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Can government affect banking’s behaviour?

01 Jun, 2018 | Jonathan Horsman

How to solve the problem of bad banking culture, and find justice for the small businessmen and women who have fallen victim to it?

Can government affect banking’s behaviour?

The Wilson Room in Portcullis House hosts many Treasury Select Committee meetings and it is an appropriate venue for one reason in particular. On the wall behind the committee chair is a large, abstract wall-hanging featuring several blotches of red in varying depths of intensity ranging from cerise to deep crimson. Its purpose is to soften the room’s acoustics, but it also acts as a useful gauge for measuring the rising blood pressure levels of irritated committee members and, on occasion, the victims that sit before them.

So it was on 16 May when the committee held a session on the idea of setting up a Financial Services Tribunal to adjudicate on disputes between big banks and SMEs. The session featured two eminent barristers who, to put mildly, have different views on the need for such a body. We were not long into the session before the blood pressure started heading towards crimson and exchanges became heated.

This made for great spectator viewing, but it was also parliament at its best: a senior committee with a learned chair hearing expert legal arguments on a topic of acute public interest, namely how to solve the problem of bad banking culture and find justice for the small businessmen and women who have fallen victim to it.

There was no higher priority issue for government than ‘banking culture’ in the aftermath of the global financial crisis of 2007/8. A succession of departmental and parliamentary commissions agonised over how to reign in bankers’ animal instincts and make them accountable for their behaviour.

Ministers threatened tough action but, aside from some new rules on remuneration and a certification regime, they did little. Infamously, the Financial Conduct Authority (FCA) even quietly dropped its own inquiry into culture on New Year’s Eve 2015.

There is a separate debate about the malign impact this inaction might have had on our wider politics. Many would argue that the lack of comeuppance has stoked the populist politics that is now the norm, including Brexit and the rise of Jeremy Corbyn. That may or may not be true but most punters certainly feel banks got away with it, which leads to the case for a specialist tribunal.

Making the argument ‘for’ to the Treasury Committee was Richard Samuel from 3 Hare Court. Samuel argued that a Financial Services Tribunal could do for banking culture what employment tribunals have done for employment culture since the 1960s.

By increasing ‘access to justice’ for employees who suffer discrimination or harassment in the workplace, these tribunals have redressed the power imbalance between employers and employees and created a body of law that is now HR best practice. The threat of reprimand and public censure has changed behaviour.

Opponents of the Financial Services Tribunal argue that, for financial disputes, we already have the courts at one end of the scale, FOS at the other and FCA-established specialist redress schemes in the middle to deal with big scandals such as RBS Global Restructuring Group and Interest Rate Hedging Products.

Making this argument to the Treasury Committee was Andrew Green of Blackstone Chambers who said there was no evidence of the need for a Tribunal nor any guarantee it would make it cheaper or easier for SMEs to access justice. He argued an extension of FOS’s scope to deal with complaints from larger SMEs would be sufficient to deal with SME grievances.

Crucial to the fate of the proposal will be the position of the FCA. It too had appeared to favour an extension of FOS’s scope as the way to solve disputes but then, in its written submission to the Committee, it seemingly performed a U-Turn. It said it saw a role for both FOS and a tribunal within the financial services dispute resolution system.

If this tilts the argument in favour of setting up a tribunal, it will have wide implications for the financial services industry and, it is fair to say, the country as a whole. The shadow of the Global Financial Crisis still hangs over our politics. The ‘austerity’ it necessitated has defined the actions of successive governments for a decade. It was certainly a major contributing factor to the vote for Brexit.

Needless to say, has also inflicted damage to the public standing of banks for which, ultimately, we all pay a price. Judging from the body language of its members on 16 May, the Treasury Committee seems sold on the idea that a Tribunal can be a ‘culture changer’ for banks. If banks were themselves to embrace the idea, it could hasten their reacceptance; and even reduce the public’s blood pressure reading from deep crimson to cerise.

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