Financial Services Bill

Lord Oakeshott of Seagrove Bay Excerpts

Monday 15th October 2012 Lords Chamber

[Lord Lawson of Blaby]

My Lords, I would like to support very strongly the amendment moved by my noble friend Lady Wheatcroft. I shall speak briefly but my brevity does not indicate that this is not an important issue. It is a very important issue indeed. We are debating in the shadow of the worst banking crisis of our lifetimes and possibly the worst banking crisis there has ever been. As my noble friend pointed out, the Economic Affairs Committee of this House produced a report called Auditors: Market Concentration and Their Role which was published in March 2011. It was extremely critical and rightly critical of auditors in the context of the banking collapse that we have seen. This was, as is common with reports of Select Committees of this House, a unanimous report, but unanimity can be got in various different ways. This was unanimity where everybody of all parties who sat on that committee and heard the evidence was totally committed to what the report said. My noble friend Lady Wheatcroft mentioned one thing from the report. Let me quote one other thing from paragraph 204. It states:

“There was no single cause of the banking meltdown of 2008-09. First and foremost, the banks have themselves to blame. … But we conclude that the complacency of bank auditors was a significant contributory factor”.

This has to be addressed. How will we prevent—as far as we can—this sort of thing happening again?

In discussion of an earlier amendment, the noble Lord, Lord McFall, referred to the banking commission of which I, too, am a member. It is quite possible, such is the importance of this, that the banking commission will decide to look into the question of bank audits and auditors, and indeed auditing standards and IFRS, which leave a lot to be desired and are probably a step in the wrong direction. However, we must do what we can in the Bill to rectify the position.

I say en passant that what concerned me a great deal when the big four auditors gave evidence to us was the extent to which they seemed to think that they had simply to satisfy the management of the banks at the time, when under law their duty was to the shareholders. Furthermore, the putting in place of a proper system of audit for business and industry as a whole, but particularly for the banks, is a public duty; auditors had a duty to the wider public to do a good job, quite apart from their duty to shareholders of the banks—and they failed lamentably.

What can we do about this? I do not think that my noble friend Lady Wheatcroft would say that her amendment is the complete answer. Of course it is not: a lot more has to be done. However, it is very important that the Bill addresses this question, and I believe very firmly that the amendment before the House tonight is an important part of the answer, even though it is not the whole answer. I strongly support my noble friend’s amendment.

[Lord Oakeshott of Seagrove Bay]

My Lords, I, too, am delighted to support the amendment moved by my noble friend Lady Wheatcroft. With her characteristic delicacy and discretion, she did not mention the name of the auditors in question—but I will. I believe that Deloitte has very serious questions still to answer about its audit of RBS, particularly towards the end. There were some unhealthily close relationships between Deloitte’s auditors and the senior management of RBS. I also believe that PWC has very serious questions to answer about its final audit of Northern Rock before it went bust. I am sure that the Minister will remember that in this House, I moved an amendment calling for a special audit of Northern Rock, organised by the Bank of England. The amendment was agreed, but not approved in the other place. My noble friend has put her finger on a very important question and I very much hope that the Government will take it seriously.

[Lord Flight]

My Lords, I, too, strongly support the amendment moved by my noble friend Lady Wheatcroft. The first point I will stress concerns IFRS, which hugely exaggerated bank profits and hence capital in good times, and has done the reverse in bad times. IFRS has contributed substantially to the destruction of our pension schemes by discounting liabilities at inappropriate interest rates. There have been complaints about IFRS from many quarters. Accounts have been rendered almost impenetrable. Fund managers frequently have to rewrite the accounts of companies they examine in order to make an assessment of the trading state of the business.

I have consistently complained about this subject, but nothing has happened. Who is responsible? When I was shadow Chief Secretary, the point was made to me that it was the job not of Parliament but of the profession to dictate standards. That is entirely wrong. In the USA the political representative bodies have rightly taken up such issues, and it is the duty of both Houses of Parliament to do the same.

--- Later in debate ---

[Lord Sassoon]

For the reasons that I have given, I am not absolutely convinced that it would have been helpful against the background of complacency of the bank auditors at the time of the crisis. Having said that, I agree with the Committee that there is something here that we need to look at further, so I want to see whether the Bill can and should go further to require the regulator to make the most of the expertise that auditors can undoubtedly offer. I am happy to take this issue away and consider whether there is an amendment that I can bring back at Report that recognises the important role of auditors without cutting across the role of the regulator in the way that I believe this particular amendment may do. I will look at it and come back to the House with something that addresses this area. On that basis I hope—

[Lord Oakeshott of Seagrove Bay]

It sounds as though the Minister is encouraging the regulator to ask the auditors more questions. If we have complacent auditors, surely it is even more important that they sign something, that their complacency is questioned and that they take more responsibility for their work.

[Lord Sassoon]

I certainly agree that if we can get more value out of the auditors we should do so. It should be on the basis of something that helps people—I am not sure whether that is the regulator or directly the public—towards a better understanding of the risks embedded in bank accounts. On that basis, as I say, I will take the issue away. I ask my noble friend to withdraw her amendment, which would, of course—I should say for the benefit of my noble friend Lord Marlesford, who asked me to mention credit card debt—wrap up credit card debt and many other things if we can get this right.