Royal Bank of Scotland

Drew Hendry Excerpts

Thursday 5th November 2015 Commons Chamber

[Guto Bebb]

I am absolutely aware of the problems with Ulster Bank—not only computer glitches but undoubtedly questionable past behaviour—and I associate myself with the hon. Gentleman’s comments.

When hon. Members talk about the need to sell RBS shares at a profit, it is important to bear in mind the context. The intervention was not just to make a profit; it was an intervention to ensure that we protected the UK economy. It gave people confidence in the financial system.

We need to address some of the concerns specific to RBS from a small business perspective. I speak as the former chair of the all-party group on the mis-selling of interest rate derivatives, which now has the much snappier name of the all-party group on small business banking. I would be delighted if I never had to speak about RBS again in my entire life. I would delighted if I did not have to talk about the mis-selling of financial products for small businesses ever again. Yet again, as I mentioned earlier, I was with the FCA for three hours. I spent four hours in a redress meeting between a small business and RBS, and I have had various meetings with RBS staff in relation to some of the articles that have appeared in the press during the week. There are still issues that need to be resolved. The Treasury needs to have confidence that when it talks about moving RBS back into the private sector, it does so with a full grasp of the problems that RBS still faces.

One concern is that the excellent Treasury Committee report into small business banking and finance for small businesses has not, as yet, received a response from the Treasury. I asked a question about this, but as yet no response has been forthcoming. The report makes very critical comments about RBS, among others, and the potential liabilities still faced by RBS, among others. I am therefore at a loss as to why the decision has been taken to return RBS to private hands when the Treasury has not even responded to the concerns raised by the Treasury Committee. I would like to see that issue at rest.

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

Does the hon. Gentleman agree that, when looking at new procedures and rules for transferring the bank back into private hands, we should be looking at ensuring that there is the opportunity to bring criminal prosecutions if people are behaving criminally with assets such as the Royal Bank?

[Guto Bebb]

If criminal behaviour has been identified, there should be criminal sanctions. My hon. Friend the Member for Bedford (Richard Fuller) stated clearly that the banking issue would not be resolved in the eyes of the British public until somebody had gone to jail. I am not advocating sending any innocent person to prison, but if criminal acts have been identified they should be pursued in the same way as any other UK citizen would face criminal sanction if they had committed a criminal act.

[Drew Hendry]

Does the hon. Gentleman agree that there needs to be provision for regulations, and that if jobs and livelihoods are put at risk because of the actions of those making decisions in banks, they should be part of the new regulatory process?

[Guto Bebb]

I would be careful about offering an opinion, because I do not think that risk should be criminalised; as small businesses understand, risk is inherent in business. If there is a clear effort to manipulate the situation, that is different, but risk is inherent. Most small businesses understand, when they take out a loan from the bank or ask for financial support, there is a risk involved if they cannot repay the money. I would want to see the definition and the detail before hazarding a further opinion.

On RBS, my concerns were touched on by my hon. Friend the Member for Hazel Grove (William Wragg). Now is a good time to mention the role of RBS’s global restructuring group, which, as a constituency MP dealing with businesses distressed by the mis-selling of interest rate hedging products, I have come across several times. The Tomlinson report was worthy of more attention than it received from both Front-Bench teams. I was fortunate enough in the previous Parliament to secure a debate in Westminster Hall on this issue, but I was disappointed with the response to the allegations in the report from both the Treasury and Opposition Front-Bench spokespersons. The report by Clifford Chance into the global restructuring group was given a very narrow focus by RBS—I am not saying we should dismiss it, but there is a question, given its narrow focus, about whether it is indicative of a problem with the group.

Of greater concern is the FCA’s decision to instigate a report into the group’s activities and the apparent further delay to that report. Given the sums of money at stake in the allegations of misbehaviour within the group, there is a question about whether the Government should be returning shares to the private sector; we do not know whether there will be significant liabilities arising from the FCA report. I have not been particularly complimentary of the FCA thus far, but I understand that the report has highlighted areas of significant concern about the group’s activities, so it is odd that the Government are proposing to sell RBS shares without first knowing about any potential liabilities arising from the report. I think there is much more to investigate, and I am glad that the FCA has finally concluded that that is worth doing, but the Government should be aware of potential issues arising from that report which could have a significant effect on the decision—and the perceived correctness of that decision—to return RBS to the private sector. I leave that word of warning with the Minister, and I would be delighted if she could comment. If she has a timescale for the report that is better than the one I heard this morning, I would be pleased to hear it.

I turn now to the sale of interest rate hedging products. This morning, I met a member of the RBS redress team whom I considered to be honourable, hard-working and doing his best for the businesses affected while trying to protect the bank’s interests. As a believer in the free market, I fully accept that if someone enters into a financial transaction, they accept a degree of risk, but they also expect the bank to work on their behalf, not against them, and to have their best interests at heart, rather than the interests of a commission-receiving salesman. When I meet someone who works for the bank in that capacity, I take them very seriously, and I understand that they are doing their best to deal with a complex situation.

None the less, the review into the banks that were affected, and particularly RBS, still leaves grounds for concern. Well over 50% of the derivative sales included in the FCA redress scheme were sold by RBS, so there is a huge potential liability if the review is shown to be inadequate. The FCA, in its response to the Treasury Select Committee’s report, clearly stated that it was minded to undertake a review of its own redress scheme, once all legal action had been completed. I am slightly concerned by that. If there are concerns about the implementation of its own redress scheme, I am surprised it is not willing to look at that until all legal action relating to the interest rate swap scandal has been completed. That means that the regulator is almost abdicating its responsibility to the courts. The whole point of the redress scheme was to avoid the need for small businesses without the financial resources to have to resort to the courts. They simply do not have the money. I am concerned, therefore, that the FCA seems to be admitting the need to review its own scheme but is not willing to do so until all court cases have been completed.

Given that the FCA is at least admitting the need to acknowledge the concerns of the Treasury Select Committee, I am concerned that we might be returning RBS to the marketplace without being aware of liabilities that might arise from the redress scheme being found, to put it kindly, to be less than perfect. The fact that a significantly greater percentage of RBS cases have resulted in a “swap for a swap” outcome—where it is found that someone has been mis-sold this toxic financial product, but it is concluded that they would have ended up buying one anyhow—is a matter of concern. I am concerned in particular that the conditions of sanction, which are questionable, that were used by RBS to ensure that small businesses bought the protection are now being used to justify the finding that there was a legitimate condition of lending associated with the loans in question. I am not excusing any of the other banks involved, but RBS still has questions to answer. That is not to question the integrity of the team doing the work on behalf of RBS, but they are relying on questionable and concerning paperwork and legal excuses, and those concerns are shared by the Treasury Select Committee. They should be shared by those on the Treasury Bench as well.

Finally, on the stories in this week’s newspapers about the allegation of falsifying documents, it is important to take those allegations with a degree of caution, because they need to be tested and looked at. I nevertheless believe that the discrepancies between the paperwork made available through subject access reviews and other paperwork already supplied to small businesses undoubtedly raise questions.

I have been fortunate enough to have been subjected to several four-hour presentations highlighting discrepancies between, for example, the transcript of telephone calls held by RBS and the recorded transcripts held by the business. I grant that when a transcript of a telephone call is made, it will not be perfect, but when the RBS version is 94 words long and the business’s version is 594 words longer, one has to ask whether it is simply a mistake or whether something worse is going on. These are very serious issues that need to be looked at.

Similarly, I have seen emails in which half a sentence has disappeared and a capital letter has appeared in the middle of a sentence, turning its meaning on its head. Again, mistakes happen when information is transcribed, but I am not aware of mistakes happening when information disappears and capital letters appear. As I say, these allegations are extremely concerning. They are still allegations; they need to be looked at carefully. RBS has agreed that some serious issues need to be looked at, and I am confident that, in many cases, RBS will be able to explain why these discrepancies have occurred. I sincerely hope that it will be able to do that, because the thought that information kept by the banks about small businesses has been fabricated is truly shocking.

Let me return to my main point. RBS was brought into governmental control in order to save it from itself and make sure that the UK financial sector was protected—and, more importantly, that the citizens of this country were protected from what could have been a much worse outcome for our financial sector. In addition to ensuring that RBS is back to financial health, we have an obligation to make sure that behaviour within RBS has been rectified. I continue to believe that there is a question mark about that behaviour, and while it persists, I think we should be very careful before privatising or returning more of RBS to the private sector.

--- Later in debate ---

[Clive Lewis]

I entirely agree. When we listen to the debate, we begin to feel that the Government are acting not in the interests of consumers, but in their vested banking interests. That seems to be their priority. We seem to be back to the pre-2008 mentality that the banks should be given whatever they want and we can have economic growth built on a house-price bubble fuelled by an oversized banking system without worrying too much about rebalancing our economy towards manufacturing or what we will do when the whole house of cards inevitably collapses.

We should consider, however, the effects on ordinary people like Andi Gibbs in my constituency who owned a business pre-crash. He was in effect mis-sold products by RBS and ended up with the now infamous global restructuring group. He not only lost his business; he lost his home, his wife, his family and his mental health. This is the price people pay when we do not get the banking system right. We now have a fantastic opportunity to get it right, and we must not squander it.

[Drew Hendry]

I made a point earlier about provisions for consequences for the people who take action that means that others with houses and businesses suffer through the malpractice the hon. Gentleman is describing. Does he agree that now is the time to look at having regulations that would put in place such consequences for people who take such action?

[Clive Lewis]

The hon. Gentleman makes an interesting point, and I agree we should be looking closely at the retribution that should be dished out to those who in effect ruin people’s lives; that is right and proper.

Successive attempts to persuade banks to lend more to small business have fallen flat, with some, like the enterprise finance guarantee scheme, actually being abused by RBS to exploit its small business customers. There could hardly be a clearer illustration of the fact that we have failed to get to the root causes of the problems in our banking system. The Chancellor and the banks may want us to move on and forget about the crash, but the British people have not forgotten. Whether it is mis-selling of PPI, mistreatment of small businesses or rigging the LIBOR and foreign exchange markets, they do not see that banks have really changed.

The warning signs of another crash are building. We may not have long to make sure our economy is better prepared than it was the last time. The Bank for International Settlements recently warned that we are living in

“a world in which debt levels are too high, productivity growth too weak and financial risks too threatening.”

In the UK, household debt is rising again, with the Office for Budget Responsibility predicting that, by the end of this Parliament, it will be higher than it was in 2008. Just last week, UBS warned that the London housing market is the most overvalued in the world and is in “bubble-risk territory”. In other words, the so-called recovery is not a sustainable one based on higher wages, higher productivity and creating new green jobs. Instead it is being driven by consumer spending propped up by ever-growing household debt, and fuelled by a banking system that still finds it more profitable to inflate house prices than to lend to productive businesses.

Having successfully rebranded a crisis caused by too much private debt as a crisis caused by too much public debt, the Government are now presiding over a new debt bubble that threatens to do exactly the same as what happened in 2008. Maybe instead of continuing to rely on the same institutions that got us into a mess in 2008, we should be promoting new types of bank, with ownership structures and business models that clearly distinguish them from the status quo: banks that are not beholden to the need to maximise profits, but which have a social mission and can genuinely put customers and the economy first. Our stake in RBS gives us a unique opportunity to do this.

When the history of this period is written, will the current Government be remembered as one who learned the right lessons from the crash, or as one who turned a blind eye and squandered the opportunity to build a better banking system?