Financial Services Bill

Debate between Lord Bishop of St Albans and Baroness Kramer

3rd reading & Report stage
Monday 19th April 2021 Lords Chamber

[The Lord Bishop of St Albans [V]]

My Lords, I will be brief in my support for this amendment. I am very grateful to the noble Lord, Lord Sikka, and the noble Baroness, Lady Bennett of Manor Castle, for speaking at great length. I therefore do not need to add a huge amount more, not least as I intend to go into a bit more detail on my concerns about transparency when speaking in support of Amendment 34, which touches on similar issues of accountability.

I am a little puzzled why the noble Baroness, Lady Neville-Rolfe, thinks that this is a case of bad cases making bad laws. It seems to me that there have been very considerable concerns in the past. Surely those ought to be investigated.

We are facing a real crisis of trust in public bodies at the moment, and I believe that this amendment will be a beneficial addition to this Financial Services Bill. In making provisions for an additional layer of transparency, it will act as an incentive against any possible interference; whether done formally or informally, it will still have that effect. The truth is that we do not know whether ministerial interference in FCA investigations has occurred, and positively stating either way is speculative.

Although I was not privy to the written response from the noble Earl, Lord Howe, which he promised to send to the noble Baroness, Lady Kramer, confirming whether there were provisions within the Ministerial Code to allow for interventions in FCA investigations, the assumption in Committee was that any attempt to steer an FCA investigation would constitute a breach of the Ministerial Code. That would require breaches of the Ministerial Code or other offences to be taken seriously, and not treated lightly or even dismissed. Last year, an inquiry found evidence that the Home Secretary had breached the Ministerial Code, yet the consequences extended little further than an apology. In February, it was revealed that the Health Secretary had acted unlawfully when his department failed to reveal details of contracts signed during the Covid-19 period. Just before Easter, we all started reading about allegations surrounding conflicts of interest in a former Prime Minister’s dealings with the financial services firm Greensill, and there have been concerns about the current Prime Minister’s dealings during his time at City Hall. It is vital that, if we are to rely on breaches of the Ministerial Code, they are given some teeth and have some effect.

I have no evidence, but it may be that no Minister has ever interfered in any FCA investigation, in any way. I sincerely hope that that is the case, but we cannot rule it out. If interferences have occurred, it would be doubtful to assume that investigations are always steered in the interests of consumers. Although provisions are in place to prevent misconduct, they should not discount the contribution that this important amendment can make in strengthening those rules and further disincentivising any possible ministerial interferences in FCA investigations. If Her Majesty’s Government have concerns about small parts of the wording here, I hope they come back with some improvements to ensure that the levels of transparency are clear to everybody, in every part of the system.

[Baroness Kramer (LD)]

My Lords, unfortunately, I did not bring with me a copy of the letter that the noble Earl, Lord Howe, kindly sent me in response to my question about the Ministerial Code. I expect that a copy is in the Library and available to everyone, but I am sure that the Minister will follow through. While reading the content was reassuring, I do not want it to be a distraction—it is one of the reasons that I have not signed this amendment—from the underlying issue of whether there is adequate transparency to act as the cleansing light that we need in an industry sector that will always be subject to misbehaviour. There is just too much money and opportunity, and an awful lot of power, washing through this industry. Insight, clarity and visibility are probably more important than in almost any other sector of our economy.

The noble Baroness, Lady Neville-Rolfe, talked as if all the misbehaviour was in the past, but we are talking about Greensill today and I have questions. I know that there are many task forces and investigations going on, but I still have no understanding of how a company with as many red flags against it as Greensill got through the accreditation process to enable it to participate in the CBILS. Other than writing to the British Business Bank—and I doubt that I will get an adequate answer—I am not sure what mechanism I can possibly use to get to the bottom of that. We do not have transparency in the areas where we need it.

I remember many conversations, in the midst of the 2008 financial crisis and subsequently, with regulators that were anxious not to rock the boat. The economy and industry were fragile enough, and they were disinclined to investigate. It is to that which I have always attributed the FCA’s inaction with regard to HBOS. I support the description of the HBOS crisis given by the noble Lord, Lord Sikka. It was purely by chance that the fraud—it was literally fraud that sent people to jail for 10 years—at HBOS was exposed. Thames Valley Police decided to investigate when all the regulators, the Serious Fraud Office and the most relevant and obvious police forces had refused. Part of that was due to a lack of resources, from the police forces’ perspective.

I do not think I have ever forgiven the Treasury for its actions in this regard. It cost £7 million for Thames Valley Police to investigate that fraud and it was never reimbursed that money. The fine, of about £45 million, went to the Treasury and was deliberately not shared with the police force. Had it been, it would have encouraged and enabled police forces around the country to be more acutely aware and engaged when there was evidence of fraudulent behaviour. Even today, the various companies that were defrauded have not yet been fully compensated. Nearly 14 years on, it has not been resolved. We have two more bodies now involved in trying to clean up that mess.

The other area that leaves me with great concern is that the response I always get when I raise issues around transparency and enforcement in financial services is: “We now have the senior managers regime.” I was on the Parliamentary Commission on Banking Standards, which drove a lot of the thinking that led to that regime, but, as we have often discussed in this House, it has been holed below the waterline by decisions of the FCA not to pursue senior executives. We know mostly about Barclays and Jes Staley—who had hired private investigators to track down a whistleblower—being fined but not declared unfit to hold his position. The fine was of a size that was more than made up by the bonuses he received in the following years, so it was pointless.

We have an underlying problem. It is not that the senior managers regime does not do some good—it establishes some procedures and processes—but it focuses on more junior people and does not hold people accountable at the senior level. With Greensill coming into the picture now and triggering a much wider discussion, I very much hope that the Government will take back the message that they have to sit the regulators and the various enforcement bodies down, and work out a way to make this system more effective. They are up against powerful forces and there is inequality of arms, but this industry has to be kept under oversight and control because, when it goes wrong, it takes a large part of our economy with it, as well as creating many individual victims.

Financial Services Bill

Debate between Lord Bishop of St Albans and Baroness Kramer

Committee stage
Wednesday 10th March 2021 Grand Committee

[The Lord Bishop of St Albans [V]]

My Lords, I apologise; I am so sorry.

I am glad to speak in support of Amendment 107 in the names of the noble Lord, Lord Sikka, and the noble Baroness, Lady Bennett of Manor Castle. Throughout the course of this debate, there have been a number of comments on the current functioning of the FCA, the scope of its remit and whether it is properly undertaking its duties.

As the noble Lord, Lord Sikka, pointed out, there have been occasions when financial misconduct has not been fully disclosed, and it is worrying that this may have been due to interventions from those within government. As we establish our new position in the world following Brexit and seek to build on our financial services sector, it is vital that we are known for our honesty and transparency throughout the world. Our future will depend on this. So surely the amendment is entirely uncontroversial. The FCA is meant to be an independent regulator, not a direct arm of the Government. Hence, if Ministers have sought to intervene in any sort of FCA work or investigation, it should be a matter of transparency and disclosed.

Recently, the FCA dropped its investigation into Lookers, arguing it had instead made its concerns clear relating to the

“historic culture, systems and controls”

of the group. Why the investigation was not carried out to the full remains unclear—certainly to me, despite trying to find out. I imagine that many, including me, find the FCA’s answer unsatisfactory. It does not give us the assurances that we would hope an independent regulator would give.

Some commentators have noted that the dropping of this investigation seemed to coincide rather conveniently with the FCA’s new rules relating to car finance, brought in at the end of January 2021. Yet even these changes fell short of a mis-sell, which would undoubtedly have cost the providers of finance billions—strongly hinted at by the FCA’s 2019 report into car finance.

How the FCA came to its decision was in-house, even if it was sometimes perplexing to those of us outside. Nevertheless, in this instance, for example—and in many others—what we do not know is whether there has been any direct ministerial intervention to steer the FCA into any specific course of action. Many people would like reassurances that any intervention should be made in the interests of all and for the common good, particularly in customers’ best interests.

The amendment, in shining a light on what happens behind the FCA’s closed doors, would be a valuable addition to the Financial Services Bill. It would help in a mission that I know many in this House share to create a more transparent, robust and, dare I even say, moral financial system that in the long run will benefit all of us. I hope that the Government will look closely at either the amendment or something similar as we return to the matter later during the passage of the Bill through your Lordships’ House.

[Baroness Kramer (LD)]

My Lords, I need to spend more time, frankly, trying to understand the amendment. I would be genuinely shocked if Ministers interfered with an investigation of any of the regulators—certainly the FCA, the body at the centre of the amendment. I am not sufficiently familiar, I confess, with the Ministerial Code, but if the code does not make that clear, it would seem absolutely necessary that it does.

I perfectly understand concerns about the effectiveness of the FCA as a regulator in dealing with wrongful behaviour. It needs to be much more aggressive and transparent. We have talked earlier in Grand Committee about the HBOS Reading fraud scandal. The FCA was finally pressured into commissioning a report from Promontory, then did not publish it—only a summary that did not reflect in any significant way the actual conclusions of the report. That was extremely disturbing. We have also talked about the FCA’s actions under the senior managers and certification regime against Jes Staley, chief executive of Barclays—