Financial Conduct Authority

Debate between Mark Garnier and Guto Bebb

Monday 1st February 2016 Commons Chamber

[Mark Garnier]

I apologise, Mr Deputy Speaker. I have been here for five years, so I should know to take this much more seriously.

The hon. Member for Redcar (Anna Turley) is absolutely right. Huge numbers of people have been badly let down by the redress scheme.

[Guto Bebb]

I am an Everton football supporter, and we have been patient with Tim Howard. It is not that he made one mistake and allowed one goal to be scored; he has conceded half a dozen such goals this season. It is the same with the regulator. It is not the one mistake that we complain about; it is a pattern of behaviour.

[Mark Garnier]

I am regretting using the footballing analogy. I am not actually a huge football fan myself.

We have to look across the piece. The FCA has undoubtedly got it completely wrong in many cases—on interest rate hedging products and other things—and it is right that Parliament holds it to account, including through bodies such as the Treasury Select Committee, as a member of which I have a different point of view. I do not share the frustrations of those needing these debates or trying to get appointments upheld by the regulator; I can go along and get stuck in, along with other Committee members. That is the right way to do it.

It is also important to consider the successes. The FCA has managed to bring substantial fines for foreign exchange and LIBOR rigging. It even managed to bring a case through the Serious Fraud Office that sadly resulted in no convictions last week, when six foreign exchangers, who allegedly tried to fiddle the fixings, were acquitted. None the less, to get it to court was quite a success. The FCA has taken over responsibility for consumer credit and debt management from the Office of Fair Trading. It has protected consumers by banning retail sales of contingent convertibles—a technical thing to do with the resolution of failing banks.

Last February, the regulator published a paper aimed at providing help for firms that wanted to look after vulnerable consumers. On encouraging competition in the banking industry, the regulator, along with the PRA, created a challenger bank unit in January to help challenger bank entrants by providing the best regulation and thereby encouraging competition in the banking market. It has also provided an innovation hub, specifically aimed at the “fin tech” area, to help new entrants into the financial services sector to navigate the authorisation process. The regulator is, therefore, trying to do a number of things, and we need to be careful not to throw the baby out with the bathwater.

People worry about several issues. There is a big question about whether the Government are interfering with the regulator. Have they been interfering directly and explicitly? Are they taking it easy on the banks? I suspect that the cancellation of the thematic review might be a red herring. Most banks, given the 8% increase on their corporation tax rate, would argue that the Government are not being lenient on them. The Government are levying a bank levy that will help to repay taxpayers for all the money used to bail out the banks.

The reverse burden of proof has been reversed, but the implementation of ring fencing by 2019 will come at a fantastic cost to the banks of several billion pounds, in order to make sure that when the next financial crisis hits—there will definitely be another one—the collapsing banks do not take down other banks with them.

Financial Conduct Authority Redress Scheme

Debate between Mark Garnier and Guto Bebb

Thursday 4th December 2014 Commons Chamber

[Guto Bebb]

The hon. Gentleman makes an important point. There have been concerns throughout the process about the level of provision within banks. In view of some of the information provided by the KPMG whistleblower, RBS’s confidence in having a very low level of provision probably justifies its attitude to the review.

Another point about the lack of consistency relates again, unfortunately, to the behaviour of RBS. It has been argued that a good result for a business from the redress scheme is to have a full tear-up of the agreement or to implement a cap rather than a swap. Indeed, it has been argued that a cap would in many cases have been a much better original product. From the detail of many of the caps offered to RBS customers, it transpires that most of them are for 10 years. I do not claim to be an expert, but experts in the field of derivatives and interest rate protection tell me that there is no demand in the marketplace for a 10-year cap. They have challenged RBS to give one example of a 10-year cap that it has sold commercially in the past 10 years, but as yet RBS has not come back with such an example. Yet, time and again when businesses are offered a cap as an alternative product, the cap is for 10 years. It will not surprise hon. Members to learn that a 10-year cap is significantly more expensive than a five-year one. That added cost comes out of the redress made available to the relevant businesses. There are therefore questions to be asked about the behaviour of some banks, including RBS, and those questions raise doubts about the consistency of the scheme.

On transparency, I am concerned that the agreement between the banks has not been disclosed. That means that it is very difficult to assess the success or otherwise of an outcome, because we do not know what to measure it against. The agreement has not been made available to the all-party group or the Treasury Committee, but I must ask why, because when the FCA says that it is robustly ensuring that the agreement is maintained, we cannot assess whether that is the case.

[Mark Garnier (Wyre Forest) (Con)]

Will my hon. Friend give way?

[Guto Bebb]

I will of course give way to a member of the Treasury Committee.

[Mark Garnier]

I, too, congratulate my hon. Friend on all the work he has done so far. Given that this is the first time that a voluntary scheme has been used, does he agree that full transparency of the whole system is absolutely crucial in ensuring that the scheme can safely be used again in future? Otherwise, there will be long-term fundamental doubt about whether it should ever be used again.

[Guto Bebb]

I could not agree more. I am concerned that some of the banks involved in the scheme now fear that they have played by the rules, while others have not. If there is no transparency on that issue, banks may go into future schemes with the same attitude as RBS’s attitude to this scheme.

We do not have bank-by-bank details on outcomes, so it is very difficult to measure whether they are appropriate. In the same way, there is real concern that the FCA has not fully shared its legal opinion on excluding businesses with embedded swaps from the whole review process. In the briefing that the FCA provided for this debate, it implies that it has fully shared its information on that with the Treasury Committee, but my understanding is that it was willing only to allow a QC acting on the Treasury Committee’s behalf, not its members, to see the information. I do not consider that to be full accountability to Parliament.

I said that I would call on the FCA to consider an appeal process. In view of the revelations about the possible activities of the KPMG reviewers of RBS, there is merit in a proposal made by the all-party group a year and a half ago. All the independent reviewers have been trained to the FCA’s satisfaction, so if an RBS client is unhappy with its outcome it would surely be appropriate to ask another independent reviewer—for example, Deloitte, which acts in relation to HSBC—to review the case. That would not unduly complicate the situation, because the reviewers have been trained by the FCA and have satisfied it as to their expertise. It would give clients a degree of independence if those unhappy with the redress outcome could have all the case notes reviewed by a third party that is independent of the original bank and of its independent reviewer. Will the Economic Secretary consider that request?

--- Later in debate ---

[Guto Bebb]

I agree entirely, and that is why we need a review of the current redress scheme.

My final point, which the Government could respond to positively, concerns the decision by HMRC to tax redress received by businesses. HMRC has decided to treat any redress received as income generated in the year in question, which means that many small businesses will pay tax on that redress at their marginal tax rate. Has HMRC taken seriously the possibility of using extra statutory concession D33, paragraph 11, which states:

“A right of action may be acquired in a situation where it is not possible to identify a separate underlying asset. For example, where a professional adviser has given misleading advice on a tax or other financial matter, or in relation to private or domestic matters…Broadly, when we are looking at capital sums without an underlying asset which fall within paragraph 11 of ESC D33 we are looking at a financial loss, for example compensation for poor professional advice or for mis-selling of financial products.”?

In effect, that means that when the compensation is for bad financial advice or mis-selling a financial product, it should be treated not as income but as a gain for capital gains tax purposes, which would be a fairer resolution. Currently, banks are able to offset any redress paid for their tax purposes, although businesses end up paying tax on any redress they receive. It is unacceptable that the wrongdoers get tax relief while the wronged have to pay tax on their compensation, and I ask the Minister to consider that point.

I wanted to touch on businesses sold in embedded swaps. If the advice from the FCA is comprehensive, I appeal to it to make it public. Those businesses are in limbo. They believe they have a right to be in the redress scheme and are told that legal advice is clear. I call on the FCA to make that advice available so that those businesses know what possibilities they have when trying to resolve their situation. [Interruption.] The hon. Member for Wyre Forest (Mark Garnier) seems to want to intervene.

[Mark Garnier]

I am grateful for that prompted intervention. My hon. Friend refers to legal advice given to the FCA, but it is clear that these are unregulated products and therefore the FCA is not addressing them. It could be argued that selling an unregulated product to a non-professional customer is a regulated activity and should be covered by regulated activity rules. There is a lot of confusion about that.

[Guto Bebb]

I am grateful to my hon. Friend for that intervention.

It is fair and right to acknowledge that the redress scheme has been better than no action whatsoever, but concerns clearly remain. Action is required on consequential losses, and there is no justification for refusing an internal appeals process within the review process. The lack of transparency allows people to make assumptions about the behaviour of banks and the FCA, which is damaging to the financial system, and more transparency would give greater confidence in the way the scheme works. HMRC needs to address the issue of taxing redress paid to businesses with a degree of sympathy that has not so far been shown.

Crucially, allegations about the behaviour of some banks in the scheme should be a cause for concern not just to Members of the House but to those on the Government and Opposition Front Benches. The issue must be considered carefully, which is why the motion asks for consideration to be given to the establishment of a review of the current redress scheme. If the regulator is unable to regulate the scheme it has established and make right the wrongs committed by the banks, it is important for the Government to take responsibility.

Self-Employment

Debate between Mark Garnier and Guto Bebb

Tuesday 24th January 2012 Westminster Hall

[Mark Garnier]

I will come to the regulatory burden in a minute. My hon. Friend is right. I have seen a turkey farm that has had to comply with huge industrial reporting requirements for toxic chemicals, because turkeys produce ammonia, but it also has to prove that it is not producing a great range of other chemicals. These are the unintended consequences of over-bureaucratic regulation.

The FSB provides a great deal of helpful data on business attitudes. Sticking with the taxation issue, 60% of FSB members—two thirds of businesses—complained that the UK tax system is not only too complex, but has a negative impact on their ability to take on more staff and expand.

[Guto Bebb (Aberconwy) (Con)]

The VAT threshold creates problems for micro-businesses. The fact that that kicks in at £73,000 is a cliff edge for many small businesses, because if they hit that level, they end up being penalised to the tune of £10,000, so they make a decision not to grow. Having a tax cliff edge of that nature is a barrier to growth for many micro-businesses in my constituency.

[Mark Garnier]

I agree. Our complex tax code is full of all sorts of unintended consequences exactly like the one that my hon. Friend mentioned. It is ridiculous having a tax that means businesses going above £73,000 will have to start charging their customers. That is a disincentive to growth in terms of going out and gathering business. If people stay below that threshold, it is a disincentive to employ more people.