Business Banking Fraud

Jonathan Reynolds Excerpts

Tuesday 9th October 2018 Westminster Hall

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I, too, thank the hon. Member for Hazel Grove (Mr Wragg) for securing today’s debate. Colleagues will know that he and I are constituency neighbours. The powerful case study that he gave on behalf of his constituent could quite easily have been on behalf of one of mine. I first became aware of the scale of the issues through constituency examples. Every Member who has spoken in today’s debate has presented those testimonies extremely well. I also thank the all-party parliamentary group on fair business banking and finance, especially for the efforts of its chair, the hon. Member for Thirsk and Malton (Kevin Hollinrake), who gave an authoritative and powerful account of some of the problems that have come to the group’s attention.

Many of us have participated in similar debates before, but as we mark the 10th anniversary of the financial crisis it is a good time to consider the relationship between businesses and their banks. All of us in the Chamber, even though we have come today with powerful case studies of inappropriate behaviour, want to see a strong relationship between businesses and banks. Having a good relationship between banks and businesses is critical to our economic growth, prosperity, employment and much more.

Unfortunately, research shows that frighteningly low numbers of small businesses trust their bank to do the right thing for them. That is unsurprising given some of what we have heard today. We have to improve that. We have to look at why that is, and how we can change it. We have to restore confidence that the regulatory system is fair, and crucially that there will be a level playing field for businesses when they find themselves in conflict with their bank, especially if their bank is suspected of having committed fraud, as we are discussing today.

The central premise of today’s debate and of all the speeches has been that there are insufficient resources available to tackle business banking fraud. Colleagues will be aware that I agree with that premise. The National Crime Agency, the Serious Fraud Office, local police forces and the Financial Conduct Authority do not have sufficient capacity, either individually or collectively, to look into the matter with the attention that it deserves. I am sure that the Minister will refer to the new National Economic Crime Centre—the NECC—a new unit of the National Crime Agency. An initial budget of £6 million does not seem sufficient when compared with, as I think the hon. Member for Harrogate and Knaresborough (Andrew Jones) mentioned, the £7 million cost of the Thames Valley police investigation into HBOS in Reading, and given the scale of the issues raised today.

I want to say quite a bit more, because I do not think that we can simply say, “This issue requires more resources and that will solve the problem.” It is about how we can change the culture that has led to such outrages happening time and again. I will talk about three different ways in which I believe we could contribute to achieving that. First, we could launch a full public inquiry into recent business banking scandals. Secondly, we could introduce an independent tribunal system for small and medium-sized enterprises to resolve disputes. Lastly, we could put in place a more robust system to better protect and enable whistleblowing.

The first step has to be securing proper redress for SMEs that have been mistreated by their banks. Scandals such as GRG and HBOS mis-selling have been outrages, and have seriously dented business and customer confidence. The shadow Treasury team has consistently called for a judge-led independent inquiry into RBS GRG and other small business banking scandals, so that victims can get proper redress. I know that several colleagues in the Chamber have argued strongly for the same measure. There is clearly cross-party support for that to take place.

Such an inquiry would not just get to the bottom of the case studies that have been raised today; it would establish whether there is further criminal liability to be addressed, and examine the wider systemic issues that have allowed such events to take place. We are talking about people’s livelihoods, homes and relationships. Some people have simply been ruined. These issues are too important for us to sweep under the carpet, with the risk that such events could happen again. We have to be able to go out from a debate such as today’s and promise constituents that this will not happen again. In my view, a full public inquiry is required to do that.

Secondly, in terms of disputes, part of the problem is that it is well recognised that the gap between the financial ombudsman for individuals and the full legal process for very big firms is just too great. I support the all-party parliamentary group’s proposal to establish an independent tribunal to help create a level playing field between businesses and the banks in order to fill that gap.

We all await with interest the outcome of the UK Finance independent review, chaired by Mr Simon Walker, into complaints handling and alternative dispute resolution for SMEs. I have met Mr Walker and I understand that he will report very soon. The review will examine dispute resolution processes in different sectors and countries, and provide some evidence-based conclusions on how we can meet the needs of businesses for larger or more complex disputes.

Other initiatives are under way that will hopefully progress the situation. In July 2017, 20 banks signed up to the new standards of lending practice for business customers, which outlined what businesses should expect from their bank when in financial difficulty. Although such moves are welcome, my view is that ultimately we cannot rely on the industry to self-regulate. Look at the RBS GRG complaints resolution process as evidence. Concerns are being raised about how the goalposts have been moved regarding compensation, and how the process has been subject to quite a lot of individual discretion. That is why an independent tribunal system is necessary.

Lastly, an answer could lie in exploring a change in our approach to whistleblowing in financial services in this country. Whistleblowing will never be a substitute for effective action by regulators, but it can play a part. That is especially important in a time of scarcer resources as a result of public spending cuts. The Dodd-Frank Act in the US, which was introduced as a central piece of post-financial crisis legislation in 2010, is a demonstration of how much more robust the whistleblower protection framework could be. Whistleblowers in the US are entitled to awards where their information leads to enforcement action. The framework is structured in such a way as to disincentivise false reports, but to provide protection in the event of dismissal.

The UK legislation, on the other hand, is much weaker. Although the Financial Conduct Authority can assist whistleblowers under the Public Interest Disclosure Act 1998, it has not been enshrined in regulation in the way the Dodd-Frank Act has been used in the US. There is a case for examining how we could introduce specific financial services whistleblower protection in order to seriously improve conduct in banking. I have encountered significant support for that within the sector itself. I think the hon. Member for Thirsk and Malton mentioned that many good people are working in the sector who want to see such issues improved so that today’s debate does not have to happen again.

Having a banking system that we can trust is essential to our economy. Entrepreneurs who have taken the risk of setting up their own businesses deserve to know that there will be proper redress if they have been the victim of unscrupulous practices. SMEs are the backbone of the British economy. If they cannot trust the financial institutions that are meant to serve them, we will all pay a price.

If we are to begin to restore trust to UK business banking, there are two outcomes we have to achieve. The first is to ensure that the victims of the GRG and HBOS banking scandals get proper redress for the damage done to their businesses and livelihoods, and individuals, as well as the institutions they worked for, must face sanctions for their actions. The second outcome is that we must create a framework in which such a flagrant abuse of the bank and business relationship can never happen again.

With the combination of a full public inquiry, the establishment of an alternative dispute resolution mechanism and a radical rethink of how we treat whistleblowers, we could begin that process. These businesspeople, many of whom are in Parliament today, were badly let down. We must all commit to less talk and more action to get them the redress that they deserve.

[Mr Laurence Robertson (in the Chair)]

I would like Mr Wragg to be left a minute to wind up at the end. I call the Minister.