Financial Services Bill

Lord Carlile of Berriew Excerpts

Tuesday 3rd July 2012 Lords Chamber

[Lord Eatwell]

I certainly think that Mr Tyrie and the Treasury Committee can and will pursue their activities in their normal way, including perhaps the pursuit of this particular inquiry. As to the future policy of the Opposition on the organisation of that inquiry, we are trying to achieve the best possible outcome. I see the best possible outcome as a three-dimensional one.

[Lord Carlile of Berriew]

My Lords, I welcome the opportunity for this short debate on a matter of great public interest. I have to say to the noble Lord on the opposition Front Bench that the Opposition have asked the right question but given the wrong answer to that question. The LIBOR issue is an immense financial scandal. It appears to have not just the scope of one bank, but possibly to affect other financial institutions. It affects not only what has happened in the United Kingdom, but affects at least four jurisdictions, including the United States of America. It affects the reputation of the City of London in a major way. Those of us who are as old as I am remember bankers in the City of London by the adage, “My word is my bond”. Now we see, “My Maserati is my success”, as the evidence of what happens in the City of London. I hope that noble Lords of all parties and none will agree that, as a result of this scandal, we need to emerge from it with “my word” being “my bond” once again. The trust in the City of London is why the City of London succeeded in the past. It will not succeed in the future if those who do business there, if I may use a Scouse expression, are seen merely to be “wide loads”.

What has happened undoubtedly potentially merits investigation for criminality. I do not believe that a parliamentary inquiry is the right way to winkle out criminality, welcome though a parliamentary inquiry is. It is not a way in which criminal investigations are carried out. In fact, it is a ludicrous proposition to suggest that this is the job of a parliamentary committee, however well led. I do not for one moment question the leadership and integrity of Mr Tyrie. He is obviously very good at what he does. I do not favour a judicial inquiry, because a judicial inquiry can quickly become a behemoth. I do not draw a comparison with the Leveson inquiry. Lord Justice Leveson is not merely an old friend; he is doing a brilliant job with a very specific inquiry of an entirely different kind. However, I fear that if a judicial inquiry were established, within a few days we would see some of the best lawyers in London—including some Members of your Lordships’ House—earning vast sums of money from lining up in front of a senior judge, expecting an outcome at some distant time, possibly in this decade, possibly not.

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[Lord Howard of Lympne]

Could not the investigation that my noble friend asks for be carried out without the appointment of a special prosecutor but by the Serious Fraud Office, which has already embarked on such an investigation, with the director, if necessary, asking for additional resources to enable him to bring such an investigation to a speedy conclusion?

[Lord Carlile of Berriew]

I am grateful to my noble friend, who has considerable experience of dealing with high-level legal matters. I believe that might be achieved, but in my view there needs to be the clearest statement of intent by the Government. My intention, as my noble friend implies, is that whoever carries out this special investigation should be invested with the powers of the Serious Fraud Office, which are considerable and important. That is why I suggested earlier that this should take place under the instructions of the director of the Serious Fraud Office, Mr David Green QC. However, I believe that the Serious Fraud Office is completely unresourced for this kind of investigation. I also believe that in public terms, if the Government made it clear that they would provide Mr Green with the resources immediately to appoint a special prosecutor, albeit under his umbrella, and that person was provided with a team, probably largely from outside the SFO, which has been recruiting a large number of staff recently and may not have the experience to deal with this inquiry at present, then we would have a quicker and better result.

I do not want to detain your Lordships’ House for too long. However, I want to make the point that we have not yet reached the situation in which the essential issue is being investigated properly—that is, the potential criminality of those whom we were entitled to trust.

[Lord Phillips of Sudbury]

My Lords, I came to the City as a young lawyer in 1964 and am still there. Until last Christmas, I was a non-executive director of a well known City insurance entity. I agree wholly with the sentiments of the noble Lord, Lord Eatwell. However, the writing has been on the wall about the state of values in the City for very many years. The most recent shock—the LIBOR scandal as one might call it—is but one of many and there will be many more still to come, I am sad to say. It has been an open secret in the City that the culture has declined over the years to one of near amorality, where the law rather than normal moral instincts has been the arbiter of conduct. That in turn has declined, predictably, to a situation where too often if amorality is confronted with a significant loss of a good deal then there is little resistance left in the system and criminality occurs. Most of it is impossible to trace as it is in the form of market manipulation and oral conspiracies—whether within a firm or between different firms. It is a sad spectacle. To be fair, the vast majority of people in the City deeply regret where we have got to. Unfortunately, however, the culture of huge corporations tends to crush the moral life out of people in those entities. You get the occasional whistleblower who will stand out against the herd but one knows, I am afraid, what has happened recently to those few brave people.

The noble Lord, Lord Eatwell, is absolutely correct in his strategic overview of where we now are. We must, however, ponder this a little more than the space of this debate will allow. I am inclined towards giving serious thought to some sort of commission. It does not have to be a royal commission—a phrase which has attracted a good deal of adverse thought lately—but it is such a huge congregation of issues, not just confined to the City and certainly not confined to narrow misdeeds such as the LIBOR matter, that we may be better off with a royal commission that can look at the thing in the round, take its time, and let the criminal side of all this be separated and dealt with by the Serious Fraud Office or, conceivably, a special prosecutor.

My Amendment 109—to which my noble friend Lady Kramer and the noble Baroness, Lady Meacher, have added their names, and which we will probably get to next time—ironically achieves almost the identical effect to that of the first part of Amendment 110ZA, tabled by the noble Lord, Lord Eatwell, so I am obviously in favour of that.

In closing, the other quick point I should like to make is to wonder whether there should not be a wider duty of integrity in the Bill than that which applies only to the FCA in proposed new Section 1D on page 17 of the Bill. The prudential authority should be subject to a similar integrity objective, and it might make sense to have such an objective for the whole financial regulatory sphere. That is all I wish to say beyond thanking the noble Lord, Lord Eatwell, for raising this matter at this time.

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[Lord Sassoon]

My Lords, first, let us be clear that these amendments have very little to do with the Bill before us today. They are all about the Opposition’s misguided attempts to slow down what we need to do to deal with the consequences of the LIBOR scandal. We need rapidly to restore public confidence in the financial services industry, which the Government are pressing on with. We do not need to kick these very serious matters into the long grass, as the Opposition now propose. It is time for Parliament, as well as the Government, to take clear leadership on these matters. The events of recent days have highlighted that the culture of banking is badly broken. The Government are in the process of fixing the system, but we need to change the mindset of the profession and those working in it. This is about restoring banking to what it should be about: to be the most, and not the least, trusted profession.

The basic facts of the attempted LIBOR manipulation are clear. There have already been published reports from three regulators in the UK and the US. We do not need a judicial inquiry to tell us what the facts are. A judicial inquiry would be principally aimed at establishing the facts; it would likely take years to complete, might not be able to start until after prosecutions had been completed and would cost the taxpayer millions of pounds.

Now we need three things. First, we need the rapid prosecution of individuals who may have broken the criminal law. This is what the SFO and the Crown Office in Scotland are looking to do. Secondly, we need to look at how LIBOR cannot be fixed again, which is the subject of Martin Wheatley’s review. Thirdly, we need to look into the ethical and professional standards of the financial services industry and we need to do so urgently to ensure that the banking industry is serving the needs of the wider UK economy and the continued global competitiveness of London and the UK.

For this reason, the Government recommend that Parliament considers undertaking an urgent inquiry into the culture and ethics of the banking industry to help shape the urgent reform that is so much needed. The Government propose the establishment of a full parliamentary committee of inquiry, comprised of representatives from both Houses, and set up by a joint resolution of both Houses. The proposed terms of reference for the committee are building on the Treasury Select Committee’s work and drawing on the conclusions of UK and international regulatory and competition investigations into the LIBOR rate-setting process, consider what lessons are to be learnt in relation to transparency, conflicts of interest and the culture and professional standards of the, financial services industry, including the interaction of these with civil sanctions and criminal law. While I hear noble Lords seeking to paint this as a narrow inquiry, on any construction, these words will give the Joint Committee a very wide remit.

I am also glad that the Opposition now seem to support the creation of this committee. I have laid out what is required. We certainly do not require a proliferation and duplication of reviews that could go on for several years. We recommend that the inquiry should commence immediately and conclude by Christmas. As noble Lords are aware, the Government plan to introduce the banking Bill that will implement the recommendations of Sir John Vickers’s Independent Commission on Banking in January next year. This will bring far-reaching and lasting changes to the structure of British banks. The Government’s preferred timetable for the committee of inquiry would allow the Government to use the Bill to make any appropriate further changes needed to the standards of the banking industry and the criminal and civil powers needed to regulate it, and hold people to account for their behaviour.

The Joint Committee will do its work well and comprehensively and will report by Christmas. However, if, at that stage, this House or another place was not satisfied with the work of the Joint Committee, it will be possible for Parliament to press for a further inquiry. At that time, the inquiry proposed by this amendment would not even have started. The Government fully intend that Parliament should play a significant role in getting to the bottom of what happened and helping make the system more robust. It is surely highly desirable and consistent with many of our previous discussions in recent months that your Lordships’ House should be fully engaged in the process, bringing the full breadth of its expertise to bear from Peers of all the main parties and none.

This is already a big Bill, on which time is now being taken up by debating the merits of an inquiry—a debate that will not help noble Lords with the key business of the House today, namely scrutinising the detailed contents of the Financial Services Bill. It may help your Lordships to know that in another place on Thursday there will be debates on two Motions—one an opposition Motion, another a government Motion—to consider in detail the questions that we have debated at some length this afternoon. It is appropriate to leave another place to debate those Motions on Thursday so that we get on with and stick to the Committee’s core task today on the Financial Services Bill.

[Lord Carlile of Berriew]

I am grateful to my noble friend for his response. Will he confirm that, if there is to be an SFO-led inquiry into any criminality arising from the LIBOR incident, the SFO will not be expected to meet the cost of that inquiry from its existing budget but will be given the separate funding needed so that the inquiry can be full, complete and properly resourced?

[Lord Sassoon]

My Lords, as was in the Statement yesterday, I can confirm that the SFO is on the case, looking at all the possibilities for criminal prosecutions and that the Crown Office in Scotland is doing likewise. There has been no request of which I am aware from the SFO for additional resources. I assure my noble friend that, if there was such a request, it would be looked at sympathetically by the Government. It has been an important and lively debate because these are critical issues for the financial services industry and I hope that, with those further explanations, the noble Lord, Lord Eatwell, will withdraw his amendment.