Bank of England and Financial Services Bill [HL]

Lord Sharkey Excerpts

Tuesday 3rd May 2016 Lords Chamber

[The Parliamentary Secretary, Cabinet Office (Lord Bridges of Headley) (Con)]

My Lords, I beg to move that this House do agree with the Commons in their Amendment 7—and on this, too, we have been in listening mode.

This amendment recognises the important role played by the Treasury Select Committee in its scrutiny of the Financial Conduct Authority and appointments to its top job. Through the committee’s programme of pre-commencement hearings it questions appointees to several posts before they start work. After appointees have started, as your Lordships will know, they appear regularly before the committee. The Government welcome this scrutiny of appointees.

Our amendment therefore ensures that the committee always has the chance to scrutinise a newly appointed chief executive of the Financial Conduct Authority before they start work. It provides that no one who is appointed as CEO of the FCA can start work until they have appeared before the TSC or three months have passed. This gives the TSC time to call them in, and once it has questioned the appointee in relation to the appointment, he or she can get to work. There is an exception to this if the appointment of a chief executive is made on an acting basis pending a further appointment; for example, where an appointment must be made urgently in response to a sudden vacancy. However, to appoint a permanent CEO, the Government must give the TSC the chance to hold a hearing.

As your Lordships will be aware, my right honourable friend the Chancellor and the chair of the Treasury Select Committee have reached an agreement that further reinforces the committee’s scrutiny role. This is set out in a letter from the Chancellor to the chair of the TSC, which has been published on the TSC’s website. It reads as follows:

“During the passage of the Bank of England and Financial Services Bill, we have considered the role of the Treasury Select Committee … in scrutinising the appointment of the Chief Executive of the Financial Conduct Authority … This scrutiny is important and welcome. I will therefore ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House. Additionally, I will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term. This would not apply to Andrew Bailey, who I recently announced as the new head of the FCA, but would first apply to his successor. I believe that these changes will reinforce the Treasury Committee’s important scrutiny role”.

This commitment, combined with this amendment, which ensures that the Treasury Committee always has the opportunity to hold a hearing with an appointee, serves as a strong recognition of the committee’s vital role in scrutinising the FCA and its CEO. I beg to move.

[Lord Sharkey (LD)]

My Lords, we support this amendment, but more precisely, we support this amendment with the commitments made in the Chancellor’s letter to the chair of the Treasury Select Committee. We are glad to see moves to buttress the independence of the FCA, and we think the amendment and the commitments will help do that. It is true that the FCA does need some help. In particular, it needs help in ending what is, or appears to be, interference by the Executive.

Recent times have not been happy. There was the early announcement of the non-renewal of Martin Wheatley’s contract; the Chancellor’s public announcement that Tracey McDermott was withdrawing her CEO application, before she had had a chance to tell her own people; and, then, the appointment of Andrew Bailey as CEO without benefit of a proper interview panel. I will not even mention that the search for the hard-to-find Mr Bailey cost £280,000.

To restore belief in its independence and its self-confidence and morale, the FCA needs to have a robustly and operationally independent CEO. We hope that this amendment and the Chancellor’s commitments will make that happen. This amendment and those commitments are of course the result—as the Minister has explained—of negotiations with Mr Tyrie, the chair of the Commons Treasury Select Committee. We would have preferred Mr Tyrie’s original amendment, which simply gave the Treasury Select Committee the power to approve, or not to approve, the appointment of the CEO of the FCA.

The government amendment, of course, does not go nearly that far. It simply says that the already appointed—although, I hope, not contractually bound—CEO must appear before the TSC before taking up his office. By itself, this is pretty feeble stuff. In fact, the important changes are not in this Bill at all; they are contained in the letter from the Chancellor to the chair of the TSC. The letter makes two commitments, as the Minister has explained. The first is that the Chancellor will,

“ensure that appointments to the Chief Executive of the FCA are made in such a way to ensure the TSC is able to hold a hearing, after the appointment is announced but before it is formalised. Should the TSC”,

as the Minister has said,

“recommend in its report that the appointment be put as a motion to the whole House, the government will make time for this motion and respect the decision of the House”.

Secondly, the Chancellor,

“will seek, in a future Bill, to make a change to the legislation governing appointments to the FCA CEO to make the appointee subject to a fixed, renewable 5-year term”.

This is all very cumbersome, and one must hope that the prospect of having your merits gently and tactfully debated in the Commons will not put applicants off. However, it is an improvement on the current situation.

There are some questions, though, and I would be grateful if the Minister could respond. Why are these two commitments not on the face of the Bill? Can the Minister confirm that the Chancellor’s commitment to ensure government time for a Treasury Select Committee Motion in the Commons is not binding on him or, more importantly, on his successors? Can the Minister say why the Chancellor will put the fixed term for the CEO into a future Bill but not the Commons vote on a Treasury Select Committee Motion? Will the Minister agree to consider incorporating both these elements into a future Bill? Finally, can the Minister assure us that any future selection process for the CEO of the FCA will involve the proper panel interviews, or at least something more closely resembling due process?

We believe that we need the protections and safeguards in this amendment and in the Chancellor’s letter. We believe that Andrew Bailey is a good choice as CEO and we wish him every success. We believe that both Mr Bailey and the FCA will benefit from less interference from the Executive and we support the amendment.

[Lord Higgins]

My Lords, as a former chair of the Liaison Committee in the House of Commons, which co-ordinates the work of the Select Committee system, as well as having been chairman of the Treasury and Civil Service Select Committee, I very much welcome the proposals put forward by the Government. Of course, there are various qualifications, which have just been mentioned, but I believe that this is a significant step forward and that it will improve the way in which the appointments system works within overall government. Therefore, I think that this is an excellent amendment and I heartily support it.

--- Later in debate ---

[Lord Harris of Haringey (Lab)]

My Lords, I declare my interest as chair of the National Trading Standards board and welcome this government amendment to put the funding of the illegal money lending teams on a stable footing. As the Minister said, the teams do an enormous amount of extremely important and valuable work. A recent prosecution dealt with an individual who was charging those unfortunates whom he was offering allegedly to help interest rates of 400,000% per annum. Figures I have for England and Wales show that the work of the illegal money lending teams has led to the writing-off of debts in excess of £55 million. So the work is value for money and extremely important. It is quite right that the funding of these teams should now be put on a long-term, sustainable footing and it is entirely proper that the legitimate part of the lending industry should make sure that those who operate illegally and prey on people who are in a state of considerable distress are dealt with appropriately.

[Lord Sharkey]

My Lords, this is a very good amendment and we support it. Until now, funding for action against illegal money lending has come mostly from BIS with occasional help from the Treasury reserve. As Harriet Baldwin noted in the Commons committee, this funding was constantly being questioned in spending reviews and she rightly saw the need to protect it from the depredations of Chief Secretaries. This amendment does that by changing the funding mechanism to a levy on consumer credit firms. These firms benefit from being within a robustly enforced perimeter and we welcome this change. We welcome the move to provide sustainable and stable funding for the fight against illegal money lending.

--- Later in debate ---

[Lord Ashton of Hyde]

My Lords, the amendment addresses the important question of how the banks are treating politically exposed persons, or PEPs, in the light of new global standards for anti-money-laundering and counterterrorist financing. I know that this issue has interested many noble Lords, directly and in respect of their families and close associates. I can tell the House that the Government share those concerns, which is why we have accepted this amendment to the Bill.

The Government intend to implement new money-laundering regulations by June 2017 at the latest. We will consult on the new regulations later this year. Organised crime, international corruption and terrorism cross national borders, so co-ordinating with our neighbours and Governments around the world is vital. We do this through the Financial Action Task Force, which revised its global minimum standards in 2012. At the same time as being robust, the UK’s anti-money-laundering and counterterrorist financing regime must be proportionate if it is to be effective and command public support. Resources must be focused on higher-risk areas and individuals, in line with accepted practice.

The Government have always encouraged banks to take a sensible and proportionate approach to this issue. They should apply appropriate “know your customer” measures that are tailored to reflect the risk posed by individual customers. I believe that several Members of this House and the other place have experienced difficulties with their bank accounts. No one should have their banking facilities refused simply because they have been identified as a PEP.

In addition to its focus on proportionality, the amendment addresses guidance on PEPs and the handling of certain PEP complaints. The Government will consult later this year on new money-laundering regulations and we will ask specific questions about the provision of guidance and the adjudication process. We will fully consider the letters that noble Lords have already sent to us on this topic when preparing our response to the consultation.

The Government’s anti-money laundering and counterterrorist financing regime is making the UK a more hostile environment for illicit finance. The amendment will ensure that a strong message is sent out about applying the rules in a proportionate and sensible manner and I commend it to the House. I beg to move.

[Lord Sharkey]

My Lords, as the Minister said, this House has frequently discussed the problems with the banks’ treatment of customers under their interpretation of the EU PEP rules. Each time we have done so, it has been quite clear that there are plenty of examples of banks frequently acting aggressively and disproportionately. It is quite clear that by unreasonably closing accounts, or threatening to, they cause real distress and the Government agree, as the Minister said, that the banks are ultimately at fault. In response to an Oral Question from my noble friend Lord Clement-Jones on 14 October 2014, the Minister, the noble Lord, Lord Deighton, said:

“I absolutely accept the criticisms that are made where banks behave disproportionately. It happens too often and we should work with them to fix that”.—[Official Report, 14/10/14; col. 115.]

It clearly has not been fixed and is probably getting worse as the banks anticipate the new EU directive.

Discussing this amendment on Report in the Commons on 19 April, Harriet Baldwin said that,

“if the transposition of the EU directive into domestic legislation is mishandled, a wide range of other people could be affected. It could adversely affect tens of thousands of people, including civil servants, city workers and even, as has been described, the families of armed forces officers serving our country abroad”.—[Official Report, Commons, 19/4/16; col. 853.]

The Minister was right to warn of this possibility.

On Sunday, the Sunday Times ran a large and prominent article on the case of Alan Charlton. Mr Charlton retired from the FCO three years ago after 35 years’ service. He is our former ambassador to Brazil. His bank threatened to shut down his account as part of what the paper describes as the bank’s “crack-down” on PEPs. It is a little ironic that the bank in question is HSBC, so recently fined $1.9 billion for being what the US Senate described as,

“a conduit for drug kingpins and rogue nations”.

It is a case of closing the wrong stable door.