Lord Flight
Main Page: Lord Flight (Conservative - Life peer)Department Debates - View all Lord Flight's debates with the HM Treasury
(11 years, 6 months ago)
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Lord Flight
My Lords, I wish to speak in support of my noble friend’s amendment. It touches on unfortunate developments. The reaction of regulators to being criticised for what were described as the failures of light-touch regulation have increasingly led to a much more tough-guy, macho approach by them. In turn, I find major, totally responsible financial services businesses saying to me when they are unhappy and think some regulatory proposals are mistaken, “But we don’t want to talk to the regulators in case they punish us”. An unfortunate culture has developed of seeing the regulators as being very likely to use their powers against you, if you fall out with them.
The whole light-touch regulation story is a misinterpretation. What was wrong with FiSMA in that territory was the assumption that large institutions could be left to run their own affairs, which, as I warned at the time, missed out the fact that when large institutions go wrong they risk bringing down the whole system. The amendment may be belt and braces—I agree with my noble friend that to rely on complicated legal processes to get justice is not satisfactory—but I think it is perfectly straightforward, sensible and common sense to have that guideline as regards how investigations are handled. In the present climate, I think that is necessary.
Viscount Trenchard
My Lords, I, too, support my noble friend's amendment. I apologise for going back to the regulatory principles, but I continue to believe that it is a huge pity that the regulatory principles, by which both the PRA and the FCA are bound to operate, do not contain, to my mind, the very necessary principle that they should have regard to maintaining the competitiveness of the marketplace on which the United Kingdom depends so much for tax revenues, for prosperity, for employment and for all kinds of things.
I also speak with the experience of having been a member of the executive committee of a regulated firm for several dark years. I can assure the House that at least 90% of the time of an executive committee is spent discussing how to respond to regulators. There is a real fear of increased supervision and a more intrusive approach and, nowadays, many firms spend very little time talking about how to develop and to expand the business in order to provide further employment and earn more money so that the business can be consolidated and maintained in London. In the absence of, to my mind, such necessary principles, which ought to be there and by which the new regulators ought to have to abide, it is more necessary than it otherwise would have been that the regulators should act, as my noble friend’s amendment suggests and requires, “proportionately, reasonably and fairly”. I wholly support the amendment and I look forward to hearing the comments of the Minister.
Lord Barnett
My Lords, this is a big enough Bill without two more new clauses being put in it. I hope the noble Lord will forgive me but the amendment refers of course to the Banking Act 2009. Why have we got these amendments here? We have got a banking Bill wending its way through the House of Commons which will no doubt arrive here soon, so why do these new clauses not go into the banking Bill and we could consider them then?
The likelihood is—certainly I want to see it—that the present situation will be substantially changed so that investment firms, which are referred to in both these new clauses, are no longer part of the main bank. There will be a separate bank looking at investment firms so these amendments, it seems to me, are certainly very relevant to the new banking Bill. Why are they here? Perhaps the noble Lord could first tell us the answer to that one?
Are we now to understand that the Government are absolutely set on accepting the Vickers report? I have not yet seen the details of what they are accepting, but I hope the noble Lord will forgive me since there are enough papers to look at on this huge Bill without looking yet at the banking Bill. I am sorry if I am straying into areas I should not be entering—except that these two major amendments are related to banking. I wonder why they are here.
Lord Flight
My Lords, in relation to these proposed new clauses, can the Minister tell me where lender-of-last-resort doctrine stands with regard to this legislation? A brief piece of history I observed in the course of my career was that at the time of the collapse of Johnson Matthey and Barings, there was a change in lender-of-last-resort doctrine. Since the 1870s it had operated on the basis that, in the event of a run, the central bank stood behind any bank that was properly managed. It was changed to stand behind any banks which were too big to fail. That led on to moral hazard and cartel, and a lot of smaller banks like Hambros closed, resulting in much less competition. At the time I had conversations and correspondence with Eddie George when he was Governor of the Bank of England, who virtually said he agreed with me but it was the way the then Conservative Chancellor of the Exchequer, Ken Clarke, had cast things.
Some of what the Minister just talked about touched slightly on the issue, but I would very much hope that the intent is to go back to lender-of-last-resort arrangements as originally intended, and as operated amazingly well for more than 100 years. I am not at all clear where we are.
Baroness Kramer
I have a couple of comments —they are really questions—on both amendments. Amendment 193F, as the Minister has said, essentially extends the Banking Act 2009 special resolution regime to investment firms. In the next two groups there are similar amendments extending that same resolution regime to holding companies and clearing houses. I am sure the Minister does not want me to speak three times on the same point, so perhaps he could extend his comments to those two groups as well.
I share some of the concerns expressed by the noble Lord, Lord Barnett, that we are getting a set of amendments which, by definition, will have to change fairly significantly because this area is being driven by European directives. Even the definition that we are using for an investment firm is a European directive. It is very difficult to understand how this works when the context and framework will be constantly changing. Perhaps the Minister could help us understand how that process is going to happen. With ring-fencing likely to change the way in which we look at and define an investment firm, that is one obvious set of problems. It may end up being different under European law from the application in the UK, because we may draw lines at different points. We may choose ring-fencing, and others separation. I cannot see how this set of language manages to comprehend all those complexities.
It is not just me who is concerned; I know that I have raised this issue before. This time, the BBA is very concerned about marching all the troops up the hill in one direction, finding that there has to be substantial change, and marching them all the way down and back up in another direction. I cannot understand why we are doing this now when we will have clarity in just a few months’ time.
I also want to raise a question which I have asked before but to which I have not had much of an answer, under Amendment 193BA. Again, it concerns the central clearing houses and the central counterparties. I am trying to understand if that amendment deals with an issue that concerns me: the waterfall of the resolution and whether, at the end of that waterfall, it is permissible under the legislation to tear up contracts. That is a reading which the Minister will know that the industry has asked about. When he talks about the protection of client assets, does that apply to contractual relationships—for derivative contract or whatever else—where the clearing house may not be able to meet its obligations because it has got into difficulties and has been put into a resolution procedure? I am unclear whether the legislation establishes that that contract may be torn up as the last resort in the resolution process. That is a big issue that needs general discussion, if that is right. It would be extremely helpful if the Minister could give us some clarity on that.
Lord Kennedy of Southwark
My Lords, I thank my noble friend Lord Mitchell for his very welcome amendment. The time has come to deal with this issue. All of us, I am sure, are greatly concerned that those in poverty or on a low income, with a poor credit rating, actually pay the most for financial services—those who can least afford it pay the most, and that is wrong.
Like the noble Lord, Lord Mitchell, I think it is outrageous that people pay 2,000%, 3,000% or 4,000% for credit. It is a great concern to me that on the streets of Walthamstow and Southwark, where I come from, you see these payday loan companies offering these services. If you are at home watching daytime television, you are bombarded with them then and at other times. It is outrageous. The Government should look to create an environment that enables people to pay a fair price for the credit they need. The noble Baroness, Lady Kramer, spoke about the credit union movement. I am a big supporter of it as well and it certainly has a role to play in finding part of the solution to this problem. The Government have got to help it. I know it had some welcome support from the Government, with £38 million from the development fund. That is great, but it needs additional support to enable it to offer some of the services discussed here today. It may also be time for the banks to do something. We often talk about the problems we have had with the banks in recent years. They could earn some credit by working to help people in this sector. These are often the people the banks do not want to lend money to. They all have charitable arms and trusts, though, so why can they not work to help those whose business the banks would not otherwise want, to access credit elsewhere? The banks should step up to the mark and look at this.
As my noble friend said in introducing this amendment, there is no attempt to stop these firms trading, but it gives power to the FCA to set the interest rate they charge. That is very welcome. My noble friend also said that the cost is displayed as an annualised rate, but it is so small, it is hard to read. What should happen is that the print is like that on a packet of cigarettes, with a great big sign saying what it costs. We should see it clearly so that if we borrow £1,000 or £2,000, we know without dispute what we are actually paying. I am delighted to support my noble friend and look forward to the response of the Government.
Lord Flight
My Lords, I shall make two brief points. First, when I started my career there was a money-lending licence. You could not be in the business unless you had one and if you did, the interest rate that you could charge was limited by law. Secondly, wearing my hat as a commissioner of the Guernsey Financial Services Commission, Guernsey has refused to allow such companies to register or operate within the States of Guernsey.
Lord Flight
“Retail account transferTransferability of retail banking current accounts
(1) If an individual customer gives notice in writing to a bank at which he holds a personal current account (Bank A) that he wishes to transfer the balance standing to the credit of that account (Account A) to a personal current account established or to be established at another bank (Bank B) and thereafter to close Account A—
(a) Bank A shall without charge within a period of 10 working days—(i) transfer to Bank B the balance of Account A less any charges owing in respect of that account;(ii) notify Bank B of all standing orders, direct debits and other orders for periodical payments that the customer has created in relation to Account A;(iii) pass to Bank B a copy of all material that it holds in relation to the customer as a result of having performed checks on his identity, the source of his funds or otherwise with regard to its regulatory obligations to counter financial crime;(b) Bank B shall without charge—(i) accept the funds transferred under paragraph (a)(i) and credit them without deduction to the account that the customer has applied to open (Account B);(ii) accept the details that Bank A provides under paragraph (a)(ii) and apply them to Account B so that they operate in accordance with the customer’s instructions from the date that Account B is credited under sub-paragraph (i);(iii) save where it has grounds for suspicion, accept the material provided under paragraph (a)(iii) in lieu of performing fresh checks on the identity of the customer, the source of his funds or otherwise in relation to its regulatory obligations to counter financial crime.(2) In this section a bank shall mean any person authorised under this Act and holding a permission for deposit taking granted by the PRA.”
Lord Flight
My Lords, I hope that all sides of this House would at least agree with the objectives of my amendment. It seems self-evident that a healthy banking system should be competitive, and an important ingredient of that is to make it as easy as possible for individuals and businesses to move their bank accounts from one bank to another. Historically the hassle in doing so obstructs and constrains people from moving their bank accounts easily. Members will know the issues with transferring direct debits, standing orders and standard remittances, and the most tedious of the lot, the anti-money-laundering requirements. I think that the wrong territory has been addressed here. It should be focusing on money flows, not having hundreds of millions of people filling out these pieces of paper.
When I put down this amendment, I was not aware that in September 2011 the Payments Council—a collaboration between banks—had approved a £650 million project to design and implement a new and much easier account-switching service for bank customers. This is supposed to be operative by September 2013, with a guarantee that the customer process for switching will be completed within seven days. That means the customer will receive whatever they need to operate the new account within seven days, and the new bank will arrange for all their incoming and outgoing payment instructions to be redirected from the old bank to the new one. The customer’s balance will be transferred, and any payments sent to the old account on or after the seventh working day will be automatically caught and moved to the new account. The customer will not suffer if there are any bank errors and the old current account will be closed at the end of the process. My amendment includes specifically the grandfathering of anti-money-laundering requirements, which I suggest is an important ingredient of the whole process.
I should perhaps have started by declaring an interest as a director of Metro Bank. Metro Bank has cracked the whole issue of people needing to get passports endorsed and provide originals of bills. Within the legal requirements we can obtain all the evidence we want from someone’s driving licence, and they can open an account within a 15-minute period.
There are two issues within the Payments Council proposals which potentially need some degree of FCA involvement. The first is that there is no automatic agreement from all banks to participate in this scheme. I understand that 97% have said they will participate, but others that have not. Whether they will or not remains to be seen, but for it to be really efficient it seems it should be universal, with all banks participating. Secondly, there is the issue of costs. I understand from HSBC—a major participant in the Payments Council initiative—that to make switching accounts straightforward it is proposed that there will not be any charges, but there is no agreement or requirement across the board. My amendment is essentially a probing one, although I would like to see its objective implemented, so does the Minister feel that the FSA needs to be given some degree of statutory power to ensure that all banks participate, and that with regard to charges there is a level playing field or no charges at all?
Baroness Hayter of Kentish Town
My Lords, I welcome this amendment. As the noble Lord, Lord Flight, has said, competition should mean that the standards of banking are driven up by consumers walking with their feet—taking their chequebooks elsewhere. We need to change a lot of banks’ behaviour, not least because they seem to be the only organisations in the world that can take money from your account without sending an invoice. They can decide on a charge and take it from your bank account without your agreement. This is behaviour we need to change but, as consumers, we can only do this if we can move easily.
I particularly feel this as I am in the middle of trying to switch accounts. After 28 years with one bank, they refused a cheque that was made out to “Baroness Hayter” instead of “Dr Hayter”. I would have thought they could have worked out it was the same person, but there you are. What is really interesting is that First Direct would not take my account unless I showed all my resources and assets—not that there are a lot—the sources of my assets and how I had paid off my mortgages. This was just to open a current account. Needless to say I complained and, when I did, the answer was that it was anti-money-laundering—this from a bank whose big owner has maybe done rather less about big anti-money-laundering on the other side of the world, yet is worried about my tiny bank account. My suspicion is that it wants this information to find out what else it could sell me.
If those of us who find it easy to argue and complain still find it difficult to change our accounts, how can ordinary consumers use the power and drive up standards unless moving is made easy? It is difficult with direct debits and it is even harder with payments in. I am an old-age pensioner, so I now have to find out who in the DWP pays my pension so that they can change it to a new bank.
I know that the Government are very unlikely to accept this amendment, but it raises a really important issue about whether we can leave it to the banks to reach a voluntary agreement themselves. It seems the answer is no. The noble Lord, Lord Flight, has told us that the banks say they will do this voluntarily, but my own experience suggests that they will not without a firm crack of the whip. We will be looking to the new FCA for a bit of muscle on this. We look forward with interest to the Minister’s response to this amendment.
Lord Newby
My Lords, this amendment seeks to codify a process for switching bank accounts and—as with a number of other amendments—we sympathise with the intention behind what the noble Lord, Lord Flight, is seeking to do, but I do not think the amendment is technically necessary for reasons which I will explain. As the noble Lord pointed out, there has been a great deal of progress since the Independent Banking Commission recommended that a new switching redirection service should be set up to ease the process of switching current accounts. The Payments Council has committed to delivering that recommendation. The new switching service will provide a safe, hassle-free and convenient service for customers to switch their bank accounts in no more than seven working days.
We believe that, working with the industry, the Payments Council is on track to deliver the new service by September next year. As the noble Lord, Lord Flight, said, all the major current account providers in the UK have signed up and the Treasury is keeping the pressure on the Payments Council via monthly working-level meetings and quarterly reports. The banks which have not yet decided to join, the 3%, obviously cover a very small percentage of the market. The reason for their having declined is usually that they do not yet offer a current account or because they are unable to update their systems in time. The Payments Council plans to launch a second wave of switches, possibly in the first quarter of 2014, to accommodate those institutions, while allowing sufficient time for the switching service to prove its stability. So we hope that the small rump will be included in the system by the first quarter of 2014.
The noble Baroness described the problems that she has had in switching her bank account. I had a better experience. When I decided to combine my bank account with that of my wife—after more than 30 years of marriage—I found that, broadly speaking, I got the service envisaged in the Payment Council’s new approach. The problem I had was that although the bulk of my direct debits were satisfactorily dealt with, for reasons which were completely unclear a small number were not. Of course, one finds that out only when one gets a stiff letter saying that some essential thing which you are funding on an ongoing basis is about to be revoked because you have cancelled it. In my case, the problem was not that the intentions were dishonourable, it was simply that the system was not as effective as the two banks would have liked me to believe.
The noble Lord, Lord Flight, demonstrated the value of competition in the banking sector, in that Metro Bank seems to have achieved something in respect of money-laundering that the serried ranks of the established banks have failed to do, which is to have a simple way to prove who you are to their satisfaction. No doubt noble Lords such as me have experienced this bizarre situation in the past couple of years. I have been rung up by my bank to say that because I am a politically sensitive person, I had to prove my bona fides to the bank. Given the nature of the bank, which I had better not name, my response was to say, “I think you had better prove your bona fides to me”, which did not go down desperately well. Of course, it did not have to and I did.
The noble Baroness asked a very important question: can we trust all the banks to do that in a timely manner and in a way that does not cause the sort of problems that she had? I point out that the drafting of the FCA’s competition objective at new Section 1E(2)(b) requires the FCA to have regard to the ease with which consumers can switch providers in considering the effectiveness of competition. So the importance of removing barriers to switching in promoting effective competition is hardwired into the legislation. The FCA will have a lean to require the banks to behave in an efficient and effective way.
In the light of all those considerations, I hope that my noble friend will feel able to withdraw his amendment.
Lord Flight
My Lords, the first point I would like to stress is that, as I understand it, the Payments Council’s proposals do not involve grandfathering anti-money-laundering. I will take that up further, but if we do not get that, it ends up achieving very little. The noble Lord has in part answered my second point: if you start off with domestic competition being an objective of the FCA, part of achieving that has to be being able to move bank accounts easily. I hope that the empowerment that the FCA has in this area, to which the Minister referred, will be adequate.
As I said earlier, this is essentially a probing amendment, but it is important. Going back to why banks make a great problem of anti-money-laundering, it is because they do not want to lose customers. It is not a question of cracking anything marvellous; anti-money-laundering requirements were wonderful for financial services businesses. They made it a hassle for everyone to move their custom somewhere else. Those businesses are not stupid. Indeed, I have regarded anti-money-laundering as almost a plot by the whole financial services industry to strengthen their oligopoly.
The Payments Council measures are crucial, and I hope that the Treasury will clarify that point in its discussions with the council. Having said that, I thank the noble Baroness, Lady Hayter, for her support—I agreed with everything she said, in truth—I hope that the profile of this issue will be raised and I beg leave to withdraw the amendment.