My Lords, as the Minister said, this House has frequently discussed the problems with the banks’ treatment of customers under their interpretation of the EU PEP rules. Each time we have done so, it has been quite clear that there are plenty of examples of banks frequently acting aggressively and disproportionately. It is quite clear that by unreasonably closing accounts, or threatening to, they cause real distress and the Government agree, as the Minister said, that the banks are ultimately at fault. In response to an Oral Question from my noble friend Lord Clement-Jones on 14 October 2014, the Minister, the noble Lord, Lord Deighton, said:
“I absolutely accept the criticisms that are made where banks behave disproportionately. It happens too often and we should work with them to fix that”.—[Official Report, 14/10/14; col. 115.]
It clearly has not been fixed and is probably getting worse as the banks anticipate the new EU directive.
Discussing this amendment on Report in the Commons on 19 April, Harriet Baldwin said that,
“if the transposition of the EU directive into domestic legislation is mishandled, a wide range of other people could be affected. It could adversely affect tens of thousands of people, including civil servants, city workers and even, as has been described, the families of armed forces officers serving our country abroad”.—[Official Report, Commons, 19/4/16; col. 853.]
The Minister was right to warn of this possibility.
On Sunday, the Sunday Times ran a large and prominent article on the case of Alan Charlton. Mr Charlton retired from the FCO three years ago after 35 years’ service. He is our former ambassador to Brazil. His bank threatened to shut down his account as part of what the paper describes as the bank’s “crack-down” on PEPs. It is a little ironic that the bank in question is HSBC, so recently fined $1.9 billion for being what the US Senate described as,
“a conduit for drug kingpins and rogue nations”.
It is a case of closing the wrong stable door.
3.45 pm
The amendment, originally from Charles Walker—and greatly to his credit—is designed to stop abusive and disproportionate behaviour by the banks, and we very much support it. Our only concern is that it may not go far enough. The amendment calls for clarifying guidance and definitions. It calls for guidance requiring a proportionate and risk-based approach to conducting transactions or business relationships with each category of PEP. As the Minister has said, it makes provision for complaints about the banks in relation to their treatment of PEPs to be adjudicated by the FCA. The problem is that such guidance already exists: it is contained explicitly in the Financial Action Task Force guidance note of June 2013. Paragraph 16 of this document, on page 6, says that to determine whether a domestic customer is, in fact, a PEP:
“Recommendation 12 requires taking reasonable measures, based on the … level of risk, to determine whether the customer or beneficial owner is a … PEP”.
This is guidance, but it is not working. Exactly what the new guidance says will have to be even clearer and tougher than that. Definitions will need to be clearer and free of hedging. Does the Minister agree that the FCA must consult widely in drawing up the new guidance proposed in the amendment, and that both Houses of Parliament should have an opportunity to discuss the draft?
The notion of the FCA as an adjudicator is very good, but only if its rulings have real teeth. Banks will take no operating notice of small penalties. Will this amendment leave the size of any penalty entirely to the FCA? Can the minimum size of any such penalty be part of guidance? Adjudication also needs to be swift and have regard to the inequality of arms between banks and their customers. Will the guidance also include provisions for a timetable for resolution and a stay on bank action—closing an account, for example—pending such resolution?
These are important considerations and are intended to help a very good amendment. I congratulate Mr Walker on bringing it forward and the Government on accepting it. I look forward to seeing draft guidance very soon.