Lloyds, HBOS and the Cranston Review

Kirsten Oswald Excerpts

Tuesday 4th February 2020 Westminster Hall

[Kevin Hollinrake]

The hon. Member is absolutely right. The biggest learning we have is that the whole process must be independent. It simply cannot be fair to have any review carried out within the bank’s boundaries that provides compensation for victims. It must be independent and independently verified. I very much appreciate her work and support on the all-party parliamentary group on fair business banking.

The all-party group, which I co-chair, made many calls saying that the process simply was not right. The Minister supported those calls, and we commissioned a review. Andrew Bailey, head of the Financial Conduct Authority , and the future Governor of the Bank of England, engaged in constructive collaboration with us and made an excellent choice of reviewer in Sir Ross Cranston, who has done a tremendous job. Most importantly, he got every stakeholder round the table before he properly commenced the review. He consulted us on many occasions, and we had great confidence in his ability to assess properly whether the review was fair.

Sir Ross’s findings were shocking—that is, shocking to anyone not familiar with the process. Anybody familiar with it, whether a victim or victims’ support group, knew exactly what he would say. We should be very grateful to him. It is a long report, but its essence is that: the Griggs review did not deliver fair or reasonable offers of compensation; it was not open or transparent; it had serious shortcomings; it took too adversarial an approach to assessing consequential loss; and, crucially, its design meant that it could never deliver fair and reasonable outcomes. Those were his findings.

We are pleased that the chief executive of Lloyds, António Horta-Osório, has written to us and the victims, and he met us. He has apologised unreservedly for the bank’s conduct in the review and committed himself personally to getting this right. It should not have been a surprise to anyone—he had been warned on many occasions that the process was flawed. Nobody should be surprised about the result if we allow a business to mark its own homework—it shows a fatal misunderstanding of how businesses operate. I speak as a businessperson who has been in business for 28 years and is still in business today. I do not think I should be allowed to regulate my business or regulate where I have customer complaints; independent oversight is critical.

Milton Friedman, the leading economist, once said that the social responsibility of business is

“simply to increase its profit”.

Warren Buffett recently said that the Government have to play their part in modifying the market system. We cannot simply leave this stuff to business; we must ensure independent oversight and fair regulation. Business is not afraid of regulation; it just wants stable, fair regulation, not over-regulation.

A bank found guilty in court of defrauding its own customers, which denied that fraud and even disgracefully mistreated whistleblower Sally Masterton in her efforts to keep the fraud out of the public eye, is allowed to compensate its victims, through its own process. The lessons we learn from the process are not just about how to compensate victims fairly and give them justice for their mistreatment but about how the regulators have dealt with it. We undermine our system of free market capitalism if we let these powerful and dominant capitalists go unchecked.

I will briefly list some of the representations that the all-party group has made over the years. My predecessor as chair wrote in February 2017 to António Horta-Osório about Lloyds’s plan to take forward the review. He said that there were unacceptable exclusion clauses, the process would be poor when it came to the consequential loss and it was critical that redress was transparent, balanced and legally binding. That was three years ago. We recommended the use of an independent process through the Chartered Institute of Arbitrators which would have been much fairer.

We did not leave it there. Over the past three years, I have had many meetings with the senior management team at Lloyds—I recently met the chief executive—including Lord Blackwell, the chair of Lloyds, as has the director of policy for the all-party group, Heather Buchanan. There has been much correspondence between us. In July 2018, we wrote again to Lloyds and said that the victims were still being treated with contempt. The reply from Lloyds—from Adrian White, the chief operating officer—said:

“We strongly believe that the offers made are both fair and reasonable.”

That demonstrates the institutional arrogance of Lloyds and the wider sector, as people were constantly pointing out that the review was not fair. Any protests about the process were simply ignored. For us, it is not that the bank did not know about it; it simply chose to ignore us and many others.

The key is where we go now. Perhaps this is not the first step, but it is incredibly important that the FCA undertakes an investigation under the senior managers regime on both the Griggs review and the people responsible for that review within Lloyds. Lloyds must take responsibility for the review and other things connected to the whole saga, including the disgraceful treatment of Sally Masterton, the whistleblower, who was mistreated for five years. She was discredited by Lloyds to the FCA, for which she was finally compensated in 2018, yet nobody has been held to account for the mistreatment of a whistleblower pointing out some of these very issues.

Another thing we will need to look at is the people who are not part of Lloyds but are connected to the review. The legal advisers Herbert Smith Freehills are clear that they misled the Financial Conduct Authority about Sally Masterton, the whistleblower. They advised Lloyds on the establishment of the Griggs review, on its operation and on some legal points incorrectly, according to Sir Ross Cranston. It is unthinkable that Herbert Smith Freehills should have any influence on the future redress scheme. That must be an absolute minimum; it cannot happen as we go forward. They should also be the subject of an investigation by the Solicitors Regulation Authority.

The Cranston review offers us a crucial opportunity; it is a watershed moment. It is not just about Lloyds but about the wider banking sector.

[Kirsten Oswald (East Renfrewshire) (SNP)]

Is the hon. Gentleman aware that a freedom of information request to the Financial Ombudsman Service showed that, between 2015 and 2018, complaints about Clydesdale Bank, now Virgin Money, were disproportionately high in comparison with their larger competitors? There were 404 complaints in total and, worryingly, the percentage of those upheld was only 13%. Does he agree that it is time for the chief executive officer of Virgin Money, as a self-professed challenger to the status quo, to step up and make sure that these legacy cases are dealt with?

[Kevin Hollinrake]

I absolutely agree with the hon. Lady. This is not just about Lloyds. A number of independent reviews have taken place, but they have been undertaken by the relevant banks. That simply cannot be right, in terms of justice for victims or their feeling that justice has been done. Justice being seen to be done is a basic principle that, it seems, the banking sector does not have to adhere to.

When the APPG was initially talking about future redress, it proposed a financial services tribunal, similar to an employment tribunal, where there would be no adverse costs, so a claim could be taken forward more easily. That would help to reduce the power imbalance between banks and businesses. A comment that came back from one of those commissioning the review on behalf of UK Finance, the banking representative organisation, was that the courts were not the right place for banking disputes to be settled. Well, they are the right place for the rest of us to settle disputes—that is what our system is built upon.

We need impartial, independent processes. I will talk about the right process for that moving forward, because there is an obvious new alternative approach we can take.