Bank of England and Financial Services Bill [HL]

Debate between Lord Davies of Oldham and Lord Carrington of Fulham

Wednesday 11th November 2015 Lords Chamber

[Lord Carrington of Fulham]

I will come on to that in a moment; that is the second point I wish to make. The first point is that the power does exist for the PRA—and, indeed, the FCA—to be able to go and investigate what has happened inside a financial institution in very great depth and in very great detail.

The consequence of the reverse burden of proof would be to make the situation to which the noble Baroness referred even worse. An organisation which knows that there is individual liability where they have to prove that they did no wrong will have lawyers crawling all over them to make certain that at every move, nothing is recorded, nothing is said and nothing is minuted which would put them in a position where they could do anything other than deny all culpability. That is what would happen—and to some extent does happen. But I can reassure the House that destroying email trails is extraordinarily difficult. In most institutions, email trails survive through even the greatest attempts to wipe the hard drives clean. I can assure the noble Baroness that if the PRA wishes to find evidence and has the resources, the determination and the suspicion, it will find the evidence to bring the prosecutions it needs.

[Lord Davies of Oldham]

My Lords, this has been an excellent debate and the Minister has a great deal to which he needs to respond. It is little surprise that we have been exercised with these amendments, because they go to the very heart of people’s trust and confidence in the financial services industry.

I would suggest that perhaps one reason why this change has been effected by the Government is because of the lack of transparency in the government proceedings. That is why the controversy has arisen. None of us has been privy to the process whereby the Government produced this significant change to the senior managers and certification regime. Clearly, decisions have been taken behind the scenes and without consultation. I do not think that there is much of an email trail on either of those factors.

The fact is that the Government did not even consider that this might be much of a problem, and today’s debate identifies just why that is. I hope, therefore, that the Minister will be able to demonstrate the thought processes behind these changes. The age-old argument that it is not working in practice scarcely holds, because the SM&CR never had a chance to work in practice—so the Government will have to come out with a better argument than that. What advice did they get that convinced them that these changes were the best approach? Did an event occasion the change? Are the meetings that the Minister had on such a significant issue as these proposed changes on the public record?

We also need to consider the role of the regulators and how we can ensure that they are bold enough to spot when misconduct takes place. Has their job not been made harder by the fact that there will no longer be a duty on firms if they suspect wrongdoing? Can the Minister please go into some detail about how the Government propose to ensure that the regulators will be able to rule out ineffective management? We have had a refresher course today in just what ineffective management—and, indeed, corrupt management—has done in terms of damage to so many people’s lives. We ought not to forget that.

I hope that the Minister will be able to address these points in some detail. Of course, he has to take into context just what this debate has demonstrated: how difficult the issue is, but how fundamental it is to the welfare of our society. I expect the Minister to give a detailed response.