HBOS Reading: Independent Review

Lord Vaizey of Didcot Excerpts

Tuesday 18th December 2018 Westminster Hall

[Kevin Hollinrake]

My hon. Friend is absolutely right. It is completely one-sided. It means there is a complete imbalance of power in what is supposed to be an independent review, because the bank itself has phalanxes of advisers, whereas the victims clearly cannot afford to provide for the same number or calibre of advisers.

Offers are not made on an open basis; it is a take-it-or-leave-it offer. Imagine, Sir Christopher, that you have been stripped of all your assets over a period of 10 years. You are desperately trying to seek justice, and finally somebody offers you a cheque. Your only other option is to go to the court. What do you do? It is a take-it-or-leave-it offer. If you say, “Actually, I don’t think that is enough,” you get a secondary meeting, but there is no interrogation of the facts; it is simply take it or leave it. That is the nature of the review.

[Mr Edward Vaizey (Wantage) (Con)]

I am grateful to my hon. Friend for calling this debate. In fact, I called a debate on this very subject 10 years ago, when my constituents Justin Riggs and Karl Capp told me how they were being treated by their bank. This is one of the biggest frauds to hit many hard-working small business people in this country. The simple point is that the bank, rather than hiding behind regulations and technicalities, should be giving generous and quick compensation to many people who have lost their businesses, because of a fraud that was covered up and hidden for years by senior members of that bank.

[Kevin Hollinrake]

My right hon. Friend is absolutely right. The levels of compensation should be determined by an independent third party, not by the bank itself, because there is no methodology. Nobody can contest the findings of Professor Griggs. There is no way of interrogating how he has arrived at a number. They simply say—I have heard this so many times from Lloyds directors—“Well, we settled most of the claims,” as if that is somehow an endorsement of the process. The fact is that the victims had no other option—no appeal process—other than going to court, which would have cost millions of pounds.

Victims cannot even get access to the evidence. In a normal court process there would be disclosure of evidence, so that they could see the evidence they are being judged against. There was no disclosure of evidence. Lloyds has found a better way, according to a letter it sent me on 20 September. It said it had “created an alternative approach” to disclosure, “to protect customers interests”. That is its approach. It is complete obfuscation.

Eligibility is determined by the bank itself. It decides who is eligible for the review and who is not by invitation only. Only directors get to decide, not shareholders or suppliers, nor Her Majesty’s Treasury, which must have lost a lot of money through this process in respect of tax. It only dealt directly with the individuals who were convicted, not their deputies or other people who may well have been involved in the fraud. This is not an independent review. Professor Griggs is paid by the bank. His remit is determined by the bank. I have seen evidence that determinations he has made have been overruled by the bank.

This is in no way an independent process. Of course, everybody who goes to it is subject to a gagging order. The bank provided us with confirmation that clause 4 in its settlement agreements does not prevent victims talking to it or to the press. However, I have seen another agreement, completely different from the one the bank provided to the Treasury Committee, which contains extra clauses that do prevent these victims speaking to the press or to the authorities. Justice must be seen to be done. Lloyds bank is the judge, jury and executioner. The all-party parliamentary group on fair business banking and finance, of which I am now co-chair, said right from the start that this is the wrong way to deal with the process, but Lloyds pushed on anyway.

Moving on to a solution to these problems, the APPG believes that all cases—anybody who has been subject to the Griggs review—should be re-examined through a completely independent process. The APPG has recommended a financial services tribunal, which would judge cases based on a fair and reasonable test, with one-way cost shifting, so the banks cannot simply keep people out of court by writing huge cheques out to their own lawyer. That would mean that people would get an independent examination of their case. Victims can then get compensation and move on.

We believe that a tribunal is required, with an arbitration process for past claims. There have been four different reviews this year of how we can fill this gap, make this process fairer and get back to a more balanced situation, with restitution and redress. Three of those reviews recommended a financial services tribunal, as we do. The one report that did not was sponsored by the banking industry itself and it simply says that we should increase the powers, remit and jurisdiction of the ombudsman schemes. While that is a good step forward, we do not feel that it is enough.

That addresses compensation, but we need to go further. We need to change the culture in the whole sector, as the hon. Member for Ogmore (Chris Elmore) said. In terms of the Lloyds management, I do not see how the position of the chief executive, António Horta-Osório, is tenable. Given the way that the effective whistleblower has been treated, the way this has been covered up and the way that the process has been deliberately partial, I do not see how the Lloyds management have been consistent with the behaviour required under the senior managers regime. I think António Horta-Osório should resign. I also think he should face investigation under the senior managers regime.

Finally, the Financial Conduct Authority itself—our regulator—has many questions to answer. Why did it approve the scheme? Did it approve the scheme? We have heard conflicting evidence on that. It is a national disgrace that Lloyds has been allowed to operate this sham of a review process. Andrew Bailey himself has questions to answer. Why did he allow the process to continue? Why was he not aware of the patent defects in the process? Nevertheless, the FCA should take charge and undertake an investigation of the senior management under the senior managers regime.

We in this place are defenders of free markets. For me, this is the most important issue that any of us will ever deal with. Certainly, as far as I am concerned, I cannot rest until the matter is settled. My life has been transformed through the opportunities of free markets. In the main, the bankers I have dealt with over 25 years have done a tremendous job—a fair job—to help my business to thrive through some difficulties. I was one of the lucky ones. Not all bankers are the same. Most people in the industry are decent people trying to do the right thing, so it is even more important to hold those who are not to account. We have to make sure that everyone has the opportunities that I have had—that we have had—including all our children and grandchildren. We must all demand, for the sake of the victims, that justice is done and is seen to be done.

--- Later in debate ---

[The Economic Secretary to the Treasury (John Glen)]

It is a pleasure to serve under your chairmanship, Sir Christopher. I acknowledge the work of my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) in securing this debate and making an excellent speech, as he has done on several occasions this year in this place, and setting out a case that was well reasoned in many elements. I also pay tribute to the hon. Members for Strangford (Jim Shannon) and for East Lothian (Martin Whitfield), who made fine contributions to the debate.

As we have heard today and in previous debates this year, incidents of banking misconduct and fraud have had a severe impact on some small and medium-sized enterprises. It has been and remains a top priority of mine in office to face up to the issues that have been generated by the cases that have been raised. I am conscious that many of the eight Back-Bench Members who have taken part in this debate will have heard sad and unfortunate stories from their constituents about how the actions of banks have affected them and their businesses. That includes not only the events at HBOS Reading, but the actions of the RBS Global Restructuring Group and the mis-selling of interest rate hedging products.

I begin by reminding Members that we expect the highest standards of behaviour across the financial sector. That is why the Government have introduced a number of necessary changes to restore public trust in financial services, such as the senior managers and certification regime. Before I address the substance of today’s debate, it is important that we pause for a moment to recognise the contribution that banks make to both the UK economy and our society. As the hon. Member for Aberdeen North (Kirsty Blackman) rightly said, it is necessary for banks to lend to SMEs. Lloyds Banking Group has, for example, increased its net lending to SMEs by £3 billion since 2014 and plans to triple that by 2020. Lloyds is the market leader in providing basic bank accounts, which help vulnerable customers, and its “Helping Britain Prosper” plan sets out a number of commitments on behaviour, diversity and charitable support.

However, I recognise that there has been a great deal of justified anger, within Parliament and beyond, regarding the fraud that was perpetrated against small businesses through the actions of individuals at the HBOS Reading branch. It is important to remember that the events at HBOS Reading constituted criminal activity. As such, it was right that those responsible were brought to justice, as my hon. Friend the Member for Thirsk and Malton pointed out. The FCA continues to conduct an enforcement investigation into the events surrounding the discovery of misconduct at HBOS Reading, resuming an investigation placed on hold at the request of Thames Valley police. I will be keenly following the progress and outcome of the investigation.

In addition, Lloyds Banking Group has appointed Dame Linda Dobbs, a retired High Court judge, as an independent legal expert to consider whether issues relating to HBOS Reading were investigated and appropriately reported to authorities at the time by Lloyds Banking Group, following its acquisition of HBOS. It will consider issues raised by the Project Lord Turnbull report referred to by my hon. Friend. Dame Linda’s findings will then be shared with the FCA.

It is right that Lloyds set up a compensation scheme for businesses affected by the events at HBOS Reading, overseen by Professor Russel Griggs. That scheme has seen offers made to all customers within its scope, with 90% of customers accepting the offer. However, I acknowledge the concerns that Members have raised about the Griggs scheme. Those concerns have certainly been heard, and I am pleased to announce that Lloyds has agreed with the FCA that Lloyds will commission a post-completion review to quality-assure the methodology and process of the Griggs scheme. [Interruption.]

Overseen by an independent person, that review will go above and beyond a normal lessons-learned exercise. The independence of the person appointed to lead the review is vital. In particular, I would expect that person not to have been employed by Lloyds in any way, and to be able to demonstrate complete operational independence from Lloyds. I am pleased that Lloyds has committed to publishing the review once it has concluded, and I welcome Lloyds’ commitment to implementing any recommendations it produces. I have been consistently clear that it is vital that we get the right processes and procedures in place, to ensure that SMEs can obtain fair redress and resolve disputes with their banks.

[Mr Vaizey]

I know that my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) will wind up the debate, so I feel a bit premature intervening on the Minister, who is a good friend. However, he will have heard the reaction in the Gallery to his announcement. It seems to me that it is just a re-wrapping of the current problem. Perhaps he will meet some of the Members in the Chamber, and some of the business owners affected, to hear and see what has actually been going on.

[John Glen]

I will happily meet my right hon. Friend—a distinguished former Minister who has been fighting on these matters for many years—and my hon. Friend the Member for Thirsk and Malton. Of course I acknowledge the cynicism and concern of those present about the independence of this mechanism, but, as I said, Lloyds has committed to publishing the independent review once it is concluded and implementing any recommendations that it produces. My officials have been working with the FCA to ensure that that comes to pass. I take the concerns about how it progresses very seriously, and will happily meet Members to discuss them.

In the recent Budget, the Chancellor stated the Government’s support for the FCA’s plans to expand eligibility to complain to the Financial Ombudsman Service to small businesses as well as micro-enterprises. Expanding the remit of the FOS will ensure that from 1 April 2019 well over 99% of all UK businesses will have access to fast, free and fair dispute resolution. I am aware that concerns have been raised about the capability of the FOS to adjudicate effectively in such cases, and I discussed those concerns with the Chair of the Treasury Committee just last week.

The FOS has announced its plans to create a ring-fenced, specialist unit to take on the additional cases, and for that unit to be supported by a panel of external SME experts. I welcome those plans, and I will visit the FOS early in the new year to check on how they are progressing. The FCA has also committed to reviewing the expansion of the FOS remit within two years of its coming into force, in addition to its usual oversight processes. I trust that that will reassure some hon. Members who have voiced concerns about the capability of the FOS.

I have also been clear that banks need to work hard to restore businesses’ trust in their institutions. That is why I welcome the banking industry’s recent commitment to establishing two independent voluntary ombudsman schemes, in response to Simon Walker’s review of dispute resolution for SMEs. One of those schemes will address complaints from SMEs with a turnover of £6.5 million to £10 million. The other will address unresolved historical complaints from SMEs that have not already been through a formal process.

I am pleased that the banking industry has set out the key principles for the operation of the scheme to address unresolved historical complaints. Independence, expertise, transparency and the right to an appeal are all hallmarks of a fair and robust process, and it is right that they underpin any approach to dispute resolution. I welcome the banking industry’s commitment to having those schemes up and running by September 2019. I look forward to seeing progress on establishing the implementation steering group very soon, and I am pleased that representatives from the all-party parliamentary group will have a role in that process.

The benefits of an ombudsman-style approach are clear, but I recognise that some hon. Members have advocated again today for the establishment of a tribunal to resolve disputes between banks and SMEs. An ombudsman-style approach can deliver fast, free and fair dispute resolution for SMEs, making decisions based on what is fair and reasonable. I believe that a tribunal, on the other hand, would need the regulation of SME lending, potentially restricting SMEs’ access to credit. It would still require SMEs to pay for expensive legal expertise, and it could make decisions only on a strict legal basis. That is why I believe that an expanded FOS remit, alongside the establishment of further independent ombudsman schemes as announced by UK Finance, will ensure the best outcomes for SMEs.

I highlight again that the Government, financial regulators and industry have done considerable work to tackle bad practice and to ensure that SMEs have access to appropriate dispute resolution and redress mechanisms. The all-party group on fair business banking and finance has been a key part of that work, and I sincerely commend its determination in the work that it has undertaken to ensure that SMEs are fairly treated.

The events at HBOS Reading constituted criminal activity. As such, it was right that those responsible were brought to justice. However, more clearly needs to be done to restore SMEs’ trust in the financial services industry. From the numerous meetings that I have had this year with a wide range of stakeholders, it is clear that we are all determined to deliver the best outcomes for SMEs.

I will closely follow the review of the Griggs scheme. I understand the concerns, but it is a significant step forward that that review will take place, and I will monitor the implementation of both the expanded FOS remit and the industry’s independent voluntary ombudsman schemes. I am confident that we have the right regulatory regime and dispute resolution mechanisms in place for the future. Events similar to those at HBOS Reading should not occur again, and I will do everything in my power in office to ensure that we learn the lessons from those appalling incidents years ago.