Financial Services

Lee Rowley Excerpts

Thursday 26th April 2018 Westminster Hall

[Lee Rowley (North East Derbyshire) (Con)]

It is a pleasure to serve under your chairmanship, Sir David. I am grateful for the opportunity to speak. I should at the outset disclose my interests—both directly, in the Register of Members’ Financial Interests, and as co-chair and member of a number of all-party parliamentary groups. My background is also relevant. I have worked in financial services for the best part of the last 15 years, including in the weeks before the general election was unexpectedly called, having taken a new job in insurance and so having to review that rather quickly just after Easter last year.

I thank my hon. Friend the Member for Chelmsford (Vicky Ford) for co-ordinating the debate and for speaking so comprehensively and lucidly in outlining the challenges and opportunities for the sector. I will not go over them at length, because she covered many of them so incredibly well.

I welcome the debate for a number of reasons, the first being that financial services are important for the economy as a whole. My hon. Friend explained that in a lot of detail. This sector accounts for 11% of GDP and a significant number of jobs across the country. Those jobs are not just in London. When I was working in financial services, I spent as much time in Manchester, Glasgow, Edinburgh, Sheffield and Leeds as I did in London. That demonstrates the number of jobs involved and the importance of regional centres for financial services as a whole and for our economy, both regionally and nationally.

Financial services are important for the economy as a whole, but also for people. Financial services are the vehicle—the driver—for ensuring that people and businesses can get out there and do as they wish, and can work hard, achieve and get on. Credit is a fact of life. Credit opens up those opportunities and helps to realise the ambitions of people, businesses and organisations.

I particularly believe that financial services are important for social mobility. I have a history degree, so I did not necessarily expect to get into financial services. I come from a relatively working-class background in Derbyshire. I was at a report launch at Rolls-Royce in my county—not my constituency—a couple of weeks ago, and the report talked about the importance of IT for social mobility. My social mobility was through IT in financial services, and I know so many people—ex-colleagues and friends in the sector—who have also experienced social mobility as a result of what banking, insurance, asset management and wealth management offered them. Credit makes the world go round, and we need to ensure that that is at the heart of our strategy as a country and for our economy as a whole.

The challenge, of course, is to lift the discussion out of the framework of the 2008 financial crisis, important as that was, and out of the entirely sterile and cartoonish debate that it falls into at points. I was working in financial services at the time, and there is no doubt that in 2008 a significant amount of bad behaviour was going on, extremely bad practice was occurring—illegal practice was occurring—and the regulations were not appropriate. The debate is not about too much or too little regulation; it is about the appropriateness of the regulations. The capital ratios had got too low, and we got into a place that was significantly problematic. We do not want to go there again.

I make my comments on the basis that all of that is accepted. We also have to recognise that we are now in 2018. The financial crisis was 10 years ago—a decade ago. Nearly a third of my life has taken place since it occurred. We have to stop having the debate about what happened in 2008 and start having the debate about what will happen in 2018 and 2028.

We have not yet heard the comments from the Opposition Front Bench. I know the hon. Member for Stalybridge and Hyde (Jonathan Reynolds) as a very thoughtful speaker. I have had the pleasure of listening to him in numerous debates over the months that I have been in this place. However, there is a sterility to the debate on this subject. I am sure he will not contribute to that—or at least I hope he will not—so long as his speech has not been given to him direct from Labour central office.

We have to ensure that we stop talking solely, important as these things are, about how all bankers are bad, the high remuneration is terrible and IT failures are very problematic—that is probably not the best argument to make this week, given all the TSB customers who have been so badly affected and with whom I sympathise hugely. I hope that Mr Pester sorts out the problems as quickly as possible and does not just send us apology emails, which he seems to have sent us this morning. I accept that some bankers were bad and remuneration was too high, but we have to bring the debate on, move it forward and look at the challenges that are coming, not those that are behind us.

In that regard, the first points that I want to make are about the opportunities that we have. My hon. Friend talked extensively about the challenges and the opportunities that are coming with Brexit, and I wholeheartedly endorse many of the statements that she made. Like her, I think that the continuity point is crucial. The Government are working extremely hard on that point. Everyone I talk to in the sector ultimately boils the point about contract continuity down to the ultimate essence, which is that it is highly likely that we will all find a way through this. Actually, it will be almost impossible not to find a way through it, given the meshing together of the EU nation states and the United Kingdom in terms of the contracts that are cross-border. If we do not, we get ourselves into a really tricky place. Ultimately, many of the discussions have, underneath, a tremendous political element, not an economic element. The Government are working very hard on that. They have been completely up front and straightforward about it and are working to ensure early resolution of the problems.

We cannot get ourselves into a place where we are novating or rewriting millions and millions of contracts. I am sure that the lawyers would be delighted, but I am not sure that even the combined might of the European and the UK legal sectors could rewrite all the contracts, even if they wanted to.

I understand that there is significant precedence for what I am referring to, including from 1999, when the euro came in and there was an effective grandfathering of contracts that had gone before. I wish we could get to that place as soon as possible, because people are spending a significant amount of money on preparations that could usefully be spent elsewhere. I strongly encourage the European Union not to play politics in this area and to accept that it is important that there be clarity as soon as possible.

The same principle goes for recognition of the continuity of the ability to book into the United Kingdom. I accept that there is a commercial and economic discussion in the European Union about wanting to develop its own systems, approaches and financial centres, but the reality is that London is central to most of what happens in Europe from a capital perspective and a booking perspective at the moment, particularly in terms of underlying the instruments of risk that come with many of the larger contracts, especially on the commercial side. I hope that the European Union is not playing politics from that angle as well. The reality is that there is no point in making these decisions and agreeing them at five to midnight, as is the wont of the EU in many of its negotiating positions. We have to try to get clarity now. The Government are working on that; I hope that Brussels is doing the same.

I have had the opportunity over the past few months to do a fellowship from the Industry and Parliament Trust on the future of financial services. I have been to a number of different financial services organisations now—I was with UK Finance on Monday. As a country, we have a number of opportunities in financial services over the coming years and a number of interesting questions about where we want the sector to go. I will touch on a few of those, as my hon. Friend did.

First, we have to get the regulatory framework correct. Much progress has been made in the past 10 years on this, and my hon. Friend referred to that. The Prudential Regulation Authority, the Financial Conduct Authority and the Financial Services Authority do a good job generally on many of these areas. Andrew Bailey is highly respected for that and rightly so. However, it is incumbent on us to raise the quality and interest of debate in this House. I agree with my hon. Friend that Thursday is perhaps not the best time to do these debates—I am sure that if we held this debate on another day, we would have more hon. Members here. However, from a Back-Bench perspective, we cannot outsource decisions and discussions on regulation to the PRA and Andrew Bailey on the basis that they know what they are doing; we have to have those discussions and debates here, because there are political angles to them. I know that the Government are intricately involved in that, but as Back Benchers and Members of this place, we have to get involved as well.

We have a huge opportunity with FinTech. That is a truism, which everybody knows, but we have a particular opportunity because, compared with some of the larger countries, we have a relatively contained group of people who are highly switched on, mobile, flexible and connected, and with whom we can do an incredible amount of work as a country, to test some of the innovations that will be coming through the FinTech sector in the next five to 10 years. We should see the UK as an incubator, as I know the Government do. We should be supportive of what FinTech offers, to transform society as a whole, not just for those at the top. FinTech should be seen as an opportunity to support everybody who experiences financial services and who may be more vulnerable and to transform their experience. Some of the things that have been done, particularly around the regulatory sandbox, are very impressive. I spoke to colleagues in America just a few months ago, and they are very complimentary of what the sandbox is achieving. I hope we can continue to replicate—to create and perpetuate—that environment, which supports FinTech and FinTech development.

Competition is a long-standing and challenging area. We have done much in the last few years, including around account switching, to make the process of markets more flexible. Customers seem to have an inherent stickiness in terms of being willing to transfer banks. We have to do some further work on that. I tried to change my bank account on Monday. I went into an unnamed company and I was told that it would take an hour to change my bank account. While I think it is perfectly legitimate—I am not trying to seek Government control over these processes—the sector needs to reflect on the challenges and barriers that it puts up, to ensure that flexibility can be created within the industry. We need to encourage greater competition. The challenger banks are doing incredibly well, but we need to ensure that there is greater flexibility and competition as a whole.

Within that, we have to ensure, and not forget, the importance of mutuals. I declare an interest: I was employed by a mutual—Co-op Insurance—for all of six weeks before the election. Mutuals are incredibly important to the future of our financial sector. They do great work; they often explain what they are doing and their mission better than some of the larger players in the sector. We should welcome how mutuals work in this country, across both business and personal banking. We should support them in their endeavours, particularly by looking at the barriers to entry for new mutuals coming into the sector. It is important that, just as we have new challenger banks, we should have new mutuals, also keeping the existing players honest and on their game.

There is a significant opportunity for automation and artificial intelligence in this industry. A significant amount of attention is going on that. I was working on some of those elements last year in the private sector. However, banks and financial services organisations need to recognise that opportunities for automation and artificial intelligence are not just about cost reduction and cost drivers; they are an opportunity to put the customer at the heart of processes. I mean that in an actual way; this is not just lip service. My constituents tell me about their frustration, which I share, that they find banks faceless and financial services companies unwilling to engage. We have to get away from that “computer says no” mentality. I hope some of the opportunities around automation will be about not just cost reduction, but customer service improvement.

My hon. Friend talked extensively about the importance of cyber-security, data handling and risk as a whole. I wholeheartedly support that. In particular, we need to see open banking as an opportunity, but we need to recognise that, through application programming interfaces, we are opening new challenges and domains where security can be challenged. We do not want banks to have created firewalls and frameworks to prevent cyber-events, only for those cyber-events to be transferred elsewhere as a result of open banking. Catastrophic data losses need to be avoided—that is obvious—but if they are not and we do not have that at the centre of our minds, we could get into a difficult position.

We also need to recognise that data handling, and the changes around big data, machine learning and the like, which are coming into the sector, will change the way in which the economic models of banks and insurance work. Insurance is effectively about pooled risk, but it is also about making an assessment of risk. When we can interrogate the levels of data coming into the sector, we move away from the necessity of pooling risk based on a series of avatars about what people aged 35 and 40 tend to do. We can make a decision on actuality: what people actually do and what they have actually done. That is creating a more perfect market, where risk is priced closer to the challenges, but it also creates a series of ethical questions about how we use that data. The hon. Member for Bristol North West (Darren Jones) and I—under the auspices of the Parliamentary Internet, Communications and Technology Forum, which he co-chairs—are launching an investigation into the ethics of technology and artificial intelligence. I encourage hon. Members who are interested in that to get involved.

Finally, one of the most important points for my constituents regarding financial services is vulnerable customers and branches. My hon. Friend spoke about branch closures in her constituency. I have similar examples. A branch closed in Clay Cross—a town in my constituency—just a number of months ago. There were serious concerns from local residents about that. We have to see financial services, and the challenges and opportunities they present, as a way to address some of these things. There is a clear move for the majority of people in the country towards digital banking—that is to be welcomed—but there will always be a group of people who are unable to be engaged through that process. We need to ensure processes are in place to engage them.

I welcome the developments around post office openings in recent years, but I wonder whether the sector as a whole is really thinking through the opportunities it has. For example, nobody in the sector has been able to give me a clear answer as to why some form of shared service in local towns is not possible—why banks cannot inherently share the infrastructure of branches so that a customer might walk into the space between four physical walls, but have four different banks in that space, sharing the overheads, costs and all the challenges, which they say are the reasons for their leaving these important towns in the first place. I hope that banks and other financial services will reflect on other opportunities than just the post office.

In conclusion, there are many opportunities for financial services in the coming years. It is crucial that we recognise the importance of financial services to the economy as a whole. I hope that, as a country, we can grasp those opportunities and recognise the importance of credit in our society every moment of every day. If we do that, we can hopefully ensure that our country continues to thrive in the years to come.