Bank of England and Financial Services Bill [HL]

Debate between Lord McFall of Alcluith and Lord Gold

Wednesday 11th November 2015 Lords Chamber

[Lord McFall of Alcluith]

The commission valued enormously the contribution of the most reverend Primate the Archbishop of Canterbury. However, if we feel strongly about something, it can be a matter of record. I take the point about the unanimity of the commission, and will come to an area where I disagreed with it. I did not get my way, but signed up to it. So it is a case of tit for tat and one for one with the most reverend Primate.

This measure sends out the wrong signal—that Parliament is unfairly on the side of the banks rather than on the side of the public. The Parliamentary Commission on Banking Standards was very clear on enforcement action. We described it as being,

“as rare as hens’ teeth”.

The public want effective reforms. They want senior managers to be personally culpable. They want fines on individuals, not companies, because when the fines are on companies it is the shareholders—ordinary members of the public—who pay them. So the public are being denied and punished twice. The public—I include the noble Lord, Lord Sharkey, and others—want a fair market where risk is rewarded but where failure is punished. That has not happened.

The point was made about the most reverend Primate the Archbishop of Canterbury. I pushed the concept of duty of care in the Parliamentary Commission on Banking Standards. It did not accept it as a recommendation, although it was in the report. If the Government were serious about this, they would adopt a duty of care, which would transform the financial services industry. My good friend John Kay, who has just written a book on that, Other People’s Money, agrees with me on this issue.

In the absence of the Government doing anything, when we come back to this on Report they will really have to think about how they can make senior executives personally responsible. Otherwise, the value of the Bill and the reforms, the expenditure and the time we have spent on the Parliamentary Commission on Banking Standards will count for naught. It is time for a reassessment by the Government between now and Report. I hope the Minister takes that seriously.

[Lord Gold (Con)]

My Lords, I oppose this amendment. I have listened to the noble Lord, Lord McFall, and I fully agree—I suspect we all agree—that the examples he has mentioned of culpable things that have gone wrong cannot be acceptable. However, hearing his comments on the demands of public opinion makes me even more certain that we should oppose this amendment, because the rule of law must be upheld and we must allow the innocent to remain innocent until proved guilty.

Regulation is terribly important and we must give appropriate powers to the regulators to enable them to undertake their work effectively, including the ability to search out evidence in order to ascertain what went wrong and who was responsible. They must be able to break down any firewall that the institutions might have erected. Employees in financial institutions must fear the consequences of acting badly and know that if they break the rules the consequences could be very severe, including heavy fines and maybe a prison sentence.

If we have failed to achieve these things, however, the answer is not to shift the burden of proof so that the defendant has to prove his innocence. That would be tantamount to giving up the challenge. Instead, we must tighten up the regulator’s powers and create an appropriate and effective regulatory regime, one that can achieve what all of us want, which is to protect those dealing with the financial institutions and punish those who fail in their duties.

In this Bill, the Government are aiming to do just that by extending the regulatory regime to all financial services firms and giving power to the regulator to make and enforce rules of conduct. This materially strengthens the regulator’s position. In so doing, it rightly reverses the burden of proof so as no longer to presume guilt, requiring the defendant to prove innocence, and we should not now allow that to continue.

I welcome the Government’s proposals for several reasons. First, I believe it is right to extend the regulatory regime across the whole financial services industry and thereby strengthen regulation. It is also right that we should not change a fundamental tenet of English law, which is that a person is innocent until proved guilty. As I have indicated, to reverse the burden of proof in this way is an excuse for failing to create an effective regulatory regime. Indeed, it is a lazy way of dealing with a problem and should not be countenanced. The provision that it is now proposed should be reversed, frankly, should never have been enacted. I am pleased that the Government have now recognised this.

In proposing this change, the Government seek to treat all financial institutions in the same way. Surely that must be right and fair. Why should there be one rule for large institutions and another for smaller ones? If a financial institution or someone working there breaks the rules then there should be a consequence, and everyone should be treated equally. Any suggestion that there should be a two-tier system so that the present law presuming guilt applies only to certain institutions, but the burden of proof shifts for those institutions that now come within this regulatory regime, is unfair. We should not discriminate between institutions. This could lead to unfair competition and could prejudice the very people we wish to protect—the consumers and customers.

The effectiveness of these new rules, once in force, should be carefully monitored and scrutinised. If, despite the extension of the regulatory regime now proposed, more is required, the Government must not shy away from a further extension of regulatory powers. However, in so doing, they should not then restore the short cut of shifting the burden of proof.