Financial Services (Banking Reform) Bill

Debate between Lord Phillips of Sudbury and Lord Blackwell

Wednesday 23rd October 2013 Lords Chamber

[Lord Phillips of Sudbury (LD)]

My Lords, I am going to build on what has been said by the noble Lords, Lord McFall, Lord Barnett and Lord Hollick. Then I will make one suggestion in respect of Amendment 92, which I support. Comment has been made about the fact that the accountancy profession has got too concentrated for public benefit. It is altogether too cosily placed vis-à-vis the very largest banks and companies. The noble Lord, Lord Hollick, referred to Barclays using the same auditors for more than 100 years; it that is not a recipe for slack auditing, I do not know what is.

The noble Lord, Lord McFall, noted that many accountancy firms provide both auditing and consultancy services. Sometimes, the non-auditing services are more valuable than the auditing services, which is a crazy situation. It is a pity that the Bill does not address that because if, as auditor, you ought to be saying some things with “rigour”—the word quoted by the noble Lord, Lord Lawson, from an article by Mr Woolf—how can you avoid a deep conflict of interest? I suggest, and experience bears me out, that you cannot bring to the very difficult task of auditing the rigour that is on occasions necessary to bring a bank or a large company to heel and to ensure, as far as any audit can, that some of the disasters we have seen are thereby avoided.

As I say, I am sorry that we are not addressing that issue in this Bill. Perhaps it is not too late to table such a provision on Report. However, I fear that a great deal is lacking. I think I am right in saying that all the big four accountancy firms have been penalised or fined many millions of pounds in the past few years. I remember that in America, KPMG was fined more than $450 million for running fraudulent tax schemes for years on end. What happens to these firms’ reputation and business? Very little does, as far as I can see. I suggest to my noble friend Lord Lawson and his co-proposers of Amendment 92 that it is not clear beyond peradventure that the bank under consideration should not be present at these statutory meetings. It may seem an obvious common-sense point that you cannot have such a statutory meeting with somebody from the relevant bank being present. However, given the cynicism of our world, we should make that clear. Given that we are at a flexible stage of our consideration of the Bill, if Amendment 92 goes forward, I recommend that that provision be included in it.

[Lord Blackwell (Con)]

My Lords, I do not think anyone can disagree with the arguments put forward by my noble friend Lord Lawson that the regulators should have access to the best available information from the auditors and should be able to request the information relating to the accounts that they want. What I am less clear about from this discussion is whether there is a need for that to be built into this legislation. I should be very grateful to my noble friend the Minister if he would clarify whether there is anything in the current law that prevents regulators doing exactly what these amendments suggest.

Like my noble friend Lady Noakes, I sit on the board of a bank and on its audit committee. Things have moved on considerably since 2008. It is clear to me that as regards the major banks, the PRA has frequent confidential discussions with the auditors; and those are perfectly proper. It is also clear to me that the PRA can, and does, request information from the relevant bank in any form that it feels it needs to have to perform its duties. Therefore, the question is whether there is anything in the current legislation that would allow an auditor to refuse to meet the PRA or to refuse to provide information on the grounds of commercial confidentiality or conflict. Are those powers extant in existing legislation? Is there anything that allows a bank to withhold financial information if it is requested by the PRA? If those powers are already available, I am less clear what these amendments would add.