Financial Services (Banking Reform) Bill

Lord McFall of Alcluith Excerpts

Monday 9th December 2013 Lords Chamber

[Lord Brennan]

My Lords, I support this amendment. The debate on anti-money-laundering that we have undertaken during the course of this Bill has led the Treasury and government Ministers to send colleagues and me a number of letters and documents. This was extremely courteous and informative—but legislatively useless. The noble and learned Lord, Lord Steyn, once described this kind of material as an exercise in investigating “legislative archaeology”, principally because it had no real significance. Neither do these letters. You cannot legislate by epistle; you do it by the text of the Bill.

Everyone accepts that money-laundering is a major issue. Today is International Anti-Corruption Day. It is also the anniversary of HSBC’s enormous fine for money-laundering imposed last year in the United States. The concern reflects the fact that in the developing world in particular there is a constant, never-ending haemorrhage back into the developed world and our banking system of money that should be going to the poor. Something should be done about it.

The explanation given thus far by the Government is that the FCA has the responsibility for dealing with money-laundering and it is for it to do so. On our side, we do not think that that is strong enough. If in today’s Amendments 2 and 3 the Government feel robust enough to say that the Treasury must take steps to review proprietary trading, why should it not tell the FCA that it must take steps, always and actively, to counter money-laundering. Why the diffidence? Why not put a plain statement before Parliament, now or through the amendment, that anti-money-laundering counts, that we are against it and that the FCA must ensure that banks deal with it.

[Lord McFall of Alcluith (Lab)]

My Lords, I support the amendment. In evidence from business people to the Treasury Committee and the parliamentary commission it was said that good and firm regulation is a competition issue. Given that we aspire for London to be maintained as a global centre for financial products, it is important to recognise that dirty money comes in and out. The example was given of HSBC. It acquired a Mexican bank in 2001 in America. From day one the board was told by the compliance officer that no decent compliance functions were available. Notwithstanding that, the situation continued for six or seven years in which drug money was laundered, people died in Mexico as a result, and HSBC was fined almost $4 billion by the US authorities. If that can happen to a UK-based bank, it can be happening elsewhere. It is important that we ensure that regulation in this country is firm.

Mention was made of General Abacha. In 2006 there was an investigation by the FSA that did not go anywhere because the regulator did not have authority. It is therefore important that in this legislation we underline the regulator’s authority. The regulator did not have authority because there was a tension—and there will still be a tension, despite the new architecture—between the financial stability of companies and conduct of business. If we are to make London an attractive global centre, we have to understand the elephant in the room—money-laundering. I am afraid that, if we do not give the regulator an express duty and authority on money-laundering, we could find the problems that happened with Nigeria in 2006 and elsewhere being replicated. That case has still not been investigated authoritatively enough. Having this anti-money-laundering element in the Bill would be extremely important, and I support the amendment.

[Lord Flight]

My Lords, perhaps I may make the point that I made last time this matter came up for debate—a point that is staring at us. The problem is with parts of the world where corruption, drugs and political corruption are rife. Much more demanding anti-money-laundering requirements are needed when accounts are opened for individuals or organisations from such parts of the world.

We already have a factfile that grades different countries around the world according to the extent of their corruption—so there is, if you like, a textbook. If those standards were required, it would, apart from anything else, discourage banks from potentially getting involved. Also, rather than imposing greater demands on everybody—I do not think anyone is suggesting that the average Mr and Mrs Brown from Dorking is engaged in money-laundering—much more demanding standards would be applied when dealing with organisations and individuals from parts of the world where there are the real money-laundering problems.

--- Later in debate ---

[Lord McFall of Alcluith]

My Lords, I will be very brief in supporting the comments of the noble Lord, Lord Lawson. I have been interested in the relationship between the auditors and the regulator ever since Northern Rock went down in 2007. The question that the regulator should be keeping in mind in discussions with auditors on a yearly basis is, what is the point of an audit? The auditors tell us that it is to have a backward look at what has happened in a company, but there is a need to have a forward look at the risks that are happening, to issues like low risk and low probability, low risk and high probability, high risk and low probability, or high risk and high probability. These scenarios need to be included, because the auditors came to all the committees, the Treasury Committee in the past and the Treasury Committee now, and said that it was their business to look at the audit at that particular time. That is insufficient and there needs to be a greater engagement between the regulator and the auditors.

I reminded the Minister that previously the regulator did not look at the business models of companies. They had nothing to do with them. Thankfully, the new chief executive, Martin Wheatley, has said that the business models are very appropriate for regulators to look at because the business models that were ignored let the PPI mis-selling scandal go for 18 years. There is a lot of work to do between the auditor and the regulator—and the question that I repeat again is for the regulator to say, what is the point of an audit? Auditors can come up to the mark and not just have a backward look or even a present look at the business model of a company but can ensure that there is also a forward look.

[Lord Deighton]

With respect to the question asked by my noble friend Lord Lawson about what constraints the EU law would put on the PRA getting the information in the form that it requests, this is merely tying it into what comes out of the capital requirement directive IV, just to make sure that it is consistent. I am not aware of a particular constraint, but I am aware that there will be additional disclosure responsibilities that come along with that. We really just want to integrate it, but I do not believe that it is a constraint; it should actually help with disclosure.