Banking in Scotland

Andrew Rosindell Excerpts

Thursday 14th October 2010 Westminster Hall

[Mr MacNeil]

I hope the hon. Gentleman went to Norway as well.

[Andrew Rosindell (in the Chair)]

Order. The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) will have a chance to contribute to the debate later. Perhaps Mr Davidson would like to continue.

[Mr Davidson]

If people just mention the arc of prosperity the nationalists tend to become somewhat overexcited. I understand that and accept that it was my responsibility. I will try not to say anything else that might prove unduly provocative.

Visiting Ireland was interesting because—

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[Mr Davidson]

I thank the hon. Gentleman for giving me the opportunity to mention that. Whether Bermuda should join the UK or cease to be an overseas territory is a matter for the people of Bermuda.

[Andrew Rosindell (in the Chair)]

Order. I think a debate on the overseas territories would be very useful, but this is not such a debate. Perhaps we can get back to the subject.

[Mr Davidson]

Indeed, Mr Rosindell, I was led astray by bad boys.

I was asked about conclusion 3. The Committee stated in its report:

“We welcome the optimism of those working in the financial services sector who believe that the reputation of that sector in Scotland has not been permanently damaged by the difficulties experienced by two of Scotland’s, and the UK’s, largest banks. We are reassured that the quality of the location, the lower costs and the depth and diversity of its labour pool remain attractive to global corporations.”

That is particularly welcome in view of one of the Committee’s anxieties. We asked everyone we saw whether they believed at that time—the hearings took place in December 2009 and January 2010—that the financial crisis that had arisen from the activities of those working for the Bank of Scotland and the Royal Bank of Scotland would have a long-term impact on the finance industry in Scotland. It was reassuring and supportive of what we were seeking to do to have a clear view from virtually everyone we spoke to that there was no doubt about that. A few people had some doubts, but we subsequently spoke to some of them informally and were reassured that they believed that the waters had calmed and that the Scottish finance industry, although shaken, had not been brought tumbling to the ground. I am glad to see the Government’s response to that conclusion, which is:

“The Government will continue to work with the Scottish Government to ensure that the financial services and banking sectors remain strong in the future.”

I hope that they are also prepared to continue working with the Scottish Affairs Committee, as well, to ensure that, as we monitor, we try to pull things together as far as possible.

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[Mr Hoban]

Indeed. I am very grateful to the hon. Lady for mentioning that point, because one of the commitments in the coalition agreement is, of course, to foster diversity and ownership in the financial services sector, including strengthening the mutual sector. The hon. Lady’s intervention also reminds me that she raised issues about set-off. I know that set-off is very important to many consumers and she will be pleased to know that the Financial Services Authority is reviewing it at the moment.

I was talking about reducing risk and the role of the Independent Commission on Banking. The debate about how we reduce risk is not just a UK debate. We have been at the forefront of developing common international standards of regulation—for example, in Basel and through the capital requirements directive negotiations in the EU. In addition, we have led the way in developing approaches to minimise the risk of failure and to ensure that, when failures do occur, the call on the taxpayer is minimised. Of course, it was the previous Government who introduced the special resolution regime, which we supported, and “living wills”—the recovery and resolution plans that were in the Financial Services Act 2010. We also supported that measure.

We will continue to work with international colleagues to ensure that the implementation and sequencing of regulatory changes are taken forward in a way that balances the need to act now on the lessons of the crisis with the need to maintain the competitiveness of the industry.

A number of hon. Members talked about the regulatory framework. Clearly, the reputation and long-term success of Scotland’s banks also depend on trust. Customers need to know that they will be treated fairly and appropriately by all financial institutions. The robust regulatory framework that we are creating will help to cement the attractiveness of Scotland’s financial sector, by providing certainty for banks and confidence for consumers without stifling innovation and growth.

We have learned the lessons from the financial crisis and set out a radical reform to the architecture of financial regulation that we inherited. Earlier this year, the Chancellor announced that the Government will legislate to create a new prudential regulation authority as a subsidiary of the Bank of England. The PRA will be responsible for prudential regulation of all deposit-taking institutions, insurers and investment banks. It will cover all issues affecting the safety and soundness of individual firms, including remuneration. It will have the focus, expertise and mandate to ensure effective prudential supervision and regulation of individual firms, thereby strengthening the UK’s financial system and its resilience to future crises.

We will ensure that financial regulation delivers financial services and markets that are secure and within which private individuals, small businesses and multinational firms have all the information available to them to make the right choices, as well as the right level of protection if things should go wrong. That is crucial.

Consequently, alongside the PRA we will establish a consumer protection and markets agency, which will be a new and integrated conduct regulator. The CPMA will take a tougher, more proactive and more focused approach to regulating conduct in financial services and markets. That will ensure that the behaviour of firms—whether they are based in the high street or trade in high finance—is placed at the heart of the regulatory system, giving consumers greater clarity. The CPMA’s primary objective will be to ensure confidence in financial services and markets, with a particular focus on protecting consumers and ensuring market integrity.

Appropriate regulation is vital to instilling confidence in financial services, protecting customers’ interests and ensuring clean and efficient markets, where both retail and wholesale customers can engage confidently and with the degree of protection appropriate to their needs.

Regulators are continuing to monitor firms for poor practice and they will develop new initiatives to ensure that consumers are treated fairly. A specific focus will be given to cases of unarranged overdraft charges. Working alongside the industry, the Office of Fair Trading has developed commitments on unarranged overdraft charges. They include an agreement that consumers should be able to opt out of unarranged overdraft facilities and minimum standards for how that process of opting-out should work.

Furthermore, earlier this week we laid the regulations to turn on the new section 404 powers—a provision in the Financial Services Act 2010, which was passed just before the election—that will enable the FSA to require firms to establish consumer redress schemes. We believe that it is right to turn that provision on.

However, we also need to ensure that consumers have advice at their fingertips. We have already announced the introduction of an annual financial health check. That check will help families and individuals to get into the habit of taking a thorough look at their finances. It will show them where they are most at risk and how they can regain control of their finances and plan for the future. It will give people a “prescription” that will offer clear advice on what they can do to improve their financial situation now and for the years ahead.

My hon. Friend the Member for Milton Keynes South (Iain Stewart) and the hon. Member for Kilmarnock and Loudoun talked about the importance of inculcating the habit of saving among children early on in their lives—indeed, the hon. Member for Nottingham East also highlighted that issue. It is absolutely vital. Of course, it is a responsibility that we all share and it is an idea that is supported by a number of financial services bodies.

The hon. Member for Kilmarnock and Loudoun mentioned the Cumnock and Doon Valley credit union. Across the UK, credit unions play an important role in this area of education. I have been to see a project that HSBC sponsors in primary schools; I saw it in the Wallisdean infant school in my own constituency. It was quite interesting to talk to children between five and seven about the importance of saving and spending. Clearly, even at that early age they have thought about this issue very carefully.

The new consumer financial education body will roll out the national financial advice service, which will be free and impartial. Of course, that service will be funded by the industry through a social responsibility levy. The cost of the service will not be picked up by the taxpayer; the service will be industry-funded, as part of the industry’s contribution to tackling some of these issues. I think that the service will help consumers throughout the UK to get the best from their financial providers and to give them the information that they need to manage their finances responsibly. The service will be further complemented by the simple products initiative that we announced in July.

The hon. Member for Glasgow South West raised the issue of repossessions. I say to him that in 2009 47,700 homes were repossessed, compared with an estimate that 75,000 would be repossessed. In the first quarter of this year, 9,800 homes were repossessed and in the second quarter 9,400 homes were. In part, that is due to the forbearance of lenders, but clearly the low interest rate environment has made it possible for more people to stay in their own homes. That is to be welcomed. [Interruption.]

[Andrew Rosindell (in the Chair)]

Order. There is a Division in the House. Would the Minister like to finish his comments now, or shall I suspend the sitting?

[Mr Hoban]

I would like the sitting to be suspended, please.

[Andrew Rosindell (in the Chair)]

Okay. The sitting will be suspended for 15 minutes. Order.