Greg Clark is Financial Secretary to the Treasury and MP for Tunbridge Wells. Follow Greg on Twitter.
There’s was something odd about the clash between Ed
Miliband and David Cameron at last week’s PMQs.
The exchange opened with a question about the final report
of the Parliamentary Commission on Banking Standards. This wasn’t surprising as
the report’s publication was one of the main stories of the day – however, it
soon became apparent that Mr Miliband’s plan of attack was based on the
assumption that the Government wouldn’t support the report’s major
recommendations. And, so, with the Prime Minister making crystal clear that the
Government did indeed welcome and endorse the report, the Labour leader was left
with nowhere to go.
What made the whole thing even odder was that Government
ministers, including myself, had appeared on the broadcast media throughout the
morning making it perfectly plain that we backed the report.
Perhaps the problem was one of cognitive dissonance rather
than mere inattention. It can’t be easy for those on the left to admit that it
is a Conservative-led government that is reforming the financial services
sector. They should get used to it – the future of Conservatism is all about
putting right the problems caused by excesses that can happen in big business as well as in big government.
In the three years since it came to power the current
Government has already made substantial progress on banking reform.
Firstly, we have passed the Financial Services Act 2012. It which
has replaced Gordon Brown’s disastrous regulatory set-up, which Peter Lilley
warned as Shadow Chancellor at the time “would cause regulators to take their
eye off the ball, while crooks and spivs have a field day”. Instead, the Bank of England is once again in
charge of ensuring the stability of the UK banking system, and a dedicated
financial conduct regulator is charged with taking a forward-looking, rather
than tick-box, approach to monitoring the behaviour of firms,.
Secondly, we are implementing the recommendation of Sir John
Vickers’ Independent Commission on Banking – in particular, by ring-fencing
those bank activities that are essential to the smooth running of the economy
from inherently riskier investment banking.
The recommendations of the Parliamentary Commission on
Banking Standards represent the third leg of our reform agenda, because while
reforms to the regulation and the structure of the banking sector are
essential, its standards and culture needs to change too.
The Commission’s report has as its foundation the essential
point: the UK’s banking system depends totally on the trust it commands. If it cannot count on the trust of its
customers it cannot effectively serve the businesses and people, which is the
only purpose of banking. If it cannot
count on the trust of our own businesses and people it cannot possibly sustain
a reputation for international pre-eminence.
The Commission makes an acute observation when it comments
that banks have too often looked to outsource judgements – and ethics – to the
regulator rather than developed their own standards and corporate conscience of
how to treat customers. Successful
businesses do not gouge their customers because the regulator tells them they
shouldn’t, but because it is against their ethos and long-term interests to do
The Parliamentary Commission’s report is a serious, substantial
and impressive piece of work. The Government will respond in full next month
but we have already supported the recommendations on new criminal sanctions and
cancelling bonuses where banks are bailed out. And, as the Chancellor said last
week during his Mansion House speech: where legislation is needed, the Banking
Bill currently before Parliament will be amended to ensure the recommendations
can be quickly enacted.
Of course, there were those who’d originally demanded a
public inquiry into banking reform and who complained that having a
Parliamentary Commission wasn’t good enough. If we’d taken their advice we’d
still be months and months away from a final set of recommendations – which, in
any case, might not have been as widely welcomed as those produced by Andrew
Tyrie and his fellow Commissioners.
The United Kingdom is not the only country in which trust in
the banking industry collapsed during the financial crisis. But the fact that
scandals have happened elsewhere is of absolutely no comfort. In a world where trust has been lost, we
should be a haven of confidence and security.
This won’t happen unless we earn higher standards of trust than apply
The overwhelming – and urgent – imperative is to rebuild
that trust. It will not be done through
a single factor, but by several, including effective regulation; meaningful sanctions;
clarity and simplicity of organisations; pay that rewards success rather than
underwrites failure; and, above all, an all-pervading culture of integrity.
The reforms that have so far been made take us a long way,
and further than our competitors. The Tyrie
Commission lays out the next steps necessary to restore the reputation – and
with it the prosperity – of Britain’s banking industry.