Financial Services (Banking Reform) Bill

Baroness Cohen of Pimlico Excerpts

Wednesday 27th November 2013 Lords Chamber

[Lord Eatwell]

I should point out to the noble Lord that the case he has described would come, under the terms of my amendment, under duty of care, not fiduciary responsibility.

[Baroness Cohen of Pimlico (Lab)]

My Lords, as a lawyer I have always believed that I have a contract with my bank, inasmuch as it is making an offer capable of acceptance and I have accepted it, in the case of provision of deposit and current account services, which I believe are the areas which my noble friend Lord Eatwell is proposing to cover. I do, however, support the amendment. It never does any harm to repeat these things. By analogy with part of the criminal law, it has been illegal since 1861 to beat one’s wife, but it took the Domestic Violence and Matrimonial Proceedings Act 1976 to remind the general public and the police of their duties in the matter.

The real problem lies with how to enforce any of this. Through all these debates I have found myself wondering where our lawyers are. Why have we not been suing banks? In many cases there is a perfectly clear case of action against a bank. The answer, of course, is that they are many times bigger than us and have more resources than any individual. If the purpose of the amendment is to encourage, or indeed force, the regulators to take the action on our behalf, which we are not about to do because of the risk of very severe financial consequences, it will be well received by everyone. In any case, I support the amendment.

--- Later in debate ---

[Lord Lucas (Con)]

My Lords, I am interested in a side effect of this amendment. I hope that it may result in us taking a proper look at high-frequency trading, which seems to me to be pretty close to theft, organised on behalf of stock exchanges at the expense of the rest of us in mutual funds and pensions. It seems extraordinary that we allow a certain group of investors privileged access to the stream of information coming out of an exchange, and allow them advantages over real investors. Real investors invest in real funds for long-term real return, performing the function of the market in terms of the allocation of capital and giving people an opportunity to invest their money at risk for return in order to enable them to live in retirement and to prosper from giving other people the use of their money. These are important functions of the market and high-frequency trading seems to me to be parasitical on that.

I have heard it argued that it improves, net-net, the terms on which investors are able to trade. That is not what investors tell me. They say it is as if someone is moving ahead of them. Every time they get into the market they can feel the market being moved ahead by the high-frequency traders. I think that that is an aspect of proprietary trading to which we should pay close attention, and I very much hope that this review will allow us to do so.

[Baroness Cohen of Pimlico]

I support the amendment. Most of what we are legislating to do is prevent banks doing terrible things to customers. Proprietary trading allows banks to do terrible things to themselves. They are no good at controlling it. The real horrors and the things that, more importantly, threaten the financial system are banks getting proprietary trading horribly wrong. There are examples of distinguished banks coming completely unglued in this. Deutsche Bank, UBS and Morgan Stanley all spring to mind. They seem to have a completely uncontrollable Wild West operation—and if the owners of the operation cannot control it, is it not a serious risk to the financial system and something that, as the noble Lord, Lord Lawson, suggested, should not be taking place inside a bank?

[Lord Hamilton of Epsom (Con)]

I, too, support the amendment. The problem that we have in the City today is that everything is moving so fast, and that traders have the capacity to use computers for all sorts of things. My noble friend Lord Lucas talked about high-frequency trading. I suspect that in three years’ time the new way of operating and making money will be something that none of us has even dreamt of. It is very important that this is reviewed and that there is an opportunity to take a very close look at it in a few years’ time.