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Part of Bank of England and Financial Services Bill [HL] – in the House of Lords at 6:00 pm on 15th December 2015.

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Photo of Lord Grabiner Lord Grabiner Labour 6:00 pm, 15th December 2015

My Lords, I declare the interests shown under my name in the register. I should also declare that I am an authorised person under the regimes operated by the FCA and the PRA.

This part of the Bill is designed to extend the senior managers and certification regime, which replaces the much reduced—or, I should say, criticised—approved persons regime. It introduces a new statutory duty of responsibility for all senior members across the extended SMCR in place of the reverse burden of proof, which would otherwise have applied to deposit-takers and PRA-regulated investment firms. The new duty obliges the responsible senior manager to take reasonable steps to prevent regulatory breaches in her or his area of the business. As a result, if the complaining regulator shows that the senior manager has failed to take appropriate steps, she or he will be guilty of a breach of statutory duty. No doubt the Minister will assist us on this but I think that that will subject the individual to serious penalties, including an unlimited fine and/or a prohibition. These are very serious matters, whether they are offensive to Article 6 or otherwise.

Firms will now have to set out the various areas of responsibility with conduct rules. These rules will require that any delegation must be to a suitable person and that the person doing the delegating will retain the oversight function. Thus, the task may be delegated but the responsibility for it will be retained.

From the perspective of the regulator and the public interest, I think that that approach has two very valuable features. First, the existence of the new duty means that in future a senior manager will not be able to plead ignorance of the facts and the circumstances giving rise to the resulting damage. Secondly, the regulator will now be able to identify the responsible person, whereas under the old APR system this was often a problem. Regulatory enforcement was regularly frustrated by legalistic deviousness, and one has to imagine the open palms being extended to the accuser and the words being uttered, “It wasn’t me, guv, and now you prove otherwise”. In my view, that plea will not wash under these new proposals.

I also believe that there may be some force in the concern which has been expressed that senior managers will be distracted from doing the job in hand by an excessive focus on devising protection against personal liability. I can imagine that this sort of thinking, which is entirely understandable, would have a reverberating and negative impact on recruitment, including the composition and the quality of boards of banks.

I appreciate that some noble Lords believe that the reverse burden of proof should be applied, at the very least, to part of the market—in particular, to deposit-takers and PRA-regulated investment firms. For a number of reasons, which I promise I will keep short, I would not support that approach.

First, it is not necessary or proportionate to introduce such a draconian provision. The new duty is tough and fair, and I believe that it will be effective. Secondly, a two-tier mechanism would impose different standards on the senior manager of, for example, a building society compared with her or his equivalent in, for example, a major hedge fund. I believe that we should be concerned to achieve consistency rather than differences across the financial services industry.

Thirdly—I am bound to say that I am in complete agreement with the noble and learned Lord, Lord Brown—as a lawyer I find the notion of a presumption of guilt in this very serious context deeply objectionable. It is true that recent history reveals a good deal of irresponsible wrongdoing in a number of financial institutions—we would all agree with that. However, in my view, we need to deal with these matters coolly and not in extravagant anger. I will support the Government on this part of the Bill.