RBS Global Restructuring Group and SMEs Debate
Full Debate: Read Full DebateClive Lewis
Main Page: Clive Lewis (Labour - Norwich South)Department Debates - View all Clive Lewis's debates with the HM Treasury
(6 years, 7 months ago)
Commons ChamberI beg to move,
That this House is deeply concerned by the treatment of small and medium-sized enterprises (SMEs) by the Global Restructuring Group of the Royal Bank of Scotland; notes that there are wider allegations of malpractice in financial services and related industries; believes that this indicates a systemic failure to effectively protect businesses, which has resulted in financial scandals costing tens of billions of pounds; further believes that a solution requires the collective and collaborative effort of regulators, Parliament and Government; and calls for an independent inquiry into the treatment of SMEs by financial institutions and the protections afforded to them, and the rapid establishment of a tribunal system to deal effectively with financial disputes involving SMEs.
May I echo your comments, Madam Deputy Speaker? As generous a soul as I am when it comes to interventions, I will limit the number I take to two or three, if at all possible, because I understand that Holocaust Memorial Day is also a crucial issue that everyone here would want to see debated fully afterwards. None the less, there are a lot of Members here, on both sides of the House, who want to speak about an issue that has deeply affected many of their constituents and small businesses across the country. I thank hon. Members for their support for this important debate, as well as the Backbench Business Committee for allowing the time, particularly the Chair, my hon. Friend the Member for Gateshead (Ian Mearns). He has made it clear to me and others that he was keen for the debate to take place, and here it is.
As the details of the various scandals that have hit our financial services sector trickled out over the last few years, I think we all started by treating the stories we heard with a certain scepticism. They just did not seem to make sense. Indeed, when I read letters from one of my constituents, my first reaction was to think that the story he was telling simply could not be true. “No bank could have dared to behave in such a brazenly outrageous way,” I said to myself. My constituent, Andi Gibbs, was forced by his bank, RBS, to buy an interest rate-hedging product, which should have protected his business against rising interest rates, but in fact drained it of cash. RBS then placed the business into its Global Restructuring Group. He lost his business, his home, his marriage and, I think it is fair to say, almost his sanity. His crime: nothing more than being an entrepreneur who banked with RBS.
Does my hon. Friend agree that the RBS Global Restructuring Group had real cultural problems? When its top tips included the advice,
“Rope: Sometimes you just have to let customers hang themselves”,
there is clearly something very wrong occurring.
I agree with my hon. Friend. We know that 16,000 small businesses were put into GRG from 2008, and the vast majority were liquidated. That tells us all we need to know. This was meant to be somewhere from which they could try to come back as viable businesses, but far from being an intensive care unit, it was more like an abattoir, where they were stripped and taken apart.
Does the hon. Gentleman agree that one reason why many Members found this story almost unbelievable—a story that affects so many of our constituents—was that the conditions of any settlements agreed by the GRG with businesses that were in trouble included gagging orders, or confidentiality agreements, which have prevented them from speaking openly about the plight that they have faced?
I agree with the hon. Gentleman. Indeed, some businesses ended up in GRG simply for saying, “I’m not happy with my bank. I want to move.” When we talk about how they were “stressed”, we should also be aware that the bank used this term as it saw fit. Many businesses were treated appallingly, and the hon. Gentleman raises the point very clearly.
As time has gone on, we have discovered that Andi Gibbs is not alone. He is not even one of hundreds, but one of thousands. As many Members will be aware, the stories keep coming, backed up by evidence. It has now become clear that we have not just a series of individual scandals, but a full, systemic failure that needs to be addressed by this House. However, I want to focus briefly on what got us here and, more importantly, how we work toward a constructive solution.
Does the hon. Gentleman share my disgust that, four and half years after I referred, as Secretary of State, many of those cases—the Tomlinson report—to the Financial Conduct Authority, we still have only an interim report? Is he aware that the BBC has seen a copy of the final report? It contains the following incriminating phrase:
“Management knew or should have known that this was an intended and co-ordinated strategy and that the mistreatment of business customers was a result of that”,
and the head of GRG responsible for that policy, Mr Nathan Bostock, is now chief executive of Santander.
That is a very valid point. I hope we will hear from the Government today that there will be action on this issue. Owners of small and medium-sized businesses, including many of my constituents and those of other Members, are tired of the foot-dragging that has gone on for long enough. The Treasury Committee supports the report’s publication, and even the Financial Conduct Authority would probably conclude that it would be far more helpful for it to be published. Its publication is long overdue. People need to see the full extent and scale of what RBS and, potentially, other banks have been up to.
My hon. Friend said earlier that this situation affected failing businesses. My constituent Andrea Willows is in the public Gallery today. Her business was not failing, but the bank absolutely refused to provide any kind of funding for a shorter-term loan payoff, attributing it all to a larger loan pay-off instead. She had to come up with the full cost of multiple loans to pay off about £635,000, which made things completely impossible for her. That is exactly what these banks have done: they have made it impossible for hard-working people to continue to run their businesses although they were not in trouble in the first place.
I agree with my hon. Friend. During my time on the all-party parliamentary group on fair business banking and as a Back-Bench MP before that, I heard many similar stories of companies that had been forcibly distressed, or had been described as being distressed by the bank and then carved up like a Sunday roast.
I will continue.
As many Members will know, the stories keep coming, backed up by evidence. It is now clear that we are seeing not just a series of individual scandals, but a full, systemic failure that needs to be addressed by the House.
Let me now focus on how we can move forward. The APPG on fair business banking has identified a series of achievable and transformative objectives that will support our business community. My focus today, however, will be on dispute resolution, restitution, and the need for an independent financial services tribunal with the teeth that will enable it to tackle complex and, for the individuals involved, life-changing scenarios.
I want to touch briefly on the past, because it is important to separate the crises into two distinct phases. The first crisis, in 2007-08, was a crisis of liquidity. The second, which we are discussing today, is a conduct crisis that not only spans the financial services industry, but extends to the role of the professional advisers who are such an integral part of the system. They are Law of Property Act receivers, surveyors, accountants, insolvency practitioners and solicitors. They are all fundamental parts of this matrix, and I will return to them shortly.
The recent section 166 FCA report on RBS GRG concentrates on the years between 2008 and 2013, when banks were under extreme pressure to shore up their balance sheets. However, that behaviour did not spring up spontaneously. Senior banking insiders who worked in RBS between the mid-1990s and the crisis are clear that there was such a modus operandi in GRG for years before the liquidity crisis. Indeed, GRG and its predecessor, Specialist Lending Services, had been known as the “mortuary for businesses” since the late 1990s. During those heady days of liquidity, businesses might have had an opportunity to re-bank with competitors, but once the liquidity crisis hit, that was no longer an option Ever since then our business community has had to deal with the consequences, which have been ramped up to an industrial scale.
Although the title of the debate refers to RBS GRG, it is just a symptom of the underlying issues. In the course of the APPG’s work, it is hard to identify an institution that has not found itself at the centre of a conduct scandal, and I am sure that other Members will give many examples today. The APPG has come across similar instances among the major banking institutions. The HBOS Reading fraud, as a result of which bankers and their associates were jailed for a total of 47 years earlier this year, may seem easy to push aside as “a few bad apples”, but, in reality, it is a consequence of the same systemic failure.
I will make some progress first.
In the HBOS case, as with GRG, quite simply, everyone thought that they would not get caught, and so it escalated. We have to ask ourselves how it is possible that this has gone on for so long, completely unchecked. We should have caught it much sooner, but instead it has been left to a dedicated group of individual victims such as Paul and Nikki Turner—and to a relentless pursuit by journalists such as Andy Verity, Joe Lynam, Siobhan Kennedy, James Hurley, Jonathan Ford, Ruth Sunderland, Tom Warren, Ian Fraser and Heidi Blake, to name just a few—to keep the issue alive. That is the journalism that the British public need: journalism that investigates the acts of the powerful and holds them to account. It is the fourth estate playing its rightful role in a healthy, functioning democracy.
Even now, as we begin to get our heads around the issue, we are still not addressing it properly. Why? Because our response thus far has been piecemeal. We must take a step back, and look at the entire ecosystem in which such behaviour managed not just to survive, but to thrive.
Let me briefly remind the House of the possible scale of the scandal. At its peak, GRG held assets of more than £90 billion on its books—all the businesses that were put into special measures. We cannot know for sure how many of those businesses would have survived in another, more benign environment; that is a “how long is a piece of string” question. Indeed, some businesses were placed in GRG for no other reason than the fact that they had made a complaint against the bank. We have to ask ourselves how many of them should have been there in the first place.
Much has been made of the fact that the businesses were “distressed”, but that is a subjective and ambiguous term. We do know that 90% of GRG-administered businesses never made it back to mainstream banking. That is a very high proportion. The cost is immeasurable, but we believe it to be in the tens of billions. Let us be clear: that is the potential size of the injustice that has taken place in our country. If it is indeed that big, it may be the largest theft anywhere, ever. If we begin to take into account the opportunity costs to the economy of business failure and businesses that have been unable to grow—if we begin to include the loss of jobs, homes, health, relationships and taxes—we see that the costs are likely to be immeasurable.
Scandals on this scale cannot happen in a vacuum. The role of Law of Property Act receivers, solicitors, insolvency practitioners and surveyors must be considered. Even in circumstances in which every person playing a part has played to the letter of the law, the outcomes have been catastrophic. We have to ask ourselves how that is possible.
As things stand, a business owner understandably assumes that the whole system works effectively, and that when it fails, he or she will have access to justice. That is a logical assumption for those of us who believe that all aspects of our lives should be covered by the rule of law. Anything else is little better than the Wild West, and is no basis for the stable and successful economy that Members in all parts of the House want to see.
The House must tackle the inherent inequality of power in the relationship between businesses and their lenders. From the moment when a business signs a one-sided contract laden with onerous and ambiguous contractual terms, through its life cycle, and into—potentially—insolvency, there is nowhere independent and affordable for that business to go if it is in dispute with its lender. In all cases, businesses must rely on the limited scope of the financial ombudsman, various trade associations and individual institutions to handle complaints. What is the outcome? The public, and businesses, see a group of large, powerful institutions and trade bodies operating from behind castle walls, with no transparency or external accountability, save an expensive and prohibitive court process that is beyond all but the most well-resourced. Justice, for them, is out of reach, and RBS knows that.
When ad hoc redress schemes are set up to deal with scandals such as interest rate hedging products, GRG and HBOS Reading, they are wholly unsatisfactory and largely discredited. They appear to be a cynical exercise in limiting financial institutions’ liabilities rather than a genuine attempt at restitution. The fact that the entire exercise is conducted behind closed doors and the banks are allowed to act as judge, jury and executioner only fuels suspicion. The use of an “independent person”, whom the bank itself appoints, will never instil trust. It is akin to a burglar being allowed to pick the members of the jury for his trial.
To add insult to injury, in the cases of the interest rate hedging product scheme and the RBS GRG scheme, the fact that insolvency law allows the institutions to pay themselves back for their own misconduct brings the process into the realm of farce. It is a system that does not instil confidence. The best our institutions can say is, “Trust us, we’re doing the right thing; but if you don’t like it, sue us.” We have only to look at the content of the debate today to see that self-regulation alone is simply not enough.
I want to be clear: those of us who support this motion are not calling for extensive regulation. We are, however, calling for accountability, transparency and justice, because without proper transparent accountability there can be no trust. Ultimately, trust is what the financial sector depends upon; if we undermine and pollute it, it will never survive in the long run.
The cold fact is that right now in this country the trust that once existed has been shattered. This distrust has become so severe that it is affecting business confidence and productivity. The Government’s own industrial strategy cannot be delivered on these shaky foundations. Simply, if we are to move on, we need to get a handle on the issues and look at the whole ecosystem for our businesses. That is why today we are calling for an inquiry that cuts across departmental lines and looks at the protections afforded to businesses during their life cycle. That way we can map out a long-term plan to ensure sufficient safeguards to prevent such things from ever happening again. More urgently, we are calling for a tribunal system to be set up to deal with financial disputes, a system analogous to that which already exists for employment tribunals. That does not require any primary legislation. The legislation already exists to enable the rapid establishment of a tribunal; it just needs the political will to carry it through.
Andrew Bailey at the FCA has openly supported the tribunal idea, but we are concerned about the recent focus on extending the remit of the Financial Ombudsman Service as this is not the right solution for what is a very complex problem. Once established, this tribunal system will help to ensure that banking works better, not just in the interests of its customers, but for the banking industry itself. This is important because we all acknowledge that the financial sector is critical to the UK’s future prosperity, and the relationship that SMEs have with their bank is a central part of that. In an effectively regulated economy, the relationships between SMEs and the finance sector should be symbiotic, not parasitic; each supports the sustainable growth and the success of the other. But that is not where we are.
It is time that the Government, the FCA and Parliament step up to the plate to ensure that businesses get fair treatment and access to affordable justice. Our businesses deserve nothing less. Our economy requires nothing less, especially at this critical time with Brexit approaching.
This matter has been left to drift in the regulatory and legislative wilderness for too long. The consequences have been catastrophic not only to individual lives but to confidence in our entire financial system. In the wake of Brexit, the introduction of a tribunal system will help to rebuild the strong relationships that once existed between SMEs and their banks, helping the growth of our economy and the international reputation of our financial sector.
It is, however, important to say that constructive progress has been made. The banking futures project brought together stakeholders across the spectrum to produce a coherent and ambitious plan for rebuilding trust. If Members have not read it, I would certainly suggest that they do so. The all-party group on fair business banking and finance has formed a working group, which will be formally announced in the near future, to discuss and look at this area. We should have no doubt that this is an important first step for businesses and industry, but it is just one part of the jigsaw, for with a problem this big, only a systematic, open-minded challenge to the status quo will work for businesses, our banks and our economy. This is an opportunity for us to show the business community and, indeed, the country that behind the lively exchanges that take place here and are seen on television, we as parliamentarians can put aside political point scoring and come together and work toward a common goal. I therefore commend this motion to the House.
I thank the Minister for his response, and I thank all the hon. Friends and hon. Members across the House who have taken part in this passionate debate today, whether they are self-confessed capitalists, such as the hon. Member for Hazel Grove (Mr Wragg), seeking to challenge crony capitalism or those such as my right hon. Friend the Member for Tynemouth (Mr Campbell) who are perhaps seeking more traditional socialist transitional demands. There has been almost unanimous support across the House for the motion. We want justice for our constituents and a banking system fit for the 21st century. In effect, we seek nothing less than the renewal of the broken social contract between banks and the public. Unfortunately, the language used in today’s debate has painted a picture of a social contract that lies in tatters. We have heard references to a web of deceit, a dash for cash, systemic abuse, parasitic relationships and asset stripping. Three words that we have heard repeatedly today are “enough is enough”.
I want to make a couple of comments about the Minister’s input. He said in his opening remarks that he and his Government would stop at nothing and spoke of the need for a fundamental culture change, but he then offered little except more warm words. I understand that he has been in his job for just seven days, but this situation has been going on for some time now and the issues are out there, a point which has been made clearly by Members across the House. The Government still seem to favour a solution involving the Financial Ombudsman Service, but even with some extension of its role, it is suitable only for low-level disputes. It has no powers of disclosure. It cannot enforce decisions. It has no teeth. It cannot adjudicate. It cannot deal with complex cases.
I fully recognise the frustration that the hon. Gentleman is expressing, but I also said that the Government rule nothing out. We will see what the proposals are and respond accordingly. I think that that is a reasonable position given the relationship between the Government and the FCA.
I acknowledge the Minister’s remarks, but time is not on the side of many people, so many of whom have been affected for so many years. I understand the Government’s reluctance to say anything today, but they must come to a conclusion quickly. From listening to Members from across the House, we understand that if we rebuild justice and confidence in our banking system, that would be good for business and good for banks and would maximise our country’s economic potential. I will conclude with the words of the late, great Errol Brown of Hot Chocolate fame—one of my favourites—because if we get this right,
“Everyone’s a winner, baby”.
Question put and agreed to.
Resolved,
That this House is deeply concerned by the treatment of small and medium-sized enterprises (SMEs) by the Global Restructuring Group of the Royal Bank of Scotland; notes that there are wider allegations of malpractice in financial services and related industries; believes that this indicates a systemic failure to effectively protect businesses, which has resulted in financial scandals costing tens of billions of pounds; further believes that a solution requires the collective and collaborative effort of regulators, Parliament and Government; and calls for an independent inquiry into the treatment of SMEs by financial institutions and the protections afforded to them, and the rapid establishment of a tribunal system to deal effectively with financial disputes involving SMEs.