Medical Innovation Bill [HL]
Lord Brennan Excerpts(9 years, 10 months ago)
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Lord Brennan (Lab)
My Lords, everybody in the House admires the determination of the noble Lord, Lord Saatchi, in advancing the Bill. I am sure that noble Lords all agree that we should improve and enhance responsible medical innovation. However, the question to answer is not that, but whether the Bill performs a significant part of that objective. I speak as a practising barrister who has done medical negligence over the years on both sides, and as a trustee of the International Centre for Circulatory Health at St Mary’s Hospital, which regularly finances cutting-edge research into circulatory health.
Let us test the Bill against the objectives. First, is it necessary? Secondly, are there dangers? And thirdly, how does it fit in to an overall framework for improving medical innovation in this country?
First, is the Bill necessary? This point has nothing to do with litigation. It is highly unusual, and I cannot at present think of another example of a statute that gives legal immunity to a profession in certain circumstances. The Bolam test, as it is called after the case that decided it—which was explained by the noble and learned Lord, Lord Mackay—applies to all professions, not just to medicine. Therefore to give such an immunity by statute is highly unusual. The first and obvious question is: is it necessary? Is the present law lacking? I beg to differ from the noble and learned Lord, Lord Mackay, whom I respect as a most distinguished lawyer, for the following reasons.
The Bolam test—whether the practice accords with a responsible body of opinion—was developed in another case, called Bolitho, in which I appeared in one of the sides of the argument in the House of Lords, which said that that test had to be refined. If there are different bodies of responsible opinion, the test is not a numerical one—whether there are in existence such opinions—but looks at the logical basis to them. Can they be justified in risk-benefit analysis as being in the best interest of the patient and in accordance with a reasonable standard of care? That is an efficient test because it is not numerical; you can hypothesise on a specialised sector of medicine where there might be only two practitioners, or even just one, in a very specialised kind of operation, for example. The test would not fail because of numbers but would be applied on the basis of risk benefit and the logic of serious sustainable practice.
I therefore venture to suggest that the majority of lawyers and judges in this country at the moment would say that the present test was adequate and that it has not hindered the advance of a variety of medicine but has supported it. The noble and learned Baroness, Lady Butler-Sloss, in her then role as President of the Family Division, decided a case where the operation to be carried out on a patient who did not have capacity was pretty well unique. She determined that case on the Bolam test—was it logical and in the best interests of the patient? This has nothing to do with litigation but is to do with principled conduct of professional practice in this country. I am not aware of any evidence of a substantial kind that litigation is affecting doctors’ ability and desire to introduce innovative treatment.
The next question is: are there dangers? The Bill does not distinguish between private and public medicine. Its text almost presupposes public medicine as the paradigm. It refers to any condition, as the noble Lord, Lord Colwyn, pointed out, at any stage of that condition. The risk is obvious. Some practitioners, small groups in a private practice, or the private sector of a medical practice will know that they are going to be legally immune, or will feel confident that they are, and will take advantage of this. It is self-evident. We know, historically, how vulnerable patients will do anything; even with pretty average clinicians, when they have no great confidence in them, some people will do anything in medical terms. That is a danger, and this Bill does not embrace sufficient protections to meet that danger.
Noble Lords should remember the MMR scandal, where the proposed treatment of the rebels led by the medical man who produced the paper, was, “Let’s have a treatment that involves no treatment—don’t give the MMR jab”. We cannot assume that, in this modern world, everybody will act responsibly. There is a risk of medical quackery, and the Bill is not presently sufficient to meet it.
Finally, what about the bigger picture? It is dangerous to conflate the words “doctor”, “patient” and “treatment” as the basis for a test of medical innovation, because it does not take into account the supply chain of medical innovation—the inventors, universities, medical scientists and the big medical companies in pharmacology, or whatever, all of which are inventing. That passes on into clinical trials—and, as the noble Baroness, Lady O’Neill, pointed out, they need serious attention—and into the medical marketplace, where doctors learn about it and apply the treatment. They are the end point in a long process. This Bill does not take that process into account but concentrates particularly on the doctors’ decision. I suggest to the House that that is inappropriate. If we want to do something about medical innovation—I refer to the contribution of the noble Lord, Lord Turnberg—we must look at bureaucracy and regulation and other impediments. With the challenge of cancer and diabetes, with which my trust is concerned, there is much more to be done. We should not allow this Bill to detract from the fact that those major illnesses require a major campaign or programme—call it what you will—by society in general and the state in particular. I am deeply concerned about this Bill, but it could be the vehicle for a much greater attempt to improve medical innovation.
Financial Services (Banking Reform) Bill
Lord Brennan Excerpts(10 years, 4 months ago)
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Lord Flight (Con)
My Lords, first, I declare an interest as a commissioner of the Guernsey Financial Services Commission. I will raise an issue which relates, as far as possible, to the territory being addressed right now: what will be the position of the banks in Crown dependencies of the UK under the new arrangements for ring-fenced banks? I have made inquiries of the Financial Secretary and got an answer. However, I have some reservations that the answer will not work very well. An issue analogous to the comment about foreign banks in London is that most of the banks in the Crown dependencies are not branches but subsidiaries. The proposal is for branches to be within the ring-fence and not subsidiaries. However, there is little incentive for banks to convert from subsidiaries to branches to come within the ring-fence. At the heart of this is an issue of UK interest in that those banks mostly effectively gather deposits that are lent to London, and are in some senses merely a legal fiction. Therefore if they will be within the ring-fence and will all have to convert to being branches, there is a strong practical case for including them within the UK deposit insurance scheme. If not, the banks in the Crown dependencies will stay as subsidiaries in the main, they will be outside the ring-fence, and there will be a decline in the deposits they upstream to the UK partly for regulatory reasons and partly because they will not be a subsidiary of the ring-fenced entity. I ask the Minister to think again about the precise arrangements regarding ring-fencing for the Crown dependencies.
Lord Brennan (Lab)
My Lords, the present amendments fortify Part 4 by creating a comprehensive structure for conduct, standards, licensing and so on. Third Reading is an appropriate time for the Minister to clarify how in this structure directors, including the chairman of a bank, bear responsibility for the fulfilment of Part 4 as regards conduct and standards. Amendment 9 talks about:
“Vetting by relevant authorised persons of candidates for approval”.
The relevant authorised person is the bank. The bank ultimately sets its standards at directorial level, and directors carry a responsibility for it under statute and common law. Therefore I invite the Minister to clarify what, under this system, is the position of the directors and the chairman in terms of the enforcement of this framework for good standards.
Lord Eatwell
My Lords, I am glad to see that the introduction of Clause 15 on Report has at last seen the Government take the recommendations of the Parliamentary Commission on Banking Standards seriously in this matter and introduce these amendments that capture most, though not all, of the recommendations. What we have left, as the noble Lord, Lord Turnbull, has pointed out, is something of a tripartite muddle because we now have three different regimes affecting persons working within banks. I am afraid that this is characteristic of so many parts of this Bill and will need to be sorted out in future.
I would like to ask some questions about Clause 17 which, as was pointed out, brings branches into part of this aspect of regulation. As the House will be aware, in recent months the Prime Minister has significantly weakened Britain’s regulatory protections of its banking system by encouraging the establishment of branches in this country. Previously, the regulatory authorities had strongly discouraged this because they are not then regulated by British regulators but by their home regulator. The Prime Minister has chosen to weaken this protection particularly by encouraging the establishment of Chinese branch banks, which will be regulated by the Chinese authorities.
However, what is particularly interesting about Clause 17 is that it brings some branches possibly within some British regulatory ambit. I say possibly because according to this clause the Treasury may by order provide that authorised persons falling within any of the descriptions are relevant authorised persons. Relevant authorised persons, for those who have not participated in these debates before, are actually banks. The Treasury can choose which branches will be brought into the ambit. It is enormously important that the branches should be. The noble Lord, Lord Newby, was absolutely right in this respect. I hope the Prime Minister will not undermine this legislation by instructing the Treasury to exclude particular branches, perhaps those emanating from Chinese banks, from this regulation.
Lord Brennan
My Lords, I support this amendment. The debate on anti-money-laundering that we have undertaken during the course of this Bill has led the Treasury and government Ministers to send colleagues and me a number of letters and documents. This was extremely courteous and informative—but legislatively useless. The noble and learned Lord, Lord Steyn, once described this kind of material as an exercise in investigating “legislative archaeology”, principally because it had no real significance. Neither do these letters. You cannot legislate by epistle; you do it by the text of the Bill.
Everyone accepts that money-laundering is a major issue. Today is International Anti-Corruption Day. It is also the anniversary of HSBC’s enormous fine for money-laundering imposed last year in the United States. The concern reflects the fact that in the developing world in particular there is a constant, never-ending haemorrhage back into the developed world and our banking system of money that should be going to the poor. Something should be done about it.
The explanation given thus far by the Government is that the FCA has the responsibility for dealing with money-laundering and it is for it to do so. On our side, we do not think that that is strong enough. If in today’s Amendments 2 and 3 the Government feel robust enough to say that the Treasury must take steps to review proprietary trading, why should it not tell the FCA that it must take steps, always and actively, to counter money-laundering. Why the diffidence? Why not put a plain statement before Parliament, now or through the amendment, that anti-money-laundering counts, that we are against it and that the FCA must ensure that banks deal with it.
Lord McFall of Alcluith (Lab)
My Lords, I support the amendment. In evidence from business people to the Treasury Committee and the parliamentary commission it was said that good and firm regulation is a competition issue. Given that we aspire for London to be maintained as a global centre for financial products, it is important to recognise that dirty money comes in and out. The example was given of HSBC. It acquired a Mexican bank in 2001 in America. From day one the board was told by the compliance officer that no decent compliance functions were available. Notwithstanding that, the situation continued for six or seven years in which drug money was laundered, people died in Mexico as a result, and HSBC was fined almost $4 billion by the US authorities. If that can happen to a UK-based bank, it can be happening elsewhere. It is important that we ensure that regulation in this country is firm.
Mention was made of General Abacha. In 2006 there was an investigation by the FSA that did not go anywhere because the regulator did not have authority. It is therefore important that in this legislation we underline the regulator’s authority. The regulator did not have authority because there was a tension—and there will still be a tension, despite the new architecture—between the financial stability of companies and conduct of business. If we are to make London an attractive global centre, we have to understand the elephant in the room—money-laundering. I am afraid that, if we do not give the regulator an express duty and authority on money-laundering, we could find the problems that happened with Nigeria in 2006 and elsewhere being replicated. That case has still not been investigated authoritatively enough. Having this anti-money-laundering element in the Bill would be extremely important, and I support the amendment.
Lord Newby
My Lords, I turn finally to the amendments that deal with claims management companies and the Office for Legal Complaints. It is essential that a new route of redress is available to consumers who feel that they have received a poor service from those providing claims management services, commonly referred to as claims management companies, or CMCs. It is also right that the claims management industry bears the cost of providing this new route of redress. I thank the noble Baroness, Lady Hayter of Kentish Town, for raising this issue at Report stage and I am delighted that she has put her name to this amendment.
Section 161 of the Legal Services Act 2007 already makes provision for bringing complaints about regulated CMCs under the jurisdiction of the Office for Legal Complaints. Once commenced, this will give consumers greater scope for redress against regulated CMCs, including awards for financial compensation. Before Section 161 can be commenced, however, the correct mechanisms need to be put in place to ensure that the costs incurred by the OLC in relation to complaints about CMCs can be recouped. It is also necessary to ensure that these costs are borne by the claims management industry. It is right that costs associated with complaints about CMCs are paid for by the industry which creates them. It is also right to prevent the legal profession having to foot the bill for these costs or benefit from any income generated from recouping these costs.
Turning to the detail of the amendments, it is usual practice for the designated regulator to recoup the costs of redress from those it regulates. In this case, the Claims Management Regulator, or CMR, is the designated regulator. The Legal Services Board, or LSB, will then levy the regulator for the OLC’s costs and reimburse the OLC. To ensure that the Claims Management Regulator can recoup the OLC’s costs, these amendments change the Compensation Act 2006 to enable the Secretary of State to make regulations to allow the Claims Management Regulator to charge CMCs, as part of their fees, for the OLC’s costs associated with CMC complaint-handling. The Legal Services Act 2007 already provides for a levy on the Claims Management Regulator, if one is designated. This enables the LSB to levy the regulator for costs incurred by the OLC in relation to claims management costs.
That mechanism is applicable only when there is a designated person as the Claims Management Regulator. When no person is designated as the Claims Management Regulator, as is currently the case, this role falls to the Secretary of State. The mechanism does not operate in this situation as the Secretary of State cannot be levied. To address this, amendments to the 2007 Act are needed. They will change the Act to give the Lord Chancellor a new power to make regulations to allow him to recover the OLC’s costs associated with CMCs. These powers allow the Lord Chancellor to charge a periodic fee on regulated CMCs.
Finally, in this situation further amendments are needed to address cross-subsidisation. The amendments will change the levy mechanism in the Legal Services Act 2007 to ensure that the calculation of the OLC’s expenditure which is leviable on the legal profession excludes both its costs and its income in relation to CMCs.
These amendments are an important step in improving the redress system for consumers who have suffered from poor service from the claims management industry. It is right that consumers who have been treated unfairly are able to access this new route for redress through the OLC. I beg to move.
Lord Brennan
My Lords, these final amendments allow me to raise a point of general importance about the Bill. The amendments create yet a different and welcome addition to the commission’s original proposals.
The Bill came to this House at 30 pages long. With today’s amendments, it is going to be about 200 pages long, with about 150 clauses. I suggest to the House that it is incumbent on all of us—but on the Government, in particular—to assist public understanding of where the Bill is now at. It is going back to the Commons, where most of it will not have been debated, and the strain on people in this House over the past few weeks has been immense. Therefore, I suggest to the Government two measures that they might consider taking.
The first—although it sounds remarkable, it is of utility—is to prepare a set of Explanatory Notes on the Bill as it now is when it goes back to the Commons and when it is considered, as it will be, by the City of London in general and by the banking community and the lawyers in particular. The second point is that, from page 50 onwards, the Government’s response to the commission’s report of July 2013 very helpfully sets out 114 proposals with notes against them and proposed action. The Government have taken different positions on some of those, and there are additions to that list. It would be a great help if the list were revised, bringing it up to date to reflect what has actually happened.
I do not want to appear tedious but the fact is that this is a major Bill and we need to do everything we can to make it as well understood as it can be.
Banking: Parliamentary Commission on Banking Standards
Lord Brennan Excerpts(10 years, 4 months ago)
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Lord Brennan (Lab)
My Lords, the most reverend Primate has spoken with great force and clarity about matters of considerable moment to our society in a speech that will no doubt inspire the noble Lord, Lord Carrington, in his maiden speech.
We owe a deep sense of gratitude here in Parliament, here from the Government and outside from the public for the work of this Parliamentary Commission on Banking Standards, first, for its impartiality—the 10 members, nine of them politicians, could not be accused by any fair observer of having put party interest above public interest in the work that has been done here. The fact that the most reverend Primate has been described throughout the reports as “unaffiliated” is politically accurate but a graceless way of describing a Minister of religion. No doubt in future some other term can be found for that. Impartiality is exceptionally important. A great commission of this kind should be seen and respected at the end of its work, as this one is, because it represents the best standards of parliamentary behaviour.
The second reason for gratitude is the extent of the investigation, which is remarkable. There were many witnesses, yards of documents, innumerable meetings, specialist advisers and expert staff, all working together in a most effective way.
Thirdly, there is the speed of the commission’s deliberations, which is commendable. To examine the banking system of our nation after a disaster in July of one year and then by June of the following to have delivered five comprehensive reports is a real achievement.
Lastly, the quality of the commission’s analysis and conclusions is convincing. For all those reasons, gratitude, yes, but let us look at the process that produced its conclusion. First, there is the parliamentary power given to it to send for persons, papers and records: “You will come to Parliament to explain”. Secondly, there is the quality of inquiry of those who came to Parliament to explain. Fortunately, it was thought unnecessary to take evidence on oath, but the very threat that you might have to is an extremely good instigator of honesty by witnesses before the commission. Lastly, there was the use of specialist advisers; I understand that there were about 20 of them. That provides an administrative and process base of high quality. Most important is the fact that this was an evidence-based inquiry, it was in public, society knew what was going on and the conclusions have been regularly debated.
Such an inquiry has a continuum over 10 or 11 months, where the participants have a quality of intellectual dynamism lacking in those who subsequently, in Parliament, in government or in the public criticise or debate the contents of their conclusions. That work fully vindicates the view of the Commons Public Administration Select Committee when in 2008 it called for parliamentary commissions of inquiry in these terms:
“Proper parliamentary scrutiny should include the ability to undertake inquiries into significant matters of public concern. Parliament has, in the past, conducting investigations of this kind—and, as the great forum of the nation, should be expected to do so”—
not often, but when it does, to speak as part of the great forum of the nation. Indeed, only a few months ago the same committee asked for a parliamentary inquiry to be commissioned into the Civil Service.
The importance of that is not to be underestimated. Select Committees serve a purpose, which is basically to keep up with the regular, day-to-day activities of Parliament and the Executive. Joint Committees—there are five permanent ones—have specific objectives. Ad hoc Select Committees, such as the one that I sat on about the Chinook helicopter inquiry, are almost quasi-judicial. None of them performs the function that this commission has performed. Parliament challenged its membership through this commission to meet the concerns about the banking world. The commission has met that challenge. By its title, it has confirmed that the challenge is not just for Parliament; it is for banking and the community.
Einstein said:
“Not everything that counts can be counted. Not everything that can be counted counts”.
That elementary proposition should be the opening remarks in every inaugural lecture at the beginning of an MBA course at any university in the world. We should start with education. A couple of years ago the Yale Business School demolished its traditional mathematics-led, behaviour-ignorant course in business administration. It changed the title to “Honesty, The Value of Labour, Profit: Service to the Community”. Applications to the Yale Business School doubled in the first year. If you prescribe for greed, you will incentivise greed. This kind of course changes that at the beginning. Afterwards it is for bankers themselves to meet that challenge—the cultural challenge.
This commission has been a model of its kind, for the following reasons. First, it has been generally accepted by the public. Secondly, a great many of its recommendations have been accepted by the Government. Thirdly, it has given Parliament confidence in its own processes. Lastly, it provides a basis, as the most reverend Primate has reminded us, for a continuing challenge and for cultural change for the future. Changing banking for good is a challenge for us, not a conclusion for Parliament.
Financial Services (Banking Reform) Bill
Lord Brennan Excerpts(10 years, 5 months ago)
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Baroness Noakes (Con)
My Lords, as the Minister has said, I have Amendment 138 in this group. He has explained the amendment and the answer to it so well that I did not need to bring my speaking note with me. I thank him for the comments he has made, which have fully answered the points that lay behind my tabling of the amendment. He asked me to withdraw the amendment but as I have not moved it I cannot withdraw it. However, I confirm that I shall not be moving it when we reach the appropriate time on the Marshalled List.
Lord Brennan (Lab)
My Lords, I congratulate the Minister on his patience and courtesy in always being the Minister to answer my criticisms of the Bill. The patience and courtesy with which he meets my generosity in this regard fairly ought to be shared at some stage by the noble Lord, Lord Deighton.
The purpose of the amendments is to raise with the House and the Government two broad questions: first, on the need to avoid regulatory overload; and, secondly, on the need to ensure the adoption of robust regulatory principles in dealing with different sectors of the banking world. The amendments are directed at card payment systems, not the interbank arrangements to do with BACS, CHAPS, the clearance of cheques and so on, which have caused a great deal of difficulty.
First, on regulatory overload, this system, described in more than 60 sections, will be under the overall control of the Financial Conduct Authority, albeit the payment system regulatory structure will have its own chairman and board. It is a matter of real concern to note how much the FCA is being given to do in so many different regulatory contexts. This is a concern, first, as to manpower; secondly, as to skill and competence; and, therefore, thirdly, as to effectiveness.
Yesterday afternoon, in one of our debates, it was pointed out to me that the banking sector, or the financial sector, will pay for these regulatory costs. That is to state the obvious. The reality is, I assume, that the regulatory system hereby created will not be permanently in debt and bailed out annually by the financial services sector. Rather, it sets a budget a year ahead and the financial system pays it at the end of the second year in arrears. That gives the regulators two years of a relatively fixed budget. So, in determining how much responsibility to give to the regulators, including the Payment Systems Regulator, particular regard should be had to their capacity to carry out the job effectively.
It is therefore very important for the regulatory principle that the FCA and the PSR should not be given jobs they feel they have to do when present circumstances do not require them to do them.
Lord Brennan
Lord Brennan
My Lords, this amendment raises an issue of parliamentary importance well beyond the scope of the Bill. Clause 124 is a Henry VIII clause. Its contents involve the usual provision to make consequential amendments following the enactment of the Bill. My amendment is expressly related to the additional power the clause gives to amend subsequent legislation passed in this House in the same Session as the present Bill.
In restricting the amendment to that particular subsection, it should not be understood that I approve of the use of Henry VIII clauses. They are often the result of a bureaucratic, slipshod approach, whereas years ago statutes in draft form were dealt with with great care. The more such clauses are introduced, the more will be eroded the parliamentary sovereignty that is exercised over primary legislation.
Subsection (b) contains the power to amend future legislation in this Session of Parliament. In Committee, I invited the Government to explain the necessity for this and to note that it was most unusual. In fact, I have been able to identify only one statute where this phraseology has been used—the Financial Services and Markets Act 2000, a Treasury Bill. Please note the difference. You can amend an existing statute under a Henry VIII clause if it is passed, whether it is as a consequence of this Bill or some Bill that has become an Act in the past. However, we are talking about this Bill giving a power for subordinate legislation to amend future legislation. That is an extraordinary power for Parliament to seek to give, no matter how often it is declared that it is only for consequential matters.
It is the one example that I can find and occurred in circumstances which are extremely concerning. The amendment deals with a clause that was introduced in Committee. It was not considered by the Delegated Powers Committee because it came subsequent to that committee’s report, and it was not considered by the Constitution Committee, both of which would normally consider and report on a Henry VIII clause. The Government would then respond to that report and the committee would reply. That process fulfils what the Constitution Committee’s report on the Public Bodies Bill in 2010 said should occur in respect of these clauses—they should be clearly limited, exercisable only for specific purposes and subject to adequate parliamentary scrutiny. That does not mean only on the Floor of the Chamber: it is the committee’s report, the Government’s response and that then informing this Chamber as to whether the Henry VIII power is appropriate. The Government introduced the clause by amendment and, as far as I am aware, they did not bring it to the attention of either of these committees or engage in the exchange that would normally have occurred.
The noble and learned Lord, Lord Judge—who now sits on the Cross Benches—as Lord Chief Justice, described Henry VIII clauses in general as pernicious because they make for sloppy legislation and potential injustice, as well as a lack of parliamentary sovereignty. However, he did not have in mind a Henry VIII clause that allowed amendment of future legislation. Is this academic? No, it is not. Within the present Bill and the Government’s commentary on the Parliamentary Commission on Banking Standard’s report, I identified to the committee three issues which the Government were continuing to consider, each of which would require legislation if they introduced a change in respect of any one of the three. This could occur, presumably, during this Session.
This is important. Is it not rare that a Chamber in a legislature should allow subsidiary legislation to dominate future primary legislation in the sense that it can amend it? That state of affairs—something arising that affects a previous Act—should result in the Government of the day amending the new Act accordingly, as is their statutory duty in introducing legislation to the House.
In Committee, the noble Lord, Lord Newby—surely trying to be helpful, as he always is—said:
“I am very happy for Treasury lawyers to set out in a letter the precedents that these powers exactly replicate”.—[Official Report, 23/10/13; col. 1171.]
Five weeks later, I have received nothing and the Government have not given an explanation. It is not good enough. If the matter comes up again at Third Reading, it will be incumbent on the Government, at the very least, to make sure that any amendment concerning this clause should take place in the Chamber, if possible in the presence of noble Lords from those two committees playing their part. I beg to move.
Lord Newby
My Lords, I understand the concerns expressed by the noble Lord, Lord Brennan, and I assure him again that there is nothing unusual about the form of the power to make consequential amendments in Clause 124, and in particular, subsection (2)(b) does not extend the power unreasonably. My memory of exactly what I have written to whom, given that I have written to quite a number of people, is slightly hazy. I think I may have referred to this issue in what was a sort of portmanteau letter to the noble Lord, Lord Eatwell. It covered a whole raft of issues that had been raised not only by him but by other noble Lords. If I did not do so, I apologise to the noble Lord, Lord Brennan. However, in what I am about to say, I think that I can deal with the main point that he made.
Removing paragraph (b) would limit the power to make consequential amendments to Acts which are passed before the passing of this Act. That can produce unpredictable results depending on the progress of Bills and the dates on which they happen to reach Royal Assent. For this reason, powers to make consequential amendments to existing legislation often refer to Acts which are passed in the same Session as the Act in question. Noble Lords have asked for examples of this, and I can give them several. Such powers can be found in Section 51 of the Constitutional Reform and Governance Act 2010, Section 237 of the Planning Act 2008, Section 28 of the Welfare Reform Act 2007 and Section 118 of the Financial Services Act 2012—the provision on which Clause 124 was modelled.
The assumption is that Bills of the same Session are likely to have been prepared by reference to the existing law at the beginning of the Session, while the Bills of the next Session would have to take account of the change in the law produced by the Act in question. Where a Bill is amended significantly in its passage through the second House, it is particularly unlikely that Bills passed or made in the same Session will have taken account of all the provisions of the new Bill. That clearly applies in this case, as your Lordships know. The need to implement the recommendations of the Parliamentary Commission on Banking Standards has required very extensive amendments to the Bill in this House, and therefore it will not have been possible for the Bills which are being considered by Parliament in this Session to have taken full account of all the changes in the law which will be made by this Bill. Nor has there been time for the Government to consider all the Bills currently before the House to see if any consequential amendments may be required, or to follow all the amendments being proposed to these Bills. We have not, for example, had the opportunity to review the Pensions Bill, which may have provisions relevant to the subject matter of this Bill, or the Immigration Bill, which has some provisions on banking. We cannot rule out the possibility that it may be necessary for the Government to make consequential amendments to them.
I assure the House that the amendment introducing this power was considered by the Delegated Powers and Regulatory Reform Committee, and that committee has not expressed any concerns in relation to this power. I hope that, in the light of these assurances, the noble Lord will feel able to withdraw his amendment.
Lord Brennan
Will the Minister clarify, first, his reference to the Delegated Powers and Regulatory Reform Committee? Was its response made in writing, has it been published, and is it available in the Printed Paper Office? Secondly, and much more important, is that as his research appears to have been done, can he clarify whether on any previous occasion this power has actually led to the amendment of another Bill being passed in the same Session, but after the Act which gave rise to the power?
Lord Newby
I thank the noble Lord for that question. It is the normal practice of the Delegated Powers and Regulatory Reform Committee to include in one report its views on a number of Bills. I believe that that is what happened in this case and I will definitely write to the noble Lord if it has not.
Lord Brennan
Would it be possible for the Minister to confirm that because I asked specifically in the Printed Paper Office for all the relevant paperwork about this, and I was not given any report.
Lord Newby
I will absolutely confirm that, and I will write to the noble Lord on the second point, which I promise to do speedily.
Financial Services (Banking Reform) Bill
Lord Brennan Excerpts(10 years, 5 months ago)
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Lord Brennan
“(b) those aspects involve, or might involve, a risk of—(i) serious consequences for the authorised person,(ii) serious consequences for business or other interests in the United Kingdom, or(iii) conduct or omissions by or on behalf of an authorised person otherwise than in accordance with the requirements of a relevant financial scheme giving rise to criminal liability.”
Lord Brennan (Lab)
My Lords, I declare an interest, as I have done before, as chairman of Global Financial Integrity. In Committee, the Minister, the noble Lord, Lord Newby, said:
“The scale of money-laundering is very large, and the Government and the regulators are determined to cut it down”.—[Official Report, 15/10/13; col. 406.]
The phrase “cut it down” was prudently chosen. Money-laundering, in its widest sense, never goes away. By “its widest sense”, I mean any attempt to create an illicit flow of money for illegal objectives: money-laundering, drugs, terrorism, bribery—whatever it might be. I will use the term in that sense throughout what I am about to say.
The purpose of this group of amendments in my name and that of my noble friend Lord Watson is to identify as clearly as possible a legislative framework within which our banks can be regulated and monitored so as to achieve one of the Financial Conduct Authority’s objectives: to preserve the integrity of the British banking system. I will deal with them briefly. Amendment 26 deals with a scope of responsibility of senior management so as to specify, in a very broad phrase,
“a relevant financial scheme giving rise to criminal liability”.
That is carefully chosen as an omnibus phrase to cover all the kinds of money-laundering activities that I have just described and relates such irresponsibility directly to senior management.
Amendment 28 deals with two issues: redundancy and specificity. “Redundancy” is in inverted commas because it was suggested in Committee that these changes were entirely unnecessary. Plainly, the Financial Conduct Authority and everybody else have a duty to obey the law—of course they do. However, equally, legislation has a component in it that should be designed to relate the existing law to the specific responsibilities to be carried out. No harm is done by such identification, and clarity is achieved. Nobody can say that they did not know. On specificity, subsection (4)(a) of proposed new Section 59ZA in Amendment 28 deals with a general provision for dealing with these schemes that might produce criminal liability. Paragraph (b) sets out the main statutes under which such activities can arise. Paragraph (b)(viii) makes clear that the FCA and the PRA themselves can refer to other relevant statutes, regulations or the like as they think appropriate and are specified in their rules.
Amendment 30 is an attempt, in substance, to achieve the objective of making all persons responsible who engage in money-laundering activities, so that there are no loopholes between different levels of staff and management. Amendments 45 and 47 would provide that the FCA and PRA should, in the banking standards rules, make rules about money-laundering similar to the effect of what these amendments seek to achieve.
Lord Newby
My Lords, I will cover that issue in my letter. I am sorry that the noble Lord thinks that the FCA note is ambiguous, because the fact that it is giving greater priority to this issue and being more intrusive and energetic should give him some comfort. However, as I say, I will write to him.
Lord Brennan
My Lords, first, I had a meeting with officials from the Treasury, the content of which was, in short form, declaratory and, in long form, advisory. It was declaratory when I explained to them that I and my colleagues with whom I am working on this problem were convinced that these amendments were necessary and that the Treasury officials and the Home Office man who was there should revise their thinking accordingly. So they informed our side of the argument of nothing new, except that they felt that they were right. The advisory part of the meeting related to a simple proposition that took a little time to adumbrate. I invited them—both officials were, I am sure, competent young government lawyers—to take advice on this issue and on the terms of the offence, which we shall turn to shortly, from senior Treasury counsel who would be independent and objective as to whether the government views on the strength of the Bill on this point were correct. I do not know whether that has been done. The fact is that the meeting took place but was not productive.
There are times in legislative life when those who see cannot persuade the blind where they are going. In Amendment 30 no attempt is made to disadvantage junior staff and every attempt is made to ensure that senior staff are not allowed to use the fault of junior staff as an excuse for their own responsibility. That is what that amendment is plainly directed at. It makes the senior management’s job crystal clear. It is necessary to consider what the Minister has said in reply and, for the moment, I beg leave to withdraw the amendment.
Financial Services (Banking Reform) Bill
Lord Brennan Excerpts(10 years, 5 months ago)
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Lord Brennan
“(i) takes or agrees to the taking of any decision or the carrying on of any activity by or on behalf of B as to the business of a group bank, or”
Lord Brennan (Lab)
My Lords, in moving this amendment I am gratified to see so few people in the Chamber. I drafted two amendments in this area of the Bill and found to my astonishment that the Public Bill Office had converted them into 10. The excess is not due to lowly endeavour. Their quantity does not overcome their simplicity, which is designed to improve the drafting of this section; the section creates a major new criminal offence in respect of banking.
I draw the attention of the House to the following facts. First, because it is a criminal offence in nearly all circumstances it would have had full attention from both Houses. Secondly, however, in this Bill’s history, this offence was not in the original Bill before the other House. It is a criminal offence of a major kind that will have serious attention only from this House, because, thirdly, if it goes back to the Commons in a shuttle process it is hardly likely to receive the appropriate attention that it would otherwise merit. That is an important question.
As the House agreed when this first came up in debate, one of the main purposes of the draft offence was to phrase it to create a major deterrent just by its wording. Of course people who transgress can be punished, but one would devise this kind of offence in order to deter people from thinking of committing it. Therefore, its wording is extremely important—more than in most circumstances. Many criminal offences are the result of spontaneous behaviour. This offence is directed at what you might call systematic misconduct.
With those points in mind, I turn to the amendments. First, Amendment 84 is not pedantry. In the Bill’s present wording on decisions with which the amendment deals,
“as to the way in which the business of a group … is … carried on”,
the use of “way” in this phrase is in legal terms extremely loose. When it is substituted by the word “activity”, as in,
“carrying on of any activity”,
it is more precise. The word “activity” is defined as behaviour or actions of a particular kind, whereas “way” is much more nebulous. This amendment is a drafting one designed for precision. If one did not want to accept it, one would want to be persuaded why “way” is more accurate and more easily understood by a jury than,
“carrying on of any activity”.
That amendment is straightforward. Amendments 88, 91, 93 and 99 carry on its usage in other parts of the clause. Amendment 105 makes clear the words “decision” and “activity”, although the singular includes the plural. Amendment 84 and consequential amendments stand apart from what I shall add. It is a simple and sensible amendment.
On Amendment 95, when you are dealing with corporate activity and the decisions or activity of a group of individuals that lead to a major event such as the failure of a bank, all that imports a mixture of events and circumstance. Therefore, with that background, one must be very careful in a legal context about using just the word “cause”. You face the inevitable argument from defendants: “I may have done something wrong, but it wasn’t the real cause”. Most statutes that deal with this kind of issue use words like the ones in this amendment or in the amendment in the name of the noble Lord, Lord Phillips, “cause”, or “contribute significantly to”. That wording prevents defendants inviting juries and judges to enter into philosophical discussions about the extent of causation by virtue of the acts that were committed. That is extremely important; when it comes to a trial we deal with juries, and we want language that will enable them to come to common-sense conclusions. I suggest to the House that this is a commonsense amendment; the amendment in the name of the noble Lord, Lord Phillips, is to the same effect but with slightly different wording. Therefore, that also stands apart.
The next issue is recklessness. The noble Lord, Lord Deighton, on opening at Second Reading, said that this created an offence of “reckless misconduct”. The terms of the offence do not use the word “reckless” as we identified it on the previous occasion. That is extremely important, because at Clause 80(6) in the same Bill the intended statute creates an offence of recklessness. It actually uses the word “recklessly” to describe a certain action. It can be guaranteed that lawyers will argue that if a statute uses the word in one clause but not in another, then where it was not used it was not intended. How could Parliament describe two offences as having the same effect, using the word “reckless” in one but not in the other? That point therefore requires us to consider whether the wording covers recklessness to an adequate extent.
In the helpful but indeterminate discussion that I had with Treasury and Home Office lawyers, it crossed my mind that the case which they mentioned—a case called Cunningham—is not the current Supreme Court authority on the word “reckless” in this kind of offence. The appropriate authority to look at is R v G in 2004. The wording is simple. The decision says that a person acts recklessly with respect to a result if he is aware of a risk that it will occur—that is straightforward enough—and it is, in the circumstances known to him,
“unreasonable to take the risk”.
The intention of that case was to produce a definitive meaning of the word “reckless” for general criminal law. Therefore, let us test that standard set by the Supreme Court against the present wording, to determine whether it meets the current judicial test and whether it should match that test or if there is justification for a different test. This offence differs from R v G in three ways.
The first is the use of the phrase,
“far below what could reasonably be expected”,
rather than, “is unreasonable”. It makes a difference. This means that the jury will be told—in a case where a judge will have to determine whether there is an offence of this kind—whether “far below” only creates criminal liability for the most egregious acts or omissions—disastrously bad mistakes which jump off the page. That is what “far below” imports. This, to many, would strike one as an extraordinarily lenient way of approaching people who ruin a bank—that they should only be liable if they have been guilty of the most stupid and egregious mistake. That difference, having regard to the risk, is not justified. In this amendment, therefore, “far below” is deleted so as to be replaced by the words, “is unreasonable”.
The second point, by way of a difference to the case of R v G, is that the risk to be guarded against by the people involved is the failure of a bank. Therefore, to favour such conduct with a narrow test—the most egregious conduct—appears to be unwarranted in social justice terms. Why should this test be narrow? If, as I understand it, the offence is intended, despite my suggestion to the contrary that it does not in Committee, to involve wilful blindness—people deliberately avoiding looking at the risk— how is a judge or a jury going to assess somebody who is wilfully blind so as to be totally unreasonable, compared to somebody who is wilfully blind in the most egregious of circumstance? It is a complete paradox of terminology. You are either blind to the risk or you are not. The concept of extensive, as opposed to minimal, wilful blindness is absurd. It is an invidious distinction and will produce serious confusion. The fact that it is used in corporate manslaughter terms is not to the point. As I indicated in Committee, a corporate manslaughter event is usually an explosion, a building collapse, or a crane falling over: the circumstances cry out as indicating the “far below” standard compared to ordinary industrial safety standards. It is not the same circumstance; it is not an appropriate analogy.
The third difference that I suggest to the House is unwarranted is the test. If you look at the offence outlined in Clause 27(1)(c), the test is whether the conduct fell “far below” or was unreasonable, having regard to,
“what could reasonably be expected of a person in S’s position”.
In this context, the unreasonableness of conduct should be tested against the standards of people in that position: the unreasonableness, not gross unreasonableness. There is already a test that can be used and the “far below” point simply does not add to that. What could reasonably be expected of a person in his position is enough.
The House has been patient in listening to this. The fact is that in a few minutes I have summarised what will take days in court hearings about what this all means. What we want to avoid is the occurrence of court hearings. We do not want terminology that will provoke legal argument. The supposed improvements by these amendments that I have advanced at this stage have been debated before. If the Government are not sure of their ground regarding what judges and juries will do, they really ought to take independent opinion from Treasury counsel, not internal lawyers who have no real experience of criminal litigation. I commend these amendments to the House.
Lord Newby
I am not sure that I do, my Lords, but I wonder if I might write to the noble Lord to clarify our thinking and, it is hoped, persuade him that we have got it right.
Lord Brennan
My Lords, listening to the exposition of the Minister leads an experienced lawyer to think that those were the kinds of arguments that would make for an entertaining tutorial at university and deprive the participants of any career at the criminal Bar, because they simply would not know what they were talking about in terms of what a judge and jury would expect by way of argument. I am sorry to put it so bluntly, but it really is a clash with the Interpretation Act that would lead to ribald laughter in most criminal chambers. I am being serious about this. It is the kind of argument that you would expect to get from a bright lawyer with no criminal law experience. The Government must face up to this. I do not understand why they cannot take advice from a competent independent Treasury counsel on the scope of the offence in order to make sure that they can prosecute, or at least hope to prosecute. Creating such an offence in-house is, I think, highly suspect.
I will go through this point by point. First, why should not the statute say decision and/or decisions—one of the two? Secondly, why, as the noble Lord has suggested, do we have to get ourselves into the circumstance of having to identify the key decision? It may be extremely difficult to do that because it may be a refined banking judgment where a series of acts or decisions which led to failure may be cumulative and not the result of the key decision. Thirdly, how the word “cause” in the criminal law can be construed to be “significantly contributed to” is not, I think, something that figures in the criminal law books.
I turn next to corporate manslaughter. The argument has to be met. The fact that you get the same words in another statute is of no importance until you consider the context in which the words are being used. Far below that, in the industrial safety context, is the matter of common sense. In terms of banking behaviour, it is an extremely complex exercise to expect a jury to carry out, and an unnecessary one. The answer given in response to the amendments did not include any explanation of why this statute is taking itself down a different route from R v G. Wilful blindness is a specific criminal law phrase designed to embrace the people who deliberately close their eyes to something. It does not embrace innocent incompetence. The very word wilful imports the culpability of it.
My last point, in agreement with my noble friend Lord Eatwell, who is known as an academic, is that the legislature would be shooting itself in the foot if it created a criminal offence which the public came to treat as having no effect, bordering on the ridiculous. That would be a major political mistake. Those on the government Bench who take such matters into account should pay more attention to that than to the legal advice they are getting. I beg leave to withdraw the amendment.
Tackling Corporate Tax Avoidance: EAC Report
Lord Brennan Excerpts(10 years, 6 months ago)
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Lord Brennan (Lab)
My Lords, I congratulate the noble Lord, Lord Leigh, on a maiden speech of elegance and economy. It is a remarkable example for his fellow accountants. I also commend the Economic Affairs Committee on the high quality of this report. It applies clarity to the complex and gives its recommendations succinctly and to the point. It should be required reading—where necessary, rereading—for those in government dealing with financial affairs who are given to policy complacency or the intellectually superficial. I declare an interest as chairman of Global Financial Integrity, a Washington think tank working on tax issues and illicit cash flows. It works with several Governments in a task force dealing with tax reforms. Its work informs much of what I am about to say.
I want to deal in particular with the international aspect of corporate tax reform. It was described by the noble Lord, Lord MacGregor, echoing the Government, as a topic of key importance. So, what can be done internationally that will prevent our country losing its competitive advantage and yet achieve a more stable and just tax regime? We want to achieve as level an international playing field as possible. The importance of this topic was recognised this year by the G8, by the OECD it its initial report of February and its action plan of July, and by the G20 in calling for action in Mexico last year and in Moscow this year, endorsing the OECD action plan. What does the OECD say needs to be done? There are five principal points. The first is transparency: that is obvious. The second is evidence of beneficial ownership. Who actually owns which companies in which jurisdictions and how are they interconnected? The third is the automatic transfer of tax information. This already applies to the three NAFTA countries, applying to individuals and companies. It is a three-country market of 450 million people and hundreds of thousands of companies. It can be done: it is being done. The fourth and fifth are two interrelated topics: country-by-country reporting and transfer pricing.
The OECD, in its 15-point action plan—four points of which, as a matter of interest, refer to transfer pricing—says that country-by-country reporting and transfer pricing are an essential element in tax fairness across countries. The G8 agrees that this is essential. The OECD is neither amateur nor academic. It has a tax database and a tax policy centre and it is used to reporting on, and seeking to implement, tax reform. I quote from its report on transfer documentation practices, paragraph 71—a sentence that is tediously long but important:
“It seems possible for businesses to provide without undue burden individual country data based on either management accounts, consolidating income statements and balance sheets, and/or tax returns that would provide tax administrators with a general sense as to how their global income is allocated and where pressure points in the transfer pricing arrangements might lie”.
As far as I am aware, no one in the year or two since that was published has produced a plausible argument against its practicability.
Quoting these two issues in its action plan of July, the OECD promised an urgent response. That response was given 10 days ago, on 17 October. It precedes a consultation meeting in Paris in mid-November on country-by-country reporting and transfer pricing. By this rapid interim report it anticipates a set of rules to be developed that will include a requirement that multinational companies provide all relevant Governments with necessary information on their global allocation of income, economic activity and taxes paid in the relevant countries, according to a common template. That has been produced in three months. It requires a consultation response, including from our Government, by mid-November. Action is sought, and expected. Despite the understandable concerns of those in this House about the difficulty of obtaining international co-operation, the OECD reminds us all that the Extractive Industries Transparency Initiative and the Publish What You Pay initiative have both been put into practice by Governments and international energy companies. It can work and it is working. There is no reason why the OECD recommendations should not be accepted in the next month or two on these topics. However, we need to make more significant progress.
The Government and other interested bodies have to push the OECD. It is an important institution, and I praised it. However, Professor Picciotto, a witness to the committee, laments at paragraph 32 of its report some of the OECD’s past waywardness after it had made a good start. Indeed, he complains about the transfer pricing initiatives that it took, saying:
“Regrettably, the OECD officials have been allowed to go their own way, free from any parliamentary scrutiny, and develop the increasingly complex and inappropriate Guidelines”.
So they give the initiative, but the Governments ensure that they are quickly and practically produced for action.
We must next press the accounting profession. The International Accounting Standards Board is responsible for the creation of modern accounting standards, expressed in the international financial reporting standards —the IFRS. As far as I know, at present the standards board has no programme of any action in response to the OECD plan, and neither is any draft work being done on how the IFRS might have to be changed to meet the recommendations with which I have been dealing. Therefore, although Governments call for action, which requires accounting procedures to be in place, they have no oversight over the body responsible for creating them, nor on the profession that will implement them. That surely must be dealt with. We cannot have a two-year programme from the OECD and then a further lamentable year or two—or more—of introducing accountancy standards. A competent accountancy profession can produce a draft along with the OECD proposals.
Surely the third and last point is that this has to be kept in front of the public. It is a matter of serious public concern. We ordinary people pay taxes; why should these giants escape? It is simply not fair, and the public will not forgive politicians or Governments who forget that. It is important to note, to echo the words of Prime Minister David Cameron, that this is an issue whose time has come. I hope that the Government, Parliament and those responsible for these changes will not find themselves left behind.
Financial Services (Banking Reform) Bill
Lord Brennan Excerpts(10 years, 6 months ago)
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Viscount Trenchard (Con)
My Lords, I agree with much of what my noble friend Lord Flight has said. I also agree with a great deal or all of what my noble friends Lord Blackwell and Lady Noakes have said. I was also impressed by the way in which the noble Lord, Lord Turnbull, stated that he believed that the straightforward, unweighted leverage ratios should operate in tandem with a risk-weighted ratio.
I noticed that noble Lords opposite smiled when my noble friend Lord Blackwell pointed out that if the absolute ratio bites first and becomes effectively a frontstop rather than a backstop, it will lead banks to concentrate more heavily on risky assets, on lending on assets which they think will give them higher returns. I am convinced that that is correct. It is therefore important that the absolute ratio should be a backstop rather than a frontstop.
I am confused by the difference in responsibility between the FPC and the PRA. The amendment suggests that the Treasury should enable the FPC of the Bank of England to determine what the leverage ratio should be. However, as noble Lords have pointed out, the FSA had already become more involved in interfering with and providing advice, exercising influence over banks’ lending policies and questioning their formula and the basis on which they applied certain leverage to certain categories of asset class.
I am not sure where the writ of the FPC stops and where that of the PRA starts. I know that they are both part of the Bank of England and this is confusing. I would welcome clarification from the Minister.
Lord Brennan (Lab)
My Lords, Mr Andrew Tyrie, the chairman of the Parliamentary Commission on Banking Standards, described leverage ratio as,
“the single most important tool to deliver a safer and more secure banking system”.
In their reply last July, the Government accepted this importance. Indeed at paragraph 5.50, they plainly stated that in the future the FPC should determine the ratio, provided that it was not allowed to fall below the international standards reflected in Basel III. However, at paragraph 5.51, that commitment having been repeated, it is then said that it is,
“subject to a review in 2017”.
The question therefore arises, if the Government are committed in principle to the FPC determining the ratio, what in this review in 2017 might affect that principle? Questions of amount or the approach to ratio in the light of Basel III go to the process rather than the principle of who determines the ratio. I presume that over the next four years, the Treasury will determine the leverage ratio and will place such requirements about it as it thinks fit on the banking industry.
At page 68 of the response, the Minister will recall that under the heading “leverage ratio”, it is stated that the Treasury is presently reviewing with the FPC the balance between backstop and frontstop considerations. The intention is to publish the results before the end of the year. Given the six weeks or so of parliamentary time that we have left until Christmas and assuming that Report is, for example, in December, will the Minister undertake to ensure that that review is published before Report? It will affect the debate, should it recur on Report, on the question of who makes the decision. The key point, however, is: why 2017, if the principle is accepted now?
Lord Deighton
My Lords, I welcome the engagement of noble Lords on this critical issue of the leverage ratio and the FPC’s toolkit. Everybody agrees the importance of making sure that our financial institutions are appropriately capitalised. There is no dispute about that and the lessons we should have learnt from the financial crisis. The real question—and again my noble friend Lady Noakes hit the nail on the head—is about the journey we take to get there, how it integrates with what is going on in global standards, and what powers the FPC and the regulators already have to ensure that we are in the right place in the mean time. I think that also comes back to the points made by the noble Lord, Lord Brennan.
I shall try to give some context, particularly for those who are not so familiar with all the aspects. With each of these amendments, I ask myself what the point of substance is between the amendment and the Government’s position and whether I can reconcile the two with the existing actions we are taking. In this case I have been able to comfort myself that adequate protections are absolutely in place, given the objectives of this amendment.
The FPC has two main sets of powers at its disposal. The first is a power to make recommendations. This includes recommendations to both the PRA and the FCA. They can be made on a “comply or explain” basis. The second set of powers, which we are talking about here, is to give directions to regulators to adjust specific macroprudential tools. Amendment 93 proposes that the Government give the FPC direction powers to implement a minimum leverage ratio in the UK. Before explaining why the amendment is not necessary or desirable, let me explain the international and domestic context, beginning with the international.
In order to address recognised problems with the system of risk-weighted capital requirements—which we have all talked about and acknowledged—the Basel III accord recommends a complementary binding minimum leverage ratio. Again, we have all agreed that the right way ahead is for the two to work together, so there is no dispute about that. That standard comes into force in 2018, following a final calibration of the leverage ratio in the first half of 2017 so that we get it right. Separately, at the European level the European Banking Authority will undertake a review of the leverage ratio with a view to the European Commission introducing legislation in 2017. The Government agree, and have consistently argued, that banks must be subject to the binding minimum leverage ratio requirement, which supplements the risk-weighted capital requirements as set out by the Basel III accord. Therefore the Government fully anticipate the development of internationally agreed minimum standards of leverage.
The Government take the view—and we believe that the regulators agree—that the optimal approach to creating a lasting binding minimum standard is to work towards international agreement and its implementation through legislation. As Mark Carney wrote in the Financial Times on 9 September:
“Yielding to calls for unilateral action to protect domestic systems would risk fragmenting the global system, slowing global growth and job creation”.
Once that minimum is agreed domestically, the Government propose—and this directly addresses the point made by the noble Lord, Lord Eatwell—to furnish the FPC with a specific macroprudential tool to vary the leverage ratio, through time, obviously subject to it not falling below the minimum.
However, the question raised by the amendment is: what powers do the regulators have to take action on leverage between now and 2018 in advance of the introduction of that internationally agreed binding minimum requirement through European legislation? Let me reassure noble Lords that the regulators already have extensive powers to address the issues raised by this amendment. The FPC has broad powers to make recommendations to the regulators, on a “comply or explain” basis, including on leverage. The PRA has all the powers necessary—which we have talked about—under Section 55M of the Financial Services and Markets Act 2000 to require individual firms to take specified actions, including on leverage. Under Section 137G of FiSMA it may make rules in pursuance of its general functions, including rules on leverage ratios.
The killer fact, if I may call it that, is that on 20 June—interestingly, one day after the publication of the PCBS report containing this recommendation—the PRA announced that it would require eight major UK banks to meet a tougher leverage ratio than that prospectively required by Basel III. They have already done that. That action followed a March 2013 recommendation from the interim FPC to the PRA to consider applying higher capital requirements to any major UK bank or building society with concentrated exposures to vulnerable assets, or where banks were highly leveraged relating to trading activities. Put simply, the regulators already have the powers to do what the noble Lord appears to be suggesting in advance of international agreement.
Financial Services (Banking Reform) Bill
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Lord Brennan (Lab)
My Lords, I support the amendment because it recognises the obligation of society to protect and deal justly with people who report serious wrongdoing, often at personal cost. The 1998 Act recognises that in its statutory effect. This modest amendment is designed to deal with the relationship between the whistleblower and his employer in relation to an employment claim. I invite the House to look at the question of whistleblowing in a much broader context. The more monolithic the organisation, the tighter its internal process controls, the less likely it is you will find out about wrongdoing. Almost paradoxically, the whistleblower becomes more important —single though that person usually is—according to the size of the enterprise about which he makes revelations. That explains to a considerable degree the point raised by the noble Lord, Lord Phillips of Sudbury, about the effects upon these people of taking such a step.
As I said at Second Reading, the four major banks are, in a broad sense, in charge of four times our gross domestic product. Whistleblowing in organisations as big as major banks is a highly exceptional event. In considering the role of the whistleblower in this context, the Government should, I suggest, have regard to public reaction if it is not seen to be the case that whistleblowers are not only protected but encouraged by legislation such as this. Regulators are there to regulate, not to police in the sense of investigation, detection and prosecution. That is not their usual role—certainly not historically—in this country. Therefore, the whistleblower in this country has even greater importance than he or she has in the United States.
In the United States, the Dodd-Frank Act—the US counterpart of this legislation—introduced special provisions for whistleblowing, not just in banking but in financial institutions generally. It provided for payment to whistleblowers according to the extent of the misconduct that the whistleblower had revealed, as assessed by the SEC—the equivalent of our regulators. So, for example, if a whistleblower had disclosed LIBOR, the payment would reflect the importance of the discovery in relation to the economic loss that had been suffered.
That is exceptionally important. The greater the danger to the whistleblower within his or her employment or in relation to their future and that of their family, the more they should be protected, including financially —but within reason, I accept. If you do not do that, you expose the whistleblower to what almost amounts to serious persecution. One has only to look at some of the events that have occurred in the National Health Service, where whistleblowers in different hospitals or hospital trusts have had their careers ruined, and there was even, I suspect, a suicide a year or two back. This is serious stuff. These are citizens revealing misconduct by great institutions, and no more civic an act could you expect an ordinary person to perform.
In the United States as a result of Dodd-Frank, which was enacted in 2011, in the financial year 2012—the first full year after its enactment—there were 3,000 reports to the SEC. My enthusiasm and that of my noble friend Lord McFall led us to misunderstand each other. The Office of the Whistleblower is a permanent office within the SEC, and its purpose is to investigate claims and to co-operate with and look after the whistleblower. It works. When the new chairman of the SEC said publicly, “Now we are not only felt; we are feared”, one of the main reasons was the whistleblower threat. If we want to change culture, this is a very effective way of doing so. Good intentions count for a lot, but in changing culture, an intuitive fear of finishing up in jail counts for a lot more.
Lord McFall of Alcluith
My Lords, I will briefly speak in support of this amendment. My noble friend Lord Eatwell spoke of treating customers fairly. I remember, going back to 2002, when the FSA, bless its heart, introduced this to the industry. The FSA told me that it was a hugely uphill struggle. I well remember having a conversation with the chairman of one of the banks, who said to me, “Treating customers fairly? I don’t know what that FSA is up to, because I’ve always treated my customers fairly”. The gap between what the FSA was trying to do and the mentality of some people in the industry was huge. I remember being at a seminar with John Kay, who has written a great article in today’s Financial Times that I have already referred to. He said that a duty of care, if it was imposed on the banks, would be “transformational”. I think he said that for the following reason. There is today an imbalance between the customer and the bank—the term for that is symmetry of knowledge—which has led to many of the scandals.
Time after time on the parliamentary banking standards commission, when we ask chairmen and chief executives exactly why mis-selling occurred or why the grievous omissions took place in their organisation, they say that they did not know anything about it. There is, therefore, a hiatus between the top and below. One of the amusing aspects of my time as chair of the Treasury Committee was speaking informally to senior executives in the banks who came along to the Treasury Committee and said, “What you did to the chairman today was good because it allows us to educate him”—or her, although it is largely him—“about what is happening in the organisation”. A lot of them do not know what is happening. If we had this duty of care, that responsibility would lie at the very top.
During the deliberations of the parliamentary banking standards commission, I suggested that there should be an annual meeting between the chairmen and chief executives of these institutions, and the regulatory authorities, so that there was a sign-off on how they do their duty and how they serve the interests of their institution and their employees in the wider society. That information is not made public, but at least there is that accountability at the top between the regulator and the chief executive. At present, we do not have that. Having the duty of care would make those at the top much more alive to what is going on in their organisation. I have received evidence in the banking commission, particularly from the lawyers who were advising us, that the term “duty of care” has a specific legal meaning in the law of torts, and tests to establish whether a duty of care exists and whether it has been breached are a fundamental tenet of common law. In the context of banks and their customers, it is not clear what a duty of care would look like in practice. I know that there are huge legal hurdles to overcoming that, but there is a basic, common-sense and moral purpose to the concept of duty of care, and I think it is one that we will refer to again on Report.
I would like the Minister seriously to consider this amendment and ensure in some way or other that, as the Parliamentary Commission on Banking Standards stated in paragraph 416:
“Banks need to demonstrate that they are fulfilling a duty of care to their customers, embedded in their approach to designing products, providing understandable information to consumers and dealing with complaints”.
Lord Brennan
My Lords, perhaps I may take up the points raised by the noble Baroness, Lady Noakes. Paragraph (a) of the proposed new clause refers to a “fiduciary duty” by the ring-fenced body. In practical terms that means a duty exercised by, ultimately, the board of directors. The body acts through it. The practical consequences of such a duty, which does not involve enforceability by the regulators, are twofold. First, if the board of a bank breaches its fiduciary duty to customers in this way, it is perfectly reasonable for the shareholders to refuse to indemnify it in respect of any claims made by customers on the basis that it has breached a statutory duty, which could not conceivably be said to have been acting in the shareholders’ interests. That is the first practical consequence. It is a deterrent. Secondly, although I have not checked this yet, I suspect that in the field of commercial insurance you would not be able to get D&O insurance for protection in respect of a fiduciary duty until you have satisfied the insurability test of having acted reasonably and in accordance with commonly accepted standards of probity and good behaviour in the commercial sector. Therefore, the point is answered, I suspect, by practical consequences.
Lord Deighton
My Lords, this amendment is an opportunity to revisit the imposition of fiduciary duties or duties of care on financial services firms. The other place debated the same amendment at the Committee and Report stages of this Bill. Of course, no one in this House is going to disagree with the proposition that customers need a better deal from their banks, whether we call it treating customers fairly, having better standards or putting customers first. The Government have been keen, for example, to see more competition between banks as another way of addressing this concern. We all want to see better standards in the banking industry and a return to the days when the customer relationship mattered and the customer came first. We want the leadership of banks to appreciate that it is also in their long-term interests in building successful banking businesses. The Government’s amendments so far, which implement the recommendations of the PCBS, will be an important step in the round in that respect.
However, I note that the commission did not itself recommend the introduction of either a fiduciary duty or a duty of care. To cut to the chase, the Government do not consider that the introduction of either a fiduciary duty or a duty of care in legislation would help to drive up these standards within ring-fenced banks. First, banks are already subject to a wide range of legal duties. Most obviously, they are subject to contractual obligations to their customers. Any banking relationship or transaction is subject to a contract between the bank and the customer. Of course, a bank is subject to obligations under FiSMA and the regulator’s rules. Further, the Government’s amendment on banking standards rules means that in future senior managers and ordinary employees will also be subject to conduct rules. Therefore, it is not clear that imposing a fiduciary obligation on a bank would add any value. The fiduciary obligation is the kind of obligation that a director owes to a company, or a trustee owes to a beneficiary under a trust. It is an appropriate obligation when one person is acting on behalf of another or dealing with another’s property on their behalf. However, deposits with a bank are not property held on trust, so a fiduciary obligation would have no place in the contractual relationship between a bank and its customer.
Similarly, it is not clear what a duty of care—
Lord Brennan
My Lords, it is the end of the legislative day in an empty Chamber. This is an extremely important amendment. It is what the noble and learned Lord, Lord Judge, our previous Lord Chief Justice, now on our Cross Benches, would have described, as he did in a speech in the City, as a “Henry VIII Plus” clause because it is so wide-ranging.
I want to make several points for the Government’s consideration between now and the next stage. The Banking (Special Provisions) Act 2008 and the Public Service Pensions Act 2013 were both Acts that included clauses not as wide as this coming from the Treasury. Researches over the past few hours have not led me to discover any other Act in which there is a clause that provides for any previous Act and also any subsequent Act to be amended to accord with this Act. I may be shown not to know, but I suspect that if there is such a clause, there will be no more than one or two examples. I am concerned that these should come from the Treasury, lest it thinks that it has some special reserve powers for this kind of legislative amendment procedure.
If I have understood the history of this amendment correctly, it has come in the past couple of weeks. As far as I know, it has not been considered either by the Delegated Powers Committee or by the Constitutional Affairs Committee. This is important because in 2006 the Legislative and Regulatory Reform Bill contained a Henry VIII clause, which was withdrawn by the then Government after a critique by the Constitutional Affairs Committee. I invite the Government’s consideration of this and that of the whole House, when it has had the opportunity to consider that matter.
Subsection (2)(b) refers to a power to amend any subsequent Act that is passed within this Session of Parliament. That means by the end of next April. In the Government’s commentary on the list of recommendations of the commission and the Government’s response paper of July 2013, item 41, dealing with directors’ duties, is the present subject of review with a supposed consideration of a report called Trust and Transparency. The Government are saying that they wish to deal with changing directors’ duties and that that requires legislation. If this is currently before the Treasury and the relevant Ministers, is this coming in within this Session? In item 60 on payments regulation, there is to be a government report to Parliament by the end of this year, 2013. It requires legislation. Will that require yet another Act? We need clarity. On the whistleblower point mentioned earlier, if there is to be a change in the law, will that require further enactment? The final point is on auditors and supervisors. There are various reviews from the Chancellor and the Government which, it is said, do not involve legislation but might involve action, which in turn might involve potential legislative effect.
That is three definite items and potentially a fourth that spring out of this topic, and we need clarity. If this is a banking reform Bill, it should be a complete Bill, and the rest of the Session should be geared to accommodate these matters. It is late in the day to ask for a considered response, but no doubt this can be dealt with in writing, and again when we next deal with the Bill.
Financial Services (Banking Reform) Bill
Lord Brennan Excerpts(10 years, 6 months ago)
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Lord Flight
My Lords, I support the points made by the noble Viscount, Lord Trenchard. It is entirely understandable that people in this country are furious when they see individuals whom they blame for the system blowing up getting off scot free. On that front there are two points. First, if monetary policy is too lax for a long time, it will almost inevitably lead to bad lending by banks because, in some sense, banks are an automatic conduit of money. That really is what happened in the UK—because of the 2% inflation target, the Bank of England did not acknowledge that there was much higher inflation here off-set by imported deflation. We had easy money for far too long that filtered its way through into bad lending by banks. I remind the House that it was not investment banks but one or other form of bad lending—old-fashioned bad lending such as HBOS or buying CDO instruments from the US. It is not just individuals when a banking system blows up but the background as well.
Secondly, I blame greatly the useless and negligent regulators as well. Why did they not spot the problem? Why should they get off scot free as well? They have a job. Their task is to keep an eye on and make sure that the banking system is safe. If they fail completely in the discharging of that, to some extent they are as guilty as reckless people running banks badly. There is certainly an argument for saying that it would be desirable to bring in draconian powers against the executives of banks, harmonised internationally. I would be more comfortable if the same sort of measures applied in the US, Hong Kong and continental Europe.
I want also to raise a slightly quirky point relating to anti money-laundering since anti money-laundering amendments have arisen. It seems to me that in some ways anti money-laundering has gone slightly over the top. Noble Lords may be aware that, following the large fine given by the US authorities to HSBC, HSBC has simply fired all its US clients in the UK. It has closed their accounts. It has said it no longer wants the risk of dealing with Americans. This has caused huge inconvenience to lots of Americans living in London. Going forward, I can see if other dangers present themselves to other banks, they may decide that it is not worth having a particular category of client.
FATF, which as far as I can see is an unaccountable body laying down anti money-laundering rules, decided to blacklist a number of countries it felt were not practising anti money-laundering measures adequately. This led to some 30 embassies in the UK finding their bank accounts were likewise closed by HSBC. Some of the embassies found it virtually impossible to obtain a new bank account. If there was a branch of a bank from their country in this country they could go there but most other banks would not take them on as a client because they had been blacklisted by FATF. That again seemed slightly to fly in the face of embassies being approved by the Foreign and Commonwealth Office. Its reaction to this matter, I gather, was to express regret but not to do anything. I raised this with Andrew Bailey from the PRA. He felt it was extremely wrong and was quite surprised it had happened. This is a slightly different issue from where we are in the Bill but I would just say to the Minister that the Treasury needs to keep a little watch on what is going on in the anti money-laundering territory and its knock-on effects. I certainly think it is time that FATF, which is the top body laying down all this, were accountable to somebody. Both the Treasury and the Foreign and Commonwealth Office effectively said to me that they could not interfere with FATF—whatever it says goes.
Lord Brennan (Lab)
My Lords, I speak to the amendments in my name and in those of the noble Lords, Lord McFall and Lord Watson. I declare an interest as chairman of Global Financial Integrity. It is a Washington-based think tank whose purpose is to promote measures designed to limit and eventually eradicate illicit financial flows around the world, in particular those from developing countries, which presently run into hundreds of millions of dollars. It is thought that they exceed the amount of aid that developed countries contribute to the countries out of which that money comes. I have experience as non-executive director of a banking operation and have advised banks professionally.
Money-laundering, the proceeds of crime and the results of fraud represent a composite picture of international dishonesty, which has been and will continue to be practised wherever those responsible can find a banking system through which to channel the money. This is a fact of life. Many of our banks have such an international scope that they are a ready target for people wanting to use them for these illicit activities.
I invite the noble Lord, Lord Flight, if he has not already read it, to look at the congressional report on HSBC. The chairman of HSBC described it as a very sobering read and concluded that bankers had lost the right to self-determination on such issues. When we come to the part of the Bill that controls how and what people in banks do so that this kind of dishonesty is not furthered, we should err on the side of authority. I invite those advising the Minister to avoid the legislative naivety I dealt with at Second Reading, or in months to come the Bill will result in many hours of detailed inquiry and comment by lawyers advising banks. The first rule the lawyers will pick up is that that which is not stated in this Bill was neither meant nor intended. The Bill, if it is to restore public trust and avoid the kind of risks I have described in dishonest money transfers, should err on the side of authority.
The amendments I am about to speak to were produced by independent counsel, invited to produce amendments that sought to meet the concerns I and my noble friends have. We played no part in the drafting of these amendments, so let us have a care. If a professional advising us as to the amendments produces this level of authority as being required, what do you think those seeking to protect themselves against it will do in terms of legal expense and inquiry?
My final point before I turn to the amendments in detail is by way of introduction. The noble Lord, Lord Flight, in his usual reserved manner, said, “What about the reckless disregard of regulators in the past of their responsibilities?”. I do not think that we are entitled to repose into the hands of future regulators a degree of confidence that past experience shows would be misplaced. They should be told the scope of how they are to do things and what they are to do because we are talking about bank involvement in criminality.
Amendments 46A and 46B go to the question of strengthening the senior management function—the senior person’s regime—so as to include, with precision and clarity, an obligation on the banking system specifically to deal with the risk of money-laundering and of dealing with the proceeds of crime or the results of fraud. There should be no legislative fault in precision and clarity when dealing with criminality.
The amendments seek to ensure that the definition of “senior management function” should be seen to include those areas that I have just mentioned in terms of compliance. Those in banking must comply and must avoid the risk of non-compliance. The FCA, in specifying senior management functions, will require them to do things, including a minimum threshold for sums to be regulated. Is this too much? It was not thought to be too much in the United States, which has a far bigger banking system than ours. Would it run a risk of damaging our banks? It has not in the United States. It is ours that have suffered the penalties, not theirs. These amendments seek to establish a norm—not some Anglo-Saxon aberration—for proper cross-border behaviour in the banking world.
Your Lordships will note that Amendment 46A uses the words, in proposed new paragraph (b)(iii),
“related to or resulting from”.
In other words, it gives a broad reach to responsibility. Amendment 46B makes specific reference to the statutes that have to be borne in mind. It is hardly a criticism to be met to say that people must obey the criminal law—of course they must. This statute—the Bill and the amendment—remind people in statutory wording of their civic obligation, as well as their professional obligation, to obey the law. It is designed to stop the defence of, “Nobody told me. It was not my job”. The two amendments are straightforward and build on the Government’s well deserved intention to improve the law.
Lord Brennan
“(b) those aspects involve, or might involve, a risk of—(i) serious consequences for the authorised person, or(ii) serious consequences for business or other interests in the United Kingdom, or(iii) conduct or omissions by or on behalf of an authorised person related to or resulting from the authorised person transacting with criminal property for its benefit or for the benefit on behalf of other persons.”
Lord Brennan
My Lords, I am grateful to the Minister for telling us that he will write in due course about the matters that I raised. If the Committee will forgive me for using a graceless Americanism, we are not talking about legislative refinement—this is hardball. It is serious stuff out there in the commercial world.
I reassure the noble Baroness, Lady Noakes, that I have assumed that money-laundering has its technical meaning, which is using a bank to convert illicit money into a licit flow, which would include tourism and so on, but if necessary that can be dealt with by way of a bigger list in due course.
Lord Brennan
Lord Brennan
My Lords, I will deal briefly with these amendments concerning the creation of an offence in relation to a decision that results in bank failure. The amendments are designed to test the definitional value of the present clause, and work on the realistic expectation that once this becomes statute there will be a very much reduced prospect of people committing such an offence, particularly if they face up to seven years in prison on indictment. So the purpose of this section is more of a deterrent, although it has a punitive value if there is a transgression. It is with that in mind that these amendments were put forward.
I shall address Amendments 58A, B and C in turn. My reading of this draft offence does not include any use of the words “reckless” or “recklessness”. It would be unwise in legal terms to equate its contents with some broad description to be used as a synonym, or understood synonym, of “recklessness”, which is a term of art in the law.
Amendment 58A deals with the following risk. It is likely that there will be more cases of one or more people being involved—two, three, four, five, whatever it might be—than a singleton defendant in a bank failure. If the bank is operating properly, it is almost inconceivable that one person could engineer its failure without the knowledge of others. Therefore I predict that if they are brought to trial, one or more of them will say, “I did not know; it was that man, not me.” This particular amendment is designed to cover that situation. “Should have been aware” implies “should have been aware by reason of competent and honest practice of appropriate banking standards”. It is an entirely reasonable test, and it gets over the point that the noble Lord, Lord Lawson, was telling us about earlier, of elective ignorance: “I don’t want to know”; or wilful blindness: “I don’t want to know because I’m never going to ask”. Many would think that both of those situations involve culpability. You cannot get away with it by shutting your mind to that which you should have known by professional standards and proper competence. So the time between now and Report should involve a consideration of how this clause is to be used if it becomes an offence where there is more than one defendant. Even if there is only one, he can blame someone who is not before the court.
I now turn to Amendment 58B. Corporate manslaughter is rarely brought to court. It is normally brought to court in respect of a flagrant breach of health and safety standards, usually in the construction industry, energy, or whatever it might be that causes a terrible accident. In other words, the incident speaks for itself. The word “far” in that context adds nothing to the impact of the event, and I suspect that most juries will not pay any attention to the word “far” when they are directing—they will look at the event. Between now and Report I want the Government to consider this question: how on earth will a judge directing a jury interpret the word “far” in respect of refined banking practices that may cause a concatenation of events that lead to a failure? It is an extremely loose word to use in this context, and I invite reconsideration of it or its omission.
Lord Brennan
My Lords, I raise the question briefly about recklessness for the Government to consider. Let us suppose a senior manager reports to a chief executive officer saying, “I want to tell you about the following risks that would arise if decision A,B or C is taken”. The CEO is of the imperial kind and tells him not to waste his time, that he is not interested in risk, and to get on with it and make the decision. In those circumstances, the present legislation as it is drafted would justify a decision to prosecute the manager because he went ahead despite the risk, but not the CEO because he never actually knew what the risk was; he just ordered the junior to go ahead and do it.
The point about recklessness, which the lawyers advising Ministers should consider again, is what you do in the more likely scenario in banking, not of a round table where people are all carefully considering risks but of high speed commercial dynamics in which somebody forces a decision to be taken, not caring what the risk consequence is. How do you deal with that?
In the mean time, I beg leave to withdraw my amendment.