Banking in Scotland

Andrew Rosindell Excerpts

Thursday 14th October 2010 Westminster Hall

[Mr MacNeil]

I hope the hon. Gentleman went to Norway as well.

[Andrew Rosindell (in the Chair)]

Order. The hon. Member for Na h-Eileanan an Iar (Mr MacNeil) will have a chance to contribute to the debate later. Perhaps Mr Davidson would like to continue.

[Mr Davidson]

If people just mention the arc of prosperity the nationalists tend to become somewhat overexcited. I understand that and accept that it was my responsibility. I will try not to say anything else that might prove unduly provocative.

Visiting Ireland was interesting because—

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[Mr Davidson]

I thank the hon. Gentleman for giving me the opportunity to mention that. Whether Bermuda should join the UK or cease to be an overseas territory is a matter for the people of Bermuda.

[Andrew Rosindell (in the Chair)]

Order. I think a debate on the overseas territories would be very useful, but this is not such a debate. Perhaps we can get back to the subject.

[Mr Davidson]

Indeed, Mr Rosindell, I was led astray by bad boys.

I was asked about conclusion 3. The Committee stated in its report:

“We welcome the optimism of those working in the financial services sector who believe that the reputation of that sector in Scotland has not been permanently damaged by the difficulties experienced by two of Scotland’s, and the UK’s, largest banks. We are reassured that the quality of the location, the lower costs and the depth and diversity of its labour pool remain attractive to global corporations.”

That is particularly welcome in view of one of the Committee’s anxieties. We asked everyone we saw whether they believed at that time—the hearings took place in December 2009 and January 2010—that the financial crisis that had arisen from the activities of those working for the Bank of Scotland and the Royal Bank of Scotland would have a long-term impact on the finance industry in Scotland. It was reassuring and supportive of what we were seeking to do to have a clear view from virtually everyone we spoke to that there was no doubt about that. A few people had some doubts, but we subsequently spoke to some of them informally and were reassured that they believed that the waters had calmed and that the Scottish finance industry, although shaken, had not been brought tumbling to the ground. I am glad to see the Government’s response to that conclusion, which is:

“The Government will continue to work with the Scottish Government to ensure that the financial services and banking sectors remain strong in the future.”

I hope that they are also prepared to continue working with the Scottish Affairs Committee, as well, to ensure that, as we monitor, we try to pull things together as far as possible.

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[Mr Hoban]

Indeed. I am very grateful to the hon. Lady for mentioning that point, because one of the commitments in the coalition agreement is, of course, to foster diversity and ownership in the financial services sector, including strengthening the mutual sector. The hon. Lady’s intervention also reminds me that she raised issues about set-off. I know that set-off is very important to many consumers and she will be pleased to know that the Financial Services Authority is reviewing it at the moment.

I was talking about reducing risk and the role of the Independent Commission on Banking. The debate about how we reduce risk is not just a UK debate. We have been at the forefront of developing common international standards of regulation—for example, in Basel and through the capital requirements directive negotiations in the EU. In addition, we have led the way in developing approaches to minimise the risk of failure and to ensure that, when failures do occur, the call on the taxpayer is minimised. Of course, it was the previous Government who introduced the special resolution regime, which we supported, and “living wills”—the recovery and resolution plans that were in the Financial Services Act 2010. We also supported that measure.

We will continue to work with international colleagues to ensure that the implementation and sequencing of regulatory changes are taken forward in a way that balances the need to act now on the lessons of the crisis with the need to maintain the competitiveness of the industry.

A number of hon. Members talked about the regulatory framework. Clearly, the reputation and long-term success of Scotland’s banks also depend on trust. Customers need to know that they will be treated fairly and appropriately by all financial institutions. The robust regulatory framework that we are creating will help to cement the attractiveness of Scotland’s financial sector, by providing certainty for banks and confidence for consumers without stifling innovation and growth.

We have learned the lessons from the financial crisis and set out a radical reform to the architecture of financial regulation that we inherited. Earlier this year, the Chancellor announced that the Government will legislate to create a new prudential regulation authority as a subsidiary of the Bank of England. The PRA will be responsible for prudential regulation of all deposit-taking institutions, insurers and investment banks. It will cover all issues affecting the safety and soundness of individual firms, including remuneration. It will have the focus, expertise and mandate to ensure effective prudential supervision and regulation of individual firms, thereby strengthening the UK’s financial system and its resilience to future crises.

We will ensure that financial regulation delivers financial services and markets that are secure and within which private individuals, small businesses and multinational firms have all the information available to them to make the right choices, as well as the right level of protection if things should go wrong. That is crucial.

Consequently, alongside the PRA we will establish a consumer protection and markets agency, which will be a new and integrated conduct regulator. The CPMA will take a tougher, more proactive and more focused approach to regulating conduct in financial services and markets. That will ensure that the behaviour of firms—whether they are based in the high street or trade in high finance—is placed at the heart of the regulatory system, giving consumers greater clarity. The CPMA’s primary objective will be to ensure confidence in financial services and markets, with a particular focus on protecting consumers and ensuring market integrity.

Appropriate regulation is vital to instilling confidence in financial services, protecting customers’ interests and ensuring clean and efficient markets, where both retail and wholesale customers can engage confidently and with the degree of protection appropriate to their needs.

Regulators are continuing to monitor firms for poor practice and they will develop new initiatives to ensure that consumers are treated fairly. A specific focus will be given to cases of unarranged overdraft charges. Working alongside the industry, the Office of Fair Trading has developed commitments on unarranged overdraft charges. They include an agreement that consumers should be able to opt out of unarranged overdraft facilities and minimum standards for how that process of opting-out should work.

Furthermore, earlier this week we laid the regulations to turn on the new section 404 powers—a provision in the Financial Services Act 2010, which was passed just before the election—that will enable the FSA to require firms to establish consumer redress schemes. We believe that it is right to turn that provision on.

However, we also need to ensure that consumers have advice at their fingertips. We have already announced the introduction of an annual financial health check. That check will help families and individuals to get into the habit of taking a thorough look at their finances. It will show them where they are most at risk and how they can regain control of their finances and plan for the future. It will give people a “prescription” that will offer clear advice on what they can do to improve their financial situation now and for the years ahead.

My hon. Friend the Member for Milton Keynes South (Iain Stewart) and the hon. Member for Kilmarnock and Loudoun talked about the importance of inculcating the habit of saving among children early on in their lives—indeed, the hon. Member for Nottingham East also highlighted that issue. It is absolutely vital. Of course, it is a responsibility that we all share and it is an idea that is supported by a number of financial services bodies.

The hon. Member for Kilmarnock and Loudoun mentioned the Cumnock and Doon Valley credit union. Across the UK, credit unions play an important role in this area of education. I have been to see a project that HSBC sponsors in primary schools; I saw it in the Wallisdean infant school in my own constituency. It was quite interesting to talk to children between five and seven about the importance of saving and spending. Clearly, even at that early age they have thought about this issue very carefully.

The new consumer financial education body will roll out the national financial advice service, which will be free and impartial. Of course, that service will be funded by the industry through a social responsibility levy. The cost of the service will not be picked up by the taxpayer; the service will be industry-funded, as part of the industry’s contribution to tackling some of these issues. I think that the service will help consumers throughout the UK to get the best from their financial providers and to give them the information that they need to manage their finances responsibly. The service will be further complemented by the simple products initiative that we announced in July.

The hon. Member for Glasgow South West raised the issue of repossessions. I say to him that in 2009 47,700 homes were repossessed, compared with an estimate that 75,000 would be repossessed. In the first quarter of this year, 9,800 homes were repossessed and in the second quarter 9,400 homes were. In part, that is due to the forbearance of lenders, but clearly the low interest rate environment has made it possible for more people to stay in their own homes. That is to be welcomed. [Interruption.]

[Andrew Rosindell (in the Chair)]

Order. There is a Division in the House. Would the Minister like to finish his comments now, or shall I suspend the sitting?

[Mr Hoban]

I would like the sitting to be suspended, please.

[Andrew Rosindell (in the Chair)]

Okay. The sitting will be suspended for 15 minutes. Order.

Offshore Financial Centres

Andrew Rosindell Excerpts

Wednesday 21st July 2010 Westminster Hall

[Mr Field]

I agree, and that is greatly to the credit of the British Virgin Islands and other overseas dependencies, as well as some of the Crown dependencies to which I have referred. They have played an important role and led the way in the transparency agenda.

One of the great myths to have grown up is that small offshore centres do not benefit developing countries. Small IFCs have been accused of supporting capital flight out of developing countries, but the Commonwealth secretariat is publishing a new report this month to illustrate the importance of the role played by IFCs in helping developing countries, by enabling them to rent financial expertise from other countries while they develop their own financial centres. Crucially, they also offer investors greater protection of their property rights against domestic political uncertainty.

It is no exaggeration to say that without smaller offshore financial centres many developing countries would not secure key funding for project finance, which makes a substantial improvement to the lives of some of the most vulnerable global citizens. Furthermore, the financial action task force gives many IFCs a positive assessment in meeting its 49 rigorous recommendations on anti-money laundering and terrorism finance. Centres such as the Channel Islands perform better in fighting financial crime compared even with bigger countries such as France, Italy, the US or—dare I say it?— the United Kingdom.

Finally, the UK’s Crown dependencies are often accused of being fiscally unsustainable. Again, nothing could be further from the truth. The debate within the UK Government has, naturally, been framed by events surrounding the collapse of Iceland’s banking system. When the Icelandic banks imploded in September 2008, it quickly became apparent that the contagion would spread to British savers and ultimately to British taxpayers. Furthermore, the role of the Isle of Man as a core financial intermediary between British savers and Icelandic borrowers illustrated the UK’s exposure to offshore centres.

However, the subsequent Treasury review went some way towards allaying the two main concerns. In particular, the worries over the fiscal sustainability of UK Crown dependencies proved to be massively overstated. Throughout the years, IFCs such as Gibraltar, the Isle of Man, Guernsey and Jersey, have amassed large budget surpluses while actively diversifying their tax base, as Foot recommended. Indeed, the Foot report commented on the fact that none of Britain’s Crown dependencies has taken on significant levels of borrowing.

It is important that the G20 summit in Korea later this year is made aware of the beneficial role that small IFCs play in the global economy. Above all, we must stand up to misinformed or narrow views of the valuable contributions that small IFCs can offer to the world economy in terms of liquidity, efficiency, investment and economic growth. Let us make no mistake: ensuring that the voices of small IFCs are heard in Korea is very much in our national interest. If we look at the example of Jersey and its positive effect on the wider UK economy, we see that the island provides a conduit through which mobile capital from around the world can be aggregated and invested, primarily here in London.

[Andrew Rosindell (Romford) (Con)]

My hon. Friend’s speech is very welcome. People from overseas territories and Crown dependencies will thank him for raising these important matters. Does he agree that one issue that is always ignored, and which is linked to what he is saying, is that we, unlike other countries with overseas territories and dependencies, do not allow the Governments or people of those territories any say in this place? They have no way of being represented or of speaking up for themselves. They depend on Members of Parliament to raise issues. Does he also believe that, as with other countries with overseas territories and dependencies, there should be some way for those people to be able to speak and to raise their concerns here, in the Parliament that makes laws on their behalf?

[Mr Field]

I have some sympathy with my hon. Friend’s view. This debate is an example of the way in which we are to do that. If he is suggesting that we have a constituency, similar to the French system, that takes in Gibraltar, Jersey and Guernsey, I am sure that he would be only too happy to be a Member. Most people in Gibraltar already believe that my hon. Friend is the Member who looks after their interests. He makes a serious point, and the tremendous contribution that our Crown dependencies and overseas territories make to this country should not be understated. I hope that this debate plays a small part in addressing some of the myths that have arisen.

I want to speak about Jersey, which is a significant provider of administrative and legal services to international businesses that are active in the City of London and help to make it a more attractive place to do business. For example, Vallar plc successfully raised more than £700 million in an initial public offering in London earlier this month, and used a Jersey structure. That showed the respect that investors, professional advisers and companies have for Jersey as a jurisdiction. It also provides banking services to a large number of UK expatriates who are unable to access the UK banking system because they do not have a UK address.

The Crown dependencies also provide an important platform from which to learn about and access the British economy. For example, the Isle of Man acts as the No. 1 jurisdiction for the incorporation of Indian businesses listed in London, and has been identified by a Chinese Government economic unit as an important link in China’s “going out” strategy in relation to Chinese businesses setting up in the EU.

The Isle of Man plays an important and symbiotic role in London’s shipping and insurance markets, inter alia by having such a successful white list ship registry, as well as its fast-growing aircraft registry. Similarly, with satellite, space and film business, the Isle of Man brings into a British sphere of influence important strategic global businesses that might otherwise be drawn to a competitor such as Singapore, Hong Kong or the US. The Crown dependencies are keen to continue acting on this hub-and-spoke basis with the UK and adding value to Britain’s international offering in a proper and transparent way.

Small IFCs desire fair recognition for their high regulatory and supervisory standards and therefore wish to make policy makers from all G20 member countries aware of their true operation, as well as allowing them an effective voice at the table. In that regard, it would be helpful if the Minister gave an indication of what measures the Government can take to ensure that the G20 process is more inclusive, and that policy prescriptions that aim to restore financial stability strike the right balance between the onshore and offshore financial communities and recognise the mutual interests that exist between the two. It would also be helpful to have an update on progress in meeting the Foot recommendations and information on the progress being made through EU and OECD efforts to assist the overseas territories in meeting their own international requirements.

In conclusion, too few people who now seek to impose rigorous regulation on offshore jurisdictions truly understand how those jurisdictions operate. They fail to understand their positive rankings of compliance with major regulatory standards or their beneficial role in promoting investment and growth in the widest elements of the global economy.

It is inevitable that Governments will attempt to prevent further financial crises from occurring—and so they should—and I fear that that will result in the development of global standards that may have an unintended impact on all jurisdictions. It is critical that politicians and policy makers should not depart from the need to formulate and implement policy in an informed, consistent and balanced way. When it comes to our naked self-interest, it would be foolish at this juncture if the UK ignored the proven benefits provided by small international financial centres as part of the City of London’s world-class operations.

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[Mr Hoban]

Indeed. My hon. Friend makes an important point. Adherence to the standards makes the case that offshore financial centres should be part of the global network of financial centres and that they are valued. It is also important to ensure that when people talk about offshore financial centres, the debate is proportionate and evidence based. That is the best basis for debate in the UK, EU and G20. My hon. Friend made important points in that respect in his remarks.

The Foot review recommended that Crown dependencies and overseas territories should have to meet key international standards on tax information exchange, financial regulation, countering the financing of terrorism and anti-money laundering. The review strongly recommended that British Crown dependencies and overseas territories need to diversify their tax bases in a way that helps to secure their long-term economic sustainability. My hon. Friend made the argument that a number of territories had already done that and had withstood the financial crisis.

[Andrew Rosindell]

My hon. Friend the Minister talks about long-term stability. Does he agree that any attempt to undermine the ability of Crown dependencies and overseas territories to be self-sufficient and to look after their own affairs would in the end rebound on the British Government, with the possibility that we would have to finance some of those territories, so it is vital that policies from here, from Brussels or from anywhere else do not undermine the ability of our territories to be self-sufficient for the long term?

[Mr Hoban]

My hon. Friend makes an important point, but what he refers to must be done within the context of adhering to the highest possible international standards. We need to ensure that that international framework exists and that the territories comply with it; otherwise they are open to attack by other nations. Yes, it is important that the territories are economically sustainable and are not dependent on the UK, but at the same time they must meet those international standards, and a number of territories have made quite significant progress towards that goal.

With regard to the sustainability of overseas territories, they were encouraged to improve the management of their public finances to ensure that they were well equipped to withstand unexpected economic and financial shocks without external fiscal assistance. We need to recognise the progress that has been made to comply with the standards. I understand that 28 jurisdictions—almost exclusively tax havens and offshore financial centres—have moved into the category of jurisdictions that have substantially implemented international standards on tax transparency. That shows that overseas territories are taking the measures seriously, and we encourage them to continue to do so. Over the next three years, 100 jurisdictions will be peer reviewed, which will be an important part of the process to give confidence in how the standards are being implemented.

I recognise the importance of the role that offshore financial centres can play. They are an important contributor to the City of London. They provide services to UK citizens, whether at home or abroad. However, it is vital that they comply with the highest international standards on tax transparency and dealing with terrorism financing and money laundering. Adhering to those standards would be the best safeguard for their future prosperity.