Financial Services (Banking Reform) Bill

Lord Watson of Invergowrie Excerpts

Tuesday 15th October 2013 Lords Chamber

[Lord Lawson of Blaby]

My Lords, I do not want to go into the issue of money-laundering; we have had a good debate on it and I am sure that my noble friend may have some further observations to make in the light of what has been said.

I endorse very strongly what the noble Lord, Lord Turnbull, had to say when speaking to this group of amendments. The Government are indeed to be commended on this series of amendments. However, as the noble Lord, Lord Turnbull, pointed out, in certain important ways, they do not go far enough. There is also the critical question of the definition of a bank in government Amendment 55. We would like to hear very clearly what is the definition of a bank and we would like the Government to look again at the points that the noble Lord, Lord Turnbull, my fellow commissioner on the banking commission, made. Although the Government have made a huge advance, there are still important areas where they have not gone far enough.

I should also like to address what lies behind this and what my noble friends Lord Trenchard and Lord Flight said in casting doubt on the whole drift of the provision. We have sought to say that there must be personal responsibility on members of the senior management in banks. It is not good enough for there simply to be fines on banks when things have gone wrong and there has been culpability. What happens if there are fines on banks? Who bears the burden? It is the owners of the banks, the shareholders. The shareholders are the innocent victims here. There must be individual responsibility on the management where such behaviour can be demonstrated or where the management neglectfully failed to exercise responsibility.

As the noble Lords, Lord Turnbull and Lord McFall, said, in hearing evidence, the commission heard one of two things: either, “It wasn’t me; it was a collective board decision, so no individual is responsible”; or, “It wasn’t me; I had no idea what the traders in my bank were doing; it was all them”. Of course, we strongly suspected that the reason that they had no idea what the traders were doing was that they took great care not to know. The point is simple: if they did not know what the traders were doing, they were culpable. It is their business to know what their traders are doing. That will not wash either.

Then we have heard the excuse: “What about the regulators? The regulators were at fault”. So they were; that is beyond dispute. The Government have introduced a new system of regulation and supervision which they hope will be better than the one that preceded it. We will come to this later, but we have suggested ways in which that, in our judgment, needs to be further strengthened. That does not exculpate the bankers.

It has also been suggested that the Bank of England was pursuing an inappropriately cheap money policy and, therefore: “What were the bankers meant to do? It is the Bank of England’s fault”. I shall not detain the House by going into this now, but it is arguable whether the cheap money policy was wrong or right at the time. I think that you could make a very good case that it was appropriate at the time, but anyhow, whether it was wrong or right, it is no good a banker saying, “I couldn’t help making a bad loan. I couldn’t help taking excessive risks. I couldn’t help being reckless”. That is absurd and pathetic.

Of course, others were culpable. The auditors were culpable. They never raised a finger to warn the boards of the banks of the risks that they were running. Again, we all know that the ratings agencies were culpable. The ratings agencies made mistakes in calling rubbish derivatives triple-A. But at the end of the day, the buck stops with the bankers. It is their responsibility. That is what they are paid to do. It is their judgment that they are meant to exercise.

Finally, we were told, “Oh, there may be other jurisdictions, such as Hong Kong”, or wherever, “where standards are lower, so we cannot afford to have higher standards and more direct responsibility than in Hong Kong”. That is no good at all. The standards in the City of London should be the highest in the world. The whole thinking behind the commission on banking standards was that we wanted to clean up banking, not to destroy it, so that British banking can be even stronger and make an even greater contribution to the British economy than it has in the past. That is what we were about.

Personal responsibility is not the whole of the solution, but personal responsibility of the senior management is a vital and necessary element. Therefore, as I said, I commend the Government for having moved a long way in that direction, but a little more needs to be done, as the noble Lord, Lord Turnbull, pointed out.

[Lord Watson of Invergowrie (Lab)]

My Lords, I am proud to have my name associated with that of my noble friends Lord Brennan and Lord McFall in this group of amendments.

I certainly agree with much of what was said by the noble Lord, Lord Lawson, not least when he said that we have covered the question of money-laundering in some detail. Indeed we have, but I shall not apologise for reinforcing some of the points made and, I hope, finding one or two that have not been made. At its mildest, it is disappointing to hear the Minister say that the amendments are unnecessary and that what they are intended to achieve is largely covered in the Bill or in the government amendments

My noble friend Lord Brennan called that naivety. Yes it is; I would say that it is also complacent in the extreme. The examples given by my noble friend Lord McFall show that the current system for British banking is not working. The huge fines levied on HSBC and Standard Chartered by the US authorities showed that the US authorities do not think that British banking standards are high enough. I absolutely concur with the view of the noble Lord, Lord Lawson, that the standards of British banking should be the highest in the world. If that puts off some people from working in this country, so much the better.

It should be stressed that money-laundering regulations in the UK are designed to protect our financial system. That is primarily why they are there. Money-laundering is more widely defined in the UK than in several other jurisdictions, notably the USA and much of Europe. UK money-laundering offences are not limited to the proceeds of serious crimes, nor are there any monetary limits. Financial transactions need no money-laundering design or purpose for our laws to consider them a money-laundering offence. A money-laundering offence under existing legislation need not even involve money, since the money-laundering legislation covers assets of any description. The law applies to a person who by criminal conduct evades a liability such as a taxation liability, and that individual is deemed to have obtained a sum of money equal in value to the liability evaded. That is a very important point. Just a week ago HMRC announced that every year some £35 billion of taxes due in this country is not collected.

With that in mind, we should be careful about setting aside the idea that money-laundering is an issue. I suggest that it is very much an issue. My noble friends have rightly outlined a number of reasons why we really cannot afford to miss the opportunity the Bill provides to deal with failures in anti money-laundering compliance. Not only would that compromise the outstanding work and considerable efforts of the Parliamentary Commission on Banking Standards, it could have a tragic human cost. Some of the most vulnerable people in poor countries around the world suffer in many ways as a result of the effects of money-laundering.

I want to stress the matter of our own economy. The parliamentary commission rightly argued that good standards in the banking industry are important for not only the health of that sector, but the wider UK economy as a whole. Correspondingly, failures in standards jeopardise the health of our economy. That may seem self-evident, but surely the banking sector in this country has been responsible for enough damage to our economy in recent years.

It is vital that we take the opportunity to ensure that failures to comply with anti money-laundering laws and other financial regulations do not lead to any further damage. I suggest that there is a real risk of that, notwithstanding that, as was highlighted by the noble Lord, Lord Flight, HSBC has taken rather stringent measures as a result of being hauled over the coals in the US. If as a result some individuals have lost out or been inconvenienced, as he seemed to be suggesting, then that is regrettable. However, it is really pretty small beer compared to some of the issues involved in and the amounts affected by money-laundering throughout the world, often with the involvement of parts of the British banking sector.

When dealing with this issue it is important that we do not easily say that it is all right, that the legislation covers everything we need, and that there is no need for amendments such as these. In preparing for this part of our discussions this afternoon, I looked at the Bill in detail. I was able to find a total of eight separate pieces of legislation mentioned in the Bill, as it was originally published. Not once in the Bill did I find any mention of the words “anti money-laundering”, for a start. Nor did I find any mention at all of the three pieces of legislation—the Proceeds of Crime Act 2002, the Fraud Act 2006, or the Money Laundering Regulations 2007—in some of the amendments we are discussing. Apparently the Government do not think that there is any need to link, at least explicitly, those pieces of legislation with the Bill. That is a grave mistake.

My noble friend Lord Glasman came up with a phrase that struck a chord, certainly with me and I suspect also with other noble Lords: without incentives to virtue, you get incentives to vice. That is absolutely the case, and I very much hope that the Minister will reconsider what I believe to be his rather complacent position on these amendments.