My Lords, these amendments do two things. First, and most obviously, they implement the changes that have been agreed with members of the Parliamentary Commission on Banking Standards to implement the commission’s recommendations for a licensing regime.
The Government’s amendments in Committee put in place the key element of those recommendations, the pivot on which the commission’s concept of a licensing regime rests, giving the regulators the ability to make rules for employees who were not senior managers, but commission members were concerned that the Government’s amendments did not give sufficient visibility or, as I put it, “full weight and impetus”, to the commission’s proposals and we undertook to bring forward amendments at this stage which will, as I said in Committee,
“put beyond doubt the determination which we all share to see real change in this area”.—[Official Report, 26/11/13; col. 1343.]
In brief, these amendments make explicit the requirement on banks to certify staff and enforce banking standards in the first instance. Amendment 12 delivers the commitment to require banks and PRA-regulated investment firms to verify that people are fit and proper before appointing them to functions in which they could do significant harm to the firm. It also requires firms to review that assessment annually. This gives effect to the commission’s recommendations in paragraph 634 of its final report. Indeed, the Government have gone further. Amendments 9 and 11 impose similar obligations on firms in respect of senior managers and other persons who have been approved by the regulators.
Amendment 12 also imposes the obligation on these institutions to issue certificates to persons performing functions in which they could cause significant harm to the firm to confirm that the fitness and properness checks have been carried out. As I explained on Report, it would not be appropriate to describe these documents
as licences—the commission’s preferred term—but it is quite in order to call them certificates and they fulfil the same function. The amendment also imposes obligations on banks and PRA-regulated investment firms to maintain records of persons who have been issued with certificates. It is not, of course, necessary to require firms to keep lists of senior managers as their appointments will have been approved by the regulators and they are included in the financial services register kept by the FCA.
Amendment 14 requires banks and PRA-regulated investment firms to notify the regulators of disciplinary action that they take against any of their staff, not just senior managers and persons who have been issued certificates. I can assure the House that notifiable disciplinary actions will not include verbal ticking-off, for example, for turning up late to work. Only formal disciplinary action, such as a written warning, need be notified and only if it is for reasons specified by the regulators in their rules. This gives the regulators the ability to check up on how firms are policing the conduct of individuals and it delivers on the recommendations in paragraph 642 of the commission’s report.
Amendment 13 requires banks and PRA-regulated investment firms to notify individuals that banking standards rules apply to them. This delivers on recommendations in paragraph 643 of the commission’s report. Amendment 13 also requires banks and PRA-regulated investment firms to ensure that the individuals concerned understand their obligations under banking standards rules. This includes by providing suitable training. Amendments 9 and 12 also provide that, in checking that someone is fit and proper, firms must have regard to whether someone has a qualification or has undergone training prescribed by the regulator in its rules.
As your Lordships would expect, the Government will seek to ensure that Clause 15 is removed when the Bill returns to the other place. The amendments I have just explained do, however, deliver what the parliamentary commission recommended and, indeed, go further in some places. Clause 15 would simply not deliver what the commission recommended, or anything like it. As we will explain in the other place, there are a number of areas in which Clause 15 is incompatible with the recommendations of the PCBS. First, it would retain but re-label the approved persons regime, which the PCBS sought as far as possible to remove. Secondly, it would impose on the regulator an obligation to check fit and properness annually, while the PCBS emphasised that it should be the bank, first and foremost, that took responsibility for maintaining standards. However, I hope the noble Lord, Lord Eatwell, will feel that the inclusion of material on training and professional qualifications in Amendments 9, 12 and 13 clearly shows that his underlying concerns on those points have been met.
Finally, I turn to Amendments 17, 18 and 25. These amendments were tabled to address an essentially consequential issue which arose from the other amendments. Branches of foreign banks and investment firms operate in London. Often international banks will have both branches and subsidiaries. A branch is
not a separate legal entity unlike a subsidiary company. However, it is likely that there will be staff working in branches in the UK who should be covered by the senior managers regime or the certification regime and so be subject to banking standards rules. Amendments 17 and 18 therefore give the Treasury the power to extend the senior managers, certification and banking standards regime to the UK branches of foreign banks and investment firms by order, after undertaking appropriate consultation. This will mean that branches and subsidiaries can be treated identically. Amendment 25 ensures that the order can be made only if approved by both Houses under the affirmative procedure so any such order will benefit from proper parliamentary scrutiny.
The amendments here complete the implementation of the parliamentary commission’s recommendations for what it called a licensing regime. They provide a comprehensive regime for raising standards of conduct in banking and demonstrate our determination to see that change really does happen. I beg to move.
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