Banking reform bill could be approved before Christmas

Bill designed to prevent further banking scandals and misconduct enters Lords for what could be the last time

Andrew Tyrie's work is nearly done. The Conservative politician, who has been a key figure in attempts to clean up the banking system, stood up in the Commons last week to remind fellow MPs of the tasks that had been set for the parliamentary commission on banking standards, which he had chaired.

The first was to report on professional standards in the banking industry in the wake of the Libor rigging crisis, and the second was to outline the lessons that could be learned for the government, while making recommendations for legislative change.

Much of that work may be concluded this week, with the 200-page banking reform bill entering the Lords on Monday for what could be the last time. With just one amendment to the bill still proving contentious, there is an expectation the work will be completed before the Christmas recess.

The legislation includes a package of measures intended to force senior bankers to take responsibility when things go wrong, allowing bankers to be charged with reckless misconduct if their institutions go bust, and forcing them to erect an "electrified" ringfence between their high-street and investment banking operations.

Last week's debate in the Commons coincided with a timely reminder of the scandals that had first set Tyrie and his fellow commissioners – made up of lords and MPs including the former chancellor Lord Lawson and the Archbishop of Canterbury, Justin Welby – upon their task. Lloyds Banking Group was fined a record £28m for a bonus culture that saw staff mis-sell financial products, while Royal Bank of Scotland, which was also bailed out, was fined £60m for breaching US sanctions rules.

"The banks have discovered that the scale of the damage done by the revelations and the scale of the fines that are now being imposed are systemic in implication for their institutions and that has shaken them up a lot," Tyrie told MPs last week. "But I do think the culture at the top of our banks is changing. The task of our legislation is to entrench that change for a generation. We have had this crisis. The horse has bolted. What we have got to do now is devise a stable door that can keep the next horse in."

Stuart McWilliam, a campaigner for Global Witness, said changes to the rules facing top bankers were a sea change because the City regulator, the Financial Conduct Authority, would be better able to hold banks to account. "It gives the FCA the power to hold the most senior bankers personally responsible for failures at their banks – a pretty good incentive for changing bankers' behaviour for the better," he said.

Alan Bainbridge, a lawyer at Norton Rose Fulbright,described the changes to how top bankers are authorised to work in the City as groundbreaking.

The existing approved persons regime will be changed with a new system aimed at top bankers taking responsibility for their actions and a new licensing regime. There is scepticism about whether an offence of reckless misconduct, under which bankers can be tried if their institutions collapse, can be used in practice.

But Conservative MP Mark Garnier, who sits on the Treasury select committee and was on the parliamentary commission on banking standards, likened it to a "nuclear deterrent" in the Commons last week.

One of the most crucial measures is the "electrification" of the ringfence between high street and investment banks. Bainbridge said this was "tantamount" to the Glass-Steagall rules imposed after the Great Depression in the US in the 1930s and only dismantled 15 years ago.

Lord Sharkey, the Liberal Democrat peer whose amendment on capping payday loan rates forced the government to act to restrict high rates of interest, said the electrification was the "key action" from the legislation.

"Parliament will need to keep an eye on how this really works. Will Chinese walls really be sufficient? Will the culture of investment banks continue to dominate the management thinking of retail banks held in the same groups," said Sharkey.

The Policy Exchange thinktank is warning of rising costs to customers from the ringfence, which does not need to be erected until 2019. Omar Ali, UK head of banking and capital markets at accountancy group EY, said the legislation meant that the "fabric of banking is changing" and the UK will have the most stringent set of rules anywhere in the world. Banks could end up becoming too risk averse, which could result in restricted lending to the real economy, he warned.

Even as royal assent comes closer, questions are still being asked about whether legislation can change the culture of banking. Garnier told MPs last week that a new industry body monitoring banking standards and the emphasis on top bankers taking responsibility was significant.

"An organisation such as HSBC has 270,000 people working for it, so no matter how sincere the integrity of the individual at the top, we must work out a mechanism to drive integrity throughout the system. Personal accountability for the senior management of the banks is crucial in that.

"I keep coming back to this point: if [HSBC's chairman] Douglas Flint is waking up at 3 o'clock in the morning worrying that somebody in Kidderminster is getting something wrong, that is a good thing."

Sharkey is among those who think that increased competition on the high street is also needed. The big four – Lloyds, RBS, Barclays and HSBC – control over 75% of the market.

"The banking reform bill addresses the regulatory issues, as it should. Banking culture is less easy to fix. There are some who believe that there is still no real competition in our banking system," Sharkey said. "What [will] keep them honest is competition for customers."

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Archbishop of Canterbury warns of 'lynch mob' out to blame bankers

But Justin Welby also says it is unacceptable that top executives deliberately made sure they did not know what was going on so they could plead ignorance

The archbishop of Canterbury, Justin Welby, has described blaming individuals for the banking crisis as "lynch mobbish". But the archbishop, a member of the parliamentary commission on banking standards, also said top bankers had avoided responsibility by ensuring they did not know what was going on in their banks.

"Certainly one of the trends that has been very unfortunate, to put it mildly, is that in some financial services companies there was a clear policy of not telling the top people. They made sure they weren't told things, because then they could plead ignorance, and that's just unacceptable.

"But this business of somehow saying that one individual bears the whole blame as opposed to simply the accountability – it feels lynch mobbish."

The archbishop was speaking to the bishop of Liverpool for a BBC Radio 4 documentary to be broadcast on Monday night, in his first public comments on the banking industry since the parliamentary commission published its damning report in June. The cross-party commission, led by Conservative MP Andrew Tyrie, made more than 80 recommendations, from introducing a new criminal offence to make it easier to send reckless bankers to jail to getting more women on the trading floor.

Justin Welby worked as an oil executive before he became a priestIt also accused senior bankers of evading their responsibilities by closing their eyes to what was happening on the front line.

Welby told the BBC he felt some sympathy for banking executives and admitted he was not sure he would have behaved differently had he been in their place. Welby also described the tensions between his faith and the business world when he worked as an oil executive, before taking orders.

"What I remember is the sense that the culture and values of the financial world enveloped you and began to shape one into a new ethical shape," he said. "You were aware that you were struggling with this and often rather frightened by what was going on."

The bishop of Liverpool also spoke to Antony Jenkins, chief executive of Barclays, who said he was not convinced that a criminal offence of negligence within the financial services industry would solve the problem.

"The biggest driver of change in the behaviours of banks has to come from within the banks themselves – they have to come to a realisation that they will be better businesses commercially and ethically if they change their behaviour."

Article Source : http://www.guardian.co.uk

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RBS sell-off investigation ruled out

Government admits prospect of selling off bank remains distant, despite speculation over potential sale of rival group Lloyds

The government has ruled out a broad investigation into whether Royal Bank of Scotland should be broken up and sold off in smaller component parts to foster more competition in the banking sector.

As shares in rival bailed-out bank Lloyds Banking Group hit their highest levels in more than two and a half years, of 67p, amid speculation that a sale of the government stake was imminent, the coalition admitted that the sell-off of the 81%-owned RBS was a more distant prospect.

The parliamentary commission on banking standards called for a wide-ranging review of the structure of RBS, but the government said splitting RBS into smaller parts "would generate significant additional costs". It added that it would "cause uncertainty and disruption for customers, creditors and staff. This would risk undoing much of the good work that RBS has done in strengthening the bank in recent years. As the majority shareholder, the taxpayer would ultimately bear the majority of the costs."

Splitting RBS into smaller parts 'would generate significant additional costs', according to the governmentThe Archbishop of Canterbury, Justin Welby, a member of the commission, raised the idea of regional banks to bolster competition in lending.

Chancellor George Osborne has already asked investment bank Rothschild to look at splitting off a "bad" bank from RBS in a move that is delaying any plans to start selling off the government stake, but does not go as far as the commission wanted.

While he has ruled out splitting up RBS into "multiple entities", George Osborne has already asked the competition authorities to look at whether it should hive off more branches than the 316 it is selling to meet EU rules. RBS has to sell the branches because of European rules on state aid – which also require Lloyds to sell 631 branches.

The government reiterated Osborne's previous assertion that it would not close down UK Financial Investments (UKFI), which looks after the taxpayer's stakes in the bailed-out banks, as recommended by the commission.

UKFI is currently deciding which banks will be appointed to sell off Lloyds and RBS and also strengthened its management team yesterday by naming a former banker to run its "bad bank".

Christopher Fox has joined from UBS to run UK Asset Resolution, the arm of UKFI which looks after the nationalised mortgage books of Northern Rock and Bradford & Bingley, which are being run down.

Article Source : http://www.guardian.co.uk

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Archbishop backs payday loans alternatives

Justin Welby suggests credit unions use church halls in effort to promote alternative to £2bn payday lending industry

Two thousand years after the financial services industry was ejected from church premises, the Archbishop of Canterbury not only wants to invite the money-changers back in – he wants churchgoers to help them expand their lending.

Justin Welby is promoting credit unions as a credible alternative to the booming £2bn payday lending industry, and says it will help match often vulnerable, low-income borrowers with the most appropriate lenders. He is proposing that credit unions be allowed to use church halls and other properties in order to better access customers. Welby also wants to encourage churchgoers with financial expertise to help these lenders.

Welby, who sat on the parliamentary commission on banking standards and has been an outspoken critic of the financial industry, believes a successful credit union sector could pose a challenge to high-street and internet payday lenders, who target often vulnerable borrowers with expensive loans.

Malcolm Brown, the Church of England's director of mission and public affairs, yesterday said: "It is not about regulating them [payday lenders] out of business. If the market is functioning as it should, there should not be any need for them to exist."

The government has also pledged to spend £38m to strengthen credit unions.

Speedy Cash loans shop in Brixton, south LondonMany high street banks have retreated from offering small, short-term loans in recent years, while demand from low-income groups has soared, sparking an explosion in lightly regulated payday lenders.Welby's intervention comes as ministers and regulators also grapple with how best to curb the ballooning payday lending industry without choking off small-sum credit to low-income groups. Consumer minister Jo Swinson will meet with lenders as well as with debt charities and campaigners to discuss what she calls "widespread irresponsible lending".

Last night she said she would tell companies: "The industry needs to do so much more to get its house in order, particularly in terms of protecting vulnerable consumers. I am concerned that the lenders are not living to the spirit or the letter of the codes of practice."

However, in a weekend column in the Sun newspaper Swinson made clear the government would not impose a cap on loan costs. "That could shut down short-term loans and force people towards illegal loan sharks or other extreme measures," she said. "The solution needs to be more sophisticated than this."

While Welby's plans stop short of inviting church commissioners, who oversee £5.5bn of the Church of England's wealth, to put financial muscle behind credit unions, he nevertheless wants the church to use other means at its disposal to get behind such lenders. The church is also building plans for its own in-house credit union for the clergy, which it hopes will eventually help it build expertise that can be shared with grassroots lenders.Labour's shadow treasury minister Chris Leslie said ministers had "consistently ducked clamping down on predatory pricing and extortionate interest charges". He said regulators already had the power to control costs and loan duration but the political will was absent.

Payday lenders have variously been accused of failing to properly compete with one another on the cost of loans; of conducting too few checks on the financial means of borrowers; and of using overly aggressive tactics to extract repayments.

The OFT referred the industry to the Competition Commmission last week, after repeated warnings that it must get its house in order met with only mixed responses.

Justin Welby, the archbishop of Canterbury. His intervention comes as regulators grapple with how to curb the payday lending industry.One successful payday lender, Wonga.com last week increased customer loan costs to the equivalent of 5,853% APR. Speaking ahead of the meeting with Swinson, co-founder Eric Damelin claimed his company and others were being "used as political footballs". He claimed to be in favour of regulatory reform. "We don't want no regulation, as we want to keep the bad guys out".

At the top of the agenda for the meeting Swinson has called will be the new regulatory regime, which comes into force from April next year, under which industry must answer to the Financial Conduct Authority rather than the Office of Fair Trading. Officials from both the FCA and the OFT will address the meeting.

Last month the House of Common's public accounts committee said the OFT had been "ineffective and timid in the extreme" in regulating payday lenders.

Article Source : http://www.guardian.co.uk

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