Dianne Hayter writes that the banking crisis requires a proper independent enquiry beyond what Ministers have announced
In the Second Reading of the Financial Services Bill –before we heard about Barclays and LIBOR or the mis-sold insurance “cover” which ripped off small companies – I spoke of Bankers’ bonuses and called for the industry to have a mandatory Duty of Care t towards customers. I had no tip-off of the scandals about to hit us but, had we known, my calls might have been heard by government.
The champagne-swilling traders, the insurance sales staff were not simply acting dishonestly. They were playing with other people’s money to increase their own take-home pay. Even if their clever money-management had worked, the profits should have been returned to those whose money they gambled, be these savers, investors, pension members or mere bank account holders.
Ministers, true to form, tried to blame others. Mostly the last Labour government whose regulation they claimed was not sufficiently robust. The Conservatives conveniently forgot it was they – and the industry – who fought for “light touch” regulation, and weakened our legislation. And now the government has hastily and desperately announced only a parliamentary inquiry into recent events. This is insufficient. The public certainly won’t want politicians investigating bankers. So Labour is calling for an independent inquiry with the status of those on the Mid-Staffordshire NHS Trust or phone hacking: an inquiry into the culture, governance and professional integrity of the banking and financial systems.
It beggars belief that management did not see what their employees were doing. Did directors and Chief Executives never ask themselves whether the value being added to clients’ deposits justified their ludicrous salaries? Did they query whether reward structures encouraged reckless behaviour rather than good customer service? It is no good blaming the regulators for shoddy management.
The British Bankers Association recently criticised the regulators for not stepping in fast enough to curtail the earlier scandal – the sale of Payment Protection Insurance. Why did the banks – or their Association – not step in and say: “this product is being mis-sold; it must stop”? And why did they not do the same about these interest-rate-swaps which have had such a devastating effect on small businesses?
It is exactly because consumers cannot rely on banks to put clients first that we need stronger regulation. That regulation must be open, transparent and robust, and overseen not by the financial industry itself but by others with consumers’ interests at heart. All of this matters for the country as well. The impact of Barclays “fixing” the internationally recognised, and used, LIBOR rate to suit their own interests has harmed the reputation of the UK financial sector reputation. One Chief Executive’s resignation, while welcome, will not rectify this.
The city seems not to understand that its culture is part of the problem. The prospect of big bonuses fuels perverse risk-taking, edging to dishonesty. Personal greed outweighs any respect for those whose money they profess to care for. A lack of ethics and a failure to avoid conflicts of interest have nothing to do with the structure of regulation, but go to the heart of the city’s values. It is this that we seek change.
Until last week, the Financial Services Bill was thought unfashionable. Now, however, it is clear why it is such a key piece of legislation – relating to pensions and income, the availability of insurance at reasonable costs and protection against unforeseen illnesses.
Labour will work to improve the Bill so as to help the sector contribute to our country’s need for growth and jobs, to help business and consumers get the financial services they need, and to deliver a more responsible capitalism.
Baroness Dianne Hayter speaks for Labour on consumer affairs issues in the Lords