Denis Tunnicliffe on why Ministers must go further to ensure bad bankers are held to account
How do we hold bankers to account? That is a question the House of Lords will debate today during Report Stage of the Bank of England and Financial Services Bill.
Whilst Labour Peers have some fundamental disagreements with the government’s approach to the Bank of England, we have nevertheless managed to secure a number of concessions. Most notably on non-executive oversight of the Bank’s functions, the role of the National Audit Office and clarification surrounding the production and development of the Financial Stability Strategy. These changes all mean the Bill is in better shape than when it first entered the Lords and gives the Commons a better basis for its own considerations.
There is one key area however, where we have not been able to make any headway and where we believe the government is making a huge mistake – that is on the issue of the so called ‘reverse burden of proof’.
The last piece of banking legislation to go through Parliament – the Financial Services (Banking Reform) Act 2013 – had a very important message for bankers. From March 2016, the failure to prevent regulatory breaches, whether they were aware of them or not, was their responsibility. If a banker believed that they took all the reasonable steps necessary then the burden was on them to prove it.
Two years on, and before the Senior Managers and Certification Regime (SMCR) has even come into effect, Ministers want to backtrack on its central component and replace it with a ‘duty of responsibility’. The burden would no longer be on the bankers but the regulators.
Isn’t it a mere technicality? That is certainly what the government would like us to think. But we disagree and believe the retention of the ‘reverse burden of proof’ is crucial. So too does the Parliamentary Committee on Banking Standards – along with both Houses in the last Parliament.
Ministers claim that it would create a ‘tick box mentality’ which ultimately would be “unhelpful”. But having spent more of my life working outside of Parliament than inside, I can say with some degree of certainty that – no matter what system is in place, no matter where the burden falls – there is always a tick box along the way. It is unavoidable. The question, as it relates to the senior managers, is whether or not they are the right tick boxes?
More important than any of this is what a reverse burden of proof could mean for the culture of the financial service sector in Britain.
There was a time when banks and bankers were trusted and respected. Ask the public now however, what they think and they will use words like greed and exploitation. The road back to public confidence will be long and difficult. But we believe the starting point lies with the reverse burden of proof. That is why Labour have tabled an amendment for today’s debate to ensure this comes into force next March, as planned.
We have acted reasonably and responsibly. Where the government has made a convincing case, we have listened – specifically on the issue of proportionality. We accept that the Bill’s extension of the scope of the SMCR to the whole financial sector means exemptions would be necessary for smaller firms. But this isn’t a good enough reason to backtrack, and if Ministers were prepared to bring forward proposals that accommodated smaller firms whilst retaining the burden of proof we will be open to further discussion. If they fail to do this however, then it will be our responsibility to stand up for the change that people desperately want to see in the banking sector – and we will press the issue to a vote.
It is the difference between reform or the status quo; the difference in a path back to public trust or continued disbelief; the difference we need and deserve.
Lord Denis Tunnicliffe is a Shadow Treasury Minister in the House of Lords
Published 15th December 2015