Banking Sector Failures

John Glen Excerpts

Thursday 12th July 2018 Westminster Hall

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Mr Hanson. I start by acknowledging the work of the all-party group and by thanking my hon. Friend the Member for Stirling (Stephen Kerr) and the hon. Member for East Lothian (Martin Whitfield) who secured this important debate. Members have spoken with conviction and passion about some banks behaving in an appalling fashion. I recognise that there are outstanding cases that have not been resolved to the satisfaction of their constituents. I will address some of the issues that need resolution by Government in my later remarks. First, I want to examine specific points raised by Members and then I shall go through what I have done since the previous debate and what I see happening to try to address the work of the APPG. Hopefully, that will give the House some clarity today.

The hon. Members for East Lothian and for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) referred to bank closures. It would not be right for us to have a debate on banking without addressing that important issue. I am aware that that is a concern for many Members. Obviously, closures are commercial decisions for the banks, taken by the management without intervention from the Government.

[Drew Hendry]

The Minister mentions commercial issues for the banks, but surely ownership of the bank, certainly such a large majority ownership, plays some part in the commercial process. Would it not have been correct for the UK Government to use the fact that they largely own the bank to make a decision to protect the people it is supposed to serve?

[John Glen]

I thank the hon. Gentleman for that intervention, but I will take the opportunity to correct him. The Government do not have a 70% shareholding. We have a 62.4% shareholding. We do not have control of the day-to-day running of the bank, in the same way as the Scottish Government do not have control of Prestwick Glasgow Airport, yet they have a complete shareholding in it. We need to be real. There is a difference between ownership and day-to-day control. I want to address the practical issues because our constituents want to know what is being done to deal with these challenges. Before I go into that, I want to acknowledge that in previous debates I was challenged by Members from constituencies in Scotland. I will visit Scotland for four or five days at the end of August during the recess to address specifically the issues around rural banking. I went to look at the mobile banking units of one of the banks in Derbyshire in the previous recess, and I take very seriously the concerns about how effectively they function in terms of support for disabled people.

[Peter Dowd]

What sort of message does it send to banks when all these closures are happening and in 2016 the Government decide to cut, for example, the banking levy from £3 billion to £1.3 billion, sequentially, year on year? The Minister can try to duck the issue, but he gives a bung to the banks while they close their branches, and that is not acceptable.

[John Glen]

I want to try to address our constituents’ concerns about bank closures and what the Government are doing to see that their services are provided. The Post Office and the banking industry have a commercial agreement that enables 99% of the UK’s personal and 95% of the UK’s business customers to carry out their day-to-day banking. I am concerned about the effectiveness of that arrangement, so I am determined that public awareness of those services should be greater. I am pleased that UK Finance and the Post Office have responded to my call for further action, particularly when the last bank in town closes, to make sure that the transfer of responsibility—

[Drew Hendry]

Will the Minister give way?

[John Glen]

I will not keep giving way—I need to finish what I am saying. I will give way in a moment. Let me just finish this point.

The Government also support the industry’s access to banking standards, overseen by the independent Lending Standards Board, which commits banks to better communicate with customers and those who need more help when a bank closes. I am not seeking to duck any issue and I look forward to further engagement on this matter.

[Drew Hendry]

I appreciate the Minister’s giving way, and I appreciate that the issue is sensitive for many of us in rural constituencies. If the position is that the UK Government do not brook any interference or intervening in commercial decisions, how can it be the case that the Minister is listing a number of interventions that he is about to make in a commercial situation?

[John Glen]

I was making it clear that, as a Minister, I do not make the operational day-to-day decisions about which individual branches should close. My responsibility is to see that consumers have access to the services they need, and I have done that through brokering the arrangement between UK Finance, which represents the banks, and the Post Office, which provides services when closures take place.

The hon. Member for East Lothian mentioned insolvency practitioners.

[Kevin Hollinrake]

The Minister is being very generous in giving way. He talks about the issues around bank closures. One of the things that banks are doing to substitute for bank availability is moving us all online, so we are transacting more online through apps and the like. Colleagues have written on behalf of constituents to the all-party group to tell us about authorised payments and online fraud. Yet the banks themselves and the Financial Ombudsman Service are attributing gross negligence to the customer, despite the fact that they have gone to some lengths to try to prevent fraud. For example, the person on the other end of the phone knows their password, their maiden name—a degree of information that would not make that giving away of information gross negligence, yet they are being disadvantaged, despite the fact that the banks have pushed them online.

[John Glen]

I am grateful to my hon. Friend for that intervention. The Payment Systems Regulator is doing a live piece of work to look at scamming and will report in September. It looks very much at culpability in such cases and I hope it will come up with a clear resolution that will give the public a better understanding.

If I may, given the luxury of additional time, Mr Hanson, I am going to try and reply to the points raised and then I will come on to substantive points. Insolvency practitioners are regulated by one of five recognised professional bodies. Legislation in 2015 introduced binding statutory objectives on these bodies, and the Insolvency Service has more sanctions available to it to deter and deal with poor conduct or performance. The insolvency code of ethics, raised through the Joint Insolvency Committee, is also expected to be revised and updated later this year, but I will be happy to enter into dialogue with the hon. Member for East Lothian about the specific issues and concerns that he has.

[Martin Whitfield]

On that point, does the Minister accept that there is an inherent conflict of interest in the situation whereby we have a bank, what I will call a limited company, and individual shareholders? We have the bank instructing the professionals who then deal with the company, and that less than virtuous circle leads to an almost inherent conflict of interest for professional groups: the lawyers, the accountants and the insolvency practitioners.

[John Glen]

I am happy to look carefully at the issues and the respective responsibilities and interaction between them that the hon. Gentleman raises. I fully accept the sensible point he makes.

I want to return to the case raised by my hon. Friend the Member for Stirling. Several specific cases were raised and my hon. Friend spoke passionately about his constituent’s case, which is illustrative of many of the experiences that sadly occur. Following my meeting, I received a letter from Ross McEwan in May that said that his complaints handling team would be happy to discuss constituency cases with Members. I encourage all Members to do so. I want to put this on the record. I particularly encourage my hon. Friend the Member for Stirling to raise his constituency case with the team. I am keen to understand what sort of response he gets and how satisfactory the process is.

As to the comments of the hon. Member for Bootle (Peter Dowd) about the sale of RBS shares, I am not one to enter into unnecessary partisanship in such discussions, because the issues are important, and I generally welcome the tone of the debate, but he must acknowledge that when the shares were purchased by the Government for £5.02 in 2008 it was not a rational economic choice. It was necessary for the Brown Government to secure the banking system. Therefore, to point out the difference in price, after the Government had taken advice from those who are stewards of the Government’s interest, based on value for money, is not really rational. Most consumers would not have purchased shares at the time in question; it was for the good of the nation.

[Peter Dowd]

Okay, so if we push the bank aside and forget that, how does the Minister explain the loss to the taxpayer in the sale of the Post Office, which was another billion or two pounds—or is that irrelevant as well? How does he explain the reduction of 26% in corporation tax for banks and other corporations, to 19%, when people in the Gallery cannot get a penny out of the Government?

[John Glen]

I am glad that the hon. Gentleman has conceded the point on RBS. I want to focus on banks, and I was responding specifically on the matter of RBS.

I want to set out what the Government have done to address the issues that came to the fore during the financial crisis, because the regulatory framework and what has evolved over the past 10 years is a foundation for some of the outstanding challenges that we need to resolve. Since the crisis, the Government have reformed the UK system of financial regulation for the benefit of the industry and the people who rely on it. We have bolstered standards across the sector and taken strides to restore public trust in financial services. I acknowledge that there is more work to be done, and I shall come specifically to the issues raised in the report of the all-party group, and in other work. We have regulators armed with comprehensive powers and responsibilities co-operating to identify and address risks across the financial sector. The Financial Stability Board has praised the UK for its successful transition to a new regulatory regime, and the International Monetary Fund has applauded the UK’s more resilient system. We have implemented reforms to improve individual accountability in the financial services sector, and that includes the introduction of the senior managers and certification regime, which promotes individual responsibility.

My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) set out a list of individuals about whom he has outstanding concerns; and it must be right to hold people to account. Where evidence exists for individuals having behaved criminally or in a way that needs further analysis, it must be brought forward. I understand that the shadow cast over the issue by outstanding cases needs to be resolved by the regulator. However, the SMCR promotes individual responsibility, holding senior managers to account for misconduct that occurs on their watch. It ensures that individuals at all levels can be held to appropriate standards of conduct. Both those things were key recommendations of the post-crisis Parliamentary Commission on Banking Standards. The SMCR was implemented for all banks, building societies, credit unions and Prudential Regulation Authority-designated investment firms in 2016. The regime will be extended to cover insurance firms from December 2018, and all other Financial Conduct Authority-regulated firms in December 2019.

I want now to talk about the core issue of SME lending. Despite significant improvements to the system at large, I am acutely aware that concerns remain about misconduct within the sector.

[Kevin Hollinrake]

The senior managers regime is important, but it will not be effective unless the regulators or law enforcement agencies investigate, speak to victims, find out exactly what has gone on, establish the evidence and take prosecutions forward where guilt is demonstrated.

[John Glen]

I agree, and will discuss the implications of that.

Many of the concerns that are raised relate to small businesses—sometimes microbusinesses, and sometimes individuals who have been working hard, with a perfectly solid relationship with their bank. Those businesses form the backbone of our economy, as several hon. Members have said this afternoon, and there has been justified anger, both within Parliament and beyond, about Global Restructuring Group at RBS, HBOS Reading and the mis-selling of interest rate hedging products. The case of GRG, and other cases from the crisis period, are unacceptable and I will continue to push for action. I shall explain what is happening.

I mentioned at the Backbench Business debate in May that the chief executive of RBS had committed to modifying the GRG compensation scheme. RBS will set up an independent appeal process for consequential loss claims. I acknowledge that the hon. Member for Inverness, Nairn, Badenoch and Strathspey mentioned that in his speech. I shall discuss with Sir William Blackburne how that process will operate when we meet next week. I understand the concerns about the need for it to work effectively. As has been mentioned, the assessment of consequential loss is a tricky issue, and I need to be sure that the process will be expedited as well as possible.

Treasury officials receive regular updates from RBS on the compensation scheme, and I am glad that progress is being made on direct loss claims, with a further 200 complaints closed and a further £4 million paid out since the last debate in May.

[Kevin Hollinrake]

No one suggests that Sir William Blackburne at RBS or Professor Griggs at Lloyds are not decent people, trying to do the right thing, but is not the concern the fact that the compensation schemes are internal? It is not enough for justice to be done; it must be seen to be done.

--- Later in debate ---

[John Glen]

I am happy to keep taking interventions, but I am getting to the points that are raised. I would like some flow in what I am trying to say.

I remind hon. Members that what happened at HBOS Reading was criminal behaviour—beyond unacceptable. It is right and just that six people have been convicted, and that they are serving more than 47 years in prison. In March 2017, following the conclusion of the criminal investigation, Lloyds set aside £100 million for compensation payments to 64 victims, and Russel Griggs was hired to review individual cases. Professor Griggs’s recent letter to the Treasury Committee set out that 170 offers have been made to affected directors, ranging from less than £100,00 to more than £5 million. In addition, Lloyds Banking Group has appointed Dame Linda Dobbs as an independent legal expert to consider whether issues relating to HBOS Reading were investigated and appropriately reported to authorities at the time by Lloyds Banking Group, following its acquisition of HBOS.

The FCA continues to conduct investigations into both RBS GRG and HBOS Reading. It cannot be the case—I made this point when I met Andrew Bailey, the chief executive of the FCA—that we allow those institutions to arbitrate on outcomes when there are significant outstanding and unresolved issues. I was pleased to hear that the FCA is likely to conclude whether there is any basis for enforcement action in the matter of GRG by the end of this month, in line with the indication that I gave on 10 May. I look forward to the conclusion of that investigation and the investigation of misconduct at HBOS Reading.

My hon. Friend the Member for Thirsk and Malton and others were right to say that these matters will not go away. In a characteristically passionate speech, my hon. Friend the Member for Beckenham (Bob Stewart) set the expectation that the matter should be resolved. I have been in this job for nearly seven months and have responded to three or four debates on the topic; I expect there will be more, because more needs to be done. We understand how important it is that SMEs have access to the dispute resolution with banks that they need.

I am glad that there are four pieces of work looking at that matter, as I mentioned at the report’s launch yesterday evening. The FCA is currently consulting on expanding eligibility for the Financial Ombudsman Service. I acknowledge the points made and the concerns about resourcing and sufficiency in that regard; they will need to be addressed. Richard Lloyd is reporting today on his independent review into the workings of the Financial Ombudsman Service, which was stimulated by the excellent work of the journalists for “Dispatches”. That review includes several recommendations, and the FOS intends to publish an update on the progress made by the end of the year.

UK Finance is also reviewing the access of SMEs to dispute resolution. There is a lot of expectation that UK Finance, as the representative of the four big banks, will respond thoroughly to some—I hope, all—of those issues. We need to find binding and enduring solutions to the issues that have been raised. Last night, the APPG published its work into the options for an independent financial services dispute mechanism. Those four strands of work will come together in the autumn, and the Government will consider them in the round.

I also want to respond to the point raised by several hon. Members, in particular the hon. Member for Thirsk and Malton, and say that the Government are determined to ensure that financial markets work effectively for SMEs and to enable competition in the market. Since the Government set up the Prudential Regulation Authority in 2013, it has authorised 16 new UK banks, but I acknowledge that those banks are nowhere near challenging the four biggest banks in scale and size. There is work to be done to examine how that can change, so there is greater competition in the sector.

On lending specifically, the British Business Bank’s programmes support more than £4.6 billion of finance to more than 70,000 smaller businesses through programmes such as the ENABLE guarantee, which encourages banks to increase their lending to SMEs by helping to reduce the amount of capital that banks are required to hold against such lending.

I acknowledge the work of the regulators in seeking to ensure that the banking system is stronger, safer, and better placed to support the wider economy than ever before. Some of the Government’s actions are leading to that outcome. I am aware, however, of the outstanding concerns that hon. Members have expressed. I look forward to responding publicly to the various pieces of work that address dispute resolution for SMEs in the autumn. Given that the report was published only yesterday, and that there are some significant ongoing parallel strands of work that are nearly completed, it is reasonable for me to wait to do so. I hope that will move the debate forward to a resolution that we and our constituents can have greater confidence in.

We need a banking sector in this country that enables lending, prosperity and growth in our economy, and when things go wrong we need to know that the resolution process will not be random, complicated and legally tortuous. Where we have legitimate examples of behaviour by banks that involves, or involved, malicious proactive interventions that were not justified on economic grounds, they need to be examined until they are resolved, so we can move forward with a more reliable system of regulating this vital sector of our economy.