Financial Services (Banking Reform) Bill

Lord Watson of Invergowrie Excerpts

Monday 9th December 2013 Lords Chamber

Moved by

[Lord Watson of Invergowrie]

19: After Clause 28, insert the following new Clause—
“Obligations relating to anti-money-laundering compliance: review
Within two weeks of the passing of this Act, the Chancellor of the Exchequer shall make a Written Statement to the House of Commons stating whether the provisions of this Act bind the Financial Conduct Authority to include anti-money-laundering compliance as one of the obligations covered under the new personal responsibility mechanisms created by the material the Act inserts into FSMA 2000 including, but not limited to, the senior management functions, Banking Standard Rules and Senior Persons Regime.”

[Lord Watson of Invergowrie (Lab)]

My Lords, my noble friends Lord Brennan and Lord McFall have tabled amendments on the issue of anti-money-laundering at previous stages of the Bill. It is with some regret that we feel we have to return to the issue as it has not been dealt with to our satisfaction or sufficiently seriously.

We accept that the coalition has acknowledged that it shares the view that this issue is of the utmost importance, and that it intends that the Bill should deal with it. However, in all its responses so far, I believe that it has failed to show that it has understood the crux of the matter and, in turn, has not amended the Bill appropriately. It is for this reason that my noble friend Lord Brennan and I have submitted this further amendment at Third Reading.

It is apt that, in preparing for the debate, I came across a press release of a court case held in London earlier today involving the imprisonment of a former Goldman Sachs banker who was sentenced to four and a half years for laundering £8 million on behalf of James Ibori, the former governor of Nigeria’s oil-producing state of Delta. Mr Ibori has himself been in prison since April of last year, having received a 13-year sentence after pleading guilty to various counts of fraud and money-laundering. He is the most senior Nigerian politician to have been held to account for the corruption that has blighted that large and very important African country. At the April 2012 court case, it was stated by the prosecutor, no less, that Ibori and his associates had used multiple accounts at Barclays, HSBC, Citibank and Abbey National—now part of Santander—to launder funds. Millions of pounds in total passed through these accounts, some of which were used to purchase expensive London property. The point is that there has been no investigation into those four organisations following that case, which leads me to ask your Lordships what disincentives there are for banks not to continue with their somewhat lax approach to some very large sums of money that are proffered to them. That is why it is important that we deal with this issue by inserting a provision in the Bill today, or at least when it returns to another place.

On Report, the noble Lord, Lord Newby, promised that the coalition Government would provide a commentary on the early amendments that my noble friends Lord Brennan and Lord McFall and I submitted, in order to explain both why they thought them unnecessary and how exactly the new personal responsibility mechanisms in the Bill would include anti-money-laundering compliance obligations. The noble Lord, Lord Deighton, wrote to my noble friend Lord Eatwell on 29 November, but I regret to inform noble Lords that his letter did not provide a satisfactory response.

--- Later in debate ---

[Lord Deighton]

My Lords, I think that I can safely say that every Member of this House will agree with the noble Lords, Lord Brennan, Lord Watson of Invergowrie and Lord McFall of Alcluith, about the importance of the fight against money-laundering and other financial crime and about the importance of ensuring that the banks discharge their responsibilities in this area properly—absolutely no question. I hope therefore that the statement that I am making now will reassure them, more than my letters have done, that anti-money-laundering compliance in banks will be fully covered in the new senior managers regime. I can assure noble Lords that anti-money-laundering compliance in a bank will always ultimately fall within the responsibilities of a senior manager in that bank. The FCA will also have extensive powers to ensure that banks are clear about where these responsibilities lie.

First, under the new senior managers regime, the regulator will specify senior management functions in its rules. These will cover such roles as the chief executive and the finance director and may extend to any function that involves an individual managing aspects of a firm’s business that could have serious consequences for the firm or the wider economy. The total number of individuals covered by the new regime is likely to be smaller than those currently performing functions of significant influence in banks. In line with the recommendations of the PCBS, all the senior decision-takers—the most senior people in banks who take important decisions—will be covered by the senior managers regime.

Secondly, under the senior managers regime provisions that are now in the Bill, there will have to be statements of responsibility in respect of each senior manager. The banks will have to supply a statement with each application to the regulator for approval of the appointment of a new senior manager. The bank will have to update a statement whenever there is a significant change in a senior manager’s responsibilities. The regulators will also have the power to set out the form that the statements should take. They will also be able to require banks to verify the information in the statements in a way that they direct. As a result, the regulators will be able to tell who is responsible for anti-money-laundering compliance in a bank. They will also be able to detect any gaps in the responsibilities by comparing the statements of the senior managers in a bank. Senior management is always ultimately responsible for ensuring that the bank complies with all applicable legal requirements, including anti-money-laundering law. It is inconceivable that a senior manager will not be responsible in this area. Beneath senior management level there will, of course, be other staff involved in anti-money-laundering compliance work and these will include money-laundering reporting officers. In addition, the Government have deliberately retained the power for the regulator to pre-approve individuals performing key roles below senior management level, such as money-laundering reporting officers, even if those roles are not senior management functions. I am sure your Lordships would agree that this is a sensible measure.

We are also introducing, in line with the recommendations of the parliamentary commission, a certification and banking standards regime, applying to all employees of banks. As a result of those changes, the FCA will be able to set standards of conduct for all bank employees who may come into contact with money-laundering or other financial crime. Banks will have to certify annually that people performing particular functions are fit and proper to do them. These are roles in which an individual could do significant harm to the bank or its customers, such as trading or compliance roles or, of course, roles that involve preventing financial crime. The Government’s measures will ensure that senior managers in banks can be held to account for discharging their responsibilities in relation to anti-money-laundering compliance. The regulators will know who has those responsibilities and what those responsibilities are.

No one doubts the importance of the fight against money-laundering and financial crime. The Government’s reforms will ensure that banks and their senior managers will take their responsibilities in this area seriously and will start to discharge them properly. I hope therefore that, in the light of the assurances that I have given, the noble Lord, Lord Watson, will feel able to withdraw his amendment.

[Lord Watson of Invergowrie]

My Lords, I thank the Minister for that clearly considered response and I note what he says. Certainly there is great value in having clearly on the record in Hansard that it will be very senior people who are required to be responsible. That is all to the good and I welcome that, but I am still disappointed that the Minister has not gone a bit further. He talked about the regulator having powers. That is fine, but the regulator may or may not choose to exercise those powers in a particular way. As my noble friend Lord Brennan said, if the word “must” can be used in other amendments to the Bill, why cannot it be used in this one?