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

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Photo of Lord Turnbull Lord Turnbull Crossbench 6:15 pm, 15th December 2015

My Lords, looking back over the discussions on this issue, inside and outside this House, I cannot help feeling that an element of caricature has crept in. We are told that the Government have lost their nerve, caved in to bank lobbying and gone back to the failed status quo ante. At the same time, the debate has been excessively polarised, disguising the fact that there is substantial agreement on what I believe is the primary issue—tackling the problem of personal liability. The difference between us is what I think is a secondary issue: what does the reverse burden of proof add or detract from this proposal? Is this the only way in which the regime can be made to work?

The proposal in the Bill is not retracing these steps but moving forwards by introducing the SM and CR and the new concept of the duty of responsibility, which will fall on the senior managers. It tackles directly the difficulty with establishing personal liability and the Pontius Pilate defence: “It wasn’t me guv, I wasn’t there; I only read about it in the FT a couple of days ago”. That is actually true—that is what someone told the Parliamentary Commission on Banking Standards.

In future, senior managers will have to take responsibility for what goes on in the teams for which they are responsible and for the actions of the people whom they have appointed and thereby given accreditation. The code rule for senior managers says:

“You must take reasonable steps to ensure that any delegation of your responsibilities is to an appropriate person and that you oversee the discharge of the delegated responsibility effectively”.

That is absolutely clear and I still fail to see why the reverse burden of proof is the only way to get people to understand that.

It is not just the Government who have reached the conclusion that what is now proposed is a superior way of getting to the outcome which all participants in this debate are agreed on; that is, the guys at the top should not escape scot free. In his evidence to the Treasury Select Committee, Andrew Bailey, CEO of the PRA, made it clear that the PRA itself had lost faith in the reverse burden of proof. His view was that, rather than giving priority to getting a “conviction”, the PRA preferred an outcome which emphasised the positive approach of changing behaviour for the better rather than inducing heavily lawyered responses. He wanted to concentrate efforts on getting responsibilities defined and then checking that they had been embedded in the culture of a firm. In answer to a question from John Mann, he said:

“The change that this Bill introduces says, ‘Let us come up with an alternative way of making sure that we can enforce the substance’. Where I would differ from you is that this is not a watering-down in the sense that it says, ‘Let us change the substance’”.

Some have used the argument that reversing the burden of proof opens up the possibility of human rights challenges. It is certainly true that, in the 2012 Act, the Government stated that they did not believe that this would happen, but that is only an assertion on their part and I believe that it could be challenged in the courts. What we can be certain of is that this issue is bound to arise and will be a distraction.

Let me give an example by which we can judge the effect or otherwise of the reverse burden of proof. It is the recent report by the PRA and the FCA on HBOS—which cost £7 million, incidentally, compared with the £850,000 which the parliamentary commission cost, and it did not really find anything different. What was new, however, was the additional report by Mr Andrew Green QC on why only one person was subject to enforcement action. The main reason given by FSA staff was the difficulty of establishing personal liability. This is precisely the problem addressed by the SMCR and the new concept of duty of responsibility. It did not say that it could have nabbed these guys had the reverse burden of proof been available. It made no mention of that whatever.

Let me go back to the basic principle on reverse burden of proof. The most reverend Primate the Archbishop of Canterbury, who was a member of the Parliamentary Commission on Banking Standards, supported by the right reverend Prelate the Bishop of Southwark, took the view that “innocent until proved guilty” is a fundamental principle of our legal system. There are exceptions—the noble Lord, Lord Sharkey, mentioned some of them—but they should be invoked only in extreme circumstances where there is no alternative. I would therefore put the reverse burden of proof back on the noble Lord. He has to prove that adducing this concept is the only way in which the regime can be made to work and I do not believe that that is the case.

In introducing the reversal of the reverse burden of proof at Second Reading, the Minister put too much weight on the level playing field argument: that if its scope were widened to all financial services where serious failures of conduct can occur and not just banking, it would be too draconian. I am pleased that the case has been better expressed and it is not simply the “scope” argument being used.

I am strongly against having a two-tier system. In the way that major companies are constructed, they often have banking activities with non-banking activities under the same ownership, and we have to remember that there are players who can cause a lot of damage to the financial system who are not banks or deposit takers—for example, AIG.

I was a member of the Parliamentary Commission on Banking Standards. I signed up to its proposal, but I believe that the proposal now in the Bill is superior. Many philosophers have said, “Second thoughts are often best”—although I learned from Wikipedia that the noble Lord, Lord Skidelsky, claims that Keynes never actually said his famous dictum, “When the facts change, I change my mind. What do you do, sir?” But many other people have, including Cicero. This is a time to follow that dictum. In this case, second thoughts are best. I hope that the House will reach the same conclusion as I have put forward and not support the amendment.