My Lords, the Financial Services and Markets Act 2000 prescribes the regulatory framework under which action can be taken by the regulators against firms and individuals. Under this framework, decisions on whether to take enforcement action are for the regulators, and it is entirely right that they should be independent of government.
The fact is that so far we have not managed to hold any senior managers to account. That is because the regulatory regime does not work, and it is precisely why we were due to replace it next April with a tougher regime. However, the Government are about to scrap the new regime before it starts and to go back to a lighter-touch regime. Can the Minister explain how the lighter-touch regime can do what the current regime cannot?
Clearly, this was an appalling case of mismanagement on the part of the managers at Barclays at the time, and the record fine that Barclays has faced reflects that. I agree with the noble Lord that financial regulatory change is needed, as well as a change in culture of many financial firms. Key to this is ensuring that senior managers’ responsibilities are crystal clear. I stress that the most important task is to find out who is responsible for such failings as we have seen at Barclays. Up till now, regulators have sometimes found it difficult to hold senior managers personally accountable for management failings in the area for which they are responsible because there is such lack of clarity about who is responsible for what. This is precisely what the new senior managers regime addresses. The Government think it perfectly reasonable for the regulator then to show that the senior manager failed to take reasonable steps to avoid the failings.
The Bill does not change any existing obligations on individuals working in the financial services industry to report wrongdoing whether within their own firm, to regulators or to other authorities. To address the noble Lord’s question directly, the FCA published in October a package of rules designed to encourage a culture in banks where individuals feel able to raise concerns and challenge poor practice and behaviour. Those rules will also constitute non-binding guidance for other financial services firms.
My Lords, does the Minister agree that the new senior managers regime imposes extremely detailed requirements for dealing with both accountability and responsibility—it is virtually micromanaged and reported on—and that the suggestion that the new arrangements have gone soft is completely wrong?
The £2 billion deal on behalf of Qatari clients saw Barclays deliberately breach its own rules on money laundering and financial terrorism, bringing the total fines that it has paid from 2010 to £500 million. The FCA judgment was very clear: it was done to generate revenue and new business. The FSA has neither named people nor taken action against them. Given that the Parliamentary Commission on Banking Standards, comprising individuals from this House and the House of Commons, said in its primary recommendation that individual executives have to be personally accountable, when will the Government implement this sensible recommendation from an all-party committee?
My Lords, I cannot comment specifically on this case; the noble Lord, who is much more experienced than I am in these matters, will understand that. On the reverse burden of proof, the regulators could use that only once they had established that there was a regulatory breach and that the senior manager was responsible for the area of the firm where the breach occurred. It was only at that point that they could ask the individual to prove that they took reasonable steps to prevent the breach occurring. Under the proposed statutory duty, the new statements of responsibilities will make it much easier for the regulators to establish quickly who is responsible. The regulator will then simply need to establish that the senior manager did not take those steps.
My Lords, I echo the point made by the noble Lord, Lord McFall: the financial companies face severe financial penalties. Furthermore, a new criminal sanction was created by the previous Government for those who manage firms in a reckless manner.
My Lords, the sophisticated and complex money laundering scheme for nearly £2 billion of Middle Eastern money is unlikely to have been a one-off. What assurances can the Minister give the House that this transaction and others like it were not using funds from terrorism or that the funds generated were used for terrorism?
My Lords, I am sorry but I cannot go into greater detail on that point. However, I draw the noble Baroness’s attention to the fact that, under the FCA’s rules, money laundering reporting officers will have to be senior managers. The FCA will also require firms to allocate overall responsibility for the firm’s policies and procedures for countering the risk that the firm might be used to further financial crime to an approved senior manager, who could be the MLRO but does not have to be. This will ensure that there is accountability for financial crime matters at the top executive level.
My Lords, the problem with the regime so far is that there have not been successful prosecutions. Perhaps I may pick up on the point that my noble friend Lord Davies has been pressing in Committee on the Bank of England Bill. The Government have yet to provide a rationale for their change of heart on the code for senior managers, having moved from the reverse burden of proof to a duty of responsibility. The senior managers and certification regime is not due to come into force until next year so something must have changed their mind. We on this side of the House would like to know what that was. Will the Minister give an assurance that, before Report, noble Lords will be given access to the minutes of the meetings that the Government have had with banks, their lawyers and whoever else they met when coming to this conclusion?
My Lords, it is no secret that a number of banks did not believe that the reverse burden of proof was a good idea. This is public knowledge. Why are we making this change? Because we are rolling out the more rigorous SMCR regime across all authorised financial services firms. We want to do so in a way that is proportionate but robust and which delivers a level playing field for competition across the industry. The new approach does just that.