RBS Global Restructuring Group and SMEs

Adrian Bailey Excerpts

Thursday 18th January 2018 Commons Chamber

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I have read the exchange about this matter between the right hon. Lady and the FCA. Does she agree that it is a real concern that that correspondence conveys the impression that the FCA is rather intimidated by the potential actions of RBS? Should it not be the other way around?

[Nicky Morgan]

The hon. Gentleman makes a valid point. Yes, of course it should be the other way round—the FCA is the regulator. While this is about an individual case, it is of course also about the wider message that is sent about the system of regulation and lending to SMEs.

As we have heard, one of the solutions could be a new dispute resolution regime for SME financing. I recently discussed such a proposal with my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) and the all-party group on fair business banking and finance, which has done important work in this area, on which I congratulate it. Another possibility would be to bring corporate lending of a certain size within the regulatory perimeter, thereby allowing the FCA to consider taking action against firms directly for any failings. Those are not mutually exclusive suggestions. I would welcome the Minister’s commitment to publish the Treasury’s analysis of the costs and benefits of moving the regulatory perimeter on small business lending. I would also welcome confirmation that the Treasury does not rule out a legislative approach to establish a new tribunal or to introduce a perimeter change, if either were deemed appropriate.

The GRG was a warning that all was not well, but at the moment only the advent of the FCA’s senior managers regime is preventing such cases from arising again. I hear constituents and others saying that they will never trust a bank again and never ask a bank for money again, and this should be a chilling moment for all banks involved in lending to and working with SMEs. Bank lending is an important part of this country’s financial infrastructure, which was why the then Government stepped in during the financial crisis in 2008. I assure the House that the Treasury Committee will continue to consider the options available to provide further protections to SMEs in their dealings with the banks.

--- Later in debate ---

[Mr Adrian Bailey (West Bromwich West) (Lab/Co-op)]

I congratulate everybody involved in bringing this important issue before the House for debate today. I was first confronted with some of these issues in my former incarnation as Chair of the Select Committee on Business, Innovation and Skills, when a number of the cases outlined by Members today were brought to my attention. As I studied them, my first instinct was that these were just isolated cases of maladministration and that banks could not possibly be behaving in such a way, which one would assume contravened not only any sort of ethics or sense of fairness, but the law itself.

Further investigation and consultation with other Members demonstrated that what I thought were one or two isolated incidents of maladministration were in fact part of a national problem resulting from a culture that obviously prevailed within the financial services industry, and that in many ways was propped up by other professional and corporate organisations—valuers, receivers and so on—who were making money out of it. Therefore, I particularly welcome the emphasis a number of Members have put on pointing out that, although this motion focuses on RBS, this is a general and systemic problem, as was determined by the fact that about 60% of lending to small and medium-sized enterprises was done by two big banking conglomerates, Lloyds and RBS. They, by their actions, set the culture and tone of how banking has dealt with small businesses and the way small businesses perceive the banks.

I applaud the motion, because it makes it clear that although RBS may have implemented some remedial actions, this is a general problem that needs a general solution. I read the minutes of the Treasury Committee interviews with Andrew Bailey of the FCA, and one of the most astonishing things I read was the regular comment made by him that such actions were “outside the regulatory perimeter”. What an astonishing thing for somebody in charge of the organisation designed to implement regulation to acknowledge: that for a long period banking practices had actually gone on outside any sort of regulatory perimeter. One would reasonably expect such a body to be pressing the Government to pass the necessary legislation to alter that position. In part, these huge personal, economic and business problems have arisen because of the failure of that body to make that case.

In the past, like many other people, I assumed that banks giving loans to business did so because there was a mutuality of interest: the bank would make money, the business would thrive and the country would thrive via the economic benefit that that would bring about. Instead, a process has been built into our economic system by which the organisations that were supposedly providing the lifeblood of our economy—driving productivity, investment and so on—were in fact destroying it. Indeed, their future depended on their destroying, through corporate theft, financially sound businesses that were providing employment and contributing to the economy.

The Orwellian name of the Global Restructuring Group hides the fact that it was effectively death row for businesses, and its structure was mirrored by other banks. All that underlines the proposals in the motion that imply that the Government, through the FCA, must impose a far more rigorous regulatory environment to drive the change in culture that is so necessary.

[Several hon. Members rose—]