This amendment is in response to government amendments to the Bill which amend the Financial Services and Marketing Act 2000. The amendment would require the Treasury to commission a review to provide an opportunity to evaluate the effectiveness of the regulators, particularly the FCA, in implementing and effectively enforcing new powers in relation to individual standards rules and the licensing regime.
The amendment should allow for recommendations that may include the removal of powers from the current regulators or further separation within the current body. That would potentially allow for aspects covering licensing and individual standards rules to be considered for moving across to an independent professional body, should that be appropriate. That echoes the amendment that we on the Labour Front Bench successfully moved a short time ago.
Given the competing priorities for resources—which have the potential to be compounded with the inclusion of consumer credit regulation in 2014 and the payments system regulation, if approved—there is the concern that the FCA may struggle to carry out this challenging role it faces. Therefore, an independent review can assess the effectiveness of the FCA and PRA in being able to implement the recommendations made by the Parliamentary Commission on Banking Standards and, in doing so, provide feedback on how this can be improved, and whether it is more effective for the oversight and enforcement of the professional standards to be undertaken by a genuinely independent professional body.
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With more than 150 government amendments alone and just three sittings to discuss them, it is impossible to give them the amount of scrutiny that we would have wished. Therefore, it is sensible to ensure that mechanisms are in place for an independent review of both the FCA’s and PRA’s implementation of these changes. There are more than 50 actions, such as reform of the register and remuneration, with which the Government tasked the FCA and PRA in their response to the PCBS recommendations that do not require legislative scrutiny. There are also areas being included in the Bill that empower the regulator to develop and implement rules and enforce them. Given that the regulator in its previous incarnation of the FSA failed to hold anyone responsible for scandals such as the mis-selling of payment protection insurance, it is prudent to ensure that the reforms work effectively and that any amendments are made to maximise the protection of consumers. Indeed, the PCBS in its final report, Changing Banking for Good made this point in paragraph 195, when we said:
“Regulators have the power to impose significant penalties on individuals who engage in inappropriate behaviour, unlike banks, who can generally only impose penalties if they are within the terms of their contracts with their employees. The prospect of public censure, significant fines or being banned from the industry
could provide a meaningful downside to balance the significant upsides in banking. However, there has been negligible use of such sanctions against individuals”.
It continues in paragraph 196:
“In relation to the financial crisis, despite the ample evidence of widespread failures of management, leadership and risk control, the FSA has only brought a single case against an individual ... The Commission considers it a matter for profound regret that the regulatory structures at the time of the last crisis and its aftermath have shown themselves incapable of producing fitting sanctions for those most responsible in a manner which might serve as a suitable deterrent for the next crisis … The only other senior executive from a large UK bank to face any enforcement action in recent years was John Pottage, a former UBS wealth management executive, whose fine for misconduct was overturned by tribunal in 2012”.
There needs to be a promotion of cultural change, which I suggest should be through an independent professional body: While there is currently no independent professional body that could adequately take on these responsibilities of overseeing the banking standard rules or licensing regime, there appear to be some developments with Sir Richard Lambert’s plans for a new independent organisation to monitor standards in the UK banking industry. That looks like a step in the right direction, but we must remember that it is the banks themselves that have established that. The criterion for independence has still to be judged in that area. The parliamentary commission indicated that there is scope for a truly independent professional standards body to,
“share or take over formal responsibility for enforcement in banking”,
should it be able to fulfil the milestones laid out in the report. This was something that the commission recognised as important in changing the culture within the industry. It was the Parliamentary Commission on Banking Standards that looked at the culture in the industry. The Vickers commission did not look at culture. Indeed, when the Financial Services Bill Committee was going through the House, being a member of that Committee, I asked Vickers about culture because I noted that it was mentioned only four times in his report. His inadequate answer at that time was, “That wasn’t in our remit”. This is the centrepiece of changing the industry, and it is important that that concept is up front.
Paragraph 138 of the Commission’s report says:
“We believe that the influence of a professional body for banking could assist the development of the culture within the industry by introducing non-financial incentives, which nonetheless have financial implications, such as peer pressure and the potential to shame and discipline miscreants. Such a body could, by its very existence, be a major force for cultural change and we have already recommended that its establishment should be pursued as a medium to long term goal alongside other measures such as new regulatory provisions”.
However, to facilitate this, an independent review of the regulator’s performance must be undertaken to determine whether responsibilities for oversight and enforcement of professional standards should be moved across to a genuinely independent professional body. Now, why do we insist on that? There is a need to restore trust to this industry. Consumer confidence in the banking industry remains low since the crisis. There is a need for these reforms to work and those who game the system to be held to account. A poll
commissioned in the summer undertaken by Populus found that 86% of people think that the financial regulator needs to enforce the recommendations because banks cannot be trusted to do it themselves.
One question I asked throughout the Parliamentary Banking Standards Commission to executives coming before the commission was, “Can you effect change on your own in this industry?”. Almost universally they said, “No, we cannot. We need outside help”. While we pass this banking reform Bill, if we walk away from this issue then we walk away from the solution.
We have to have mechanisms to assist and to have oversight over the industry to ensure that that cultural change is undertaken. It is important that mechanisms are put in place that will hold the regulators to account and ensure that those who mis-sell or act in an unprofessional manner are held to account, regardless of their position or the size of financial institution to which they belong. I beg to move.