Bank of England and Financial Services Bill [Lords]

Keith Vaz Excerpts

Monday 1st February 2016 Commons Chamber

[Keith Vaz (Leicester East) (Lab)]

Would my hon. Friend also welcome something for which some of us have been campaigning for the last 24 years? Twenty-four years ago, the Bank of Credit and Commerce International —the sixth-largest private bank in the world—closed and the Bingham report was commissioned to look at the supervision of the Bank of England and at its powers. However, one part of the report has not been published over the last 24 years—the confidential second part. Does my hon. Friend think it should now be published?

[Rob Marris]

I agree with my right hon. Friend. Many of his constituents in Leicester, and mine in Wolverhampton, were adversely affected by BCCI’s collapse, and unless we publish that material, we will not learn from it.

There have been considerable problems. As the right hon. Member for Chichester (Mr Tyrie), the Chair of the Treasury Committee, put it at the Report stage of the Financial Services (Banking Reform) Bill in 2013 in this very Chamber:

“The crisis of standards and trust in banking—and it is a crisis—is multi-faceted, and so are the necessary remedies…In a nutshell, boards were negligent and the system of regulation was found seriously wanting the first time it was tested.”—[Official Report, 8 July 2013; Vol. 566, c. 76.]

That was absolutely right. Sadly, that is still the situation now. There have been too few prosecutions. It bemuses me, as a lawyer, why the authorities cannot use section 16 of the Theft Act 1968, on obtaining pecuniary advantage by deception, rather than going off on jaunts unsuccessfully looking at conspiracy charges, which are much more difficult to prove.

There has been a series of post-2008 crash infractions by banking institutions. Since 2013, the new Financial Conduct Authority, which replaced the old Financial Services Authority, has dished out fines to firms large and small totalling almost £3 billion. That includes big fines to Barclays, Lloyds, RBS and HSBC. Banks such as Standard Chartered have been paying big fines in the States. That is for wrongdoing that took place after the crash in 2008, so some of these people simply do not learn. Today, according to the BBC, Barclays and Credit Suisse have been fined a total of $154 million by US regulators for their American dark pool trading operations. Those may have begun before 2008, but the wrongdoing continued until well after, so these people sometimes do not learn.

There are problems with the Bill. The test should be whether regulation will lead to better or worse compliance. Quite a lot of today’s debate has been about the reverse burden of proof, and that is important, but we want a strict regime to encourage compliance. However, that is not going to happen if we get rid of the reverse burden of proof. The question is, will this change make prosecutions easier or harder? It will make them harder. Will it make compliance more or less likely? My hunch is that abolishing the reverse burden of proof will make it less likely, but we do not know, because the Government are rushing to get this change made before the SM&CR comes in on 7 March—it is a good acronym, but I would pronounce it “smacker”, because that is what we should have.

We have had some indecision by the Chancellor of the Exchequer over the years. Back in July 2013, in the Government response to the report by the Parliamentary Commission on Banking Standards—this is still on the Government website—he said:

“Cultural reform in the banking sector marks the next step in the government’s plan to move the whole sector from rescue to recovery and ensure that UK banks demonstrate the highest standards, and are able to support business and drive economic growth.”

However, if the Bill is passed unchanged, it will take us backwards.

If we look at what the FCA is doing, it appears to have had pressure put on it. In its business plan for 2015-16—for this very year—its chair, John Griffith-Jones, said:

“In our last Risk Outlook we identified the seven most important forward-looking areas of focus in our view…Poor culture and controls continue to concern us, notwithstanding the efforts being made by firms to improve both.”

He wanted to look at the culture in the banking sector and the financial services sector, but that now appears to have gone out the window.

On the reverse burden of proof, I say with all due respect that, as far as I know—I stand to be corrected—the chief executive-designate of the Financial Conduct Authority, Dr Bailey, is not a lawyer. However, he is pronouncing on legal matters. In a letter from Lord Bridges of Headley, a Parliamentary Secretary in the Cabinet Office, he is quoted as saying:

“The introduction of the ‘duty of responsibility’ in place of the ‘presumption’ makes little difference to the substance of the new regime. Once introduced, it will be for the regulators (rather than the senior manager) to prove that reasonable steps to prevent regulatory breaches were not taken. This change is one of process, not substance”.

I have to say to Dr Bailey that, as a lawyer, I profoundly disagree. I know what the burden of proof is in civil cases, and I know what the burden of proof is in criminal cases. I know what the concept of strict liability is, and I know what the reverse burden of proof is. The reverse burden of proof is not as bad as strict liability, and my hon. Friend the Member for Bishop Auckland (Helen Goodman) mentioned that. We have strict liability for things such as the Health and Safety at Work etc. Act 1974—one of the Acts under which I made my living before I entered this place.

We want the Government to tighten the regime, not loosen it, as this Bill will if passed unaltered. Some of the proponents of the Bill seem to think, or certainly did think, that regulation of banking was too tight before the crash in 2008. In March 2005, the Centre for Policy Studies published a report called “The Leviathan is still at large” in which it called for, among other things,

“an industry with responsible senior management, ensuring that consumer protection is provided through market forces and competitive brands jealous of their reputations, and where risk-taking is not viewed as dangerous but as commendable”.

It also recommended

“an industry where competition abroad and competitiveness at home are not hampered by the costs and burden of being regulated, or by the costs (and conflicts) of educating consumers, or of policing and prosecuting money-laundering and financial crime.”

Before I came to the House this evening, I looked up the definition of a phrase with which hon. Members will be well familiar, “the reverse ferret”, which is

“a sudden reversal in an organisation’s editorial line on a certain issue. Generally, this will involve no acknowledgement of the previous position.”

It came from Kelvin MacKenzie when he was at The Sun. Well, tonight we have a double reverse ferret; I do not know what that is called. The report by the Centre for Policy Studies, published in March 2005, before the world crash, had 10 authors; it was a co-operative effort. Two of those authors are now Treasury Ministers; they were not MPs at the time. One of them is the Economic Secretary to the Treasury, who has been addressing the House tonight, and the other is the Financial Secretary to the Treasury. Before 2005, they were saying, “Labour’s got regulation too tight”, while many of us on the Labour Benches were saying, “Labour’s got regulation too loose”. To my great sadness, I was right and my own Government were wrong, but this Government are making it worse. They tightened things up with the reverse burden of proof, and so on, in 2013, and two years later, before it came into force, untested, they said it was to be done away with under this Bill. That is a double reverse ferret, and it is not acceptable.