My Lords, the hour is indeed late and I suspect that, like me, noble Lords are feeling utterly exhausted. However, this has been a genuinely brilliant debate and I am delighted that I have had the opportunity to listen to the speeches that have been presented so far. I shall try to restrain my comments because so much has been said, and I shall contribute to the debate only where I have something additional to say.
A number of Peers addressed the fundamental issue of oversight of the Bank of England. I share their concerns—in this, I am with the noble Lord, Lord Eatwell, my noble friend Lord Sharkey and the noble Lord, Lord Flight, rather than with some of the other speakers. During all the conversations that we had, particularly during the passage of the 2012 Bill, we were utterly focused on the issue that the noble Lord, Lord Eatwell, defined as “groupthink”. We had a financial services industry that allowed a systemic risk to grow and eventually lead to a crisis, in large part because independent thinking was continuously crushed. The Bank of England was just as guilty as any other party of becoming engaged in groupthink. This led to the demand for an independent oversight group. As I read the changes that this Bill puts forward, that group is now captured by the insiders within the institution, and that has to be examined. Independent supervision and oversight are surely critical. I know that the Bank does not like it but we who sit on the outside know that it is no insult to an institution to insist on independent oversight.
That brings me to the issue of the audit. We must listen to the noble Lord, Lord Bichard. He speaks with an expertise that, frankly, few in this House have. I hope very much that he will bring forward amendments at later stages of the Bill, because the concerns that he has expressed are absolutely central and key. I also hope that the Government will take notice of the issues that he has raised. The lack of independence in the audit provision is surely of fundamental concern.
I am with those who are very concerned about the absorption of the PRA back into the Bank. I remember the conversations around this—again, they concerned the groupthink issue. We talked about the importance of making sure that the Bank was not one single monolith and that there should be an opportunity for real challenge rather than groupthink. The sharing of agendas and the pursuit of the same priorities were things that we all sought to avoid when we looked at the 2012 Bill. I would much rather see the PRA move to greater independence than be absorbed back into the Bank. I see no reason for the latter other than a sense of architecture. We will be pursuing that issue.
The noble Lord, Lord Lawson of Blaby, along with many others, talked about personal responsibility. I rather disagree with the noble Lord, Lord Lawson, because he is willing to accept a change to the reversal of the burden of proof. He, the noble Lord, Lord McFall, and I sat in hearing after hearing where former chief executives of institutions constantly claimed that they had no knowledge of the abuses being perpetrated within their organisations, even though those abuses and the profits that they led to drove very large bonuses for those individuals. It is a fundamental principle that if you take the bonus, you take the rap. We heard chief executive after chief executive say things such as, “I was shocked when I read about it”. The LIBOR scandal, PPI, money laundering and the simple failure to follow decent credit standards all seemed endemic across banking institutions, but senior management and chief executives did not take responsibility.
What also struck me when we talked to those who had to enforce the regulations was the inability, having identified the abuse, to track up through the system and find the chain to senior management. That was one of the real drivers in reversing the burden of proof. When we listened to Tracey McDermott or Hector Sants, it was so evident that they could not find the email trail or track of phone calls; they could not find the path that took them up to senior management. I do not believe that the change to the statutory duty of responsibility deals with that adequately. The whole point about reversing the burden of proof was to overcome the ease with which that firewall was created between what happened inside banks and the awareness and responsibility of senior management.
We often talk about how limited regulation is in its ability to make fundamental change and that it is culture that counts. By making those senior managers responsible, we drive the change in culture. We saw banks with boards that never challenged what a chief executive did. However, a chief executive who is concerned that they might be liable for abuses in their own institution will want a challenging board. We saw bank after bank that failed to drive its culture down through the bank itself. Again, a chief executive is going to lead on this issue if he or she thinks that they are particularly at risk. It is that shift in the burden of risk that we wanted to achieve by the reversal in the burden of proof. I am very concerned that that has been abandoned.
A number of other noble Lords raised issues of great interest that this Bill gives us an opportunity to address, including that of diversity. The noble Lord, Lord Naseby, talked about the mutual sector and the right reverend Prelate the Bishop of Portsmouth talked about the importance of credit unions. We have in this country a real paucity of different types of financial institution. Look at the Mittelstand in Germany; it is very much supported by community and regional banks. In the United States, small businesses are very much supported by networks of community and local banks. We are missing those layers of banking. Regulators have always resisted any responsibility to have regard to that kind of diversity and the access that it offers, and have been satisfied with a very narrow definition of competition. In this Bill, we have a chance to
change that and to emphasise the importance of diversity for long-term financial stability and also because of the way that it can create that generation of new activity and prosperity, particularly in local communities. I hope that we very much take advantage of that.
The noble Lord, Lord McKenzie of Luton, focused on Pension Wise. This is an excellent opportunity to be able to review where pension guidance is now, in a field that is constantly expanding. If change is needed, it would be an opportunity to use this legislation as a vehicle. I am personally very concerned by the number of people I talk to who do not understand the difference between guidance and advice and are getting themselves into a trap of faulty decision-making as a consequence of that.
This will be a useful Bill. However, I am sad that the direction in which the Government seem to have taken it is to roll back some key provisions, particularly around the reversal of the burden of proof and the oversight of the Bank of England.
There is nothing in the Bill that addresses the issues of ring-fencing. However, the noble Lord, Lord Naseby, raised the absolutely key issue. When we on the Parliamentary Commission on Banking Standards looked at the retail banks, it was evident that the taxpayer subsidy—the protection of the taxpayer deposit—created a pool of cheap cash that was funnelled from those retail banks up to their investment banking arms and drove a lot of the wild trading that we saw, which ended up undermining our financial stability. It is really important that that chain is broken. Therefore, the issue of ring-fencing is an entirely appropriate one to address within this Bill as we move forward to ensuring that the ring-fence, as the noble Lord, Lord Lawson, says, moves towards being electrified rather than weakened.
It has been tremendous to be part of this debate; I really look forward to the following stages. Like the noble Lord, Lord Carrington, I think this is going to be an exciting Bill if not a simple one.
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