Skip to main content

Banking: Liability.

Volume 723: debated on Tuesday 7 December 2010


Asked By

To ask Her Majesty’s Government whether the report published on 2 December by the Financial Services Authority regarding the Royal Bank of Scotland finalises the matter of liability.

My Lords, on 2 December the Financial Services Authority closed a supervisory investigation into the Royal Bank of Scotland group. The review confirmed that RBS had made a series of bad decisions in the years leading up to the financial crisis, but concluded that enforcement action was not warranted.

I thank the Minister for that reply. Is he aware that this report fails to respond to the widespread concerns expressed by many people, some of them on his own Benches, that the report deals with the letter, but not the spirit, of the law? Will he tell us how the restructured FSA under the remit of the Bank of England will function more appropriately and take this into account?

My Lords, we do not know what the report says because we have not seen it. We cannot say what the report deals with, but it is clear that it concludes that enforcement action is not warranted in this case. The FSA cannot publish the content of the RBS review because information gathered from the bank during the course of the review contains confidential material. The report remains confidential under the Financial Services and Markets Act 2000. I am grateful to the noble Lord for drawing attention to the fact that we are embarked on a process completely to redraw the financial regulatory architecture. I expect that under the new architecture, the new prudential regulatory authority will be able to exercise powers under the tools we give it to minimise the risk of another case like RBS coming up in future.

My Lords, would my noble friend agree with the view that has been expressed by some people from time to time that the FSA and the Royal Bank of Scotland are covering for each other?

My Lords, I would not say in any way that the FSA and the Royal Bank of Scotland are covering up for each other. The FSA has conducted a lengthy report. It is clearly unfortunate that under the Financial Services and Markets Act, it is not possible at the moment to make the report public. On the other hand, when enforcement action is taken, it is usually made public and, indeed, in May this year, the FSA announced the conclusion of an enforcement investigation into one of the executive directors of RBS.

My Lords, no small part of the public fury over the Royal Bank of Scotland affair related to the pension arrangements for Sir Fred Goodwin. Were they not the responsibility of the remuneration committee of the Royal Bank of Scotland? Should those names not be made public? Is it not the case that one of the people on that remuneration committee was a senior officer of Goldman Sachs, the same firm that helped the Greek Government fiddle their statistics and behaved disgracefully over the Wells letter? Will the Minister ask his colleagues to investigate whether that firm should continue to advise successive Governments and about its suitability to be an adviser to Her Majesty’s Government?

My Lords, I cannot comment on the pension arrangements. I believe they took place before the previous election, and I am no position to comment on the pension arrangements for former directors of RBS. As regards the other matters, if there are any complaints about any regulated firm, I am sure the FSA will be, as it always is, open to looking into any complaints that are made.

My Lords, does the Minister agree with the FSA and the report that RBS under Sir Fred Goodwin was properly governed? If he does, will he explain what he thinks a failure of corporate governance might look like?

My Lords, I have not conducted an investigation into RBS. The FSA has, and it published a summary note on 2 December. It is clearly regrettable that we do not see the full report, but I should point out that the really important consequences of this are the change in the regulatory landscape that was brought to our attention by the noble Lord, Lord Haskel, and the fact that the Independent Commission on Banking is looking at the structure of banking in this country, so there are important ongoing inquiries that the RBS saga bears on.

My Lords, it stretches credulity that the FSA could conclude that there was no sign of governance failure in the Royal Bank of Scotland. From my perspective as a Minister, there was a lamentable failure of leadership, proper inquiry and proper governance in the Royal Bank of Scotland. Does the Minister agree that the FSA should publish its own report on the lessons to be learnt from the collapse of the Royal Bank of Scotland and that it should seriously consider whether it should no longer use accounting firms to conduct Section 166 inquiries of the sort carried out here?

My Lords, I am sure that the FSA will take note of the noble Lord’s suggestions about how it goes about its business. But I can only, as he does, read the conclusion of a report by the FSA that follows an investigation that began in May 2009 and out of which has come one enforcement case.

My Lords, does the Minister agree that this might be a case for a WikiLeak? Will he also assure the House that, in looking at the proposals that are emerging with regard to the regulation of banking, a heavy emphasis will be put on transparency and openness in future?

My Lords, I am happy to confirm that in everything the Government do, we put a major store on openness and transparency. Indeed, we will bear that in mind in our approach to financial regulation in future.

My Lords, does the Minister not recognise the great anxiety about this situation? He says that “we”—I presume that he therefore speaks on behalf of the Government—have no knowledge of the report either. This is a totally unsatisfactory situation when lessons need to be learnt about such an important development. Will he not therefore look at the extent to which Her Majesty’s Government can emphasise to the FSA the desirability of making more public the position it has taken up?

My Lords, that is what we are doing, but we are acting within the constraints of the Financial Services and Markets Act, which was brought in by the previous Government in 2000.