Taxation of Pensions Bill
Debate between Andrew Love and Cathy Jamieson(10 years ago)
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Cathy Jamieson
The point my hon. Friend makes is absolutely crucial for many people, which it is why it is so important that they get guidance, so they can make sensible decisions to provide for the long term. I will say a bit more about social care and other services later, if I have the opportunity to do so.
After the Chancellor announced the overall pensions reforms to the House in the Budget statement, we set out three tests against which we believe they should be measured. The first was the advice test: would there be robust advice for people on providing for their retirement and measures to prevent mis-selling? The second was the fairness test: that the new system would be fair, with those on middle and low incomes still being able to access the products that give them the certainty in retirement that they want. The third was the cost test: that the Government must ensure that these reforms do not result in extra costs to the state, either through social care or pensioners falling back at a later stage on means-tested benefits such as housing benefit. We stand by those tests and would argue that so far, the Government have been unable to give assurances on any of those points.
Mr Andrew Love (Edmonton) (Lab/Co-op)
Is my hon. Friend aware of a study carried out by Ipsos MORI which showed that 12% of those who were eligible to do so would withdraw their pension pot entirely next year? When asked what they would do with it, one in five suggested that they would use at least part of it for a holiday.
Cathy Jamieson
Yes, I am indeed aware of that report. I shall go on to raise similar concerns and seek answers from the Minister to them in due course.
In addition to setting the three tests, we have also commissioned a retirement income taskforce, chaired by Professor David Blake of the pensions institute at the Cass business school. We wanted to look at how we could enhance retirement income and ensure that savers had access to good-value products alongside the support that they needed.
I would argue that our position on pensions has been consistent ever since our time in government. When the Labour Government took office in 1997, there was a crisis of pensioner poverty resulting from a decline in the value of the state pension under the Conservatives. There was also a crisis of trust in private pension provision following the mis-selling scandals that previous reforms had opened the way to. Responding to those challenges, the Labour Government built a robust regulatory framework to police and protect people’s pensions. That framework included the Pension Protection Fund. We also laid the groundwork for the universal state pension with a triple lock guarantee, and established the National Employment Savings Trust to help people to save for their retirement.
The reason that I mention those reforms is that none of them was rushed through. They were all based on sound evidence and consultation, and they had the common aim of helping people to make the right choices while affording them the certainty and security in retirement that they deserved. We now have to consider whether the present Government’s approach to pension reform has been consistent, or whether it seems at times to be erratic and contradictory.
To be fair, things began well for this Government. The single-tier pension and the auto-enrolment legislation represented positive steps to build on the progress made by the previous Government. Those reforms were based on evidence, consultation and consensus. That was acknowledged by, among others, Otto Thoresen, the director-general of the Association of British Insurers, who said that
“good consultation and a good period to execute”
improved the chances of legislation being successful.
However, the Government’s approach to the latest pension reforms, announced in the Budget statement, appears disjointed. Prior to announcing the reforms, they did not consult, either consumers or the industry. This has resulted in some of the issues that have been raised today not being flagged up at that time, and in the Government’s argument losing some of its intellectual rigour.
I would like to draw the House’s attention to the comments of the shadow Minister for Pensions, my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East on Second Reading of the Pension Schemes Bill, in which he highlighted the discord between the Government’s stance on pensions in the accumulation and retirement phases. That has been commented on today as well. In the accumulation phase, the Government’s approach—one that the Labour Government had fostered—is founded on the recognition that the pensions landscape is complex and difficult to navigate. That approach harnesses inertia to encourage pension savings, with individuals employed without pension schemes being placed on them by default. That is a sensible approach and it has proved effective.
However, the Government’s approach to the retirement stage, as outlined in the latest reforms, departs from that model, shifting the emphasis from the importance of accumulation to the ease of access. This Bill places the onus of choice back on the individual, working on the assumption that they will be able successfully to navigate what my hon. Friend the shadow Pensions Minister has called the “jungle of financial products”. He referred to there being a “tension” between the two approaches. He has been a friend of mine for many years, and I think that that is typical of his diplomatic way of expressing himself. The Association of British Insurers has also noted that tension, observing that:
“Automatic enrolment has seen millions more people saving for their retirement and further pension reforms should build on this. We are very concerned that the focus of recent discussion around the Freedom and Choice reforms is on early access to cash at age 55 rather than on building assets for income in retirement.”
The Minister referred to the fact that the Bill introduces the option of taking uncrystallised funds pension lump sums. I have to say that I have not been able to think of a better acronym than the one he came up with, try as I might. As he said, that provision will allow people to withdraw money directly from their pensions without first designating it for drawdown. Individuals will be able to take 75% of each withdrawal tax free, with the rest taxed at the marginal rate. This has been described by some as allowing people to use their pension almost like a bank account. More than any other measure in this Bill, it will expedite people’s access to their pension.
I should like to probe the Government’s thinking on this point a bit further. In searching for greater clarity, I repeat the question that my hon. Friend the shadow Minister put to the Pensions Minister in the earlier debate. He asked:
“If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement?”—[Official Report, 2 September 2014; Vol. 585, c. 206.]
Perhaps the Minister will be able to respond to that question when he sums up the debate today.
In the meantime, I think we all agree that the Bill will increase innovation and result in a raft of new pension products entering the market. In many ways, that would be a good thing but, as I have said before, the flipside to freedom and choice is risk and complexity.
Cathy Jamieson
I am surprised by the Minister’s comment. I see it as my duty and responsibility as the shadow Minister to make thoughtful and probing speeches. I also said at the outset that we welcomed the opportunities that increased flexibility would bring, but people need to understand that the flipside to that freedom and choice will be risk and complexity. This is the place in which we should debate that, as we discuss the principles behind the Bill. We will also probe the matter further in Committee. The Financial Conduct Authority has observed that firms might devise
“complex, opaque and overpriced products”
that do not represent good value for customers. It is incumbent on us to understand that risk, and to ask questions about how such products would be regulated. Furthermore, the marketing of those new products might not always clearly articulate the risks involved.
Cathy Jamieson
I agree with my hon. Friend. That fiasco is a recent memory for many of us, and it is our responsibility to ensure that all the risks, as well as all the upsides, are explored.
I should like to quote the ABI, which has stated:
“Giving customers more choice is welcome but it is also imperative to recognise that good guidance and advice is vital to prevent people making decisions which could lead to retirement poverty and/or to them giving up valuable benefits.”
That is a very important point. People in the industry also recognise that we need to have some caution and ensure that we do the right thing.
That brings me neatly to the fraught issue of the guidance guarantee. The Minister talked a bit about that in responding to interventions, and although I recognise that it is not within the specific ambit of the Bill, it has a great bearing on it. That guarantee is integral to the measures in the Bill, because if the Bill is to be a success, the guidance must be fit for purpose. It is not unfair to say that the continuing concerns and confusion over the guidance guarantee do not give confidence to people who are worried about how they are going to access the guidance. It seems as though the guidance was a secondary consideration. As I have said, the pension reforms were announced without the prior consultation with the industry that we might have expected. Some of the confusion was added to when the Chancellor stated that his reforms would be accompanied by advice, given that we know that what he really meant to say, and what was promised in the Budget, was unregulated guidance.
We then had the unedifying and unhelpful intervention by the Pensions Minister, who appeared to make light of the need for guidance by saying:
“If people…get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice.”
That is not helpful at all and has not been during the process. On Second Reading of the Pension Schemes Bill, the hon. Member for Reigate (Crispin Blunt), who is in his place, asked for clarification on how the guidance guarantee would be funded. The Pensions Minister answered by saying that
“the £20 million is not an estimate of the annual recurring cost of providing guidance; it is a one-off seedcorn, getting-the-thing-going fund…if we need to set up websites, produce literature and create infrastructure, the £20 million will enable us to do so.”—[Official Report, 2 September 2014; Vol. 585, c. 198-99.]
That is a bit vague and non-specific. Less than a year from when this Bill comes into force, surely he should know exactly what the guidance will look like.
We now know that the Government propose to deliver the guidance across three platforms, only one of which will be face to-face guidance—that was what was initially promised. We also know that the Money Advice Service will not be involved in the delivery. The three agencies involved will be: the Pensions Advisory Service, which will provide over-the-phone guidance; Citizens Advice, providing face-to-face guidance; and gov.uk, to which this Minister referred. That raises the question of how the Government will ensure that guidance delivered across three different mediums will be of a consistent standard.
The crux of the matter, and what the consumer needs to understand, is: what will the guidance consist of? Will it be an interactive exchange, or will it be a list of questions that must be asked and areas that must be covered? The Financial Conduct Authority appears to think it will be the former, saying it should cover:
“the key facts and consequences of each”—
option—
including financial consequences, e.g. tax implications.”
The Pensions Minister, however, seems to think it will be the latter. He has said that there is a “world of difference” between
“a guidance conversation to get people to base camp”
and a
“sophisticated, individualised, tailored piece of…financial advice recommending products.”
The Pensions Minister has, however, been keen to assure us that the guidance is not being offered on the cheap—his preferred epithet is “budget”. The levy on the pensions industry will not be set at the level required to pay for
“full-blown, regulated, independent, tailored financial advice.”—[Official Report, 2 September 2014; Vol. 585, c. 199.]
Rather, it will be designed to generate only so much as is required to pay for what he terms the “cost-efficient” guidance version. To summarise, the guidance guarantee seems to amount to the following: it will not be regulated, personalised, or product-specific; it will be “cost efficient”, “substantially cheaper” than advice and funded by a “modest” levy on the industry—enough to get people to “base camp.”
That was what was said almost two months ago, but, sadly, judging by the evidence given to the Pension Schemes Bill Committee, things have not progressed much since. So bereft has been the Government’s approach to information gathering and analysis that we still do not know how many people are likely to take advantage of the new flexibilities. In evidence to the Work and Pensions Committee in April, the Pensions Minister was unable to give any firm indication. He said:
“I am not sure there is much point in me guessing. As I say, HMRC assumed that about 30% would take the cash...some of the annuity providers are saying it might be 70%- odd. We do not know.”
We are also reduced to guessing because, despite a freedom of information request from the shadow Pensions Minister, the Government have refused to publish any analysis they have conducted of the behavioural impact of these reforms. We do not know how many people are likely to make use of the new guidance, but a guidance pilot conducted by Legal & General found that only 2.5% of those offered guidance accepted it. The Pensions Advisory Service has estimated that take-up in the first year will be about 25%, so what happens in respect of the 75% who do not take the guidance? What backstop measures, or second line of defence, will be in place for those who do not take up the offer of guidance? In the first year at least, the answer appears that there will be none at all.
Again, the FCA has raised concerns about that, saying,
“we will have the usual supervisory work going on keeping a very close eye on products as they develop. If people choose not to take the guidance, they choose not to take the guidance.”
That means that, potentially, up to 75% of people using the flexibility in the first year will access their pensions and use the money without taking any guidance at all. I do not know whether the Minister finds that concerning, but I do, and I am not the only one. Just Retirement has described the lack of a backstop as
“a massive threat to the pensions freedom reforms.”
The need to install a second line of defence was endorsed by others within the pensions industry, including the ABI, which also expressed doubt about the rigour of the FCA’s consultation on guidance.
The ABI’s head of policy said:
“We have discussed it with our members. We are a little concerned the FCA consultation…was narrowly drawn, which is understandable because it didn’t have much time.”
Why did it not have much time? Is it because the Government are in such a terrific hurry to force these reforms through? We are being left in a situation where the first tranche of people taking advantage of these reforms could be seen to be the guinea pigs in this process, and that is not acceptable.
Let me deal with a point that my colleague raised about the Ipsos MORI research. The extent of the concern has been laid bare by that, because it found that up to 200,000 pension investors could take advantage of the new flexibility in the first year alone. It is estimated that that would generate an additional £1.6 billion of pension income for Treasury coffers, which is why I was asking the Minister what estimate he had made as to what the Treasury would receive. It might be seen as good news for the Treasury, but perhaps not as such great news for savers, because only 38% of these pension investors were able to state accurately how much tax would be deducted from a medium-sized pot and only 6% could accurately predict what rate of tax would be applied to large pension pots.
Cathy Jamieson
I would never suggest that the hon. Gentleman is cynical. He raises an important point, which again shows why I was trying to press the Minister on some of that.
I realise that I have taken up a considerable amount of time, and I want to give opportunities for other hon. Members to speak. However, I wish to raise just one other issue as I draw to a conclusion. I have mentioned the areas of uncertainty about the guidance versus advice debate, but I ask the Minister also to comment on the announcement about the abolition of the 55% tax on pensions at death—the so-called “death tax announcement”—made at the conference recently. I think that, at the time, the Minister said that annuities would not benefit from the tax cut. But it was certainly my understanding—the Minister can correct me if I have misunderstood—that the so-called value protected annuities will certainly so benefit, and that is still on the Treasury website. I have written to the Chancellor to ask for information, but I have not yet had a response. Clearly, uncertainty remains over the added potential for tax avoidance, which has been produced by the Bill.
In order to deter avoidance, the Government have introduced money purchase annual allowance rules, which, as the Minister said, places a £10,000 limit on the annual amount that can be saved tax free through money purchase agreements. The intention is to ensure that individuals do not use the new flexibilities to avoid tax on their current earnings. However, the rules still allow for £2,500 a year of salary to be “washed” tax free through salary sacrifice arrangements. I am interested to hear what the Government have done to address that risk and what further action they plan to take to guard against the new flexibilities being used in such a way.
Mr Love
When it was suggested to the Pension Schemes Bill Committee that there would be ways in which people, especially those over the age of 55, could use the new flexibilities to avoid taxation, the Minister did not seem to be at all concerned. Is the shadow Minister concerned, and will it be an issue for the Bill?
Cathy Jamieson
Yes, the shadow Minister is concerned as, I am sure, are the Ministers on the Front Bench, who will have to say something in response as they wind up the debate this afternoon. It is a matter that we will have to explore further in the Bill.
In conclusion, we are serious about getting pension reform right. We want people to have the freedom to choose the retirement product that works for them, and we want them to have good products from which to choose. It would have been better if the Government had consulted further on the reforms and conducted a full and thorough analysis of all the tax implications before they announced the Bill. None the less, we still have the opportunity to look at the Bill in greater detail and on that basis we will not be opposing it today.
Financial Services (Banking Reform) Bill
Debate between Andrew Love and Cathy Jamieson(10 years, 11 months ago)
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Cathy Jamieson
My hon. Friend makes an important point. It is vital that the public has confidence in the process. The public need to know that the culture of banking will change; that we have given the Bill thorough scrutiny; and that we have considered and put in place every possible method to limit bad judgments and errors in the future. In the end, however, it will be down to individuals, and from my experience of various pieces of legislation I would always guard against the notion that any individual piece of legislation will guarantee that nothing will go wrong in the future. That always depends on individuals making judgments. It is important that we get the culture right so that individuals within it make judgments not just because they fear that they will be prosecuted and go to jail, but because they believe they are doing the right thing by their customers and by the wider economy.
Mr Love
Before my hon. Friend moves on, does she agree that while we should congratulate Members in the other place on the role that they played in amending the Bill, it would have been correct to delay the Bill so that the House of Commons had proper time to scrutinise the changes recommended by the commission, rather than leaving that to the other place?
Cathy Jamieson
My hon. Friend makes a valuable point. It would have stood us in good stead had we had such an opportunity. I have only been a Member of Parliament for a relatively short time, and others will have much more experience, but it seems to me unusual to have so many amendments at this stage of a Bill. External bodies have made significant representations at this stage, which is also unusual and shows the strength of feeling about the issue of banking and its culture. It also shows that people have been thinking about how to future-proof the Bill, not simply to repair damage done in the past, but to ensure that we do all we can for the future. Some people may feel that this has been a tick-box exercise and a part of the process that does not matter as much, and it is rather sad if that has been the case.
We know that we have a huge amount more to do. Only today we have seen the latest news about Lloyds bank being fined again. It is also fair to say that as the weeks and months have unfolded during the Bill’s passage, we have seen various situations emerge. I have written to the Minister on the recent issues on forex, and we have also had the sad events at the Co-operative bank and the outcome of investigations into the LIBOR rigging. Those all show that more issues may arise that will have to be dealt with properly, and we want to ensure that the legislation we put in place is able to do that.
Cathy Jamieson
I understand the hon. Gentleman’s point. Our approach has been to suggest that that responsibility lies, rightly, with the Financial Conduct Authority. It would not be for me, as a shadow Minister, to list those roles. In relation to the definition of a professional, it is important for people to have professional development, with qualifications, on a continuous basis. One fundamental issue for professions is an adherence to a code of conduct. We tabled amendments on that consistently because we believe strongly that that is important. The wider world wants to know that the banking industry culture has changed and that malpractice, which unfortunately is still coming to light, is being dealt with.
Mr Love
As a member of the parliamentary commission, I note that despite our many recommendations, which my hon. Friend has illustrated, six years on from the credit crunch there are continuing difficulties with the culture of the banking system. Is it not the case that we need to do more to change that culture, and that we need to do it now?
Cathy Jamieson
My hon. Friend is absolutely right. If we believe the Bill to be the end of the story, we will do a disservice not only to the hard work done already, but to the industry and to the wider public. I hope the Minister and the Government will take that on board. We must always be vigilant and look to the future.
Cathy Jamieson
I thank the hon. Gentleman for that comment. I know that he has done considerable work in his role on the commission, but it is important that these issues be put on the record. It would have been useful to consider them in Committee, and I mention them now to show that significant pressure has been applied to move things forward and bring about change. The Government appeared to resist that and some of the commission’s recommendations until, of course, their recent change of heart following their defeat in the other place on the amendment for the licensing regime. At that point, they felt they had to bring forward their own plans.
The Opposition might have expected the Government to be reasonably gracious and accept the decision of the other place, but today they have tabled an amendment to disagree with and remove Lords amendment 41 from the Bill. To be fair, what they have tabled, under pressure to replace that amendment, is better than nothing, but it does not go anywhere near as far as the amendment they wish to strike out. The main difference essentially concerns the code of conduct. Lords amendment 41 states specifically that the
“licensing regime must…apply to all approved persons exercising controlled functions, regardless of financial sector;…specify minimum thresholds of competence including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct and revised Banking Standards Rules”.
That is important, given that the Government’s position does not call specifically for a code of conduct. In some ways, their regime legislates for the commission’s recommendations, but by failing specifically to legislate for an open and transparent code of conduct, they risk failing to address some of the ethical issues surrounding so-called casino banking. Their more permissive amendment does not focus specifically on a code of conduct.
Several other hon. Members wish to speak, so I shall conclude with some brief comments about remuneration. As hon. Members might be aware, the Opposition have given considerable thought to the regulation of bankers’ remuneration, and there remain certain issues that the Government must consider before the general public can have confidence in the industry. The public find it difficult to understand, and have concerns about, the culture of high risk, high reward that was evident in the previous system and which contributed to the crisis.
Cathy Jamieson
Once again, my hon. Friend is absolutely correct. The general public expected the industry to show some humility and make every effort not only to repay the taxpayer, where appropriate, but to reflect on its actions, perhaps take the view that this culture was now outdated and move on and operate differently.
The general public’s concern will not be alleviated by the latest list of scandals. We have had LIBOR, EURIBOR, PPI—payment protection insurance—forex, yen LIBOR—the list seems to go on and on. Almost every day, every week, every month, something else is being put into the public domain. We have recently heard concerns about lending from RBS, with businesses having gone into administration. It is right and proper, of course, that these issues are investigated. We continue to talk about these issues, but however much we will things to change, people are concerned that if the bankers do not accept that their culture has to change, we will just continue to talk and put legislation in place, but without the messages having got through. I believe that the general public are particularly concerned about that.
As I said, we believe that the amendment unsuccessfully launched in the other place should remain in the Bill. I am disappointed that the Government have chosen to disagree with it and want to strike it out. I do not expect the Minister to change his view at this stage. I am sure he will revert to the position held in Committee, which was to disagree with us on this matter.
Financial Services (Banking Reform) Bill
Debate between Andrew Love and Cathy Jamieson(11 years, 4 months ago)
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Mr Love
The current regime for the regulator is “treating customers fairly”, which is exactly what the banks did not do in the PPI scandal. Does my hon. Friend agree that we need something stronger, and that a duty of care is a step in the right direction, signalling that we need to do something about the scandals that have happened in the past?
Cathy Jamieson
My hon. Friend is right and he speaks with great experience, both because of the work he has done in this House and on the banking commission. He is right to say that the scandal of the PPI is exactly why today’s consumers want further assurances that the banking industry and the financial services sector are not simply about using consumers’ possible lack of knowledge or understanding of the system to turn a quick profit with no thought to the longer term, either for the individuals or for the wider financial sector. That is why we have tabled the new clause.
I suspect that the Minister may say much the same to me this evening as he said in Committee, as he felt that the amendment was unnecessary. Nor was it drafted in the most technically perfect way. However, it would be helpful if he were able to confirm that at the least the idea of a fiduciary duty—a duty of care—will be significant. I feel minded to test the will of the House on this new clause.
Cathy Jamieson
As I am sure the hon. Gentleman is aware, I was not in this place or, indeed, a member of the previous Government. [Interruption.] I hear someone saying “Shame”. I do, however, think it would be appropriate to look at the circumstances in which we are operating at present. In the same way as the hon. Gentleman did not wish to be partisan, I will resist the temptation to make an incredibly partisan response. Instead, I simply say it is important that the Government look at this. I welcome the fact that they seem to be willing to move on this, and the parliamentary commission was very clear that:
“It is inappropriate that those found guilty of criminal recklessness should continue to benefit from remuneration obtained as a consequence of the reckless behaviour.”
That statement sits in the context of the issue of being able to claw back.
Mr Love
This recommendation emerged from an all-party commission, with all parties supporting it. It is important to remember that it has the effect of signalling that we treat so seriously the misdemeanours that have occurred in the banking sector that we deem that those found guilty should face a criminal sanction.
Cathy Jamieson
Again, my hon. Friend makes an important point that this is an all-party stance and that everyone on the banking commission took this issue seriously.
It is worth remembering that in response to a question from the Leader of the Opposition last month, the Prime Minister told the House that he would use this Bill to implement the report of the parliamentary commission. The Leader of the Opposition asked:
“Following the Parliamentary Commission on Banking, can the Prime Minister confirm that he supports its important recommendations on bonuses and criminal penalties, and that he will use the banking Bill to implement them?”
The Prime Minister responded:
“Yes, I do support both those measures...Penalising, including with criminal penalties against bankers who behave irresponsibly— I say yes. Also, making sure that for banks in receipt of taxpayers’ money we can claw back and have a ban on bonuses—I say yes too.”
The Leader of the Opposition then asked a further question, to which the Prime Minister replied:
“We will be using that Bill to take these important steps.” —[Official Report, 19 June 2013; Vol. 564, c. 883.]
I hoped the Minister would have been able to bring forward appropriate amendments or new clauses—or whatever is needed—at this stage, rather than leaving that to elsewhere. I hope he will be able to give us some further information on how the work will be progressed and when he now expects to give us more detail.
New clause 13 relates to the financial services crime unit in the Serious Fraud Office. We raised this issue in Committee, and my hon. Friend the Member for Nottingham East gave an eloquent description of some of the areas that an FSCU would be able to address. This new clause would require the Treasury to report on the establishment of the FSCU and to do so within six months of the Act coming into force.
I fear the Minister might sigh and think, “Here go the Opposition once again, asking for another report to be produced.” Before he says that or any Member seeks to intervene to make that point, I will say that the reason we are asking for these reports to be produced is to ensure that progress is made and that things do not just gather dust on a shelf somewhere.
We know we have to look at the resources available to tackle white collar crime. Financial products are becoming ever more complex, and they are being traded faster, and increased resources could enable specialist police officers to develop their expertise. There are huge financial incentives in looking at developing this, too. It is worth remembering that fraud costs Britain about £73 billion a year, according to the Home Office’s National Fraud Authority. As my hon. Friend the Member for Nottingham East recalled in Committee, Andrew Bailey, the PRA chief executive, said it was “more than odd” that bank directors had not faced formal charges over the events leading up to the crisis. The Serious Fraud Office has a bit of a mixed record on tackling the high-profile cases. The Home Secretary was forced to perform a bit of a U-turn on her plans to abolish the SFO. It is clear that the SFO needs to be improved. The LIBOR scandal again shows that misconduct in financial services can have ramifications for traders, for industry, for shareholders, for the reputation of the City and, indeed, for criminal law.