has lost his business; he has lost his house; he has lost his savings. He is now living in rented accommodation and depends on state benefits. He is understandably suffering from stress and has been classified as disabled. The consequences of HSBC’s actions are lifelong.
How can it be that in the 21st century banks can behave in this way and are free from any retribution?
Luke Graham (Ochil and South Perthshire) (Con)
I am conscious of time, Madam Deputy Speaker. I am disappointed that we are having to debate this matter at all today, let alone for the second time this year.
The section 166 report highlighted that RBS GRG was focused on profit over customer service. I was also interested to note that the Tomlinson report found few examples of businesses entering the RBS GRG then being returned to local management. On a separate, but related, point, in my own dealings with RBS over its closure of three branches in my constituency, it has been clear that customer service is not the bank’s priority.
I want to touch briefly on how the actions of RBS GRG have impacted upon my constituents. One constituent, who has been in regular contact, is appalled by the conduct of RBS GRG. He ran his own property development business in my constituency and was in the hands of GRG for a number of years. He was so aggrieved by its actions that he produced a 19-page report describing in tragic detail the manner in which RBS denied him the opportunity to rebuild the company after it fell into problems, closed down the company, which he had built from scratch, and tried to evict his entire family from the family home. This is but one example. I know that other Members have many more.
Small and medium-sized businesses are the backbone of our economy and often the lifeblood of our communities. They employ our constituents and pay the taxes that fund our public services—taxes that were also used to bail out the banks, including RBS. It is bad enough we had to bail them out in the first place; for those banks then actively to undermine the very source of their rescue is a serious moral, as well as legal, issue that we are right to consider and which we must address.
There is widespread discontent with the banking sector that admittedly is not limited to the actions of RBS but stems from the financial crisis in 2008 and other subsequent high-profile cases, such as that of HBOS Reading. The only way to restore any semblance of confidence in the banking sector is to hold an inquiry into the treatment of SMEs by RBS GRG. I am pleased therefore that the all-party group on fair business banking and finance has called for a public inquiry. I back that call.
The all-party group has laid out three reforms it believes are necessary to move the sector forward, and I am pleased to support its proposals, especially that for a more rigorous and robust dispute resolution procedure. Currently, victims have only two routes available—one via the Financial Ombudsman Service and one via the courts. As we know, the ombudsman does not always have the scope to deal with cases where compensation is worth more than £150,000, while going through the courts is potentially cripplingly expensive, especially for anyone who has just lost their business.
Any reform must address and tackle the causes that brought us to this point. It is simply not sufficient to recognise that it happened and compensate accordingly—we must improve the current processes and prevent these issues from ever recurring.
Hugh Gaffney (Coatbridge, Chryston and Bellshill) (Lab)
I pay tribute to my hon. Friend the Member for East Lothian (Martin Whitfield) for his important and impressive speech earlier and for calling this debate.
I do not want to speak for long, but I do want to say a few words about the importance of restoring faith and trust in our financial institutions. Recent weeks have brought bad news of further bank closures in Scotland and across the United Kingdom by RBS. Three of the targeted branches are in my constituency, in Stepps, Tannochside and Bellshill. We are continually told that branches are being closed because more people are banking online, but what about the disabled, the elderly and others who want to open a new account? I accept that many people bank differently these days, but I take issue with the speed at which change is being forced through and the damage it is doing to communities along the way.
I ask RBS, if it is watching, to think again. Its closure programme is affecting the worst-off and most vulnerable people in my community and many others, as we have heard today, but RBS will never understand the frustration that customers across Scotland and the United Kingdom feel at these bank closures. Stepps will be a town with no bank at all. That is unacceptable and speaks to the financial isolation and exclusion that can be triggered when these decisions are taken.
I mention all that because our small and medium-sized businesses are going to think twice before seeking to borrow from these financial institutions, and we cannot blame them—not when these banks are prioritising themselves and their profits over the communities they should be serving. They are putting profit before people. I often travel around Scotland and the United Kingdom, and I recently joined the campaign trail around London, and on every high street I see the same thing: “for sale” signs; boarded-up shops; graffiti; small businesses, once a proud part of our communities, closed down, and not because of their own endeavours but because the banking sector did not serve their interests.
This situation worries me hugely, especially as we are about to leave the EU. I campaigned proudly to remain in 2016, and I welcome Labour’s policy on the customs union and those in the Conservative party who might support it. The economic implications for small businesses across Britain of our leaving the EU will be huge, however, and I do not believe we have even started to understand what we need to do to keep them alive and protected from the coming economic shock. I call on the Minister to be loud and proud in getting a better deal for all our constituents and to call a public inquiry so that we can hold the banks to account.
Kevin Hollinrake (Thirsk and Malton) (Con)
I thank the hon. Member for East Lothian (Martin Whitfield) for bringing forward this important debate. Like me, he is an officer of the all-party group on fair business banking and finance, which I co-chair. I also speak today on behalf of Jon and Kerry Welsby and others in my constituency who have suffered as a consequence of the apparent bank-induced failure of business services company Mouchel.
As the motion states, the problems in the banking sector are not restricted to RBS—I will offer evidence to the House later that will widen this debate—but I will deal first with RBS. It is clear that the senior management are directly responsible for what happened, but there are also serious questions that the regulator, the FCA, needs to answer, particularly about how it intends to hold these individuals to account through phase 2 of its inquiry and about the reasons for the fundamental difference in tone and substance between the conclusions of the full report and those of its summary. Its summary sets out its key conclusions, and although it identifies isolated examples of poor practice, it lists eight separate areas where RBS was cleared of blame before later highlighting areas in which widespread inappropriate treatment had occurred.
The full report, released eventually by the Treasury Committee some 15 months later, stated:
“Our central conclusions are that there was widespread inappropriate treatment of customers by GRG”,
that
“in a significant proportion of cases...we assessed”
these businesses
“as being potentially viable”
and that
“the treatment appears likely to have caused material financial distress…for the most part”
as
“a direct result...of the priorities GRG pursued.”
Martin Whitfield
Is it not indicative of the problems of transparency that the delay between the release of the initial report and the full report was unacceptable and that it was only eventually released because of the efforts of Committees of the House and Members of this Chamber?
Kevin Hollinrake
The hon. Gentleman makes a strong point. We should thank the Treasury Committee and its Chair for their work.
As I said, these issues are not restricted to RBS. Many will also be familiar with the HBOS Reading scandal, where former bankers and their advisers were jailed for a total of 47 years in 2017 for activities that took place over a decade earlier, prior to the takeover by Lloyds in 2008.
I have recently been sent by one of those convicted, Mr Michael Bancroft—this was kindly facilitated by my hon. Friend the Member for Stratford-on-Avon (Nadhim Zahawi)—hitherto unreleased documents, including the Project Lord Turnbull report, authored by Lloyds senior manager Sally Masterton, which alleges that senior managers within the bank were aware of the fraud prior to the takeover and the £14 billion Lloyds and HBOS rights issues, yet they took clear, deliberate and documented action to conceal it. Let us be clear: if this is true, it could potentially make the rights issues and the takeover fraudulent. Those named as culpable for non-disclosure in the report include chief executive Andy Hornby, chairman Sir Dennis Stevenson, former CEO James Crosby, corporate CEO Peter Cummings, and the auditors and reporting accountants, KPMG. The all-party parliamentary group will have a full copy of the report and Members will be given access to it. Status, seniority and background cannot be a barrier to justice or to holding to account those who are ultimately responsible for the devastation caused to so many lives and to the wider economy.
Luke Graham
Those papers, which will be made available to the APPG, mention the actions of the auditors, KPMG. Will KPMG be included in the investigation, and should it be the subject of a further debate in this place?
Kevin Hollinrake
They should certainly be included in the wider investigation, which is what I will call for shortly.
The Project Lord Turnbull report raises significant questions. Was there deliberate concealment of the scale of the fraud within HBOS and Lloyds? Who was party to the concealment? Crucially, did the concealment result in significant loss to bank shareholders and to subscribers to the rights issue? We see conflicts of interest in the report and in many other places. They include the auditors, KPMG, giving HBOS a clean bill of health in February 2008, only a few months before its collapse; the audit watchdog, the Financial Reporting Council, seeing no reason to investigate this audit; and the fact that four of the 10 members of the FRC board are partners at KPMG and that it is chaired by former Lloyds chairman Sir Win Bischoff, who oversaw the £14 billion rights issue.
Our all-party group sets out clearly what steps we now need to take. We need an investigation into the serious concerns raised against Lloyds and HBOS. The FCA must build a reputation as a regulator that acts without fear or favour. We need a new primary dispute resolution mechanism, potentially in the form of a financial services tribunal, which also sets aside the statute of limitations. We need a review of the structure of our financial crime agencies in the light of the evidence now before us to ensure that our system of justice is fit for purpose. Finally, the only way in which we can resolve the deep-seated cultural problems in our banking sector and remove the conflicts of interests that are so prevalent is by way of a full public inquiry.
Chris Ruane (Vale of Clwyd) (Lab)
I wish to use these few short minutes to quote from a letter given to me by Martin Wickens, a chartered accountant who has worked closely with my constituent George Jones, a farmer in my constituency, and with hundreds of other farmers and small and medium-sized enterprises across the country that have fallen foul of the predatory behaviour of many of the banks, accountants, surveyors and solicitors who have perpetrated these crimes. Many of the tactics outlined in Martin’s letter were used by those involved in taking money from those SMEs. I want to put an extract from his letter on record in the hope that those who should be investigating these matters will take his evidence seriously and investigate with more vigour. Martin states:
“Despite numerous Complainants reporting the matter to the Police, Solicitors Regulation Authority, Serious Fraud Office and Financial Conduct Authority the matter has not been investigated and repossessions continue. The documentary evidence examined allegedly shows, inter alia, the following in support of the position outlined by The Rt. Hon. Elfyn Llwyd MP and Barrister in his Westminster Debate on the 11th November 2014.
1. Undisclosed conflicts of interest by associated Solicitors, Valuer, Mortgage Broker, Lenders, Business Advisor and LPA Receiver.
2. Valuation Rigging.
3. The payment of substantial secret commissions of up to £92,927 by Commercial First Business Limited to UK Mortgages & Finance Services Ltd, a UK Acorn company.
4. Mortgage Churning and entrapment through destruction of the equity of borrowers by the creation of a vicious spiral of debt by unnecessary and excessive interest, fees and charges in favour of the associated Solicitor Lenders, Mortgage Broker and Valuer by a succession of highly expensive bridging loans.
5. Regulated mortgages advanced as unregulated loans when the lender is not authorised or regulated to do so.
6. Conspiracy to defraud and Document forgery.
7. False accounting and business plans, misrepresentation, unfair relationships in favour of lender, breaches of fiduciary duty and trust, including non-fulfilment of promise to transfer borrowing to cheaper lender.
8. Breach of The Law of Property Act 1925 regarding LPA Receivers fees.
9. Little or no due diligence by lender…and asset based lending with no exit route other than repossession. The average age of the Commercial First Business Limited borrowers is 90…in one case 95…at the end of the 25 or 30 year mortgage term.
10. Separate mortgages on house and land to increase power of lender on repossession and advances to a limited company formed for that purpose which converts a regulated mortgage into an unregulated product with loss of legal protection including that for minors.”
I quote at length to prove to the Minister that these serious charges and allegations cover things that have been happening for 15 years, and nobody has been brought to book.
Will the Minister meet me and Martin Wickens to discuss these serious issues and to make sure they are rectified?
Alex Burghart (Brentwood and Ongar) (Con)
It is a pleasure to have the opportunity to talk in this important, if somewhat depressing, debate. We have heard over and again from hon. Members on both sides of the House that the FCA, the ombudsman and the banks have been found wanting, so we must ask what possible redress our constituents can hope to have when those three bodies are found not to be up to the mark.
A number of cases in Brentwood and Ongar have been brought to my attention, but this afternoon I will just talk to the case of a couple I believe are with us in the Gallery. They took out a mortgage with Halifax, part of Lloyds Banking Group, in 2008. They were not in arrears at the time, but they sought to remortgage in 2013 because they could see things might be difficult down the line. Their request was refused. The couple subsequently did fall into arrears, and the bank sought to repossess their house, which caused them an enormous cost to their wellbeing and health. One can only imagine the stress people go through in such circumstances.
We know LBG is not spotless in this area. In April 2017, the ombudsman found against LBG in the case of a customer who had been stranded on a variable rate mortgage—people in that situation are called mortgage prisoners—and found this had left the borrower in
“a worse position, having to pay a higher rate, which hasn’t been in his best interests.”
A couple of months later, in July 2017, the FCA issued a statement saying that LBG had agreed to set up a redress scheme for mortgage customers who had incurred fees after they fell behind with their mortgage payments:
“Following engagement with the Financial Conduct Authority …Lloyds acknowledged that when customers fell into arrears, they did not always do enough to understand customers’ circumstances to be confident that their arrears payment plans were affordable and sustainable.”
Those two findings in 2017 should have given my constituents some succour and hope, but they had previously taken their case to the ombudsman and consequently found themselves with no adequate redress. Like many hon. Members here today, they subsequently saw the “Dispatches” programmes mentioned by my hon. Friend the Member for Harborough (Neil O’Brien) in which it became clear the ombudsman may not have had quality of judgment in many cases. My constituents have grave uncertainty that they have been treated fairly.
We now find that the bank is disinclined to change its mind. We have reached an impasse. My office, the all-party parliamentary group on fair business banking and finance and the family themselves have been round the houses. They have gone back to the bank, to the FCA and to the ombudsman, but there is no way through. We are left in a frustrating position, and my constituents feel that vital information about their case is not being taken into account. Indeed, we can see no way in which it can be taken into account.
I would be grateful if the Minister considered my constituents’ case as he looks again at the system. I am interested in the APPG’s proposals for an affordable and accessible dispute resolution platform with the powers of a court. We must strive for fairness, and fairness requires honest redress and honest arbitration.
Jim Shannon (Strangford) (DUP)
First, I congratulate the hon. Member for East Lothian (Martin Whitfield) on securing the debate. In my last speech on this matter in this House, I referred to a farm in the constituency of my hon. Friend the Member for East Londonderry (Mr Campbell); the family live in my constituency. I remind the House that they paid back half a million pounds in capital and £535,000 in interest, including £62,000 just to leave the bank they were with and go to another bank. The bank had the audacity to charge £6 for a transfer fee on the £1.25 million balance. What bank was this? It was the bank I am with—the Danske bank in Northern Ireland, the most profitable company in Northern Ireland, with profits of £117 million in 2016 and of £145 million in 2017. Its chief executive has said:
“We are absolutely delighted to have retained top spot in the Belfast Telegraph’s listing of the Top 100 companies in Northern Ireland”.
Would it not have been better had it been in the top 100 for customer care and looking after its customers? That is what we should have had, instead of it trying to make more dividends for its shareholders.
In the time I have available, I shall be speaking about Hubert and Marjorie Armstrong, who have also had a nightmare situation with Danske bank in relation to their property development business, Moorcroft Estates Ltd, which has sites at Glenburn Manor of some 44 units and Fashoda Street in east Belfast, with a plan to build some 47 apartments. On 7 May 2007, Danske advanced the company £1.25 million, which was matched by the business, which had been successfully trading for a decade. Danske subsequently took an additional charge of £300,000 on their family home.
This story is dreadful, and, as happens all too often, it involves health issues. The company was finally insolvent in May 2010. On the preliminary reading, Mr and Mrs Armstrong’s personal efforts to pursue the matter with the FCA are interesting and resonate with much of what I have heard from right hon. and hon. Members in this Chamber today. Mr Armstrong’s is a classic case of where the Financial Ombudsman Service should not be involved now or in the future. It shows why we believe the tribunal is the correct complementary solution, to run alongside the right expanded remit of the FOS. Those of us in the all-party group on the Connaught Income Fund have come across many episodes and examples of where the FCA has failed in its duty as a regulator. We have read of the actions, or indeed the inactions, of the Financial Services Authority and FCA, and the FCA board should hang their heads in shame. Past victims have been ignored.
I am conscious of the time and I am trying to race through this. I hope I am not talking too fast, Madam Deputy Speaker. If I am, I apologise to the Hansard people, who are probably writing furiously at this moment in time and trying to decipher my Ulster Scots. I wish to draw the attention of Members to early-day motion 1162, which we tabled to give Members the chance to record their concerns about how the cases of past victims have been looked at. The FCA board has asked:
“Do you agree that the changes introducing small businesses as eligible complainants should come into effect on 1 December 2018 and that they should apply only to complaints made to a firm regarding acts or omissions of the firm which occur from 1 December 2018?”
That approach is wrong. Let us get it right. I do believe in the tribunal system—I think this should be done—and I wish to conclude by mentioning an article by Richard Samuel on 5 February 2018 headed “Banking disputes: time for a tribunal”. In our view, he sets out compelling and convincing logic for why we should have both the FOS and tribunals. I urge the Minister to look towards that. As I always do, I look to him for a positive and helpful response. Hand on heart, I ask him to help our constituents.
Kevin Foster (Torbay) (Con)
It is always a pleasure to follow the hon. Member for Strangford (Jim Shannon), although we usually do this in Westminster Hall, rather than here in the main Chamber. It is also a pleasure to be called in this debate and to congratulate the hon. Member for East Lothian (Martin Whitfield) on securing it, as it gives many of us an opportunity to speak up for businesses that were so badly treated by their banks. At a time when these businesses needed support and a relationship that looked to the future, they instead found short-term attitudes being taken by their lender, offering them little, other than something they did not want or the opportunity to go bankrupt. It was pretty obvious what the outcome of those choices would be.
My involvement in this has been prompted by the case of Rew Hotels Ltd, which has a number of hotels in my constituency. The business is family owned, and they have been developing and running their service for many years.
Kevin Foster
Thankfully, a stay in a Rew hotel is nothing like Fawlty Towers, although I understand that Basil Fawlty might be about to leave the country following one of this week’s votes.
I have only a short time, so will come back to what I was saying. Around 10 years ago, Rew Hotels was offered a hedge that it really did not want. Its bank at the time was Barclays. It was not a constructive discussion; it was basically a choice of the company either taking a hedge that it really did not want, that would cost it a large amount of money and that would not have any great benefit to the business, or trying to refinance multimillion-pound debt in the middle of a credit crunch. It was obvious what the choice was going to be. The company was saddled with it for several years, but in the end bought itself out. It is estimated that, all in, it lost around £850,000 in the process.
That £850,000 is not just a figure; as Tim Rew, whom the Minister has met, says, it is not just lost money but lost jobs, lost investment and lost opportunity. It is a lost chance to develop new rooms and facilities, and other things to bring guests into Torbay. This is not just a debate about what a profit margin might or might not have been. Fundamentally, there is a feeling of injustice that a small company has had to work to produce that for a very large banking corporation that could have done a whole lot better in its attitude and support.
The Minister will know from his meeting with the Rews that their next frustration came with the methods of redress. One of the initial offers was for them to be given some compensation and, oh yes, to sign up for another hedge. They did not want a hedge in the first place, and now they had the chance to sign up for another. It was literally ridiculous.
The potential alternatives for smaller companies are difficult. Rew Hotels was caught by the fact that, because it is a hotel group and has large numbers of waiting staff and general hospitality staff, it was classed as a slightly more sophisticated investor. I could understand that argument if it was a solicitors company, with 50 or 60 solicitors and accountants and a small percentage of non-professional staff. This company, though, was clearly going to be limited in its capacity to make a professional investment decision, yet because it has a large number of employees, it was designated as though it was a great expert in the financial markets, which was clearly unfair.
I was interested to hear the suggestion in the speeches of my hon. Friends the Members for Thirsk and Malton (Kevin Hollinrake) and for Brentwood and Ongar (Alex Burghart) about looking into a more tribunal-based approach to dealing with some of these cases. Rew Hotels feels that the existing system is like the banks marking their own homework and deciding to give themselves an A, and then saying that even along with compensation a company should have what it does not want.
I have every confidence in the Minister, who I know has an understanding of tourism, given his previous role. I hope that he will consider carefully some of the arguments made in this debate and that we can give companies and those who have been victims a proper system of redress, other than costly legal action.
Stephen Kerr (Stirling) (Con)
It is a pleasure to follow my hon. Friend the Member for Torbay (Kevin Foster), and I congratulate my friend, the hon. Member for East Lothian (Martin Whitfield), on securing this important debate.
Let me start with what we all hope is a mythical three-headed beast that guards the gates to hell: Cerberus, the veritable hound of hell. However, this beast is not mythical, but one of the largest private equity firms in the world. Its interests include private armies and arms manufacturing; it structures itself in such a way that it pays virtually no tax; and it likes to go shopping in the UK for commercial loan books. In Scotland, it has purchased almost all of Clydesdale bank’s commercial property loan book. Rather than run down its book as RBS’s Global Restructuring Group did, Clydesdale took a more straightforward approach: it sold its book to henchmen to do the work for it. Let me be clear, these are not necessarily non-performing or toxic loans; they are just non-core to the Clydesdale.
Why does Cerberus like to shop here? It is quite simple, and a matter of interest to me as a member of the Business, Energy and Industrial Strategy Committee: commercial lending is unregulated and our insolvency system is one of the most creditor-friendly in the world. Firms can buy a loan book, scour the one-sided contracts for any technical breach and, even if a loan is being serviced, put the company into administration, sell the assets and, if there are personal guarantees involved, go for personal bankruptcy and the family home of the guarantors.
All that brings me to an illustration of the individual human toll of banking misconduct. Let me read some very poignant words that were sent to me by a constituent. This businessman’s experience relates to Clydesdale bank, but we all know that we could substitute the name of almost any bank. He says:
“One very personal matter I can confide to you”
is that
“as a direct result of Clydesdale Bank’s strategies, actions”
and
“correspondence, I had a nervous breakdown, coming very close to a life-threatening condition.”
He goes on to say:
“Many business people would not admit to the shame of the impact that Clydesdale had on their life and that of their families. For that reason alone and not that of revenge or financial redress I would ask that this issue is brought out into the open for MP’s to discuss the legacy left. It has been a very high cost in many ways.”
Finally, he says:
“My business interests have survived just, but I can no longer play any part in developing the Scottish economy as a result of that period, and that is a high cost and a loss to the Scottish economy.”
I am very grateful to him for giving me his brave testimony. It is truly shocking that an individual who only ever set out to generate an income and run a good business has been not only financially damaged, but stripped of his plans and his ambitions. His is just one story, one life ruined, but of course we know that it is replicated in every constituency across the country. What has our small business community done to be treated in this way? Surely it deserves better. It has never been more important for the British economy—
Kirstene Hair (Angus) (Con)
Does my hon. Friend agree that the recent section 166 report into the Royal Bank of Scotland’s misconduct was limited to only those cases from 2008 to 2013, which means that victims such as my constituent Mr Nigel Henderson, who was going through this from as early as the 1990s, does not have a voice?
Stephen Kerr
My hon. Friend makes her point, which I will repeat: surely these business people deserve better. It has never been more important for the British economy to support small businesses; they are the engine for growth. We need to draw a line in the sand, provide redress for those still suffering as a result of bank misconduct and put safeguards in place so that this cannot happen again. If we are to learn anything from the scandals that have plagued the commercial finance sector, it is that we must look at the way that we treat our businesses. That is why I support the motion today, and why I reiterate my support for a full public inquiry.
Kirsty Blackman (Aberdeen North) (SNP)
I will not say that it is a pleasure to speak in this debate, because it is not. The stories that we have heard from across the House today are absolutely harrowing. It is clear that each one of us represents constituents who have been affected by what RBS, GRG or one of the other banks have done in the pursuit of profit.
I must declare an interest: my cousin, her husband and their four children were one of the families who were affected by RBS and GRG. In fact, their business was put into the GRG and, as late as 2016, they were made homeless as a result of GRG repossessing the farm in which they lived, so a couple with four children were made homeless by GRG. I felt that it was important that I declared that as an interest.
One of my constituents, who I hope is in the Public Gallery today, has also been to see me in relation to his experiences with GRG. I will not say exactly what GRG did, because that has been widely covered by a number of Members this afternoon. His wife suffered a cardiac arrest as a result of the stress and subsequently died. We have also heard about people committing suicide as a result of what happened with GRG. One Conservative Member—I apologise, but I forget who—talked about the fact that companies jumped through all the hoops they were asked to jump through and yet were still relentlessly pursued for money that they were said to owe because of over-inflated interest rates. This was a relentless pursuit of profit. My constituent who approached me is very clear that there needs to be a public inquiry, and I absolutely agree with him.
This issue has destroyed lives. It is impossible to overestimate how hard it is to be a small business owner anyway. It is difficult to run a small and medium-sized business, particularly if a person has not run one before. It is also a lonely occupation. A person is there trying to run a business by themselves. They may never have done that before, and their bank is supposed to be there to support them; they are supposed to be there to provide them with finance to ensure that they can run a successful business. They are not supposed to pursue people for the assets that they want to gain for themselves.
We have not covered how much of a cabal this situation has involved. The reality is that a very small number of people were running GRG. In fact, some practices that have been raised with me involved these people trying to cover their own backs by encouraging one small business owner to take over the assets of another small business owner at a particularly low price, so that that person’s balance book could look wrong. It is horrendous if those things happened, but they were able to happen because of the very small nature of such organisations and the fact that people were not able to talk about them because they were being told that they were in debt.
Patrick Grady (Glasgow North) (SNP)
I, too, have had constituents affected by this, and I agree with many comments made throughout the debate. My hon. Friend is making the case for a public inquiry, otherwise it will fuel suspicions that there is an attempt to continue to keep this matter away from the public eye. She also highlights the fact that we are talking about the Global Restructuring Group. Does she agree that the Minister needs to tell us whether there is international exposure on the activities of the Royal Bank of Scotland—that is, whether these practices were used in some of its overseas activities and whether it is liable for the results of any such behaviour?
Kirsty Blackman
This has not been widely covered in anything that has been published so far in relation to GRG. It would therefore be incumbent on any inquiry to take that into account.
The hon. Member for Thirsk and Malton (Kevin Hollinrake) mentioned the issues with the section 166 report and what was initially published. He made an important point, and I echo his sentiments. For hon. Members who have not read the report, it makes for devastating reading and is worth looking at.
The reality is that the redress scheme is not good enough. For a start, it does not have enough money to compensate victims adequately for what has happened to them. RBS will never be able to afford to fund all the claims being made by small or medium-sized businesses. As the redress scheme is run by the bank itself, it is fairly easy for the bank just to pay out to the victims, where the bank now has majority ownership and is therefore one of the main creditors. If there is not adequate external scrutiny, such situations can arise without check.
GRG was in the wrong. Everybody in this House agrees that GRG was in the wrong. RBS agrees that GRG is in the wrong, which is why it has a redress scheme. It is clear that the time for talking has passed. All of us standing around here are clear that something needs to be done. This issue has united the House, which does not happen very often. It is in the power of the Government to take actual action and to create a real system with proper redress.
Joanna Cherry
Does my hon. Friend agree that the Minister needs to give us some tangible gains to take away to our constituents—including my constituents Mr and Mrs Neave—as a result of today’s debate. We have been going around the houses for years now, as the hon. Member for Brentwood and Ongar (Alex Burghart) said.
Kirsty Blackman
I absolutely agree. The time for talking about this is over. It is time for the Government to take action. It is time for action to ensure that all our constituents can claim the redress that they should and that all business practices that devastated people’s lives are properly brought to light.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
It has been a sobering experience to listen to this debate. We have heard so many stories and so much advocacy from hon. Members on behalf of constituents. I commend everyone who has spoken today. I thank my hon. Friend the Member for East Lothian (Martin Whitfield) and the all-party parliamentary group on fair business banking for securing this debate on a topic that continues to be of such critical importance.
In my remarks I want to restate the Opposition’s support for a full public inquiry; talk a little about the current inadequacy of the regulator and the section 166 procedure; state why an independent mechanism of redress for business is clearly required; and say why this is in the best interests not just of customers and the country, but of the banks themselves.
This debate shows that the issues around the relationship between banks and their business customers are not fading, diminishing or going away. Rather, in recent weeks we have continued to hear yet more appalling revelations about the way in which RBS’s Global Restructuring Group treated its customers and stories of how that had spread to other financial institutions, too. Following the efforts of my hon. Friend the Member for Norwich South (Clive Lewis), we can now read the full section 166 report on the conduct of the GRG unit. The extent of the inexcusable behaviour revealed in that report is truly shocking. The purchase of the assets of distressed businesses, in some cases by RBS staff themselves, illustrates just how deeply the conflicts ran within GRG. Clearly, certain bank employees felt that they could act with total impunity towards their customers, and that cannot be acceptable.
We are all aware that the complaints process is ongoing between RBS and its former business customers who were the victims of GRG. However, I echo the call made by my hon. Friends the Members for Norwich South and for Sefton Central (Bill Esterson) in the debate that took place earlier this year in saying that this issue demands a full, independent public inquiry. Given the revelations exposed in the section 166 report, there must be a comprehensive examination of whether criminal liability has occurred, and those responsible must be held to account. In addition, given that certain individuals involved in GRG’s management continue to work in senior positions within British banking, surely an objective assessment should be made as to whether those people are fit to do so.
I am afraid that the Government’s response on this has so far fallen short—for instance, in the Treasury’s repeated cut-and-paste responses to the numerous parliamentary questions tabled by my hon. Friend the Member for Sefton Central since December 2017. The Treasury has simply deferred the issue time and again, saying that it is impossible to comment while the Financial Conduct Authority’s investigation is ongoing. Will the Minister please acknowledge today the strength of feeling in all parts of the House?
Another key issue is the effectiveness of the existing system—in particular, the use of section 116 reports and whether that is entirely appropriate to deal with these cases. A section 116 report, or skilled person’s report, is conducted by a third party appointed by the Financial Conduct Authority. The cost is met by the subject of the investigation, and it can range from hundreds of thousands of pounds to millions of pounds, but the reports remain entirely confidential. This lack of transparency is not good enough.
Kevin Hollinrake
The hon. Gentleman mentioned executives from RBS who are still earning large amounts of money within the financial services sector. Is he aware that Nathan Bostock, a senior director within GRG, currently earns £1.6 million as chief executive of Santander and £1.8 million a year from RBS as part of his payoff?
Jonathan Reynolds
I am grateful to the hon. Gentleman. These are the questions that need answering. People have told me that they worked for RBS and left because they were unhappy with the conduct of the bank. Surely they should also be allowed to put their case in a proper way.
Returning to the confidentiality of section 166 reports, I have to put on record the disquiet, certainly among Opposition Members, about the discrepancy between the FCA’s summary of the investigation into GRG and the actual report in terms of the former’s heavily sanitised nature. Now that the report has finally been made public, we can fully witness the extent to which relationships with business customers were abused. Under normal conditions, however, the report would have remained confidential. That cannot be appropriate, because it furthers the perception that the odds are stacked against businesses. We need processes that are transparent and fair, and command the confidence of everybody. We also need to look at who is asked to undertake these reports and any conflicts of interest that they might have.
As many Members have pointed out, small businesses are the backbone of our economy. If they cannot trust the financial institutions that are meant to serve them, we are all going to pay the price for that. Statistics show that up to half of all SMEs are non-borrowers, although we do not know whether that is because they do not feel they can trust their banks or simply feel too anxious to expand by taking on credit. As a country, we all acknowledge that we need to offer those businesses the right incentives and support to grow. We need to solve this crisis of trust in business banking. An independent arbiter who can fill the gap between the Financial Ombudsman Service and the full legal route for redress is a minimum sensible starting point for consideration. We await with interest the outcome of UK Finance’s independent review, chaired by Mr Simon Walker, of complaints handling and alternative dispute resolution for SMEs, which could provide a steer.
However, I do not believe that this industry can be allowed to self-regulate, and that is why an independent platform must be considered. Like many Members who have spoken today, I believe that the restoration of trust in business banking is essential, but it will not come without the Government taking decisive action. A public inquiry, redress for victims, accountability for those responsible and a new independent system of redress are surely the right places to begin.
The Economic Secretary to the Treasury (John Glen)
First, I congratulate the hon. Member for East Lothian (Martin Whitfield) on securing this debate and thank the Backbench Business Committee for granting it. I have listened carefully to more than 20 speeches and 30 contributions, and I would like to acknowledge the request from the hon. Member for Vale of Clwyd (Chris Ruane) and my hon. Friend the Member for Brentwood and Ongar (Alex Burghart) to address specific cases; I am happy to engage with them on that.
Considering the developments in the case of RBS Global Restructuring Group since our debate on 18 January, it is absolutely right that we revisit this important subject. As Members across the House have said, small and medium-sized businesses are the backbone of our economy—I grew up in one—and they depend on financial services providers for vital finance through lending, but those transactions must be in the strictest accordance with the law. Let me be clear: wherever that has not been the case, any business affected should be compensated.
I have listened carefully to a whole range of stories from Members this afternoon about people who have clearly been badly let down. I had the privilege of meeting hoteliers in the constituency of my hon. Friend the Member for Torbay (Kevin Foster) who were treated in an appalling fashion and given products that were clearly not suited to their needs. That has been replicated in very many cases. I have been moved by the numerous letters I have received from Members on behalf of their constituents, many of whom face significant difficulties as a consequence of their treatment by RBS GRG.
I want to reassure the House that the Government and the Financial Conduct Authority take this issue very seriously. I understand the frustration about the timing of resolution, and I want to address specifically what I have done as the Minister since January. In March I met Andrew Bailey, chief executive of the FCA, and stressed to him just how important I consider the proper and full resolution of the RBS GRG issue to be, which he agrees with. The skilled person report produced for the FCA stated that there were areas of widespread inappropriate treatment of firms by RBS. That is unacceptable.
I went on to meet the chief executive of RBS recently, to discuss the range of issues that were raised then and have been raised again today. Following that meeting, I was pleased to receive a letter from the chief executive addressing a number of the points that colleagues have raised today. RBS has committed to setting up an independent appeal process for consequential loss claims, addressing a gap that existed in the redress scheme, and it is discussing with Sir William Blackburne how that process will operate. RBS has also agreed to stand aside —rightly, in my opinion—from any money that might be returned to it from redress paid to liquidated companies and will donate that money to charities supporting small businesses. I welcome those important steps in improving the operation and transparency of the redress scheme for businesses affected by RBS GRG.
As Members will be aware, the Treasury Committee has published the FCA’s full report on RBS GRG. The FCA is now conducting the second stage of its investigation, which is a more focused investigation into the matters arising from the report. It has moved on quickly, so that we can examine the issues more quickly than if we had gone through an alternative process. I have confidence in the FCA’s approach and direction on this case. I am meeting Andrew Bailey regularly, and I hope that the FCA will conclude its investigation soon, by which I mean in the next eight to 12 weeks. As I mentioned in our debate on this topic in January, I do not wish to complicate the matter further or prejudice any outcomes while the FCA is investigating, but I am very clear that I expect it to conclude its investigations in a very short timeframe.
The FCA’s independence is vital to its role; it was vital before 2010, and it is vital now. Its credibility, authority and value to consumers would be undermined if it were possible for the Government to intervene directly in its decision making.
I would like to turn now to the broader issue of alternative dispute resolution methods between SMEs and banks and to some of the issues around professional services that were raised in the debate.
Kirsty Blackman
Will the Minister commit to, if possible, putting the RBS letter in the Library, so that we can all see it? Will he also ensure that when the FCA does conclude the final part of the report, we can all see the full version as soon as possible?
John Glen
I am grateful for that intervention. I am happy to clarify that the letter has been copied to the chair of the APPG and the Chair of the Select Committee, and I will make it more widely available.
There are already a number of avenues for SMEs seeking a resolution when dealing with their bank. Our smallest businesses have the Financial Ombudsman Service. I am of course aware of the “Dispatches” programme, and I have met the chief executive. The FOS is reviewing its operations and addressing the matters raised.
Where there are widespread issues, the FCA can ensure, and has ensured, redress through industry-wide or firm-specific redress schemes. Of course, there is also the usual legal process open to business, although I know this can be a time-consuming and costly process.
Since the last debate, the FCA has published a consultation paper on expanding the remit of the Financial Ombudsman Service, which would widen eligibility to include a greater range of SMEs.
Joanna Cherry
On the point about legal redress, does the Minister not appreciate that a lot of our constituents have lost everything. If they are in Scotland, they might be lucky enough to still be eligible for legal aid, but many legal aid lawyers are not equipped to take on this sort of complex action, so this is a real David and Goliath situation. That is why we need the tribunal.
Clive Efford
My constituents became involved in this not because they had an SME, but because they were trying to get a mortgage and were forced into this process. The mistake was made with the first loan that was given to them, but the ombudsman will not recognise that and look into it. What we need is more pressure on the ombudsman to listen to the consumer and not the banks.
John Glen
I listened very carefully to the case the hon. Gentleman outlined, and I recognise the challenges that the FOS has to face up to. That is why I welcome the FCA’s investigations and the FOS’s own investigation following the “Dispatches” programme.
It is important that the landscape for dispute resolution for SMEs does not discourage or inhibit the ability of banks and small businesses to resolve disputes between themselves in a satisfactory way, where possible. I therefore welcome the reviews being undertaken in this area by the APPG on fair business banking and finance—ably led by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) and the hon. Member for East Lothian—and by UK Finance, as well as the Treasury Committee’s ongoing interest in this area. When the findings of these reviews are published, we will consider them carefully, along with the outcome of the FCA’s current consultation.
In the interests of time, I will briefly conclude by summarising the Government’s position. It is right that we wait for the conclusion on GRG of the FCA’s investigation of the matters arising from its skilled persons report before determining what further actions need to be taken, and I reserve judgment on what they could be.
On dispute resolution more widely, we must acknowledge the existing avenues, including the work that is going on in terms of reviewing and enhancing the Financial Ombudsman Service’s provision. The FCA is progressing its work looking at the relationship between SMEs and financial services providers, and the APPG and UK Finance are undertaking their reviews as well. In the light of all the work going on, and the imminent conclusion of it, it is important that I consider that before we take alternative routes.
Once again, I thank all Members on both sides of the House who have raised very important issues on behalf of their constituents. I remain engaged to find a solution—a solution that works for all of them.
Martin Whitfield
I thank the Minister for his response, but I also want to thank the 18 Back Benchers on both sides of the House who have spoken with a single voice. We are concerned about our constituents, who have been let down by the banking system. At the moment, we are in a cul-de-sac of regulation and dispute resolution, and this is going nowhere.
I hear what the Minister said about awaiting the report. By my calculation, it will be out in August, by which time other reports will be available. May I book an August slot now, Madam Deputy Speaker, should we need to return? Let us hope we do not need to return to this, but our constituents are not going away and we, acting on their behalf, are not going away either. I look forward to having such a discussion in August, when we may have a more positive response about a public inquiry and an independent tribunal and about the responsibilities of other professionals connected to the banking service.
Question put and agreed to.
Resolved,
That this House welcomes the public disclosure of the Section 166 report into the conduct of RBS Global Restructuring Group (GRG); is concerned about the fundamental difference of tone and emphasis between the summary produced by the Financial Conduct Authority (FCA) and the full report; believes this calls into question the strength and independence of the regulator; notes that the concerns raised in the debate on 18 January with regard to the financial services sector, which is not limited to RBS and its advisors, not only persist, but are amplified by the conclusions in the report; calls on HM Treasury to instruct the FCA to move on to phase 2 of the investigation into the root causes of the conduct of RBS GRG by a body independent to the FCA; and once again calls for an independent inquiry into the financial services sector and the associated industries that have allowed misconduct to thrive, and the establishment of an independent mechanism for redress for businesses.