Parliamentary Commission on Banking Standards

Lord Haskel Excerpts

Thursday 8th September 2016 Grand Committee

[Lord Haskel (Lab)]

My Lords, on 19 July the head of HSBC foreign exchange trading was arrested at New York airport. He was charged with making $8 million by abusing a client’s confidence on a foreign exchange deal. Of course, this is but one of a series of foreign exchange abuses that we have heard about in recent years. However, this one was a little bit different: it had been fully investigated by the bank, and its decision was that there had been no wrongdoing. I put it to the Minister that this episode calls into question whether the changes in culture and the stricter controls called for in the banking commission’s report are in fact working. Are we taking the steps to recovery that the right reverend Prelate is so concerned about?

In spite of what has gone on, foreign exchange trading is still more lightly regulated than other sectors of the financial market. This is because of undertakings to treat clients fairly. Are we still seeing exploitation because of this light regulation? The right reverend Prelate is right to raise this report and I congratulate him on his timely Motion. This incident would suggest that it is time to take another good hard look at the incentives given to traders, as he suggested, and whether they are balanced not only by rules but also by the culture called for in Changing Banking for Good.

The predatory attitude in banking affects us all because it rubs off on the rest of business—the current word is “interconnectivity”. As it is, the reputation of business seems to be at an all-time low, with the social contract between business and society coming apart. The Prime Minister has promised a more equal approach to the economy and an industrial strategy but at the end of the day it will be our companies, their boards and the banks that will have to deliver this. It is they who will have to ensure that there is no ambiguity about the social values and behaviour needed to deliver these commercial and financial objectives.

Before coming to your Lordships’ House I spent over 30 years in business. That was a long time ago, but even at that time we knew that our purpose and strategy had to be in line with both our social and commercial values. We did all we could to encourage what we considered to be the right behaviour; we called it stewardship. So this is not new, nor is it rocket science; most people in business know about it. Indeed, it is laid out in guides for corporate governance by organisations such as Tomorrow’s Company, and it is in the senior managers regime and other codes of practice. It is even in the Companies Act, and research has shown that it works in terms of both company performance and public trust. Commentators have been pointing this out for years, and the commission’s report Changing Banking for Good makes many recommendations along the same lines. Much of this is also reflected in the recommendations of the Financial Reporting Council, an organisation that the City itself set up. We all know what is to be done, so let us get on with implementing it and help to stop the growing spread of dissatisfaction with our banks and businesses, which will stand in the way of any industrial strategy.

What brought banking into disrepute is that many innovations clearly breached the golden rule, which may be familiar to other speakers: do not offer your customers a financial deal that you would not accept for yourself. Businesses and investors themselves have to make this assessment as part of their corporate governance.

Earlier today, in reply to an Oral Question, the noble Baroness, Lady Neville-Rolfe, said the Government will issue a paper later this year on governance. I hope this will be a part of the industrial strategy that we have been promised. Indeed, we now have a department to carry out this strategy, even though it will have to involve every government department. I ask the Minister to urge the Government to include in that strategy the governance principles, which are supported by so many, of building strong companies through governance that delivers strategic commercial and financial objectives through values and behaviour welcomed by society. We would thereby avoid the need for bankers to be arrested at New York airport.