Financial Services (Banking Reform) Bill
Debate between Greg Clark and David Ruffley(11 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Ruffley
I shall make two brief points. First, I congratulate my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay) on drawing attention to something very important to the House—that it is this Government who have got behind the idea that there should be, in certain limited circumstances, a custodial sentence for breach of a new criminal offence. It is worth reminding ourselves that although the crash occurred in autumn 2008, the then Labour Government had 2009 and the first five months of 2010 to do something about it, but it is this Government who have made their intentions clear regarding custodial sentences. For that, Ministers should be congratulated.
The second and final point is that we cannot let this debate pass without reminding ourselves of the fact that existing criminal law was not being enforced in relation to the allegations of LIBOR rigging. The Parliamentary Commission on Banking Standards came into existence as a direct result of the allegations about rigging the LIBOR market. The custodial sentences available for those activities were not seriously taken on board by the Serious Fraud Office, for in 2011, it is said, the SFO inquired into whether existing criminal offences had been committed by those manipulating the LIBOR market, and concluded that they had not.
This time last year the Chancellor of the Exchequer told the House that he would ask the Serious Fraud Office to take another look to see whether criminal offences had been committed under existing criminal law. Leading counsel advised me and I said in the Chamber that there were, on the face of it, breaches of section 2 of the Theft Act 1968 through false accounting, the common law offence of conspiracy to defraud, breach of the Proceeds of Crime Act 2002, and possibly even breaches under the Fraud Act 2006.
Although the Minister clearly cannot intervene in investigations by the Serious Fraud Office because prosecutorial authorities are quite separate from the Executive, which has always been the case and will, I am sure, continue to be the case for centuries to come, it would be useful for him to indicate what the state of play is in relation to breaches of existing criminal law that might give rise to custodial sentences in the case of those engaged in LIBOR rigging.
Greg Clark
It is a pleasure to respond to this well-informed debate. I start by welcoming the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) to the Opposition Dispatch Box. She proved rather more persuasive in Committee than her hon. Friend the Member for Nottingham East (Chris Leslie), as I was able to accept at least one of her amendments. I think that it was a single word, but I am sure that it was an excellent one, historically so.
We are considering a large group of amendments, as has been evident in the range of the debate, and it has given us the opportunity to have an initial discussion of the parliamentary commission’s recommendations on questions of individual accountability and corporate governance. We agree with the recommendations that have been made. The commission’s report has at its heart the essential point that the UK banking system depends totally on the trust it commands. If it cannot count on the trust of its customers, it cannot truly serve businesses and people, which is the only purpose of banking. If it cannot count on the trust of businesses and people in this country, it cannot possibly sustain a reputation for international pre-eminence, which is what we all want to see.
The commission’s conclusions are comprehensive. Never again must directors of banks be able to preside expensively over failure or misconduct and then claim that they simply did not know what was going on. Never again must banks simply, as the commission sees it, contract out ethical judgments to the regulator. Never again must senior bankers be able to make one-way bets with the money of ordinary working people and walk away financially unscathed, leaving taxpayers with a crippling bill.
Specifically, we will enact the new senior persons regime that the commission proposes and introduce new banking standards rules to require high standards among all staff. We will introduce the new criminal offence of reckless misconduct that has been suggested for senior bankers. We will reverse the burden of proof so that the bosses are held accountable for breaches within their areas of responsibility. We will work with the regulators to implement the commission’s proposals to defer bonuses for up to 10 years and to enable 100% clawback of bonuses where banks receive state aid. We will ask the regulators to implement the commission’s recommendations on corporate governance to ensure that firms have the correct systems in place to identify risks and maintain standards of ethics. As I have said in earlier debates, where legislation is required, we will propose amendments in the autumn in the other place.
Let me deal specifically with today’s amendments and new clauses. New clause 2 was ably moved by my hon. Friend the Member for North East Cambridgeshire (Stephen Barclay). In a powerful speech delivered without notes, he explained that the new clause seeks to reverse the burden of proof when taking action against a senior person where there are regulatory failings by a firm in that person’s area of responsibility. As the hon. Member for Edmonton (Mr Love) pointed out, that is one of the parliamentary commission’s recommendations, but I think that my hon. Friend campaigned for that even before the commission reported, drawing on his own experience as a regulator. I say to the hon. Member for Kilmarnock and Loudoun that my hon. Friend needs no tawdry trinket of the Government accepting his amendment to be lionised in this House for the contribution he has made. We very much accept the thrust of his recommendation and that of the parliamentary commission.
The PCBS put it this way:
“Senior managers of banks will no longer be able to hide behind an accountability firewall, where they are too distant from the consequences of their responsibilities to be held directly accountable when things go wrong.”
At present, the regulator has to be able to show that the person knew what was going on. That cannot be right. It means that while regulators can take action against the firm’s junior employees who might be implicated, they are unable to pin responsibility on someone higher up the chain just because, as the Commission put it, the e-mail trail goes cold when it reaches their level of management. I will take on board the case my hon. Friend made on whether it is necessary to require the corporate offence to be committed, and we will reflect on that before the Bill goes to the Lords.
New clause 3 reproduces a new clause that was considered in Committee, when I predicted that the parliamentary commission would have something to say about the approved persons regime and a code of conduct. My predictions proved uncannily accurate. The commission’s recommendation that the approved persons regime should be replaced is, of course, a major feature of its report, which we accept. We will bring forward amendments to introduce the new senior persons regime to replace FSMA’s approved persons regime. As the commission recommends, the new regime will ensure that key responsibilities within banks are assigned to specific individuals who are aware of those responsibilities and have formally accepted them. As part of the regime, we will implement the commission’s more detailed recommendations, including reversing the burden of proof, which I have just mentioned, and allowing regulators to make the approval of senior persons subject to conditions and time limits.
The regulators will also be able to make rules about the conduct of senior persons, replacing the current system of statements of principle and codes of practice. The new clauses will put in place new arrangements for regulating the conduct of individuals who are not covered by the senior persons regime. The arrangements will include provisions to allow the regulators to make rules covering financial services employees whose appointments are not subject to regulatory pre-approval.
My hon. Friend the Member for Bedford (Richard Fuller) is absolutely right: it is plausible that the deficiencies in the approved persons regime may affect not just the banking sector but other parts of the financial services industry. The relevant FSMA provisions apply to all parts of the sector, so it might be operationally simpler to apply the regime to the industry as a whole. The Government will consider, with the regulators, whether the relevant provisions should allow for the wider application that my hon. Friend has in mind.
As the hon. Member for Kilmarnock and Loudoun said, new clause 3 would not deliver the extent of the reforms that the Parliamentary Commission on Banking Standards is seeking. On that basis, I hope that the hon. Lady will withdraw the new clause.
New clause 4 also reflects a debate that we had in Committee. The commission did not recommend the introduction of a fiduciary duty or duty of care, but it did recommend an alternative route. It said that the Department for Business, Innovation and Skills should consult on changing the duties of the directors of ring-fenced banks, to prioritise the safety and soundness of the firm first, over the interests of shareholders.
The Government strongly believe that bank directors must maintain an awareness of their responsibility to safeguard the security and stability of the firm. Changes that will support a focus on stability and soundness—for example, giving directors specific duties under the proposed senior persons regime—will help. We will indeed consult on whether changing directors’ duties will help further to accomplish those intentions. I hope that that will reassure the hon. Lady.
A duty of care specifically towards customers across the financial sector is difficult to make sense of, as we have previously discussed. Would it mean, for example, that a bank had a duty of care not just to its own customers and those of its competitors but, as the proposed duty is to customers across the financial sector, the customers of an insurance company with no relevance to the firm itself? The new clause has been tabled to confirm the Government’s intentions on the wider duties of banks and their directors, and I hope that the hon. Lady is satisfied.
New clause 5 refers to remuneration. Of course, the Government have already taken significant steps in that regard; under the remuneration code, large parts of bonuses must be deferred and paid in shares, and cash bonuses must be limited. However, it is a question of not just the quantum of bonuses, but how they are decided in the first place. Next year, shareholders will have a binding vote on executive pay.
We strongly support the proposals made by the parliamentary commission. In particular, the commission has recommended that the regulator should have the power to require a substantial part of remuneration to be deferred for up to 10 years when that is necessary for effective long-term risk management. There is a subtle but critical distinction between the commission’s recommendation and the new clause. The power should be with the regulator to determine whether and in what circumstances to require extended deferral; my hon. Friend the Member for North East Cambridgeshire made that point.
The commission has commented that no single deferral period is appropriate but that it should be determined in accordance with the nature of each business and the risks and activities of the employee in question. The Government agree and will ask the PRA to consider the powers that it has to extend deferral periods as part of its consultation on implementing the commission’s proposals. I hope that that commitment will reassure the hon. Member for Kilmarnock and Loudoun and that she will not feel the need to press the matter further.
New clause 7 deals with protections for whistleblowers. As the hon. Lady said, we debated this in Committee, so I do no want to detain the House further today other than to reassure her that, as I explained on that occasion, these provisions already exist in legislation. Disclosures about criminal offences are already covered by the Employment Rights Act 1996. Disclosures about regulatory breaches are covered by FSMA. This proposal would cover, for example, disclosures about the breaches of the regulatory requirements in relation to the ring-fence. I assume that the second requirement is designed to give effect to the commission’s proposal that a non-executive board member, preferably the chairman, should be given specific responsibility under the senior persons regime. Again, the powers to enact this are already available to the regulator under FSMA, and we have indicated that we support the thrust of these recommendations.
National Planning Policy Framework
Debate between Greg Clark and David Ruffley
Greg Clark
We followed the suggestion of the Communities and Local Government Committee and used the classic Brundtland definition, which is about protecting the ability of future generations to enjoy the benefits that the present generation enjoys. We have also included the five principles of the UK’s sustainable development strategy. In practice, the policies outlined in the national planning policy framework will determine, in each case, what is and is not sustainable. For example, it is not sustainable to have a shopping development outside the town centre and it is not sustainable to build in the green belt. There is a high level of definition, and the practical application is very clear in the policies.
Mr David Ruffley (Bury St Edmunds) (Con)
Bury St Edmunds is an unspoilt county market town, and its residents want to keep it that way. Will the Minister tell me whether neighbourhood plans can be used to block unwanted development?
Greg Clark
We encourage neighbourhood plans to set out, at a more local level than the council’s plan, what should be the look and feel of towns. Bury St Edmunds is a town with a great deal of civic pride and would benefit from that. Neighbourhood plans have to be consistent with the broad approach of the local plan, but it is right that specific local details, which in towns such as my hon. Friend’s may relate to architectural design and historical consistency, should be expressed in a neighbourhood plan. They would then become part of the formal plan and determine planning applications.