Bank of England and Financial Services Bill [Lords]

Debate between Mark Garnier and Harriett Baldwin

Monday 1st February 2016 Commons Chamber

[Harriett Baldwin]

The hon. Gentleman is right to highlight the fact that the FCA is set up completely differently. However, I stress that the similarity lies in the operational independence. When it comes to the FCA, the Treasury is obviously able to appoint the chief executive and the board, but the operational decisions are for the FCA board, as we have made clear in recent weeks.

Let me move on to the second element of the Bill, which will make changes to the senior managers and certification regime. As hon. Members will know, the Government are committed to driving up standards of conduct across the financial sector, and to tackling the abuses and unacceptable behaviour of the past. That is why the Government are replacing the discredited approved persons regime with a much more robust new system, the senior managers regime, legislated for by the previous Government in the Financial Services (Banking Reform) Act 2013.

I find it quite extraordinary that, in the amendment they have tabled, Opposition Members have seen fit to claim that

“the Bill reduces regulation of financial services”.

This Bill is a vital opportunity to remove what the Parliamentary Commission on Banking Standards described as the “complex and confused mess” of the approved persons regime for 60,000 financial services firms, all insurers, FCA-regulated investment firms and all consumer credit firms, and to replace it with the more targeted and robust senior managers and certification regime.

Let me set out the benefits of the new regime; perhaps the Opposition will then reconsider their position. The approved persons regime is a relatively broad, unfocused regime in which all individuals who were considered to hold significant influence functions in the firm, or who dealt with customers would be subject to the regulators’ pre-approval in a tick-box exercise. Crucially, clarity of responsibilities at the top of firms was woefully inadequate. Firms could pass the buck for ensuring the fitness and propriety of their staff to the regulators, and the regulators could take enforcement action only against the individuals they had pre-approved.

The senior managers and certification regime tackles those problems head on. First, it focuses regulatory pre-approval on senior managers, the key decision makers at the top of firms. It enhances the accountability of these individuals through statements of responsibilities, documents that give clarity on which senior manager is responsible for each area of the firm’s business, and through the proposed statutory duty of responsibility that requires senior managers to take reasonable steps to prevent breaches of regulations in their areas of responsibility.

[Mark Garnier (Wyre Forest) (Con)]

Does the Minister agree that the senior managers regime will cut through the accountability far more, as the Parliamentary Commission on Banking Standards discovered? The regulatory regime at the time had the effect of forcing senior managers to create ignorance of what was going on within their institutions. The Bill will now absolutely reverse that, so that senior managers must know what is going on within their institutions so that they can take responsibility for infringements of the rules.

[Harriett Baldwin]

My hon. Friend, who was a distinguished member of the Parliamentary Commission on Banking Standards, is right to say that the commission highlighted the fact that the approved persons regime made it very difficult to pin down responsibility. The new regime, with its duty of responsibility clearly articulated —every organisation will have that set out when managers are first appointed and on an annual basis thereafter—is a much stronger regime. It also delivers more flexibility in the regulators’ enforcement powers, enabling them to impose high standards of conduct through rules applying to individuals, including those whom they have not approved. The expansion of the new regime to all authorised financial services firms will enhance personal responsibility for senior managers, as well as providing a more effective and proportionate means of raising the standards of conduct of key staff more broadly.

Given the improvements that the senior managers and certification regime with the statutory duty of responsibility delivers in terms of senior accountability, the reverse burden of proof is simply not necessary. In extending the new regime to all authorised financial services firms, it is important to consider whether, under these new circumstances, the application of the reverse burden of proof to any or all firms is appropriate. Most of the firms to which the regime will now apply are small, and it simply would not be proportionate to apply it to those firms. By retaining it for the banking sector alone, we would raise serious questions of fairness and competition.

Oral Answers to Questions

Debate between Mark Garnier and Harriett Baldwin

Tuesday 19th January 2016 Commons Chamber

[Harriett Baldwin]

I completely agree with the hon. Lady that we need to see the highest levels of conduct from the banking sector. We also need to continue to take steps in terms of our long-term economic plan to secure access to funding for small businesses. That is why we have taken steps to back peer-to-peer lending and extended funding for lending for another two years. We continue to benefit from record low interest rates thanks to our prudent economic management.

[Mark Garnier (Wyre Forest) (Con)]

There has been speculation that the Treasury has influenced the decision by the Financial Conduct Authority. While I think that such speculation is certainly fanciful, it is important to remind the House that the FCA was set up in 2012 as an independent organisation. Does my hon. Friend agree that one way we could underpin the independence of the FCA would be to adopt a similar process to the one we have with the Office for Budget Responsibility, whereby the Treasury Committee can have power of veto over the appointment of the chief executive?

[Harriett Baldwin]

My hon. Friend, who is a very constructive and engaged member of the Treasury Committee, will have the opportunity to ask questions of the acting chief executive and the chair of the FCA on Wednesday. I agree that it is very useful for such a Committee to have pre-appointment hearings with any executive of the FCA.

Capital Markets Union

Debate between Mark Garnier and Harriett Baldwin

Thursday 3rd December 2015 General Committees

[Mark Garnier (Wyre Forest) (Con)]

I thank my hon. Friend the Minister for her statement and I welcome the initiatives that are coming with the capital markets union action plan, but I would like her to reassure the Committee on a number of issues. Clearly what we are discussing is a very good thing, but is there any risk that it might expose us to negative factors, such as a financial transaction tax, which we might have to levy as part of a capital markets union across the whole EU? In addition, there are issues such as the location of clearing houses. Other important factors also need to be considered, such as how this issue relates to our proposals to secure our interest outside, not inside the eurozone and what effect the initiative might have on negotiations ahead of the referendum next year.

[Harriett Baldwin]

Let me take those points in turn. As a distinguished member of the Select Committee on the Treasury, my hon. Friend knows that the UK does not object in principle to financial transaction taxes. The UK has a financial transaction tax on stocks that are bought in the UK. However, the Government are concerned about the application of a financial transaction tax on instruments that could be traded elsewhere in the world, because if it were applied to something that is easily mobile and can be moved quickly to another jurisdiction, that is what would happen. There are no proposals in the capital markets union steps outlined today to harmonise taxation in any way. The Government stand strongly on our belief that taxation is a matter for member states and we continue to argue that case.

On the more general points about renegotiation and the Prime Minister’s letter to Donald Tusk, it is clear that the European Union needs to address the fact that nine countries continue to have their own currencies and 19 have chosen to adopt the euro. There is absolutely no prospect of the UK ever joining the euro, so as part of the renegotiation we need to make it clear across the 28 EU countries that positive initiatives such as this on capital markets must reflect the fact that this is a multi-currency single market for capital. We will fight vigorously against any proposals that threaten that. That is a key part of the renegotiation.

Finance Bill (Third sitting)

Debate between Mark Garnier and Harriett Baldwin

Tuesday 13th October 2015 Public Bill Committees

[Harriett Baldwin]

Let me answer the hon. Gentleman’s question by agreeing that clause 18, given the way it is worded, applies only to banks. Clearly, it was introduced in response to the fact that the scale of bank compensation, to which I referred in my opening remarks, has been so significant. More than £25 billion has already been paid out, which has had a material and meaningful impact on the corporation tax receipts of Her Majesty’s Treasury. We have always been clear that we want banks to make a fair contribution to their historic costs and their potential impact on future risks to the economy.

The hon. Gentleman asked about compensation relating to the Volkswagen emissions scandal, which, as he is right to highlight, is a complete scandal. There is currently no intention to extend this measure. It is obviously early days in terms of the full scale of potential actions regarding Volkswagen, in particular Volkswagen in the UK and where the company pays corporation tax. However, I can assure the hon. Gentleman that the Government reserve the right to act decisively through legislation such as Finance Bills when they need to take steps to protect the public finances.

[Mark Garnier (Wyre Forest) (Con)]

On a point of clarification, the Minister mentioned that the costs of expenses incurred in addition to fines would also not be tax deductible. As she knows, under a section 166 agreement, the Financial Conduct Authority can ask a bank, at its own expense, to investigate an alleged misdemeanour. As I understand it from what she is saying, if that results in a fine, the section 166 cost is not tax deductible, but what would happen if it did not result in a fine and came off with a negative result? Would the section 166 undertaking be recoverable under tax?

[Harriett Baldwin]

My hon. Friend speaks with great insight and authority from his position on the Select Committee on the Treasury. I can explain to him that these measures are designed to tackle the material costs of compensation that are reflected, or provisioned for, in a bank’s accounts. In addition to that, a further 10% for the general costs of administration is attached. Were the costs that my hon. Friend refers to significant enough to require provision in the company’s accounts, they would be captured by this measure.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Banks established under Savings Bank (Scotland) Act 1819: loss allowance

Question proposed, That the clause stand part of the Bill.

Royal Bank of Scotland

Debate between Mark Garnier and Harriett Baldwin

Thursday 11th June 2015 Commons Chamber

[Harriett Baldwin]

What can I say? It is extraordinary. I do not suppose we heard that kind of rant when the former Member for Kirkcaldy and Cowdenbeath was intervening in the banking sector. Perhaps the hon. Gentleman has not noticed that, in the single vote on legislation on Second Reading we have had in this Parliament, the Government won by a majority of 491. [Interruption.]

[Mark Garnier (Wyre Forest) (Con)]

When the hon. Member for Bolsover (Mr Skinner) has finished, may I welcome the Minister to her place? She brings with her a great wealth of experience from the City. Part of that wealth of experience is a full knowledge of the sunk cost fallacy. Does she agree that it is completely ludicrous to say that an investment decision made in 2015 should be based solely on the information known in 2008, and that that view betrays a staggering lack of knowledge about the investment process among those opposed to selling the stake in RBS at potentially a loss?

[Harriett Baldwin]

I thank my hon. Friend and constituency neighbour for his question, which shows his depth of knowledge. He is right. In my years of managing portfolios, what I paid for investments in the first place was a fact, but managers also have to factor in the future. None of us has a crystal ball. My hon. Friend’s words are wisely taken.