Bank of England and Financial Services Bill [HL]

Lord Hunt of Wirral Excerpts

Wednesday 11th November 2015 Lords Chamber

The noble Lord, Lord McFall, and I were at an event at which John Kay made a remark about senior management which I think was right—“You take the bonus, you take the rap”. That is a fundamental principle which cannot be achieved unless we have a tool such as the reverse burden of proof. These institutions have made sure that they are impenetrable and the regulators in the UK have never found a way of penetrating through.

[Lord Hunt of Wirral (Con)]

My Lords, I declare my interests as set out in the register but particularly as a practising solicitor for nearly 50 years.

I heard the noble Baroness talk about fundamental principles. For me, no principle is more fundamental than the presumption of innocence, as one sees in the way that that has been set so deeply within justice systems, particularly in this country. In contributing to this debate, I come at it in a different way: I do not like the reverse burden of proof in any event. However, I have to recognise the extent of the problems that people have set out so clearly, so that would accompany my welcome of the Government’s decision to have what in effect will be the same statutory duty of responsibility right across the financial services industry. I hope there will be a clear message to the industry that, although we recognise that regulation has to be proportionate, there is no way that we can allow to continue the lapses in conduct and responsibility that have taken place.

I think it was the noble Lord, Lord Sharkey, who quoted Tracey McDermott. I too refer to what she said, because I strongly agree with her. She said this at the Mansion House:

“My firm belief is that if the financial services industry is to restore the trust and confidence of those it is here to serve firms should not just aspire to meet our rules. They should aspire to be better than that”.

I have always strongly believed in self-regulation. As a solicitor, what I call super rule No. 1 guides us so that, all right, the rule of law has to be observed, but our code of ethics and professional standards should govern everything we do. I just hope that the message will go from this House to the financial services industry that it should follow the example of the professions that set the highest possible professional standards.

[Lord McFall of Alcluith]

I welcome the noble Lord’s comments, in particular that senior managers have to perform way beyond the call of duty. Will he therefore support my call for a duty of care on the industry, thereby avoiding the reverse burden of proof?

[Lord Hunt of Wirral]

There is a duty of care. It depends on how much you enact to support the duty of care. As far as I am concerned, the customer, the consumer and the client matter most of all. With that there is an associated duty of care; there has to be.

I hate to quote Socrates to the noble Lord, but I seem to recall that it was he who said that good men do not need laws while bad men will always find a way around them. So the more you set out rules and regulations and duties, the more you enable people to find ways around them. My argument to the noble Lord is this: can we get away from trying to set down in legislation, rules and regulations everything you can do and everything you cannot do? Can we not return to that essence of your own principles, namely your duty of care and responsibility?

[Lord McFall of Alcluith]

The noble Lord has mentioned Socrates. I well remember that Socrates consulted the wise men and came away appalled by the level of their ignorance.

[Lord Hunt of Wirral]

I hope that the noble Lord will not mind if I try to avoid following him down that route. I hope that noble Lords will understand that my objection is that I dislike in any event the reverse burden of proof. I welcome the fact that it is to be abolished, but I want to send a message that the financial services industry should be composed of people who put the customer, the consumer and the client first and observe the highest possible principles both professionally and in the standards they seek to maintain.

[Baroness Kramer]

My Lords, I do not mean to be in any way offensive to the noble Lord, but we cannot afford to be naive. We were naive for decades and in that period significant abuse took place. I am not talking just about a failure to make proper credit decisions. If we look at RBS, we can see that it lost money the old-fashioned way. It made very foolish loans and abandoned appropriate credit standards. You could call that incompetence rather than venality. But what of money laundering, LIBOR mis-selling and PPI mis-selling? These were not failures of competence; they were quite deliberate abuses of the customer on an industrial scale, year after year after year. The assumption that all the people engaged in those activities have either changed who they are or have left the industry is, may I suggest to him, naive?

Part of the underlying problem is that so much money is at stake here. For senior people who turn their eyes away from abuse, there are very substantial financial rewards. As we have seen, even when there are some penalties such as clawback, they are only a small proportion of extraordinary rewards. We are in a situation where the risk is high if abuse continues. I understand the noble Lord’s concerns over the reverse burden of proof, and I do not support it lightly, but as my noble friend Lord Sharkey said, we have on the statute book at least 10 or 11 other Acts, frequently supported by Members of this House, which have decided that the reverse burden of proof is necessary because it is the only way for the law to be effective.

[Lord Hunt of Wirral]

I am not sure that I am supposed to try to answer the noble Baroness. Perhaps I may just say that if she examines her basic beliefs, she will agree with me that the presumption of innocence is a fundamental human right. I suppose we disagree because the noble Baroness would like to see a two-tier system. I find that very difficult to justify.

I revert back to my view that complementary self-regulation is the way forward. If the trust and confidence that the public had in the financial services industry is to be restored, the message has to go out to the industry that, rather than be subjected to even tougher statutory rules and regulations, the time has come for it to take the lead and determine how its businesses are to be run in the interests of the customer. I hope that that will be the message that goes out from this debate.