Queen’s Speech
Lord Watson of Invergowrie Excerpts(8 years, 11 months ago)
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Lord Watson of Invergowrie (Lab)
My Lords, the outcome of the general election came as a massive blow to me, as it did to all noble Lords on the Labour Benches. It was a major defeat for the Labour Party; there is no point trying to dress it up any other way. Even a month on, I admit that it still hurts.
As I began to get involved in competitive sports as a young boy, I remember that my father said to me, “Winning is everything”. But he qualified those remarks by saying, “Winning is everything within the game or within the contest, whatever it is. Once it’s over, your true mark is shown by how you react. Never gloat if you win, never sulk if you lose”. Those words have stayed with me ever since. It is regrettable that my father never had a chance to offer advice to the Prime Minister, because anybody watching Prime Minister’s Questions yesterday will have seen a sneering, patronising display aimed at the interim leader of the Opposition, which I believe did no credit to the Prime Minister or to Parliament.
The inquest within the Labour Party into what happened in the general election is ongoing, but I have no doubt that the main reason for our defeat is the very subject we are discussing today—the economy. Labour never managed to achieve economic credibility in the minds of enough people, and I believe that can be traced back to the period immediately following the 2010 general election. The coalition parties banged on about “the mess we inherited” and it stuck. It stuck despite being completely untrue. That is something about which the Liberal Democrats should be examining their consciences now.
As my noble friend Lord Hanworth said, the economic crisis was not caused by Gordon Brown or the Labour Government. It was a global economic crisis and it was caused by banks, with British banks well to the fore. The only accusation that could be laid at the door of the Labour Government was that regulation of the banks was woefully inadequate. But—and I believe that it is a big “but”—at no time prior to the economic crash did the Conservatives urge the Government to bring the banks under control, so they were equally culpable in that respect. However, Labour never managed to get that crucial point over to the electorate from the beginning. I believe that we had plenty of time to refute the coalition’s mantra and build a convincing economic policy narrative, but for reasons that I cannot quite grasp we never really managed to do so. That failure sowed the seeds of this year’s election defeat and we need to learn that lesson as we begin to rebuild the party as an electoral force.
As I said, I am still hurting—not for myself, but for the millions of people throughout the UK who are going to suffer considerable hardship over the next five years at the hands of a Government who talk about one nation but have neither an understanding of the concept nor any real interest in moving towards it. They talk the talk; I will be interested to see but I do not expect them to walk the walk. Inequality is the biggest and most pressing problem we face in this country today, and we desperately need policies that tackle it and begin to reverse the slide towards an ever more unequal society. I regret that I do not see any evidence that we will get that from this Government.
How can the Prime Minister claim that he wants one nation when his Government are about to embark on £12 billion of cuts in the social security budget? Indeed, along the Corridor his Chancellor has just been outlining the first tranche of some £3.5 billion of cuts, which we are told will amount to a 3% cut in the budgets of unprotected departments. Why were the plans for the full £12 billion not outlined during the election campaign? I suspect that the Chancellor never expected to be allowed to implement such cuts, as the Conservatives had no idea that they would be in a position to govern alone. That explains why there is to be a Budget next month, just four months after the previous one. Unconstrained, the Government are pressing ahead with unalloyed enthusiasm, irrespective of the effect it will have on families, children, the disabled, the unemployed and would-be first-time buyers.
Equally, how can the Prime Minister claim one nation as his aim when during the election campaign he cynically exploited the rise in support for the SNP to help him win power, all the while being fully aware that the outcome made an independent Scotland more likely? How can he claim one nation as his aim when he announces legislation in the trade unions Bill that will make strikes virtually impossible? My noble friends Lady Donaghy and Lord Monks have covered this in some depth and with greater experience than I have, but I believe that some points are worth restating.
More than 6 million people in the country are members of a trade union, yet they are being shackled in a manner not seen since the 1920s. One nation? Then why not apply the 50% threshold to all ballots? But that would mean the election of the Prime Minister’s close friend the Mayor of London would have been invalid. Why should a dispute between employees and their employer be seen as more important than the election of the most senior politician in the capital city? Mind you, the fact that the mayor regards his job as part-time perhaps diminishes my argument there.
The thresholds proposed are arbitrary, unfair and quite unnecessary. Even more so is the 40% threshold in favour that will be required in public sector strike ballots. On that basis, the Prime Minister’s own position is untenable as he and his party managed to gain a mere—I use the term advisedly—37% of the popular vote a month ago, which equates to just 24% of those eligible to vote. One nation? I say, “Hardly”. It is one rule for trade unionists and none for everyone else. How can the Prime Minister claim one nation as his aim when he seeks to require trade unionists to opt into paying the political levy to the Labour Party yet proposes no such requirements on shareholders as regards donations to his own party from business? This is a blatantly party-political move of the sort that discredits politics in its widest sense. This Government are determined to reduce workers’ rights and, indeed, human rights. The latter may not have been in this Queen’s Speech but it will be along soon enough.
Finally, I am disappointed that proposals to deal with tax evasion or avoidance were not included in the gracious Speech. There is a tax lock Bill, but it includes nothing to tackle tax dodging by multinational companies. This week, the International Monetary Fund said that every year $212 billion is lost to corporate tax dodging in developing countries. It believes that the existing global tax rules are,
“obsolete and ineffective in preventing tax abuse by multinational corporations”.
The Minister will recall that I raised these matters earlier this year during the passage of the Deregulation Bill and it is clear that the Government need to do more to tackle corporate tax dodging, because the job is far from done. The Conservative manifesto said that the party would consider the case for making country-by-country reporting public on a multilateral basis. I urge the noble Baroness, Lady Neville-Rolfe, and the noble Lord, Lord O’Neill, to ask the Chancellor to spell out in the Budget how the Government will go about doing this.
Small Business, Enterprise and Employment Bill
Lord Watson of Invergowrie Excerpts(9 years, 1 month ago)
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Lord Stoneham of Droxford (LD)
My Lords, I congratulate wholeheartedly the noble Baroness, Lady Thornton, on her amendment and on raising this issue. I also congratulate the Minister and the Government for agreeing to bring forward the amendments, to which I added my name and which the noble Baroness, Lady Thornton, has agreed to accept. It is a good move. My group has been committed to equal pay for a number of years. We accept that there is still a long way to go in terms of culture and practice to achieve it. This measure will publicise more widely gender pay gaps in companies and will be a step in the right direction, so I welcome it immensely. It builds on some of the Government’s other policies, in particular to improve the gender balance on boards. It also shows the benefits of cross-party agreement to achieve better legislation that is likely to be more effective and more influential in its impact in the country.
Lord Watson of Invergowrie (Lab)
I welcome the Government’s acceptance of the amendment in the name of my noble friend Lady Thornton and their decision to take it slightly further by changing “may” to “must”. That is an improvement and it is to be welcomed as well. I am not quite sure that I would go as far as my noble friend Lady King who was rather effusive—perhaps she was indulging in irony—in saying that the Conservatives and Liberal Democrats were now all over this like a rash. Having been involved with various aspects of this Bill through its passage, I suspect that the driving force in this is in fact the Minister herself and that some of her colleagues may not be entirely signed up to it. I suspect that the word “burdens”, which we have already heard today, will be one that will appear more than once this afternoon in terms of zero-hours contracts, fixed-term contracts, internships and so on—and yet the burdens will always be the burdens on industry and never the burdens on the individual workers who have to work those hours.
This particular amendment is about women. I hope that we can hear a bit more about the burdens that people have to suffer. Earning only 81p in the pound is a burden that no woman should have to suffer. If the amendment opens things up and exposes companies that for whatever reason are paying at different levels, that is a real step forward. I welcome the amendment—and the amendment to the amendment
Baroness Neville-Rolfe
My Lords, I thank the noble Baroness, the noble Lords, Lord Low and Lord Watson, and the noble Baroness, Lady King of Bow, for their contributions to the debate. I am pleased that there is widespread support for the approach. It builds on the Equality Act 2010 and the progress that I believe has been made since 2010. I also pay tribute to the noble Lord, Lord Stoneham, and thank him for what he said about culture, since culture and transparency are very important in promoting gender equality. I ask noble Lords to support these amendments.
Small Business, Enterprise and Employment Bill
Lord Watson of Invergowrie Excerpts(9 years, 3 months ago)
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Lord Stoneham of Droxford
I thought that the Government were doing much more than the noble Lord, Lord Young, indicated to enforce the minimum wage. That has been led by the Secretary of State and the naming and shaming is an important element of it—there has been considerable publicity. The Minister should perhaps spell out a little exactly what the Government have been doing in this area and the Opposition should not take all the credit. They deserve the credit for introducing this measure, but the Government are committed to seeing it enforced, and seeing that people are paid appropriately.
Finally, it should be said that this is a Bill for small businesses and, as we saw in the previous discussion, there is a danger as to affordability when it comes to the paying of fines, particularly by small employers. Those should be appropriate, so I will be interested to hear what the Minister will say about enforcement. I hope she will confirm the Government’s commitment to making sure that the minimum wage is firmly enforced.
Lord Watson of Invergowrie (Lab)
My Lords, I was certainly in accord with the noble Lord, Lord Stoneham, on his last remarks, but I find it rather strange that he should pray in aid of his argument that any fines should be affordable by the small businesses concerned. Small businesses have no need to incur any penalties whatever; all they have to do is abide by the law and they will not be forced to pay a penny more than they are legally obliged to do. There is no merit to that argument. If you do not want the fine, pay the national minimum wage.
While I suspect that the Government will resist the move from £20,000 to £50,000, my point in respect of the amendment has two prongs to it. One is that I want to know why there should be an upper limit at all at £20,000. Why is there a need for an upper limit? In earlier parts of this clause, it says that the total amounts should be in respect of the amount owed to the individual. But if there is an upper limit of £20,000—and goodness knows what kind of employer would incur a debt of failure to pay the national minimum wage in excess of £20,000—why should we use that as a cap? What is the logic, first, for having a cap at all and, secondly, for that to be the figure? If £20,000 is not to be a sufficient disincentive, £50,000 might just about do the job, and for that reason this amendment ought to be accepted by the Government.
Lord Whitty (Lab)
My Lords, I, too, support this amendment and I take issue with the noble Lord, Lord Stoneham. The worst thing for a small business that is obeying the law is that there is another business down the road that is not. There has been quite some fragmentation at the bottom end of the labour market since 1998 and we know that the way people are employed—or quasi-employed—is now much more dubious in terms of what they are entitled to and how you can check on it. Where people are not being paid the minimum wage for the hours that they work, it is important that the authorities can both check on it and enforce it. I fear that, at the moment, there are not many resources for doing either. Strictly speaking, the wages inspectorate is part of this as well as HMRC, but this is not top of its priorities and the number of prosecutions in this area has been very limited. I am not denying that there have been noises from BIS and from the noble Baroness’s fellow Ministers on this front, and I welcome that. However, the reality is that are a lot of people who are either on zero-hours contracts, which we will debate in moment, or on various other quasi- terms which they cannot argue with the employer and whose money is below the rate they should be getting.
The Agricultural Wages Board used to have a particular inspectorate—it was not even five people at last knockings —but when the board was abolished last year we received assurances that that resource would be transferred into HMRC. I understand that no such increase has actually occurred, either in the wages inspectorate or HMRC. Regarding HMRC, I would be reluctant to agree with Amendment 68ZR that enforcement should go entirely to local authorities. HMRC often has a way in because it sees the books, so I would keep a role for it. That could be followed through in rather the same way as local authorities follow through environmental health legislation by being given more of a role in that respect. Local authorities would also need the resources to be effective in this area.
We need to recognise that the present situation is not adequate. The enforcement resources that would be subject to the annual report are not adequate either. Having a maximum penalty of £20,000 is also not a deterrent for a lot of employers who operate on the murkier side of the labour market. It is not always small companies that are doing this; it is often large companies, or their sub-contractors, or labour-only suppliers who are paying below this rate. We therefore need a step change. Amendment 68ZN would go a considerable way to providing a degree of deterrence. Amendment 68ZQ would mean that Parliament would at least know what the level of resources in this area ought to be and actually is. On Amendment 68ZR, I would hope that local authorities would have some role, but HMRC and its resources are also an important element.
Baroness Donaghy
My Lords, Amendment 68ZT asks the Government to publish a report on the whole issue of internships. Clearly, it is a probing amendment, and I make it clear that I am not against internships. Paid internships are not only fair but can be argued to be good for business, as they allow all to compete on an equal footing for valuable experience. Across all sectors, those firms offering paid experience get more applications from a broader range of candidates. By offering the minimum wage, or even the London living wage, firms are able to secure the most able workers.
However, where internships are informal and unpaid, they are likely to be unstructured and unhelpful for the intern and for the company. The proliferation of unpaid internships is now a barrier to social mobility and is blocking routes into higher-paid jobs for young people from low-income backgrounds. Although information on internships varies, the Chartered Institute of Personnel and Development, of which I am a member, estimates that 21% of businesses offering internships do not pay their interns. According to the Sutton Trust, it is estimated that across the UK 22,000 interns are working unpaid at any one time. Data from the trust show that 31% of recent graduate interns are working for no pay. In the 2012 report on fair access to professions, the Social Mobility and Child Poverty Commission noted that unpaid internships are concentrated particularly in the creative industries, the media, and financial and professional services.
The Sutton Trust report continues by stating that an unpaid internship can cost an individual £926 a month in London, or £804 a year in Manchester, on a six-month work placement. The cost of working for nothing rules out all but those from better-off families and discriminates against the majority of young people, who cannot afford to work for free. The trust goes on to say:
“All internships longer than one month should be paid at least the National Minimum of £6.50 per hour, and preferably the National Living Wage of £7.85 (or London Living Wage—£9.15—in London)”.
I am not making any particular proposals on this issue; I am simply indicating what other organisations support. If I am asking for an inquiry, it would be rather inconsistent for me to state what policies I particularly supported. The trust wants internships to be advertised publicly rather than being filled informally, and recruitment processes to be fair, transparent and based on merit. That reflects a statement issued by BIS regarding internships, so I do not think it contradicts anything that is already BIS policy.
An Ipsos MORI poll of 1,700 adults in England for the charity suggested that 70% felt that unpaid internships were unfair as only the wealthy could afford to take them, and some 55% agreed that internships of up to six months should pay at least the minimum wage, with 73% supporting it for placements of more than a year. The YouGov polling shows that 65% of businesses support the proposal to end unpaid internships, presumably because it gives an unfair advantage in certain cases if you do not level the playing field. Bodies such as the Institute of Directors, UK Music, the Royal Institute of British Architects and a range of bodies representing the PR and creative industries also support getting rid of unpaid internships. Alan Milburn, chair of the Social Mobility and Child Poverty Commission, has called on policymakers to adopt a four-week limit on unpaid internships. As I have said, BIS supports an open, fair and transparent process of appointment to internships and indicates:
“Anyone who is a worker is entitled to be paid at least the minimum wage, this includes interns who fall into the worker category”.
Thereby hangs the problem. The lack of clarity about what constitutes an internship is frustrating the application of the National Minimum Wage Act.
In conclusion, internships are becoming essential for access to many professions. Because a high number are unpaid and unaffordable to those from ordinary backgrounds, too many young people are being excluded from the opportunities that they deserve. Although I accept that there will always be a need for casual labour in a flexible labour market, the current position is unfair and disproportionate. A civilised society should be prepared to look at the obvious nooks and crannies in its system, not least if it might go some way to solving our poor productivity record. I cannot help but think that the increasing casualisation of our labour force and our poor productivity record have something in common. I beg to move.
Lord Watson of Invergowrie
My Lords, I came along this afternoon intending to support my noble friend Lady Donaghy on this amendment and I shall attempt to do so, but I regret that so comprehensive has been her advocacy of it that it has left me with little to say. Perhaps I might stress two or three of the points that she made.
One of the aspects that worry me is undoubtedly the fact that unpaid internships are, by their very definition, exclusive to people who, by whatever means, are able to have their costs of living covered while they undertake them. That necessarily makes them exclusive and is unfair. Some people would say that life is unfair; yes, of course it is, but in terms of employment we can try to make the playing field as level as possible. I see no reason why anybody undertaking an internship of more than one month should not be paid. Up to one month, it may be genuine work experience; beyond that, it is a bit more. While the person may find personal benefit, the employer gets a benefit as well. That very important point should be looked at.
There is also a rather disturbing trend now of companies emerging that will charge people a fee for placing them in an internship. That is worrying and, while some of them are paid, you may have to pay even to get on to an unpaid internship. I do not believe that that is right. There are also situations where auctions for internships are held. They sometimes involve charities and, on the face of it, that is worth while but, again, it suggests that it is not an appropriate way to bring anybody into the workforce, paid or unpaid. I regret that development.
Most of all, it is important that anybody doing a job should be paid the rate for that job. Some Members of this House and some Members of the House just down the Corridor need to look at their own practices in this respect, because it has been revealed that there are more than a few unpaid internships within the Palace of Westminster. That does not set any kind of positive example for keeping anybody on beyond a month. With those brief remarks, I am pleased to support the amendment in the name of my colleague and noble friend Lady Donaghy.
EU: Money-laundering Directive
Lord Watson of Invergowrie Excerpts(10 years, 1 month ago)
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Lord Watson of Invergowrie (Lab)
My Lords, I am grateful for the opportunity to speak in the gap. I apologise for not having put my name down, but I was not sure I could be here this afternoon. The noble Lord, Lord Willoughby de Broke, alluded to the maxim of an Englishman’s home being his castle. Perhaps it is because I am not an Englishman that I do not completely subscribe to his views, but I do subscribe to the maxim that there is quite a lot to be said for having nothing to hide and therefore nothing to fear. I am concerned that he made virtually no mention in his remarks of the issue of money-laundering, and I thoroughly agree with the noble Lord, Lord Phillips of Sudbury, that it is actually a very important issue. Whether or not it is more important than trusts, I will leave for others to decide, but it is very important that we grasp this issue. I spoke at some length on this during the passage of the Financial Services (Banking Reform) Bill last year, as indeed did the noble Lord, Lord Phillips.
I see that the Government have committed to creating a public register of the beneficial ownership of companies. That is a step forward, but if beneficial ownership does not include trusts then, as I think the noble Lord, Lord Dykes, said, that opens up such an obvious route for criminals to avoid taxation and launder their illegal money in various ways through the financial system. That is surely something we must seek to avoid if at all possible. I note that the directive has strong support from the bigger EU member countries. I know that will not cut much ice with the noble Lords, Lord Willoughby de Broke and Lord Pearson, but it is none the less important, and I see that the resolution was passed very decisively when it came up for consideration.
I accept that a majority of trusts are set up for entirely legitimate purposes, but the small percentage which abuse the law can have, and often have had, devastating impacts. The opaque corporate ownership structures which are often used allow such crimes as money-laundering, tax evasion, sanctions busting, trafficking of arms, drugs or humans, terrorist financing, bribery and other forms of corruption. Those are surely not issues that we can treat at all lightly. If transparency around trusts is not guaranteed, their illegitimate use is likely to increase significantly, which is a big issue. A public register could distinguish between low and high-risk trusts, with the former being exempt, to avoid unnecessary regulation. Will the Minister give us his view on that point when he replies? I very much hope the Government will eventually support this directive.
Financial Services (Banking Reform) Bill
Lord Watson of Invergowrie Excerpts(10 years, 4 months ago)
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“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.
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?
Financial Services (Banking Reform) Bill
Lord Watson of Invergowrie Excerpts(10 years, 5 months ago)
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Lord Watson of Invergowrie (Lab)
My Lords, I am pleased to associate my name with all five amendments in this group, but I also want to speak to some extent about the FCA note which appeared at about 9 o’clock yesterday evening—typically late in the day, not just literally, as regards the progress of this Bill. I reiterate the point made by my noble friend Lord Brennan that the Government have provided no grounds for reassurance that their amendments adequately deal with the serious issue of anti-money laundering. The fact that the Minister’s promised letter of comfort has not materialised demonstrates that the House should be concerned by the absence of any coalition assurances on this crucial issue. I am not sure whether the FCA note is intended to be in place of such a letter, and I will come on to that later. However, I said in Committee that not only were the Government naive to assume that the amendments we tabled then were unnecessary, they were also complacent. I very much regret to say that the failure to produce the letter setting out the Government’s position which my noble friend Lord Brennan was promised clearly suggests that that complacency remains intact.
We also heard in more general terms in Committee about the devastating human cost caused by the banks’ failure to comply with anti-money-laundering laws. That has not been mentioned this evening but it bears repeating: it is not just a question of what happens in relation to the financial sector in this country but also of money laundering that often amounts to the state looting of developing countries’ aid and haemorrhages billions of pounds from their national budgets, trapping millions of the world’s poorest people in extreme poverty. However, as mentioned in the previous debate, it also threatens the economy of the UK. The integrity of our financial system is hugely compromised by banks failing to prevent access by the worst types of criminals from around the world, whether they be corrupt dictators, drug smugglers, arms dealers or terrorists, as other noble Lords have said. This shows that the stakes could not be higher. I wish that that were reflected in action taken by the Government to counter this problem. It makes their lack of willingness to deal meaningfully with the issue quite unfathomable. Their continuing naivety is potentially dangerous. I apologise for using the word “naivety” again but I feel that I have to do so.
As the noble Lord, Lord Phillips, rightly noted in Committee, should there be any doubt, following the Minister’s letter, about whether the Government’s amendments adequately dealt with money laundering or not, the House should err on the side of caution and choose the alternative amendments. We now know that no such letter has materialised. My noble friends and I have taken great care to move new and refined amendments which reflect the extensive and helpful debate in Committee. In stark contrast the Government have not even offered the explanation they promised. This should leave the House in no doubt as to which set of amendments should be favoured.
I turn to the note from the Financial Conduct Authority that appeared yesterday evening. My noble friend Lord Eatwell said in his opening remarks on Amendment 3, I think, that everything seemed to be done at the last minute as far as the Bill is concerned, and that has been very much the pattern since it first appeared. It is unhelpful in terms of enabling noble Lords to respond meaningfully to new information or, indeed, to draft amendments. It is not clear whether the FCA note on its anti-money-laundering supervision and the new senior managers regime proposed in the Bill is in lieu of the Minister’s letter to my noble friend Lord Brennan, as I said earlier. That letter was intended to outline why the latter’s amendments seeking the explicit inclusion of anti-money laundering in the new senior persons regime and other personal liability mechanisms were unnecessary because the government amendments implicitly did this. However, I submit that the note does not achieve what is required; namely, a guarantee that the FCA will include anti-money-laundering compliance as a key risk and make every bank name a senior banker with personal responsibility for it.
The FCA’s note is largely about what it does and has done, and even refers to what the FSA did. There are just two paragraphs at the end which focus on the proposed new senior managers regime. As the Bill stands, this could give the FCA the power to hold named, individual senior bankers accountable for failures to uphold key standards and risks. However, it seems to me there is a loophole in the Bill which means that it will be left open to the FCA’s interpretation as to whether it uses this power and insists that anti-money-laundering compliance should be one of the issues covered. The note does not indicate that the FCA will include this. It uses terminology such as, “We will consult”, “This will allow firms”, and it, “will help regulators”. These are key phrases in any document but I suggest that they are weak, possibly ambiguous and certainly open to interpretation. I believe that the word “consult” simply means that the outcome is by definition not certain. We should require firms to do something, which is a stronger word than “allowing” them to do something.
My next example is fundamental to the way we deal with anti-money laundering. Instead of the phrase, “for example, anti-money laundering systems”, we should state unequivocally, “including anti-money-laundering systems”. The language that is used is permissive and uncertain rather than being mandatory, which is what I and the noble Lord, Lord Brennan, seek to achieve with these amendments. The content of the note is disappointing and it would be helpful to have clarification of whether it is provided in lieu of the Minister’s letter.
I believe that anti-money laundering compliance should be included as one of the areas of responsibility that is allocated to a named senior banker under the new senior persons regime, is written into the banking standards rules to which staff at banks will have to adhere, and should be one of the conditions of the new remuneration code which makes deferred pay and bonuses contingent on upholding standards. Will the Minister, on behalf of the coalition, ensure that these important requirements are included?
Lord Newby
My Lords, we are dealing here with an issue that everybody realises is an extremely important one in terms of the way banks behave and the way that they are seen to behave. As the noble Lord, Lord Eatwell, pointed out, the importance of money-laundering in financing terrorism has given it an added twist.
These amendments are an expanded version of an amendment tabled by the noble Lord, Lord Brennan, in Committee. Since then, my colleagues in the Treasury have met the noble Lord and explained their view of his original amendment. I hope I can convince the House that the Government’s approach meets the requirements which the noble Lord, Lord Brennan, seeks to impose. These amendments would expand the scope of the senior managers regime to include all persons who are responsible for ensuring that a firm complies with specific obligations under the criminal law, irrespective of the level in the organisation at which they work.
No one doubts the importance of robust action to tackle financial crime such as money-laundering, but I can assure your Lordships that these amendments are not necessary to ensure that financial crime is adequately addressed under the reforms that the Government are bringing forward.
These amendments would bring subordinate staff with relevant responsibilities within the scope of the senior managers regime. That could lead to confusion at least and is contrary to the PCBS recommendation to narrow the senior persons regime to very senior people, and parts of the regime, such as the reversal of the burden of proof, make sense only when applied at the senior level. It is not necessary to bring subordinate staff with specific responsibilities for financial crime within the senior managers regime in order to ensure that these staff are subject to enhanced regulatory scrutiny. It will still be possible for the FCA to ensure that appointments of persons to be money-laundering reporting officers, for example, will be subject to prior regulatory scrutiny and approval under the approved persons regime, if that is considered appropriate, and then subject to rules and standards applicable to their role. This is because the approved persons regime is being retained for financial services firms that are not banks. It is also being retained within the banking sector for appointments below senior management level. The Government have always considered this necessary as there may be critical roles below senior management level with important responsibilities for consumer protection, market integrity or preventing financial crime where prior regulatory scrutiny of appointments remains necessary.
In addition, of course, the regulators will have the ability to make rules of conduct for bank employees who are not approved persons. This will mean that rules of conduct can be applied to staff with more limited roles in preventing financial crime in banks, as well as to approved persons and senior managers.
There is also no need to refer explicitly to breaches of the criminal law to bring senior managers with relevant responsibilities within the scope of the senior managers regime. Under the Government’s proposals, a function can be designated as a senior manager function if a person holding it would be responsible for aspects of the bank’s business that could involve serious consequences for the bank, or for business or other interests in the United Kingdom. There is no doubt that a serious breach of criminal law could have serious consequences for the firm as well as for other people. So senior managers in this area would be covered by this new regime.
The noble Lord, Lord Brennan, asked me three specific questions and for assurances on those points. First, he asked me to confirm that there was no reason to doubt the reliability of the conclusions of the FCA paper. There is no reason to doubt them. Secondly, he asked whether the FCA was properly financed to undertake the level of activity required for it effectively to fulfil its responsibilities under the rules on money-laundering. The FCA budget, as he will know, is funded by the sector as a whole. The FCA is therefore unconstrained, in practical terms, regarding its budget. It is for the authority to determine the resources that it thinks it requires and it can then get them. So no budgetary constraint is imposed on the FCA which reduces its ability to employ as many staff as it feels it wants in this area. Thirdly, he asked whether the FCA represented government policy. The FCA does represent government policy. I am sorry that the note was transmitted later than would ideally have been the case but that in no way undermines its significance as a definitive statement of government policy in this area.
I recognise the concern that noble Lords had in Committee, and still have, in this area. It may be of some minor comfort to know that since Committee I have had a meeting with one of the senior relevant staff at one of the largest UK banks to discuss whether, in its opinion, the FCA was pursuing money-laundering with greater rigour than had been the case in the past. The bank said that the FCA was doing so. It also said that the bank itself had recognised that it simply had to give greater priority to this area.
Two things must happen if we are to achieve the level of compliance that the noble Lord would like. The first, which the noble Lord has concentrated on now, is that the FCA has to do its job properly. As I say, it is putting more resources in and is being, as it states in its list of objectives, more intensive and intrusive. Secondly, as we have discussed in relation to a number of other areas, the banks have to accept that they must adopt a zero tolerance approach to money-laundering. It is clear from the evidence which the parliamentary commission received, and from much other evidence, that this has not always been the case. I believe that the banks are giving a priority to this that they have not done in the past. Is it adequate? It is a great improvement, but it will take some time to be fully clear about whether it is adequate. However there has been a sea change which has been effected in part by the regulatory regime and in part by the pressure put on the banks by a whole range of external stakeholders, not least your Lordships’ House.
The noble Lord, Lord Eatwell, suggested that a further letter might be of help between now and Third Reading to confirm the exact position. I am happy to agree to provide a letter in the terms that the noble Lord suggested. With that assurance, I hope that the noble Lord, Lord Brennan, will feel able not to press his amendments.
Lord Watson of Invergowrie
Perhaps the noble Lord could clarify something. He made it absolutely clear that the FCA note represents government policy. It therefore seems strange that that policy is allowed to be as—shall I say?—ambiguously worded as the FCA note is. It is of concern that it is left that way. Will he commit to write to the FCA before Third Reading to ask it to make anti-money-laundering explicit in the personal responsibility requirements of senior bankers?
Lord Newby
My Lords, I will cover that issue in my letter. I am sorry that the noble Lord thinks that the FCA note is ambiguous, because the fact that it is giving greater priority to this issue and being more intrusive and energetic should give him some comfort. However, as I say, I will write to him.
Financial Services (Banking Reform) Bill
Lord Watson of Invergowrie Excerpts(10 years, 5 months ago)
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Lord Watson of Invergowrie (Lab)
My Lords, the noble Lord, Lord Selsdon, makes an interesting and important point about those people who are in the situation where they see this as a last resort for receiving credit. If any noble Lords were watching “Newsnight” yesterday evening, they would have seen a disturbing feature concerning Wonga; the noble Lord, Lord Selsdon, did not want to name companies, but this company was named in the programme. It turned out that people who had had loans from Wonga, and had then gone to try to get a mortgage, had been told by their financial adviser, or by the mortgage company, that they were not going to get a mortgage simply because they had had a loan. I am sure that would apply to any payday loan company.
It seems perfectly wrong that somebody who takes out that kind of loan and pays it back within the defined period at no additional cost and without extending it or anything—in other words, someone who has done nothing wrong or outwith the agreement—is then penalised. It seems that this stain on their record remains for six years. It seems fundamental that any payday loan company ought to be saying on its website, or telling people over the telephone, “Yes, we are happy to give you this money, but we have to tell you that some mortgage companies and some lenders will not lend to you for a period of six years simply because you have taken this loan”. This seems to be a nefarious practice, and it also seems quite wrong that those companies are not obliged to state unequivocally and perfectly clearly that this could be the case.
Lord Eatwell
My Lords, we of course look forward with interest to the amendments that the Government will put down at Third Reading. However, I was somewhat disturbed by newspaper reports suggesting that the Government are going to ask the FCA to formulate a policy on the level of the cap. That would be entirely inappropriate. It is for the Government to formulate and to define the objectives of the policy and for the FCA to then implement it. The FCA may, on the basis of research, be charged with setting the level of the cap in relation to principles defined by the Government, but it is up to the Government to specify those principles, specify the objectives and, indeed, design the policy. We do not want to hear a cop-out, where the Government declare, to general acclaim, that they are going to cap payday loans and then hand the whole design of the policy over to an organisation which is a regulator and not designed, in and of itself, for the formulation of policy.
I hope that the Minister can give us some reassurance that when these amendments are brought forward at Third Reading, they will contain clear objectives, principles and processes that will define the approach and policy that the Government are prepared to implement with respect to payday loans and that the responsibility that is then handed to the FCA will be one of implementation, not of policy design.
Lord Newby
My Lords, I am grateful to the noble Lords, Lord Sharkey and Lord McFall, for raising this very important issue again. The Government wholeheartedly agree that consumers must be protected when they borrow from payday lenders and use other high-cost forms of credit. Payday lenders are causing unacceptable consumer harm and the Government are committed to putting that right.
As noble Lords will know, the Government have taken decisive action to protect borrowers by fundamentally reforming the regulatory system governing these lenders. This House strongly supported the Government’s proposals to transfer the regulation of consumer credit to the FCA during the passage of the Financial Services Bill last year.
The Government have ensured that the FCA has robust powers to protect customers of high-cost lenders. It will thoroughly assess every lender’s fitness to continue to trade. It will put in place much higher standards that firms will have to meet, and those requirements will, for the first time, be binding on firms. It will proactively monitor the market, focusing on the areas most likely to cause consumer harm. The FCA has a broad enforcement toolkit to punish breaches of the rules: there is no limit on the fines it can levy and, crucially, it can force lenders to provide redress to consumers.
The FCA takes up its new regulatory responsibilities in this area on 1 April next year. But it has already demonstrated that it is serious about cracking down on high-cost lenders. Its draft rules, published on 3 October, restrict some of the practices that cause most consumer detriment, and have won widespread support. But we are convinced that further action will be needed to ensure that this market functions in a way that is in consumers’ interests. As noble Lords will be aware, the Government have announced that they will bring forward an amendment to this Bill at Third Reading to require the FCA to use its powers to cap the cost of payday loans.
I will not pre-empt our discussion at Third Reading but I would just like to make a few key points on the need for a cap on the costs of credit. The Government have always kept the case for a cap under review as the market has evolved. With growing evidence, including from other countries, in support of a cap, we believe that now is the right time to give the FCA a clear parliamentary mandate to take action under the powers we have given it to implement a cap on total costs.
The FCA has an important job to do: it must ensure that it designs a cap that works in UK consumers’ best interests and fits the UK market. To do that, it needs to consider the evidence thoroughly, including drawing on the valuable work being undertaken by the Competition Commission to investigate the fundamental problems in the payday market. As the noble Lord, Lord Sharkey, has already pointed out, we do not intend to wait until the Competition Commission has finished its work and have committed to implementing the cap in January 2015.
The Government’s commitment this week sends a strong message to lenders: “Do not wait for the authorities to act, raise your game and start charging and treating your customers fairly now”. We will have a full debate on the government amendments at Third Reading—
Lord Watson of Invergowrie
I thank the Minister for giving way. He made the point about treating customers fairly. I understand that he is making a broader point but I noticed that he was nodding a few minutes ago when I spoke about the potential damage to somebody trying to get a mortgage, having taken out a payday loan. Does he agree that some way should be found of ensuring that specific information is given to those taking out a payday loan so that they do not affect their ability to handle other aspects of their financial affairs?
EU: UK Membership
Lord Watson of Invergowrie Excerpts(10 years, 6 months ago)
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Lord Watson of Invergowrie (Lab)
My Lords, I, too, congratulate the noble Lord, Lord Shipley, on initiating this important debate. I am absolutely clear that membership of the EU is very much in the best interests of the UK—in economic and social terms, and in terms of the influence that the country can bring to bear both within the EU and globally. I would be very concerned about our isolation in relation to all of those aspects should we walk out on the family that is the European Union.
The EU and our place within it really are too important to be used as a means of dealing with a little local difficulty within the Conservative Party, which is what is happening with regard to the increasingly shrill voices that the PM eventually answered with his plan for a referendum by 2017. The Prime Minister claims that it will be to decide on changes that he hopes—somewhat fancifully, I suggest—to negotiate. However, if that fails to materialise then pressure from within his party would surely mean that we would be stuck with a “Should we stay or should we go?” vote. I would characterise that as the Clash option, for those of a certain age and musical tastes. It is also an uncertain road down which to travel. Fortunately, the Prime Minister first has to clear a certain hurdle in 2015, which gives us some hope of this vital matter being taken out of his hands.
When those of us who are in favour of retaining, and indeed strengthening, our place within the EU cite the dangers inherent in disengaging, we are characterised rather disparagingly as scaremongers, as the noble Baroness, Lady Noakes, has just done. If that is the case, it is a label that sits rather uneasily on some rather significant public figures. Sir Nigel Sheinwald spent five years as ambassador to Washington and three years as permanent representative in Brussels. He has said that a Britain on the sidelines is not in anyone’s interests, and that a Britain on the sidelines of Europe—and even more, out of Europe—would not be in the US interest or in the interests of our other major European partners. The noble Lord, Lord Browne, a former boss of BP, one of the most senior non-executive appointments by the coalition, has warned that years of uncertainty about whether the UK will remain part of the EU will put off investors, leading major companies to place major job-creating projects elsewhere in Europe.
Expanding on that last point, Sir Andrew Cahn, vice-chairman of Nomura, spelled out how a major company might react when considering a billion-dollar investment in Europe. Its advisers, he said, would tell the company that they,
“do not know if the UK will be in the single market in five years’ time and have no idea what their access terms will be”,
should the UK leave, as there would be no way of knowing whether the UK would find a sustainable relationship with the EU or find itself involved in fractious exchanges. He said that those advisers would say:
“Indeed, we have no idea what Britain’s EU strategy is”.
He then said that while the CEO of that company may well still be tempted by Britain, the balance would have shifted and he or she would now,
“examine the European alternatives more closely”.
Moreover, Martin Sorrell, chief executive of the global company WPP, has said:
“At the very best it”—
a referendum—
“will be neutral in impact; at the worst, negative”,
on foreign direct investment. As the noble Lord, Lord Shipley, said, the CBI has also said that it is essential that we stay at the table to bang the drum for businesses and defend our national interest.
These are not insignificant individuals and they are not bound in any way by party political interests. They unquestionably know what they are talking about. Those of us who are in favour need to start making the positive case for remaining within the EU. We should not just counter the negatives of the doomsayers; we need to talk the case up. Indeed, there is a good, solid case to be talked up.
The noble Lord, Lord Shipley, has already quoted the CBI/YouGov survey announced last month, which demonstrated that eight out of 10 firms say that the UK must stay in the EU. Surely that level of support cannot seriously be questioned. Furthermore, significant numbers of those surveyed believed that the current relationship had a positive impact on their own businesses on issues such as the ability to buy and sell products without taxes and tariffs on trade flows in the EU markets and, indeed, outside those markets as a result of trade deals. Having common product standards across the EU was also cited as being of considerable importance. That is hardly surprising because, of course, the EU single market is the world’s largest trading bloc, worth some £10 trillion a year. It is home to 500 million consumers and is the destination of half of the UK’s exports. Surely being part of this large single market makes our entire economy more competitive. Even firms that do not export face more domestic competition, which benefits consumers. In addition, EU membership gives access, through trade agreements, to 37 other economies around the world. If we were to leave the EU, we would have to negotiate each of these deals again, but this time as a country of 60 million people rather than a continent of half a billion people.
Surely the biggest challenge facing the UK today is not Europe; it is the economy, and the priority is to deliver jobs and growth. I repeat my opening remarks that the UK’s interests clearly lie in remaining at the heart of the EU and I believe that that view should be increasingly argued at every opportunity. At the moment in Scotland, we are involved in a campaign to, we hope, keep the UK together. Those in favour of that position are campaigning under the name Better Together. I suggest that that slogan should also be used in terms of the UK’s relationship with the EU.
Financial Services (Banking Reform) Bill
Lord Watson of Invergowrie Excerpts(10 years, 6 months ago)
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Lord Watson of Invergowrie (Lab)
My Lords, I support my noble friend Lord McFall and his colleagues on Amendment 98. I am also in favour of the two amendments tabled by the noble Lord, Lord Phillips of Sudbury. My noble friend drew on his experience as a member of the banking commission when he talked eloquently about the serious matters behind LIBOR and the other issues that contribute to the need for serious whistleblowing legislation to protect those who are, in effect, doing the country a great service.
In reading out those e-mails, my noble friend Lord McFall described the situation very graphically. At one stage I thought that he was going to break into the voice of Robert de Niro or Al Pacino, but his dulcet Dunbartonshire tones were sufficiently menacing to get across the message that the people involved in this crime were playing no games at all, and that it was very serious.
The seriousness of the whole question of LIBOR was brought home to many of us yesterday when we opened our newspapers and saw photographs of people who had been appearing in court charged with offences related to the LIBOR scandal. The first thing that struck me was that the people were relatively young. The “ringleader”, if that is the appropriate term, is barely in his thirties now and was in his twenties in 2008 when the offences were committed, and the other two are not much older. Surely there were older, more experienced people further up the chain who must have known what was going on. If they did not know, they certainly should have done. That is the heart of the matter with regard to whistleblowing. Those responsible have to be held to account.
Amendment 98 works by adding excluded activities under FiSMA or the Financial Services Act 2012 to the list of justifications for making what is known as a qualified disclosure. As noble Lords may know already, the list includes reporting that someone’s health and safety is in danger, damage to the environment, and a criminal offence that a company is not obeying the law or that someone has covered up wrongdoing. Those are generic terms, but many of them would apply to the finance sector. For the new banking system to work well and be policed effectively, protections have to be in place for staff who believe that wrongdoing exists in their organisation and they are not prepared simply to sit on their hands or, as happens in many cases, simply leave the job in the hope of finding employment somewhere else because they fear the consequences of raising the issue.
This amendment is a further attempt to trigger a cultural change in financial services, which I think noble Lords on all sides have acknowledged is necessary. A bank employee may well wrestle with their conscience before deciding to break ranks; it is inevitable that they would. If an honest trader suspects that wrongdoing is under way and is considering informing the authorities, surely protections have to be in place for him or her to guard against a situation where they are held to be at fault. They are the victim because they perhaps lose their job, which in banking, of course, could be a very well paid job indeed. Once the word goes round that someone has left a bank or financial institution for this reason, how difficult will it be for him or her to find other employment?
The LIBOR scandal illustrates the importance of making it easier to report wrongdoing. At the time that we now know the LIBOR rate was being manipulated, certain newspapers did speculate about the accuracy of those claims, and indeed about the accuracy of the LIBOR rate itself. But as we know, no one came forward because no one had the confidence, even if they had the evidence, to break the surface and bring the scandal out into the open. It would have been much easier had it been brought into the open then rather than when it eventually emerged. Surely it is essential that people feel confident about being able to do that in the future.
Amendment 98 simply seeks to bolster the maintenance of law and order, something that I suggest we are entitled to expect that the Minister and his colleagues would agree with. The amendment would make it easier for the regulator and banks’ own compliance teams to do their job. We have heard from my noble friend Lord Brennan that this is being done very effectively in the USA. How could the coalition oppose it being introduced in this country as well?
Lord Newby (LD)
My Lords, the amendment would introduce a system under which the regulators would be able to award compensation against a firm that mistreated a whistleblower. Whistleblowing is an important issue and the Government agree that we need to have a proper system for protecting whistleblowers in the financial services industry as elsewhere. However, I do not think that the noble Lord’s amendment would be a helpful addition to the legislative framework, particularly at this point. Let me explain why.
In the summer, the Government launched a call for evidence on the whistleblowing framework to see whether there was a case for reforming the law protecting whistleblowers. This will be able to take account of submissions from the financial services regulators as well as from other interested parties. The call for evidence closes on 1 November and, once the evidence has been assessed, the Government will consider what if any action needs to be taken. It would not be sensible to prejudge the outcome of the call for evidence and implement changes without first looking at all the evidence available to support any changes. Moreover, the Government do not think that it would be appropriate to have different laws or protections for whistleblowers in different sectors. It would not be right to suggest that whistleblowers were more deserving of protection in some sectors than in others. I am sure that this is not what the noble Lord intended, but there is a risk that giving the regulators a special role in protecting whistleblowers in the financial services sector will be seen as special treatment for that sector.
Finally, this power does not seem consistent with the role and competence of the financial services regulators. There is a comprehensive system of protection for employees in employment law, which applies across the board, protecting workers in every sector. It provides a route of redress using employment tribunals for individuals who have suffered a detriment or dismissal as a result of blowing the whistle.
Financial Services (Banking Reform) Bill
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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.