Commercial Financial Dispute Resolution Platform

Norman Lamb Excerpts

Thursday 15th December 2016 Commons Chamber

[George Kerevan (East Lothian) (SNP)]

I beg to move,

That this House notes the statement presented to the Treasury Committee on 20 July 2016 by Dr Andrew Bailey of the Financial Conduct Authority (FCA); endorses his statement that the ad hoc creation of a compensation scheme within the FCA was not entirely successful and lacked perceived authority to treat customers with fair outcomes; believes that the recent headlines and allegations in the press against RBS will lead to pressure for a similar scheme; notes that many debates in this House over the years have focused on similar subjects with different lenders; believes that what is needed is not ad hoc compensation schemes, but a long-term, effective and timely dispute resolution mechanism for both regulated and unregulated financial contracts; and calls on the FCA, the Department for Business, Energy and Industrial Strategy and the Ministry of Justice to work with the All-Party Parliamentary Group on Fair Business Banking to create a sustainable platform for commercial financial dispute resolution.

In time-honoured fashion, I thank the Backbench Business Committee for allowing us to bring the motion to the main Chamber. I expect that many hon. Members will wish to raise constituency matters. Many constituents have experienced mis-selling by banks and had loan dealings with them. Today, we are trying to move beyond individual cases, serious as they are, to try to find a broad permanent resolution system.

I would also like to thank the hon. Member for Aberconwy (Guto Bebb) and my hon. Friend the Member for Berwickshire, Roxburgh and Selkirk (Calum Kerr), who were my predecessors as chair of the all-party group on fair business banking. The all-party group rose out of the interest rate hedging product mis-selling. We can lay that at the door of many different banks—Clydesdale, Royal Bank of Scotland, HBOS, HSBC and so on—but today I want to direct the Minister to the point that, after eight years of dealing with this problem, we need to look to the future and a more permanent resolution. I suspect many hon. Members will have cases, as I have, where it is not just that an individual’s business has been affected or that money has been lost; the impact on an individual’s mental health is also a very serious issue.

[Norman Lamb (North Norfolk) (LD)]

I thank the hon. Gentleman for raising this incredibly important issue. Does he agree that along with all the people who suffered the horrendous loss of their business and livelihood, we need to think about whistleblowers, the incredibly brave people who risk everything to expose wrongdoing? They need to be properly treated, too.

[George Kerevan]

The right hon. Gentleman makes a fair point. In my experience, it has been those very whistleblowers who have suffered most in terms of mental stress. They started off trying to present justice to the community, the banking world and small businesses, and ended up losing their job, their family and their partnerships. They are still suffering to this day.

The issue is also economic. We have had eight years where, although there has been economic growth, levels of productivity have been poor, if not flatlining. A lot of that is due to the underperformance of the small business sector. It is not just individual businesses that have been affected by mis-selling and the lack of resolution. It has carried on to a lack of investment in new businesses, and it has been an additional factor in important entrepreneurs withdrawing from the business process. Unless we find a permanent resolution, we will not be able to create the economic growth that I know all of us in this House hope to see.

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[Norman Lamb]

Does the hon. Gentleman also agree that the absence of a clear dispute resolution process actually incentivises bad behaviour and sharp practice? If the banks know that there is no proper mechanism to challenge wrongdoing, it encourages that bad behaviour.

[George Kerevan]

rose—

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[Mr David Hanson (Delyn) (Lab)]

It is a pleasure to follow the hon. Member for Henley (John Howell), a fellow member of the Justice Committee and chair of the all-party group on alternative dispute resolution, of which I am a member. I welcome his contribution, and the motion in the name of the hon. Member for East Lothian (George Kerevan), to which I was pleased to add my name, as a Labour MP; I support its objectives on a cross-party basis.

The issue is of great importance, and the Minister has a duty to the House to respond in a positive way to the very straightforward demand made by Members today—a demand that we establish a universal mechanism that allows businesses and others in non-regulated sectors an appeals mechanism, so that they can have an independent review of their situation. The motion is important, and I support it. The demands are clear, and have not come out of the blue. The motion clearly refers to the statement made by Andrew Bailey of the Financial Conduct Authority to the Treasury Committee on 20 July 2016. He said that we needed to look at the fact that

“the ad hoc creation of a compensation scheme within the FCA”

had not worked, and that there was no mechanism in place for many businesses—Members will no doubt mention them today—to find a resolution. Remember, these are small businesses facing big banks that have the time, money, expertise and often patience to try to see out the complaints being made. The motion, which calls for an effective, sustainable platform for resolving commercial financial disputes, is therefore absolutely right and timely.

Although many financial firms may be regulated, business and commercial banking remains an unregulated activity in the UK. Businesses do not have the same level of protection as consumers; they have to rely on internal complaints procedures and on the Financial Ombudsman Service, which may not be well equipped to deal with some of these cases. Businesses have to consider the potential for expensive, protracted activity through the courts. All of this effectively militates against fairness when opportunities have been denied or wrongs done.

I am particularly concerned about the Royal Bank of Scotland, which remains in public ownership. We taxpayers still endorse and act on behalf of the bank. The Minister has to look at not just the complaints procedure proposed by the hon. Member for East Lothian on behalf of the all-party group on fair business banking, but the Government’s responsibility, on behalf of every taxpayer, for the services provided by, and the attitudes and responses of, a bank that remains owned by me, my hon. Friend the Member for Bootle (Peter Dowd) on the Front Bench and every Member of this House.

This matters because over 12,000 companies were pushed into RBS’s controversial turnaround division, called the Global Restructuring Group. We are talking about real pressures and real actions affecting real businesses, and the bank having acted unfairly. Indeed, it has now recognised that it acted unfairly and has provided a compensation scheme of its own, but there is no independent scrutiny of it, and not necessarily any independent endorsement of it yet, because as the hon. Member for East Lothian said, this has not yet been finalised. RBS has a major commitment to those 12,000 businesses.

This also matters because of cases such as that of my constituent Clive May of Mold in Flintshire, north Wales. With his permission, I will detail his case. He experienced at first hand the actions of RBS in relation to the Government-sponsored enterprise finance guarantee scheme. Mr May was the owner of a successful business employing 100 people in north Wales. It was a construction company, building houses and factories. The company had banked with RBS for many years when Mr May was approached by RBS and asked to take up the EFG scheme, which was designed by the Labour Government to support the growth—not the closing down—of businesses through the difficult times of the recession between 2008 and 2010.

Mr May believed that the enterprise finance guarantee scheme would support the expansion of his business. He was informed that his overdraft, for which he had always met his responsibilities, and which was not excessive, as he could meet the liabilities, was to be taken over by the EFG scheme, and that his business’s cash flow would therefore be protected and developed. That was a falsehood on the part of RBS, because the moment he took up the EFG scheme, RBS placed the company in its distressed department and cut his overdraft.

[Norman Lamb]

It has been a pleasure to work with the right hon. Gentleman on what I regard as a scandal. Surely he is making the incredibly serious allegation that not only was an individual destroyed, but there was misuse of public money.

[Mr Hanson]

Absolutely, and I make that allegation here today. RBS has acted appallingly in its treatment of my constituent. Before Mr May took up the EFG, his business was making new contracts, had excellent cash flow, and never once went over its agreed overdraft limit. The moment Mr May took part in the EFG scheme, RBS took from the Government the money underpinning that overdraft, closed down his overdraft and ruined his business. That is important because Mr May exemplifies the small business facing the big bank. He and his wife Kerry have spent four years arguing this case—along with me as their Member of Parliament—having meetings with RBS, and looking at court cases, and now at criminal activity, which has been reported to North Wales police, because there are allegations of fraud. That is also being looked at by the Crown Prosecution Service, which is reviewing the case. All of that is because of concerns about how RBS has acted, but there is no mechanism to drag this case forward apart from Mr May’s personal determination and will to hold RBS to account. The Financial Services Authority cannot do that; he has to have the will himself, with the support of his family and his MP. That is not acceptable.

That is why I support the proposal of the hon. Member for East Lothian. Mr May’s business and similar businesses need this mechanism to ensure that they get fairness when they face banks such as RBS, which is in public ownership, that treat them with disdain.

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[Norman Lamb (North Norfolk) (LD)]

I am very pleased to support this motion, and I congratulate the hon. Member for East Lothian (George Kerevan) on bringing this vital issue to the attention of Parliament.

There is a very clear gap in the framework of protection which needs to be addressed. This amounts to a significant injustice for very many people, and it would be intolerable if that injustice was allowed to go unchallenged. There is a need, clearly, for an effective and timely dispute resolution mechanism. As the hon. Gentleman said, central to any process of delivering justice must be full disclosure. Unless a person has access to all the information, they cannot properly bring their case and achieve justice. It must be a mechanism that is there for both regulated and unregulated financial contracts. The abuse of a proper process incentivises bad behaviour. If the banks know that there is no proper mechanism in place to achieve justice, they are encouraged to behave badly and to engage in sharp practice.

At the heart of current concerns is the Global Restructuring Group, which was set up by RBS. The stated intention was to put companies into intensive care to turn them around and to restructure their debts if necessary, but many small firms accuse the bank of deliberately forcing companies into distress, as the right hon. Member for Delyn (Mr Hanson) said, so that RBS can strip their assets and profit from their failure. That allegation in itself is akin to theft. On top of that, there is the serious allegation that there was a misuse of public money through the Government’s enterprise finance guarantee scheme. Lawrence Tomlinson, the former adviser to the Department for Business, Innovation and Skills, said:

“My fundamental concern is around what businesses were told before being brought into GRG and whether this reflected the true purpose of the division. Many businesses believed that they were in GRG to be helped, when it fact it appears to have been an exercise in restructuring the bank’s balance street, often in conflict with the best interests of that business.”

That is really serious. When he was in front of the Treasury Committee, he referred to

“unnecessarily engineering businesses into default in order to move the business from local relationship management to turnaround divisions such as GRG.”

He alleged that the purpose was to generate revenue through

“fees, increased margins and devalued assets.”

That is scandalous. They are incredibly serious allegations that must be properly addressed by the Financial Conduct Authority. It seems blindingly obvious that there must be an effective process for delivering justice.

I want to touch on the human cost. We have heard about owners of small businesses who have lost everything that they have worked for. They are in exactly the same position as any private consumer who has recourse to justice, but these people do not achieve justice. Just imagine what it is like for someone who has lost everything due to the sharp practice of a bank, but who cannot achieve any justice. It destroys people. It is impossible for them to move on. It is incumbent on this House and this Government to ensure that the matter is properly addressed.

I also wish to address the wellbeing of whistleblowers. I have a constituent, who wishes to remain nameless, who was a highly successful former employee of RBS and who raised concerns repeatedly over a sustained period about improper practice within RBS. It destroyed his health. He ended up leaving on agreed terms simply to end the nightmare that he was going through, but his concerns were not diminished in any way. The whole saga has destroyed this man’s life. He cannot move on, and he has been met by a brick wall. I have written on his behalf to RBS and, on five occasions, I have asked for meetings. I have written to Stephen Hester, Ross McEwan, Baroness Noakes and Sir Howard Davies, and on every occasion my reasonable requests for meetings have been turned down. They hide behind the compromise agreement reached with this man to say that they are not prepared to engage with him at all any further. It seems to be an arrogant and cavalier way to treat a former, highly successful employee. They have a total disregard for the impact on this man’s health.

My constituent’s conclusion is that it is not safe to blow the whistle. We should be celebrating whistleblowers; they risk everything to expose wrongdoing. They expose awful things that happen in our major financial institutions and they should be protected. I am horrified by the shameful treatment of this man.

[George Kerevan]

It may help the right hon. Gentleman if I tell him this: RBS has told me that the adjudicator in its new redress system, Sir William Blackburne, will have “unfettered access” to all the bank records in the cases that are brought up. The right hon. Gentleman might want to use that in his future dealings with the bank.

[Norman Lamb]

I am grateful to the hon. Gentleman for that suggestion. The FCA needs to take decisive action to provide justice to business owners who lost everything, establish an ongoing mechanism that is available for future cases of misconduct, and provide protection for whistleblowers destroyed by arrogant, dismissive behaviour by a bank owned by the taxpayer—that is the scandal. The need for justice is overwhelming and it is incumbent on the Government to respond properly to this call.

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[Simon Kirby]

I thank my hon. Friend for that clarification, and I apologise to the right hon. Member for Delyn for being inconsistent.

Unincorporated sole traders and small partnerships fall under the regulatory rules of the consumer credit regime. The FCA is asking how all SMEs are treated as customers of financial services, as is right and proper.

The hon. Member for Coatbridge, Chryston and Bellshill (Philip Boswell) mentioned the IRHP scheme. The redress scheme was not designed to replicate the courts system, which can be lengthy and expensive, as Members have acknowledged. Independent reviewers were put in place to oversee each case.

The hon. Member for Ceredigion (Mr Williams) asked about the timeliness of the ombudsman’s decisions. I agree that the decisions should be quick. I am assured that its decisions are faster than the courts and free for complainants. However, inevitably, complex cases will take time to resolve. He also asked about the disclosure of information. Where the ombudsman considers it appropriate to accept confidential information, an edited version, summary or description will be disclosed to the other party. I agree that it is right to pay tribute to my hon. Friend the Member for Aberconwy (Guto Bebb) for keeping this issue on the agenda.

The right hon. Member for North Norfolk (Norman Lamb) asked an important question about whistleblowers. I understand that the FCA has invited the hon. Member for East Lothian to discuss whistleblowing and I am sure he would be welcome at that meeting. To be clear, the Government recognise the information and huge value that whistleblowers provide.

[Norman Lamb]

Will the Minister give way?

[Simon Kirby]

I will not give way; I am so sorry.

The right hon. Gentleman mentioned RBS and GRG. The Government recognise the seriousness of the allegations against RBS. The FCA has stated that it is carefully considering the skilled persons report and other material and it is currently assessing what further work may be needed given the report’s findings.

The hon. Member for Redcar (Anna Turley) mentioned a constituent, and I have a great deal of sympathy with the situation in which he finds himself. The Government are committed to supporting small businesses through the tax system and through a regulatory regime that balances consumer protection and growth.

The hon. Member for Edinburgh West (Michelle Thomson) asked about GRG and the Government-owned bank. I should make it clear that Her Majesty’s Government’s shareholding is managed at arm’s length from the Government on a commercial basis and that HMG did not know about GRG’s activities. As a shareholder, HMG is not informed of internal business decisions. That is an important point.

The hon. Member for East Renfrewshire (Kirsten Oswald) asked about Connaught. I recognise the difficult position of many Connaught investors and I hope that the FCA considers any lessons to be learned from that case. I understand that an investigation into the collapse of the fund is ongoing.

The hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) mentioned duty of care. I agree that the outcome is important and that culture is vital. The FCA has principles of business, including acting fairly, on which it can take action. The consumer panel has asked the FCA to look at a duty of care. I am happy to tell hon. Members that I will write to the FCA to ask for an update on its thinking and put the letter and the reply in the Library.

I thank everyone who has contributed to the debate. I will summarise the Government’s position briefly because although we certainly do note many of the issues that are raised in the motion and by hon. Members in the debate, we have also heard that there are existing avenues open to businesses that are seeking to resolve financial disputes. In the case of the smallest businesses, there is the Financial Ombudsman Service. When there are widespread issues, the FCA has the power to take specific measures to ensure redress and, of course, the usual legal process is open to businesses.

However, the FCA has work ongoing to look at the relationship between SMEs and financial services providers, and we look forward to the next steps in that work. I assure hon. Members that we will then consider the need for future steps in that context.