Financial Services (Banking Reform) Bill

Lord McFall of Alcluith Excerpts

Tuesday 26th November 2013 Lords Chamber

[Lord Hope of Craighead (CB)]

I shall add just a bit, particularly to what the noble Lord, Lord Phillips, was saying. When I entered the legal profession about 40 years ago, the branch that I joined had no rules of conduct at all, and gradually we appreciated that the public would not stand for that. The position now is that the legal profession has rules of conduct, although they are sometimes called codes rather than rules for the reason that was mentioned. I support the amendment against that background. I also suspect that, if we do not take that step now, we will have to take it in five or 10 years’ time when some other crisis emerges. It is an important step and, I respectfully suggest, an inevitable one, in line with what all the professions have had to deal with over the past 10 or 20 years in modernising how they behave and making their behaviour acceptable to the public. There is a lot to be said for the amendment against that background.

[Lord McFall of Alcluith (Lab)]

I do not think that we should run away with the idea of codes of conduct because, if you look back over the past 10 or 20 years, you will have seen a proliferation of codes of conduct and ethics from banks. When they had rules, they circumvented them, so we must have something deeper here.

On the Parliamentary Commission on Banking Standards, if we heard the phrase, “This time it’s different”, once, we heard it 10,000 times. We were told that there was new management and a new executive, that the past was behind us and the future here, with new staff—and that everything would be better. Since we have taken evidence, tumbling out every month there has been another scandal. So we need to attest to something deeper here.

The lack of individual responsibility at the top is at the core of the problem. I say this with no understatement: many of the very senior individuals who came before the Parliamentary Commission on Banking Standards were economical with the truth. I give an example on PPI, where we now have a scandal of about £25 billion to £30 billion. There was a “no see, no tell” policy from those at the top. Why? Because they preferred to be seen as incompetent than to have any responsibility. There was a hiatus of responsibility from the top to lower down.

My own view was not accepted by the banking commission, which was fair enough. I thought that every year there should be an individual meeting between the chairman and chief executive of a bank and the regulator. That meeting would be recorded but it would not be made public—but they would have to attest to the regulator that they were responsible for their institution and what went on in their institution was their responsibility. If we implement a code, we will only repeat the mistakes of the past; there has to be a deeper cultural change.

Culture has been mentioned. Again, we had individuals coming before us saying, “Look, we have a new chief executive and a new culture—everything is okay”. You would ask how many employees were in that organisation and be told that it was 150,000. When we asked how long it would take to change the culture, they said, “Oh, three months”. That is for the birds. So the responsibility needs to start at the top.

The example I give of PPI is of a chief executive who came along to the commission and said, with a straight face, “As far as PPI is concerned, my organisation is on the side of the angels”. That organisation is the one with the highest PPI penalties in the United Kingdom. So do not let us kid ourselves that we can sort this problem with codes. We need to give the regulator authority—and we have seen a regulator that was captured, cowed and conned by the industry. There should be someone to go to in the organisation to whom we can say, “That was your responsibility”. If we are told, “Well, that person left”, we need to ask for the handover document that indicates that there was a transfer of responsibility that can be understood.

The director of enforcement at the FSA came before the commission at the time of the UBS scandal, which cost the bank billions of pounds. We had four from the top management of the bank before us and, when we asked them if they knew who the individual was, they said that they did not know at all. Then we asked them how they found out, and they said, “Bloomberg wires”. That is how corrupt the institutions are in terms of accountability.

We need to change. I am happy for the Government to accept this amendment, but I am certainly not happy for warm words or for anyone to say, “This time is different”. This time ain’t different. The scandal has kept going and will continue, and we need to do something severe to ensure individual accountability by those at the very top of those organisations.

[Lord Spicer]

I have enormous respect for the noble Lord, Lord McFall, but I think the idea of legislating to be more responsible—in fact, legislating for human character—is a very dangerous path. It is why I intervened on the question of minimum standards of integrity: you are either honest, or you are not honest. It is quite dangerous to keep loading the statute book with matters which attempt to affect human characteristics. I think that there should be some caution about some of these amendments.

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Moved by

[Lord McFall of Alcluith]

70: After Clause 23, insert the following new Clause—
“Independent review
After section 66B of FSMA 2000 (inserted by section 23 above) insert—“66C Independent review
(1) The Treasury shall commission an independent report in relation to the effectiveness of—
(a) any rules implemented under section 64A; and(b) any action taken by the FCA or PRA by virtue of section 66.(2) The Treasury shall ensure that the report prepared under subsection (1) shall—
(a) include such recommendations as considered appropriate for legislative and other action;(b) be laid before Parliament by the end of 2018; and(c) be published in such manner as it sees fit.””

[Lord McFall of Alcluith]

This amendment is in response to government amendments to the Bill which amend the Financial Services and Marketing Act 2000. The amendment would require the Treasury to commission a review to provide an opportunity to evaluate the effectiveness of the regulators, particularly the FCA, in implementing and effectively enforcing new powers in relation to individual standards rules and the licensing regime.

The amendment should allow for recommendations that may include the removal of powers from the current regulators or further separation within the current body. That would potentially allow for aspects covering licensing and individual standards rules to be considered for moving across to an independent professional body, should that be appropriate. That echoes the amendment that we on the Labour Front Bench successfully moved a short time ago.

Given the competing priorities for resources—which have the potential to be compounded with the inclusion of consumer credit regulation in 2014 and the payments system regulation, if approved—there is the concern that the FCA may struggle to carry out this challenging role it faces. Therefore, an independent review can assess the effectiveness of the FCA and PRA in being able to implement the recommendations made by the Parliamentary Commission on Banking Standards and, in doing so, provide feedback on how this can be improved, and whether it is more effective for the oversight and enforcement of the professional standards to be undertaken by a genuinely independent professional body.

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[Lord Newby]

My Lords, I start by saying that we strongly agree with the last point made by the noble Lord; people who fall below the standards of conduct required of them should be held effectively to account. We have been discussing a number of ways in which the Bill will help to bring this about. I also appreciate the concerns of the noble Lord that we should take stock at some point and review whether the new system of rules of conduct has delivered an improvement in behaviour among bank staff—the kind of improvement that we are all agreed we want to see. I am not sure, however, that we need legislation to provide for that.

In the first place, the regulators themselves will keep their rules under review in the normal way. There will be no difference in that respect between rules of conduct for bank staff and any other rules that they make. They will similarly review their policy statements about taking action for misconduct under Section 66, and keep their policies and practices under review too. I expect also that the Treasury Committee in the other place, and possibly also the Economic Affairs Committee in your Lordships’ House, will want to keep such matters under review. Nothing, of course, stops the Treasury from commissioning reviews of these and other matters, if it thinks it appropriate. All these reviews can range as widely or as narrowly as is appropriate. They can cover the full range of matters in FiSMA or other relevant legislation—and any other matter as well.

I comment briefly on the point that the noble Lord made about the work of Sir Richard Lambert. We are putting great faith in Sir Richard Lambert to produce worthwhile movement. Having worked with him on other things in the past, I have considerable confidence in him to do that. However, we will have to see how that unfolds. It requires the banking industry to accept the need to take measures that it has not in the past. Sometimes that has been difficult for it. On the amendment, we do not need a mandate for such a specific review in the Bill itself.

[Lord McFall of Alcluith]

My Lords, given the form of the regulators in the past, the Minister’s words that the regulators will keep the review under review in the normal way are not inspiring. However, I beg leave to withdraw the amendment.

Amendment 70 withdrawn.