My Lords, I am recommending that your Lordships do not insist on this amendment and I of course support the reason the other place has put forward. I hope that I will be able to convince your Lordships, and especially the noble Lord, Lord Tunnicliffe, that the amendments the Government put forward in this House address the concerns of the noble Lord and the Official Opposition.
In essence, the Opposition are seeking to bring in a regime of annual licensing for bankers operated by the regulators, which would be supported by requirements about professional qualifications and minimum levels of competence. They also seek a code of conduct for
bankers. I am grateful to the noble Lord for his constructive and thoughtful contribution to the debate on these professional training standards. First, I will set out how the amendments tabled by the Government, following the PCBS recommendations, already deliver the improved professionalism and higher standards of conduct that Amendment 41 seeks. Then I will explain the ways in which Amendment 41 is incompatible with the PCBS proposals, which had at their heart the need for banks to take responsibility for standards in their organisations, which is essential if the culture of banking is to improve.
First, on the code of conduct, Lords Amendment 54, tabled in Committee, already provides for the regulators to make rules of conduct for all bank staff. The regulators will be able to create a set of banking standards rules for people working in banks, just as the PCBS recommended. These banking standards rules will be able to do everything that a code of conduct would do.
Secondly, on ensuring a minimum standard of professionalism and qualifications, Lords Amendment 45 provides for banks and PRA-regulated investment firms to check that candidates for regulatory pre-approval to perform a specified function are fit and proper before they submit an application to the regulator for that approval. As part of this process, they will have to have regard to whether the candidate has obtained a qualification, has been trained or is undergoing training, or possesses a level of competence set out in the regulator’s rules. The regulator will of course have to confirm that those candidates are fit and proper, including by virtue of having the appropriate qualifications, before approving candidates to specified functions.
Thirdly, Lords Amendment 53, which provides for the new certification regime recommended by the parliamentary commission, requires banks and PRA-regulated investment firms to certify that candidates for significant-harm functions are fit and proper, including by having regard to whether the employee has obtained the qualifications, training or competence set out in a regulator’s rules. This certification will have to happen each year, so there will be an ongoing requirement to consider the training and competence of their staff.
In sum, the government amendments provide for a code of conduct, emphasis on ensuring that candidates for working in functions that could significantly harm the bank have minimum qualifications and annual certification. Those are the three central elements of Lords Amendment 41.
I will explain briefly why Amendment 41 is incompatible with, not complementary to, the PCBS proposals. Lords Amendment 41 would impose the requirement for annual validation and checking on the regulator, not the banks. The whole thrust of the PCBS recommendations was that primary responsibility for maintaining standards should reside with the banks themselves. The PCBS said:
“Banks should not be able to offload their duties and responsibilities for monitoring and enforcing individual behaviour on to the regulator or on to professional bodies. The tools at their disposal have the potential to be much more usable, effective and proportionate for the majority of cases than external enforcement”.
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The heart of the new regime is that the banks cannot hide behind the regulator in enforcing standards, but that is what Lords Amendment 41 would go back to. In Commons consideration of Lords amendments, the chair of the PCBS, the honourable Member for Chichester, Andrew Tyrie said:
“The purpose of licensing, or certification, is to ensure that banks themselves have identified those employees—whether traders, senior salespersons, financial managers or whatever—who can do serious harm to the bank or to markets … It should be the responsibility of banks, using methods that best fit their organisation, to maintain a certification system, and it should be the responsibility of regulators—using periodic checks—to ensure that they do. Just to be clear, it should certainly not be the job of the regulators to try to identify all these staff themselves. That would guarantee the return of the very bureaucratic box-ticking that we want to leave behind with the abolition of the APR.”—[Official Report, Commons, 11/12/13; col. 266.]
As Mr Tyrie alludes to, the independent regulator will be central to this new regime but will, instead of doing the banks’ job for them, be more properly focused on setting the standards of conduct, determining the significant-harm functions, deciding the necessary qualifications and, crucially, holding banks to account for their compliance with the regime. For example, a bank’s failure to properly abide by the certification regime would be a breach of the requirement under the Act, which could lead to enforcement action by the regulator.
Therefore, I put it to the House that the amendments put forward by the Government to implement the recommendations of the parliamentary commission will deliver the results that the noble Lord, Lord Tunnicliffe, and the Official Opposition seek. In addition, they will ensure that the banks cannot hide behind the regulator in enforcing standards. I hope, therefore, that the noble Lord, Lord Tunnicliffe, will agree that this House should not insist on Lords Amendment 41. I beg to move.
Motion A1