Financial Conduct Authority

Ian Blackford Excerpts

Monday 1st February 2016 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

I add my congratulations to the hon. Member for Aberconwy (Guto Bebb) on securing this debate. He has been careful in raising the excesses that his constituents have suffered from over the past couple of years. He is to be commended for the wide range of issues he raised in his speech, including interest rate swaps, which many Members have talked about; Connaught, which has affected many people in our constituencies; and, of course, the issue of banking culture, which in many ways sparked the debate that we are having.

The hon. Member for Bassetlaw (John Mann) made a wide-ranging speech in which he talked about entrepreneurialism and the importance of consumer protection. Again, he is to be commended for his speech.

The hon. Member for Wyre Forest (Mark Garnier) gave an interesting speech on the FCA and its duties. He also got on to the subject of football, which has been much discussed this evening. I cannot pass up the first opportunity I have had in this House to speak about the semi-finals of the league cup in Scotland this week. I am glad to say that the mighty Hibernian football club—the team that the term “sexy football” was meant for—managed to get through to the final in Glasgow on 13 March. As the Member of Parliament for Ross, Skye and Lochaber, that gives me a small problem, because the team Hibernian will face is Ross County—the small highland team from Dingwall that has done very well in the premier league over the past few years. In some respects I’ll be a winner if Hibs win, but I’ll still be a winner in the constituency if Ross County win.

My hon. Friend the Member for Motherwell and Wishaw (Marion Fellows) raised a number of important points about the complexities of financial regulation, and the difficulties faced by people in her constituency—indeed, in all our constituencies—in understanding how consumer protection should work under the FCA. We should pay much regard to that.

The hon. Member for North Warwickshire (Craig Tracey) made a good contribution about his personal experiences of running a business, and a number of Members expressed their frustration with the complexities of regulation that affect many small businesses. The hon. Member for Ceredigion (Mr Williams) spoke about banking culture and his continued lack of trust in the FCA. We should take that seriously, as should the FCA, because many people clearly feel that it is not discharging its obligations effectively. The hon. Member for South West Devon (Mr Streeter) spoke about swaps—again that issue is important to many people, and there is a lack of confidence in the FCA.

I will not go through every Member’s speech because the themes were the same. The hon. Member for Hazel Grove (William Wragg) mentioned RBS, and in particular GRG. It is important to reflect on the fact that RBS was state-owned. I know that the Government cannot interfere in the operations of RBS, but is it not a disgrace that at a time when we as taxpayers owned that institution, it behaved as it did to many companies?

It was a pleasure to listen to my old friend the Member for North East Somerset (Mr Rees-Mogg). At one time, I was connected to him—indeed, he was a client of mine—and in the past I have also been regulated by IMRO, the FSA and the FCA. Having announced that he has been regulated, I cannot help but reflect that some of his colleagues might prefer it if he were more regulated in this Chamber, but that is another matter.

Some important points were raised by my hon. Friend the Member for Edinburgh West (Michelle Thomson) about redress for companies that have been pushed into insolvency, and we finished with the 13th and last speaker, the hon. Member for South Suffolk (James Cartlidge), who in some respects made the most important comments of the evening about the fact that the regulator and the Bank of England were asleep at the wheel when we had the financial crisis in 2007-08—the “almighty crash and crisis”, as he put it. It is worth reflecting on that, because the House should ensure that we have the architecture that stops us ever revisiting the kind of things that we faced in 2007-08. That, along with consumer protection, is the fundamental point. There should be no room for complacency or hesitation when it comes to reforming the City, and the FCA must reinstate its long-awaited inquiry into banking culture.

Bang on time for this debate, a story is emerging today of a fine for a British bank, this time in North America. Barclays has been fined £70 million by US regulators for its US dark pool trading operations. Dark pool operations allow investors to trade large blocks of shares but keep the prices private. Barclays has admitted misleading investors and violating security law in the way that it operated the pool. The New York Attorney General and the Securities and Exchange Commission have both censured the bank for its misconduct. Ralph Silva, a banking analyst from Silva Research Network, told BBC News:

“The fines are a message, not a punishment. The levels are insignificant compared to the profits in this line of business… Regulators are telling the banks to close the vulnerabilities, something the banks have been reluctant to do because answers come with high operational price tags.”

That is a clear expression that the banks are still not getting it. Unacceptable behaviour is continuing, and we are probably not hearing the full scale of the malpractices that are going on. That is why the decision not to proceed with the review into banking culture is so wrong, and sends completely the wrong signal. I am concerned that the FCA’s move to forsake the critical review into behaviour, pay and culture surrounding the UK’s banking sector will have a detrimental impact on levels of consumer trust. The FCA must reinstate its long-awaited inquiry into banking culture.

We repeatedly hear legitimate concerns about the amount of time that it is taking for the Chilcot inquiry into the Iraq war, but we have not had a fundamental review into the banking crisis and behaviour. We ought to remember the devastating impact of the financial crisis. Dealing with the cultural issues that were at the heart of it, and which in some senses still remain, is crucial. That is why the removal of the banking culture review is wrong, and we have to seriously question the judgment and leadership of the FCA in not pursuing it.

Much is said about the change to the Basel rules and the enhancement of capital ratios of the banks. It would be my contention that we need not just to review culture in a vacuum, but to do further analysis and stress-testing critically to examine what kind of leverage is appropriate to ensure that, in any financial crisis and any kind of significant fall in asset values, we as a country are never exposed again to banking failure. It is in that context that banking culture must be seen. We are still in a situation where there is a perception that, in any kind of banking failure the state will still intervene. It means that for the bankers the upside potential is all for them and the downside protection is all for us. There needs to be an alignment with society’s interests and that of the banks. We still have too much of a fixation with property assets and not enough with real assets, which can enhance our ability to deliver sustainable economic growth. These are all matters related to banking culture.

I have concerns that the FCA’s move to forsake the critical review into behaviour, pay and culture surrounding the UK’s banking sector will have a detrimental effect on consumer trust. Restoring consumer confidence in banking integrity is imperative in the aftermath of the financial crisis, where we saw consumer confidence drop. Statistics show some of the bad practices used before the 2008 crash are again being adopted in the banking sector. A recent study by the banking staff trade union Affinity surveyed staff at Lloyds Banking Group and TSB. It revealed that 55% believe that the banks are reverting to their old sales management techniques; 63% stated that the bank was more interested in the results they got and the objectives than in how they do our jobs; and 53% believe that the performance of TSB was just about sales. That is the view of the staff of those banks. Those statistics should be very worrying for all of us. They demonstrate the need for a robust review into banking culture.

A study conducted by KPMG showed that, between 2011 and 2014, Britain’s banks handed over 60% of their profits in fines and customer remediation, for a total of £38.7 billion. Those figures suggest that there should be no room for complacency or hesitation when it comes to reforming the City. Only in the past few days, a landmark legal pursuit has contested the banks’ £2 billion compensation scheme for inappropriate interest rate swaps. The hearing could have consequences for over 10,000 small and medium-sized enterprises that found themselves in the midst of the mis-selling scandal.

The appointment of Andrew Bailey as chief executive of the FCA raises legitimate questions about the FCA’s independence from the PRA and its dedication to consumer protection. Bailey must be subject to a full and proper confirmation hearing. Prior to his appointment with the FCA, Bailey was the deputy governor for Prudential Regulation and chief executive officer of the Prudential Regulation Authority, supervised by the Bank of England. As a conduct regulator, the FCA’s role is to protect consumers. Bailey’s appointment therefore raises questions about the FCA’s independence from the Prudential Regulatory Authority and its dedication to holding consumer protection at the heart of its aims and values.

In a speech to the Mansion House in June 2015, the Chancellor launched a “new settlement” with the banks, which was widely interpreted as a move away from the tougher measures put in place for the banks under Wheatley’s leadership. The Chancellor has suppressed the reverse burden of proof and slashed the bank levy. The developments lead to questions as to whether the FCA is on the wrong side of the Chancellor’s “new settlement”. The new chief executive of the FCA must be subject to a confirmation hearing, so his plans and views can be scrutinised in detail.

I am concerned that the FCA’s move to forsake the critical review into behaviour, pay and culture surrounding the UK banking sector will have a detrimental impact on consumer trust. The FCA must reinstate its long-awaited inquiry into banking culture. The appointment of Andrew Bailey as chief executive of the FCA raises legitimate questions about the independence of the FCA that must be addressed. Bailey must be subject to a full and proper confirmation hearing.