Financial Services Bill

Lord Duncan of Springbank Excerpts

Committee stage
Wednesday 10th March 2021 Grand Committee

The amendment would be a modest but important step forward. I do not necessarily expect acceptance from the Government today—although one can always live in hope—but I hope that they will at least go away and think seriously about this and other upgrading measures proposed in this Committee.

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

I call the next speaker, the Lord Bishop of St Albans, but I cannot hear anything. I wonder whether he might be on mute.

[The Lord Bishop of St Albans [V]]

My Lords, I apologise; I am so sorry.

I am glad to speak in support of Amendment 107 in the names of the noble Lord, Lord Sikka, and the noble Baroness, Lady Bennett of Manor Castle. Throughout the course of this debate, there have been a number of comments on the current functioning of the FCA, the scope of its remit and whether it is properly undertaking its duties.

As the noble Lord, Lord Sikka, pointed out, there have been occasions when financial misconduct has not been fully disclosed, and it is worrying that this may have been due to interventions from those within government. As we establish our new position in the world following Brexit and seek to build on our financial services sector, it is vital that we are known for our honesty and transparency throughout the world. Our future will depend on this. So surely the amendment is entirely uncontroversial. The FCA is meant to be an independent regulator, not a direct arm of the Government. Hence, if Ministers have sought to intervene in any sort of FCA work or investigation, it should be a matter of transparency and disclosed.

Recently, the FCA dropped its investigation into Lookers, arguing it had instead made its concerns clear relating to the

“historic culture, systems and controls”

of the group. Why the investigation was not carried out to the full remains unclear—certainly to me, despite trying to find out. I imagine that many, including me, find the FCA’s answer unsatisfactory. It does not give us the assurances that we would hope an independent regulator would give.

Some commentators have noted that the dropping of this investigation seemed to coincide rather conveniently with the FCA’s new rules relating to car finance, brought in at the end of January 2021. Yet even these changes fell short of a mis-sell, which would undoubtedly have cost the providers of finance billions—strongly hinted at by the FCA’s 2019 report into car finance.

How the FCA came to its decision was in-house, even if it was sometimes perplexing to those of us outside. Nevertheless, in this instance, for example—and in many others—what we do not know is whether there has been any direct ministerial intervention to steer the FCA into any specific course of action. Many people would like reassurances that any intervention should be made in the interests of all and for the common good, particularly in customers’ best interests.

The amendment, in shining a light on what happens behind the FCA’s closed doors, would be a valuable addition to the Financial Services Bill. It would help in a mission that I know many in this House share to create a more transparent, robust and, dare I even say, moral financial system that in the long run will benefit all of us. I hope that the Government will look closely at either the amendment or something similar as we return to the matter later during the passage of the Bill through your Lordships’ House.

[Baroness Kramer (LD)]

My Lords, I need to spend more time, frankly, trying to understand the amendment. I would be genuinely shocked if Ministers interfered with an investigation of any of the regulators—certainly the FCA, the body at the centre of the amendment. I am not sufficiently familiar, I confess, with the Ministerial Code, but if the code does not make that clear, it would seem absolutely necessary that it does.

I perfectly understand concerns about the effectiveness of the FCA as a regulator in dealing with wrongful behaviour. It needs to be much more aggressive and transparent. We have talked earlier in Grand Committee about the HBOS Reading fraud scandal. The FCA was finally pressured into commissioning a report from Promontory, then did not publish it—only a summary that did not reflect in any significant way the actual conclusions of the report. That was extremely disturbing. We have also talked about the FCA’s actions under the senior managers and certification regime against Jes Staley, chief executive of Barclays—

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

My Lords, there is a Division, so we shall adjourn for five minutes and reconvene thereafter.

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[Lord Sikka (Lab) [V]]

I am grateful to all noble Lords for their contributions, but somewhat disappointed by the Minister’s response. The examples I gave—if I had time, I could add another dozen—all inevitably relate to the past, when, despite government efforts, things have come to public attention. At no point have Ministers ever volunteered information or made statements that they have stymied investigations.

In the parliamentary debate on the Banking Act 1987, which formally made the Bank of England the supervisor of banks, Ministers claimed that the Bank would be an independent regulator. Then we discovered that there was a whole process of cover-up—the BCCI case, for example. When the Bank of England ceased to be an independent regulator, the next one, the Financial Services Authority, came in. Again, it was claimed that that was independent. Well, under ministerial pressure, it did not intervene. It did not investigate HSBC’s misdemeanours in the UK, and indeed it was a party to cover-up in the US. The US House of Representatives committee report contains some correspondence showing how the Bank of England, the FSA and the Chancellor were pressuring the officials there to go easy on HSBC. The idea that somehow the FCA is some brand new version of independence which we ought to believe simply neglects what has happened in the past, and that is not really very helpful. Of course, Ministers can allay all public fears by simply saying, “Yes, we will embrace independence.” What is wrong with that?

I have visited the US on many occasions. I have met many academics, regulators and businesspeople, and I always ask them two questions when I deliver a seminar or after a meeting. The first question I ask is, “If you could commit financial crime, where would you like to commit it?” The response is always, “The US, because there is a lot of money to be made.” The next question I ask is, “If you are caught, where would you like to be prosecuted?” At that point, laughter sets in and they all say, “The UK.” Indeed, this country has become kind of a standing joke in regulatory circles. If I were referring to any other country and explaining how Ministers and regulators have colluded to protect organisations which, by their own admission, engage in criminal conduct, many Members of the House would say, “Well, that country is corrupt” or “It is a banana republic”. But I find it surprising that the ministerial response is basically “Well, we are good, and we don’t really need to take account of any of these events.” That is really the tip of a corrosive iceberg, because this corruption goes very deep.

I have asked Ministers a number of times to comment on the public statement of Anthony Stansfeld—the Thames Valley police and crime commissioner—that there is a “cover-up” at Cabinet level of the HBOS and RBS frauds. It is interesting that no Minister has denied it, and no Minister has confirmed it. I have quoted a statement from a very senior law enforcement officer—what could be a greater indictment of the UK’s regulation?

Finally, could the Minister please tell us why the Sandstorm report, which is sitting in 1,300 US libraries, is still a state secret in this country after 30 years? I do not know if it is appropriate for him to reply but I would not be opposed to that.

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

Does the Minister wish to respond?

[Earl Howe (Con)]

My Lords, the noble Lord has the advantage over me, because I am not personally privy to the case history that he cited, which is now 30 years or so old. However, I will consult my officials and write to him with an answer to his question.

[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

Can I confirm with the noble Lord, Lord Sikka, that he does not wish to press his amendment?

[Lord Sikka (Lab) [V]]

I will withdraw the amendment for the time being.

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[The Deputy Chairman of Committees (Lord Duncan of Springbank) (Con)]

We now come to the group beginning with Amendment 112.

Amendment 112

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