Financial Services (Banking Reform) Bill

Lord Tyrie Excerpts

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

As I discuss the issue I will provide more information on how the measure could work, and perhaps the hon. Lady will judge for herself, given the situation she has in mind, whether the measure would have acted as a deterrent, and whether a prosecution could have taken place.

[Mr Andrew Tyrie (Chichester) (Con)]

First, I think it would be inappropriate to try to assess the impact of the proposed legislation on any specific case that has passed, and secondly, we are trying to devise legislation that will work for the future. I completely endorse what my hon. Friend the Member for Wyre Forest (Mark Garnier) has just said. We must emphasise that we expect a change and improvement in behaviour as a consequence of much more considerable risks and responsibilities being placed on those individuals than currently pertain with the approved persons regime and system of regulation.

[Sajid Javid]

I thank my hon. Friend for his comments. As Chair of the Parliamentary Commission on Banking Standards, he helps to explain the commission’s reasoning, which the Government share.

The introduction of this offence means that, as we have heard, in future those who bring down their bank by making thoroughly unreasonable decisions can be held accountable for their actions, which, as we saw in the recent financial crisis, can lead to severe economic disruption and considerable loss for taxpayers. In line with the commission’s recommendations, the new offence will be applicable only to individuals who are covered by the senior managers regime I mentioned earlier. Senior managers could be liable if they take a decision that leads to the failure of the bank, or if they fail to take steps available to them to prevent such a decision from being taken.

The offence will apply to behaviour that falls far below the standard that could reasonably be expected of a person in their position—that is similar, for example, to the test applied in corporate manslaughter. Importantly, the offence will apply to senior managers in banks, building societies and investment firms, and be subject to PRA supervision. That reflects concerns expressed by their lordships that the failure of systemic investment firms could lead to similar adverse consequences for financial stability, and that the taxpayer may have to bail out a collapsed retail bank. The maximum sentence for the new offence will be seven years in prison, and/or an unlimited fine. That reflects the seriousness that the Government, and society more broadly, place on ensuring that our financial institutions are managed in a way that does not recklessly endanger the economy or the public purse.

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[Cathy Jamieson]

Once again, my hon. Friend is absolutely correct. The general public expected the industry to show some humility and make every effort not only to repay the taxpayer, where appropriate, but to reflect on its actions, perhaps take the view that this culture was now outdated and move on and operate differently.

The general public’s concern will not be alleviated by the latest list of scandals. We have had LIBOR, EURIBOR, PPI—payment protection insurance—forex, yen LIBOR—the list seems to go on and on. Almost every day, every week, every month, something else is being put into the public domain. We have recently heard concerns about lending from RBS, with businesses having gone into administration. It is right and proper, of course, that these issues are investigated. We continue to talk about these issues, but however much we will things to change, people are concerned that if the bankers do not accept that their culture has to change, we will just continue to talk and put legislation in place, but without the messages having got through. I believe that the general public are particularly concerned about that.

As I said, we believe that the amendment unsuccessfully launched in the other place should remain in the Bill. I am disappointed that the Government have chosen to disagree with it and want to strike it out. I do not expect the Minister to change his view at this stage. I am sure he will revert to the position held in Committee, which was to disagree with us on this matter.

[Mr Tyrie]

Before addressing the amendments in the group, I would like to say a few words—this is the only and last opportunity to do so—about the work of the Parliamentary Commission on Banking Standards. The task that Parliament set it was

“to consider and report on: professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process”

and on

“lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy…and to make recommendations for legislative and other actions.”

That was a very large canvas. The backdrop was a profound collapse of trust in parts of the banking sector—triggered by, among other things, deep lapses in banking standards.

We should bear it in mind, however, that the banks were only partly responsible for all these problems, and that the commission’s proposals represent only part of the solution. On the first point, responsibility for the problem also lies with regulators, central banks, Governments, auditors, risk-rating agencies and consumers, both retail and wholesale, who over-borrowed. They all need to take their share of the responsibility.

On the second point—finding the solutions—the Banking Commission’s proposals need to be set alongside both reforms to the regulatory structure, such as the creation of the Prudential Regulatory Authority and the Financial Conduct Authority after the abolition of the Financial Services Authority, and the structural reform of the banks, as proposed by Sir John Vickers.

I doubt whether the Government or the man who led the regulatory changes, Sir John Vickers—or indeed any member of the Banking Commission—thinks that, even taking together all the proposals we have put forward, we can solve everything. In any case, many on the commission were sceptical about the extent to which culture can be changed by legislation—a point made from the Front Bench earlier this afternoon. Legislation can, however, play an important role by incentivising good behaviour and penalising bad. Nevertheless, we concluded that, if fully implemented, our proposals should put us in a better place to protect taxpayers and the country from systemic risk and to protect consumers from lapses in standards.

As the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) said a few moments ago, there will continue to be regulatory failures, so only with the exercise of judgment and a good deal of vigilance are even these proposals likely to make a big difference in the long run. Our job today is narrower—to complete the task of making sure that those responsible for exercising that vigilance have the statutory tools to do the job.

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[Cathy Jamieson]

The hon. Gentleman mentioned proprietary trading. Is he now satisfied that the Government’s recent actions take account of all the commission’s recommendations?

[Mr Tyrie]

Broadly, yes. Given that I am already stretching things a little in my opening remarks, I will try to deal with prop trading at the most appropriate parts of my speech—but the short answer is, as I say, broadly yes.

The commissioners met yesterday to discuss progress. We believe that the Government have converted the lion’s share of the Banking Commission’s recommendations into statutory action, where required. It is worth listing what has changed. The following amendments have been made to the Bill in order to implement our recommendations: electrification of the ring fence has been considerably improved since Commons Report stage; an independent review of the ring fence, which can consider the full separation of the banking industry, has been introduced; the Banking Commission’s recommendations on prop trading, which we just discussed, have, for the most part, been implemented; the proposals for the senior managers regime have been improved; a certification or licensing regime has been added to the Bill; a proper definition of a bank—the Bill’s definition was defective when it left this place, and it was a major lacuna—has been added to the Bill; the PRA has acquired a competition objective to complement that of the FCA; and audit requirements have been tightened for systemically important firms.

Furthermore, a good number of undertakings and assurances have been given in response to specific recommendations. Most importantly perhaps, the bank will almost certainly be given the Financial Policy Committee responsibility for the leverage ratio, and the Government have said that they will legislate to that effect after a review. We would otherwise have had to wait until 2017-18 to have that considered.

[Mr Love]

Will the hon. Gentleman give way?

[Mr Tyrie]

I give way to my fellow commissioner.

[Mr Love]

How long does the hon. Gentleman think the handing of control over the leverage ratio to the Bank of England will take? Time is moving on, and we need to get there sooner rather than later.

[Mr Tyrie]

I have pressed the Bank of England on that issue with my Treasury Select Committee hat on. A subsequent exchange of letters between the Governor and the Chancellor makes it pretty clear that by the end of next year the issue will be resolved and responsibility will lie with the Bank. Indeed, I think that for anything else to happen, given that exchange of letters, would be considered extraordinary, unless the review came up with some major obstacle that no one had previously spotted.

Another important assurance has been given in respect of so-called special measures. We proposed the establishment of an intermediate tool between enforcement at one end of the spectrum and day-to-day supervision at the other, which regulators could use to keep an eye on banks and help to improve standards. The Americans have something of the kind, which is known as a memorandum of understanding. The Government said that the statutory underpinning that we proposed would not be necessary, but the regulators have now announced that they will produce a full and detailed guidance note after consultation, which will set out how the new tool will be created and administered.

[Emily Thornberry]

I am listening with great interest to the hon. Gentleman. As he may know, the United States operates a regime called the deferred prosecution agreement, under which an institution accepts that it has committed an offence and agrees to pay a large fine on the understanding that it will not be prosecuted. Part of the deal is that the institution must allow auditors in, and must change its behaviour. Is there a similarity between the DPA structure and the structure the hon. Gentleman is describing?

[Mr Tyrie]

In some cases, the “deal”, as the hon. Lady called it, is accompanied by a memorandum of understanding, in order to achieve exactly the result that we intend by means of special measures. However, the primary purpose of special measures is to provide a tool that need not lead to escalation and full enforcement. That is a step back from the example given by the hon. Lady.

We were also assured that there would be a review of the system of enforcement decision making, which is currently very unsatisfactory. We had proposed that the regulatory decisions committee should be separated further from the enforcement division of the Financial Conduct Authority and given statutory autonomy in relation to its decisions. The Government did not accept that proposal, but they did accept the need for the issue to be re-examined and the need for a fresh and independent pair of eyes to look at each enforcement action before it proceeds, and a review is now to be carried out.

The important issue of remuneration was raised, later in her remarks, by the hon. Member for Kilmarnock and Loudoun. The PRA has committed itself to aligning the maturity of the rewards for bankers with the maturity of the risks that they have incurred. That is crucial. It is the collecting and taking of bonuses in return for the creation and selling of a new financial instrument or tool when, although the full risks will not mature for many years, the individuals concerned have had the money in advance that has created so many misaligned incentives and so much poor behaviour. Those individuals need to know, even several years later, that there may be a clawback, or, better still in most cases, that their bonuses are deferred. They need to know that the product had better be robust enough to survive the test of time before they start selling it.

Let me now mention a few measures that the commission did not succeed in inserting in the Bill. I shall not describe any of them in detail—although I note that when I have tried to deal briefly with the measures that I have described so far, Members have intervened to ask me about a number of them.

Both the Select Committee and the commission concluded that the governance of the Bank of England was still in a mess, and would have to be sorted out. The Bank of England still has no board worthy of the name, and the cross-cutting lines of responsibility and accountability between various new institutions are, to put it mildly, very confused. One of the most senior people in the Bank told me recently that he thought the situation was like the Schleswig-Holstein question: the former Governor probably understood it, and one other guy had forgotten it—and the third was this person himself, whose name I had better not reveal on the Floor of the House.

We also failed to achieve change with our proposal to abolish United Kingdom Financial Investments Ltd. UKFI has been exposed as a fig leaf: it seems to be of very little practical use. The Labour Government’s intention in introducing it was good, but when the Government want to intervene directly in the activities of institutions they simply do so, and UKFI does not seem to be performing the “buffer” function that was intended for it.

We argued that the regulator should have a duty to compensate whistleblowers who had been disadvantaged by their firms. There are still risks, at least perceived risks, for whistleblowers, which will tend to deter them. It is a remarkable feature of the current crisis that there has been so little whistleblowing, and I am not yet convinced that we have managed to sort the matter out.

[Cathy Jamieson]

Will the hon. Gentleman give way?

[Mr Tyrie]

I will give way again, but I do want to get on to the amendments.

[Cathy Jamieson]

I thank the hon. Gentleman for his generosity. The question of whistleblowers was raised in a Labour amendment in Committee. Does the hon. Gentleman think that the Government must return to it in the future?

[Mr Tyrie]

I think that, in the first instance, it is the job of regulators to advise us—we shall see whether they do—and that it is the job of Parliament to keep an eye on the position. The Treasury Committee will need to be vigilant.

We failed to secure the abolition of the strategic objective of the FCA, although we see no logical reason why it should remain. It seems to serve as a licence to allow the FCA to do whatever it wants, and to override its own operational objectives. We also failed to secure a statutory duty for the Governor to raise the issue of excessive lobbying by banks. It is regrettable that there is to be no statutory duty to require the production of a second set of accounts designed to identify systemic risks in the balance sheets of banks, and we will ask regulators to return to that issue.

Nevertheless, if everything is taken into account, it is clear that the commissioners in the House of Lords won the argument, and secured the lion’s share of the measures proposed by the commission. Although the group has been depleted by the loss of Baroness Kramer to the Government, the remaining four have worked assiduously and very persuasively to improve the Bill, and, on behalf of the commissioners in the House of Commons, I thank them heartily. Let me also record my appreciation of the constructive way in which Treasury Ministers have engaged with me, and with other commissioners, on these subjects in recent weeks. They have been extremely helpful, as have their officials, and that has enabled us to make rapid progress. What is more, and equally important, the Government have made clear their support for a number of measures—some of which I have mentioned—that it will be the duty of regulators to implement. As I have said, the work of the regulators, and the supervision of it, will be at least as important as the statute itself

That brings me to the statute itself, and to the amendments that are before us. The first major change that is proposed is the introduction of a senior managers regime. One of the commission’s central objectives was to make a reality of individual responsibility, particularly at senior levels. I lost count of the number of witnesses from failed institutions who were not prepared to take personal responsibility for what was going on in their firms. In principle this should have been the task of the approved persons regime, but it was a disaster. It failed both at ensuring that competent people were appointed and at checking up on their subsequent performance.

The commission concluded that the APR was a complex and confused mess that did not perform any of its supposed roles adequately. It had become little more than a bureaucratic, box-ticking exercise. Its unsuitability has been illustrated by the fact that it seemed to pass the recently departed chairman of the Co-op bank as fit and proper to run a bank. Another indication of its irrelevance was the fact that most of those responsible for steering our major banks on to the rocks over the past five years were not even reassessed for their suitability after those banks had failed. The APR gave us the worst of all worlds: the appearance of regulatory oversight and the reality of none.

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[Ian Swales]

As I expected, the hon. Gentleman is making an incredibly thoughtful and powerful speech. We have used the expression “culture change” a few times in the debate today and he talked a few minutes ago about failures causing serious harm to an organisation. Does he believe the banks now pay due regard to reputational harm as well as purely financial harm?

[Mr Tyrie]

I think the banks have discovered that the scale of the damage done by the revelations and the scale of the fines that are now being imposed are systemic in implication for their institutions and that has shaken them up a lot. But I do think the culture at the top of our banks is changing. The task of our legislation is to entrench that change for a generation. We have had this crisis. The horse has bolted. What we have got to do now is devise a stable door that can keep the next horse in.

[Emily Thornberry]

Will the hon. Gentleman give way?

[Mr Tyrie]

I will this one last time, but I get a sense that Members might want me to draw to a close in a minute.

[Emily Thornberry]

The hon. Gentleman mentions LIBOR. In respect in particular of fraud, does he agree that if an individual working within an institution is behaving dishonestly for the benefit of that institution, the institution itself should be liable? If the law were to be changed to allow that, there really would be institutional change.

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[Mr Tyrie]

The fact that an individual is found responsible should not in any way exculpate the institution from its own responsibilities. On the other hand, a key recommendation of the Banking Commission was to restore individual responsibility. To return to a situation where it is primarily the institution that carries the can for what had been a series of individual pieces of bad behaviour would be a profound mistake. There is a lot behind the exchange we have just had that I am not going to go into now, but which we thought about quite deeply on the commission. I shall now move on as there are a few more remarks I want to make about this group of amendments.

Everyone now seems to be agreed that the APR adds little or nothing, yet over the past few weeks we have discovered that the discredited APR will survive in legislation. In doing that, the regulators are perpetuating a myth that the APR affords any real protection. It will continue to apply to several groups. First, about 20,000 people in the financial services industry outside banking will still be covered, mainly in fund management and insurance.

This is unfinished business. The Banking Commission had the remit to look only at banking. It would be absurd to retain a system for one part of financial services that has so clearly failed in another. The Government and Parliament both need to encourage the regulator to look at this and do what is necessary to extend the coverage of the new regime and to remove the APR from other parts of financial services. To rely on the APR is asking for trouble.

It is also regrettable that the APR will remain in a few isolated pockets within the banking industry. This is because the APR will continue to apply to firms’ LIBOR submitters and to persons with anti-money laundering responsibilities in banks. This amounts, I gather, to only a few dozen people, but I think it would be far better if we removed what amounts to “triple running”. We will have three layers: the senior persons regime, now called the senior managers regime, licensing, now called certification, and the APR in the case of these people. The extra APR layer confers no extra protection, but adds bureaucracy and creates a business cost. There will be plenty of scope for legal wrangling in the event of a regulatory failure, given the great scope for confusion, and for an equal measure of recrimination by regulators who will say they were asked to do too much by Parliament. Banks will have a point when they complain about that. For all those reasons, I hope that the Government will come back to this issue and remove the APR from banking entirely in due course.

The Banking Commission’s proposals do not guarantee better standards. Much will depend on the judgment of regulators and the common sense of the banks, but identifying responsibility for key roles offers a much better prospect of higher standards than does retaining the APR. The commissioners are delighted that our proposals on this are now going to be put on the statute book.

[Mr Speaker]

The hon. Gentleman’s speech is characterised, as always, by a combination of scholarship and erudition. May I just inquire whether we are now nearer to the end of his speech than to the beginning?

[Mr Tyrie]

I can give you a firm assurance, Mr Speaker, that I am coming very close to the end of my remarks. Indeed, I am no closer than I would have been before that intervention, unless I had been told to sit down, because I really am almost at the end.

I just want to say a word about the Opposition amendment before I sit down. It draws on a number of the Banking Commission’s proposals and, by seeking to put it on the face of the Bill, the Opposition have contributed something by forcing the Government to think again about their rejection of our proposals on licensing. The amendment was therefore probably worth while. However, the Government have now thought again and are implementing our proposals.

There are two aspects of Lords amendment 41 that would make me cautious about supporting it. The first is it would require regulators to pre-approve all people covered by licensing—or what is now going to be called certification. I fear that would risk recreating many of the problems we had with the APR—the box-ticking bureaucratic culture that we are trying to get rid of.

My other concern with the amendment is that it appears to mix up licensing with the professionalisation of the banking industry. It would be imprudent to link professionalisation to licensing too closely. Licensing needs to happen now. Professionalisation is not a substitute for it. Even if banking is something that could acquire the characteristics of a profession—which many people are not yet convinced of—it would, as the commission reported, take a generation to build that sense of a professional standard.

For those reasons, although I strongly sympathise with the intent of the Opposition amendment, it is not a Banking Commission proposal and I shall not be supporting it. The House could do better by implementing the commission’s proposals, which are now embodied in Government amendments.

[Several hon. Members]

rose—

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[Mr Tyrie]

The question the hon. Lady should ask herself is that if she were a banker, would she be prepared to take the risk?

[Emily Thornberry]

There are other things that can be done, and I shall briefly touch on some of them. May I begin with the difficulties that exist in relation to this offence? Under the Bill, it would be an offence for a senior manager recklessly to take a decision. I appreciate that some of the additional 175 pages that have been added to the 35-page Bill have been to backfill exactly what a senior manager is and how they will be defined. That is clearly an improvement, and it is unfortunate that it was even suggested that the Bill would be sufficient in its original form. One must remember that even if a definition of senior manager is now one with which we can all be happy, there have been banks that have been brought down by people other than senior managers. Nick Leeson from Barings bank comes to mind, as does the £2 billion that was lost to UBS by Kweku Adoboli.

[Emily Thornberry]

The point is that he was not a senior manager and he brought down a bank. This measure will not solve the problem of banks being brought down. An offence of reckless banking that will apply only to senior managers is not by itself sufficient, which is why I want to go on to say what I think should be done instead.

[Mr Tyrie]

I think the hon. Lady is misunderstanding the intentions of each bit of legislative change. The primary purpose of this measure is to change bankers’ behaviour. It is not primarily to protect banks from being brought down. That task lies with ring-fencing and a range of other proposals, particularly with all the structures being constructed around bail-in and resolution. It does not lie with the criminal offence.

[Emily Thornberry]

With respect, I am even more confused than before. What is the point of bringing in an offence that will change the behaviour of bankers, but will not, by itself, defend the banks? As I understand it, if the behaviour that we seek to stop is reckless banking, the reason that it should be criminalised is in order to stop banks failing and the financial system crashing.

There are other difficulties with this offence, which include recklessly to take a decision or to fail to prevent the taking of a decision that results in the failure of a bank. That sets a high threshold and, as has already been pointed out, it is not clear who, of those who may have behaved in a reckless way in our banks and who may have brought down the banking system before, would have been prosecuted. The Minister has not been able to assist us as to who might have been prosecuted under the offence. [Interruption.] It is unfortunate that the Minister is distracted at the moment, but the point I am making is important, and I hope that he will be in a position to address it.

It is difficult to prove that aspect of the offence, and prosecuting it would be a risky undertaking for the prosecuting authorities who will be expected to invest public money in prosecuting such matters. There is no point in putting something in legislation that can be discussed on doorsteps but will never be used to prosecute. We have seen the Serious Fraud Office struggle with high-profile, high-risk prosecutions. Too often such prosecutions end in shambles because of the behaviour of the Government, which have cut the SFO’s funding from £53 million in 2008 to £30 million by the end of this Parliament. Differences can be made to the behaviour not only of banks but of businesses generally. May I just add that of course I support Labour’s position on a stringent licensing regime for bankers, the imposition of a fiduciary duty of care on financial-sector staff for clients and customers and its call for a dedicated financial crime unit. In a moment, I will move on to what will work better, but before I do that, I give way.

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[Sajid Javid]

My hon. Friend will know that the Government have introduced many initiatives to increase competition in the banking sector. Just today we heard that Tesco Bank will enter the current account market next year, creating hundreds of jobs in Scotland. That is welcome news, and other innovations such as current account switching also help to engender more competition. I do not think any of us know what the situation might look like in the future, but I am sure a future Government will take that into account in 2020, and beyond, and see whether any further measures are required.

[Mr Tyrie]

The Treasury Committee and the Banking Commission are extremely grateful that the lion’s share of the proposals on competition have been implemented. We think that will be a step forward, and the Treasury Committee has been pretty active in that field for more than three years. As I alluded to earlier, one recommendation has not been acted on by the Government, and I would be grateful if the Minister explained why. Perhaps it can be best summarised in this way: what additional benefit is conferred by the FCA’s strategic objective that is not provided for through the operational objectives of the FCA?

[Sajid Javid]

My hon. Friend will know that the FCA currently has an objective to promote competition, and I know that he supports that. The Government have accepted the recommendation from the commission to give this secondary objective to the PRA, so those two objectives for the key regulators—the FCA and the PRA—will make a difference. If my hon. Friend has some further suggestions for the future, I will certainly take a closer look at them.

The FCA’s consumer panel, which represents the interests of consumers, is well placed to communicate its views to the PRA, and in the other place the Opposition have called for a role for the FCA’s consumer panel. Following constructive debates in the other place, I am pleased that the Government have been able to include amendment 156, which delivers the Government’s commitment to ensure that the FCA’s consumer panel can provide its views to the PRA effectively. This was warmly welcomed on both sides in the other place and by the chair of the consumer panel.

The amendments will simplify day-to-day operations for building societies, other banks and all the other entities that I have mentioned. They will enable banks and other institutions to compete on a more level playing field and improve things as suggested in the Bill and by the commission and others. I commend them to the House.

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[Cathy Jamieson]

The specific examples that I cited had been reported to me, but I understand that in many instances high charges are applied even if people slip into an unauthorised overdraft for a very short period.

Let me ask the Minister another question. In a letter to the Minister, Martin Wheatley said:

“In designing the cap we will, as far as possible, seek to minimise potential avoidance measures. It is possible for firms located in other EEA Member States to provide a payday lending service through the internet to UK consumers within the Electronic Commerce Directive. This is not something that the FCA can mitigate.”

What assessment has the Minister made of the extent of that problem, and what can be done to reduce that? As we take things forward, it will be important that we do not simply move people from one payday lending system on to something else that could be equally difficult.

I want to say a few words about the relationship between the banks and the payday lending sector, and to focus on the question of the banks lending to the payday lenders. During the consideration of the Bill in the other place, Lord Mitchell raised this issue, and his understanding was that Barclays lent Wonga over £250 million. When he investigated that further, he discovered that the sum was apparently much higher. He raised concerns about the mission and the guiding principles of the bank and asked whether lending money to the payday lenders so they can then lend it at higher rates to people who need loans is the right thing for the banks to be doing. That raises the question of what the banks’ responsibilities are to those on lower incomes, and also the issue of the banks’ relationships with the credit unions, for example.

I feel that we must press the amendments we have tabled to a Division. I hear what the Minister has said and I have heard the comments and concerns raised by the FCA about the timetable, but I think it is reasonable to press for this to be done as quickly as possible. The Minister has said that January 2015 is the backstop date—the latest point when it could happen. I think it is reasonable for us to bring that forward and to press the amendments on data sharing to a Division.

[Mr Tyrie]

On payday loans, I only want to make two very quick points. First, we need to be very careful that EU regulation does not drive a coach and horses through anything we might try to do domestically. I also want to reinforce the point that it is extremely important not to displace what we may disapprove of in the formal sector into the informal sector of very nasty loan shark practices. This will require a great deal of supervision and care.

[Stella Creasy]

Will the hon. Gentleman give way?

[Mr Tyrie]

If the hon. Lady will forgive me, I will not, because I promised the Chair that I will speak for only three minutes. The hon. Lady will have an opportunity to make her own speech in a moment, and she has been a doughty campaigner on this subject for some time.

I want to speak briefly about part 5 of the Bill, which is the part that creates the payments regulator. This implements a recommendation the Treasury Committee made two years ago. It is worth explaining the origins of our recommendations.

The Payments Council—which is dominated by the banks and other firms involved in the payments system—decided in 2011 to abolish the cheque, without providing any explanation of how it would provide an adequate replacement. That was a profound mistake, and the Committee decided to investigate. The justification for that decision looked pretty threadbare and the abolition also carried a considerable consumer detriment both for charities and for a lot of people who use cheques. I did 20 radio and TV interviews on this subject after the report was published. I asked each of the interviewers whether they had a chequebook; 19 of them said they did and they very much wanted to keep it. I think that brings home the value of cheques. This does not affect only the elderly; quite a large group of people want to keep some kind of paper-based transaction system for the time being.

Under pressure the Payments Council did a U-turn and cheques have been retained. The Treasury Committee also looked at how such a crass decision could have been taken in the first place. We concluded that the explanation lay with the structure of the Payments Council itself. Frankly, it has been little more than a poodle of the industry, and it certainly could not reasonably claim to act on behalf of consumers. A reasonable case can be made, however, that it is a monopoly controller of a crucial banking service. We recommended that that responsibility for the payments system be brought within the ambit of regulation, and we gave an outline of how that should be achieved. Amendments 63 to 134 would implement that central recommendation of our report. It is now up to Parliament to ensure that the FCA is much more responsive to the needs of consumers and competition, on this and a good number of other issues, than was its predecessor. I warmly welcome this part of the Bill.

[Yvonne Fovargue (Makerfield) (Lab)]

I regard payday lending as a new industry. We have heard talk about how Labour did nothing for 13 years, but in the 23 years I worked in a citizens advice bureau—I left in 2010—I did not see people with payday loans. I think we saw our first person with a payday loan in 2010. It was always the home credit industry that people came to us about. The payday loan industry—and, in particular, the way in which it targets its market—is a new thing.

I wish to speak to amendment 155, which relates to the importance of a high-cost payday lender reporting in real time to a third party. The industry is really keen to embrace new technology when it suits it to do so. It has phone apps, and it advertises on television and online. New technology is meat and drink to it. However, it is less keen to operate a real-time database. It has had two years in which to do so voluntarily, and it still cannot come to an agreement on it.

Part of the reason for that could be that the industry is not keen on guidance. A lot of our payday lenders have American ownership. When I was at a conference recently, I was harassed by some of those American owners asking me what the rules were. I started to explain the guidance, but they were not interested. They just wanted to know about the rules. If something is not written down, they do not want to do it. They do not want to be the first, or just one of a few, to do something. For that reason, this provision needs to be mandated.

The present reporting system, involving a period of 30 to 60 days, is completely inadequate for a short-term, high-cost loan. A constituent who came to see me recently had taken out 14 payday loans in a week. Yes, that was irresponsible borrowing. I could see that he had been desperate, but it was also irresponsible. The system allowed him to do it. Had the lenders had a real-time database when they agreed to those loans, we could have got them for irresponsible lending. Their excuse, however, was that they did not know how many loans he had already taken out. The lack of a database gives them an excuse to lend irresponsibly, without penalties.

We also need to consider the responsible customers who pay back their loans on time and for whom taking out a payday loan is a perfectly rational decision. Perhaps their fridge is broken and needs to be replaced urgently, and they are expecting some money at the end of the month. Taking out such a loan in those circumstances could be more sensible than going to a company such as BrightHouse. Those responsible customers get no credit for paying back on time, however, because there is no database and because it is not mandatory to report their repayment record. In fact, on occasions, they are penalised for taking out a payday loan. We need a system that will help people to build up a record of creditworthiness, to allow them to get into the mainstream credit market.

As we have heard from my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), the present system can deter new entrants to the market. Companies tell me that they would like to get into the market, and that there is a gap for providers of loans between £500 and £1,500 taken over six months to a year at an interest rate of around 30%. However, the business risk is too great, because there would be no way of knowing whether their customers already had payday loans and when they had taken them out. Entering such a market would add to their business risk, and they also worry that raising their rates would involve a degree of reputational risk.

The Government should look again at this matter and consider mandating the introduction of a real-time database and reporting to a third party. That is important if we are to protect customers and lenders. It is also important if we are to help people to move into a credit stream with lower interest rates, and to help new entrants to move into the market, which we all agree is vital.