Financial Services Bill

Chris Evans Excerpts

Monday 6th February 2012 Commons Chamber

[Chris Evans (Islwyn) (Lab/Co-op)]

This Bill will amend a series of pieces of legislation. When we talk about reforming financial services, we have to think about innovation and how fast society and markets move on. When I think about the reform of financial services, I always think we should tread with caution. This Bill is very important in that it has to reform a system that has clearly failed. I worked in the financial services industry myself, many years ago, and when I want to judge a Bill such as this one, I think of three tests on financial education, financial inclusion and disclosure.

On the first test, it is highly important that we bring about not only statutory financial education in schools but a duty on banks to provide some sort of financial education. I use an example from my own life. Many years ago, when I first had my student grant, in the days when we had student grants, long before student loans, I remember jumping off the train with a cheque for £500 in my hands, almost shaking with nerves about what to do with it. I went straight into the first bank I saw, the name of which I shall not mention—I do not want to embarrass it, as I have not been a great customer. The bank opened a student account for me, gave me a £50 voucher to spend in Burton, with which I bought a pair of jeans, and gave me a magic bank card, which meant I could go anywhere I wanted and buy anything. I could go to the bar or a clothes shop and have all these wonderful goods. By about December of that year, I had a letter through the post saying, “Mr Evans, we’d like to talk to you about your unauthorised overdraft charges”.

When I worked, the same things seemed to be going on. There were people even in their 40s and 50s who did not understand that when they wrote a cheque it would come out of their bank account. They would ask me, “Mr Evans, how am I spending this money when I’m using my card?” I think that banks ought to have some fiduciary care for their customers and ensure that people understand what they are taking out. Things should be simple and understandable.

I want to make a second point about financial education. When people talk about financial education they mention consumers and people at the bottom end of the scale who get services from the bank, but when I was working in banks I often found that people who called themselves bankers did not understand the banking system. They did not understand what a clearing house was, what a CHAPS, or clearing house automated payment system, payment was or what a BACS, or a banker’s automated clearing services, payment was. I was very nervous about the fact that those people were serving people and selling them products but did not seem to understand how the banking system worked. When I spoke to management about that, they said, “Years ago, we had banking exams and this was a profession, but they have fallen by the wayside now as we have moved towards a sales model.” I have some sympathy with the banks, because they are not benevolent institutions—they have to make profits and sell their products—but consumers need to have confidence that the person selling to them understands what they are talking about.

That leads me to another point about consumer protection. Consumers need to understand the products they are being sold. I can think of many occasions on which people were sold products that they did not understand. For example, banks’ financial advisers said to people about bonds, “Oh, it’s okay—a bond is just a savings account, but you do not have a bank card to draw out on it and you have to keep it there for five years.” When people found out that bonds were being invested in risky ventures such as the dotcom boom, which eventually went pop, the banks had a number of complaints about that. It is very important that people understand what they are being sold and that everything is clear.

I also think there should be some framework for the sellers. I remember when the financial planning certificate came about. The very first paper asked, “If somebody came into the bank and wanted to protect their family if they died, what would you sell them—A: life insurance, B: general insurance, or C: send them home?” That is quite simple and there is no knowledge in knowing that they must be sold life insurance. It is important that we have some sort of framework.

The most important part of the Bill, which does not go far enough, concerns disclosure. In America there is the Dodd-Frank Act, which says that every financial transaction made in the US has to be documented through an office of financial research. I would like to see that added to the Bill at some point. It comes to this: the financial crisis happened as a result of myriad problems—we cannot pinpoint one—but one weakness in the system was that we did not know about financial transactions.

I will give two examples. First, Barclays wanted to buy Lehman Brothers. The board said yes, but the regulator, which had so much on its plate, said no. Then Lehman Brothers went bust and was no more. Four years later, the bank and the regulator still do not have access to that information. Secondly, RBS, which has been mentioned a lot today, said to the regulator and to its board in March 2007, “We do not have any toxic debt or bad-book mortgages.” Yet it was later found to have £1.7 billion of bad-book lending. It, too, went bust. It is therefore important that we have some sort of financial audit, which would have an advantage for the consumer, as we would know how many bad basic bank accounts we have and who the banks are lending to. It would also help with community lending.

I will digress a little, if you will allow me, Mr Deputy Speaker. I have a personal bugbear with the basic bank account. It was brought about for financial inclusion, and it is important that everyone has access to financial products, but my experience of the basic bank account when I worked in the bank was that often the people with that account were on benefits or moving jobs. When it came to lending, they found that they did not credit score and often sellers were not interested, because those people did not credit score for credit cards, bank loans or any other financial products. They were then simply left to their own devices and often fell into the hands of payday lenders and legal loan sharks, as my hon. Friend the Member for Walthamstow (Stella Creasy) has mentioned.

I believe that through the FCA we have a chance to bring about financial inclusion audits and to map where each financial transaction takes place. It would be very dangerous to say that a financial crisis will never happen again, but I hope that we can put things in place to ensure that, if it does happen again, it might not be as bad as it was this time. The US has the tool, so why can we not have it?