Commercial Financial Dispute Resolution Platform

Peter Dowd Excerpts

Thursday 15th December 2016 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

The hon. Member for Dumfries and Galloway (Richard Arkless) has summarised most of the things that I would have referred to. I thank the hon. Member for East Lothian (George Kerevan) for bringing the issue before us. I also want to touch on one or two points made by the hon. Member for Wycombe (Mr Baker) about the Austrian school. As he said, the system is not adequate to deal with the task of resolving complaints. My right hon. Friend the Member for Delyn (Mr Hanson) gave a passionate exposition of his constituents’ concerns.

I am pleased that we are debating this issue. It has been the subject of cross-party engagement, particularly in the work of the all-party parliamentary group on fair business banking and that on alternative dispute resolution, which is chaired by the hon. Member for Henley (John Howell). I suspect that RBS’s use of global restructuring is the most glaring example of how poor corporate governance and weak regulation can produce dreadful outcomes for individuals and businesses. Many of the small business owners affected have lost not just their businesses but their health. Under the current financial regulatory system there is a huge imbalance of power between small businesses and their financial services providers, as many Members have mentioned, and that imbalance needs to be redressed. When problems arise between businesses and their banks, as happened with RBS and the GRG, the dispute resolution options open to businesses are inadequate. RBS announced in November that it was establishing a new complaints review, but any ad hoc dispute resolution mechanism based on the internal mechanisms of the bank is clearly insufficient.

The failures of RBS were fundamental. Its actions were not just the result of a few rogue employees; apparently, those actions were RBS’s explicit policy. Employees were strongly encouraged to push small businesses into the GRG. Restructuring was required of companies, along with interest rate uplifts. Many claim that once small businesses were in the hands of the GRG, they were, to use a phrase, turned over for every penny that could be found. There was no great secret in the bank about what was taking place. Ostensibly, the fact that project “dash for cash” was in the system was celebrated, as the hon. Member for Edinburgh West (Michelle Thomson) said. The intention could not have been more obvious, and it had little to do with assisting businesses that were in trouble.

The motion usefully highlights the fact that we cannot say that this was a problem at just one bank. The issue went beyond that; it was systemic, and we can point to the wider failings of the banking sector that led us here. The catastrophic failure of the system in 2008 made that clear. Poor regulations, excessive borrowing and incentives within banks all helped to drive the crash. Of course, the cost to the taxpayer was immense. On the IMF estimate, the UK bail-out scheme cost, at its peak, £1.2 trillion.

The lessons that should have been learned are clear. Banks have to be regulated well in the public interest and in the interests of the taxpayer. A laissez-faire approach is inappropriate for a sector of the economy as uniquely privileged as banking. Since 2008, British banks have placed themselves on a more solid foundation, building up reserves and conducting regular stress tests, and closer monitoring has been adopted by the appropriate authorities. That is quite right.

RBS’s novel approach to many small businesses shows graphically and in a historic way how things can go wrong. Poor management, avarice and hubris took the place of prudent management at the top of the bank, and other people’s money was used imprudently on the basis of hubris. The management were reduced to shoring up the balance sheet by almost any means necessary, and mechanisms must be in place to stop that happening.

Since the financial crisis, a consensus has grown up that a failure of regulation and regulators helped to drive the crash. Efforts have been made at a national and international level, but there have been troubling signs since the election last year that the Government may be going a bit cold on the necessary work. The proposals of the Vickers commission have been, as John Vickers has said, largely ignored, and the inquiry into banking culture has been scrapped.

I know that the Minister is in listening mode, and I hope that he listens today. There are challenges ahead, and we must have mechanisms in place to deal with them. To leave small businesses without even the protections available to consumers is to leave them very vulnerable, and we all know what happens to small businesses when they are left in such a vulnerable position. I do not want to harp on about banking failure, but nor should we go into amnesiac mode to save a few blushes. It is absolutely vital that we get the proper processes and mechanisms in place.

When there are disputes, it is essential that they can be resolved speedily and effectively. Ad hoc dispute mechanisms go only so far, so we need systematic arrangements. In previous cases, small businessmen have had to rely on expensive and inaccessible court procedures to obtain redress, and that is not appropriate. It is not enough, as the motion states, to establish ad hoc compensation schemes after the event. They lack the authority to secure public confidence, so we have to go further. It is much better to have the appropriate procedures in place before the event, and before things begin to go wrong. The motion rightly insists that the Government follow the advice of the Treasury Committee and establish an effective dispute mechanism for financial services.

I will bring my comments to a conclusion. It is essential that the malpractice in RBS is not allowed to recur. As has been said, the taxpayer still owns a huge share—73%—in the bank. The Office for Budget Responsibility now believes, on Treasury advice, I understand, that the stake may never be sold, or will not be sold for a considerable period. It is absolutely right that we should expect any bank to treat its customers fairly. The failures at RBS and its treatment of its customers would be totally unacceptable at any institution. At the moment, there is a wider case for at least considering the establishment of effective regulatory mechanisms, and not only such mechanisms, to change the governance and structure of our banking system. It is now pretty clear that RBS will not be sold for the foreseeable future, so it is perhaps time to conduct a full review of all the options for the future of RBS, including whether any alternatives would deliver better value for money for business and the economy. The key is to have a robust, independent and systematic resolution platform.