House of Commons Hansard Debates for 6 Nov 1992

Mr. Nelson : I shall give way for the last time.

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Mr. Vaz : Is the Minister aware that an appeal has been lodged in the past 24 hours in the Luxembourg court against the proposal? That means that it is unlikely that the case will be dealt with for several months. As the hon. Gentleman has raised the issue of the Abu Dhabi scheme--I know that he visited Abu Dhabi last year--does he think that the pause will give the Government an opportunity of making approaches to a friendly Gulf state to ascertain whether the contribution that has been made can be raised, bearing it in mind that the Sheikh of Abu Dhabi will get back $4 million- worth of promissory notes as a result of the deal? The Government have been given an opportunity ; will the Minister seize it?

Mr. Nelson : No, I do not think that the Government should or will. It is a matter for the shareholders and the liquidators. The hon. Gentleman mentioned the appeal, which has just been lodged. As I have already said, that is a matter for those involved. I must say that appeals against the scheme inevitably have the effect of delaying further recompense for others. The delays so far have had exactly that effect.

Of course people are entitled to make the judgment that they may get more. As far as Sheik Zayed is concerned--he is a man of enormous honour and integrity, and a great friend and ally of this country--the losses incurred in respect of $2 billion of investments, not deposits, placed with the group have been written off in addition to the funding requirement here. The Abu Dhabi authorities would argue, with some reason, that they are taking considerable losses on the nose. As well as the distress caused to retail customers, much has also been made of the losses incurred by local authorities that deposited money in BCCI, and there have been the all-too- predictable calls for the Government to compensate them. My right hon. Friend the Chancellor has already made it clear that no special compensation will be paid and, like him, I see no reason why local authorities should be treated differently from any other depositor who lost money.

The losses are a matter for the local authorities concerned, although those who wish to do so can apply to their relevant Environment Department for the losses to be capitalised and spread over a number of years, so as to phase the impact on local chargepayers. But that does not mean that the Government are giving local authorities special treatment. Quite properly in my view, the consequences of the loss have to be met from local resources. Before I conclude, I want to restate something that, although perhaps obvious, is often overlooked. Whatever system of supervision we construct, whatever the law seeks to provide, a fail-safe system can never be devised. As a Government and a Parliament, we have a proper responsibility to remind individuals of several basic, commonsense rules of financial husbandry from which they must not depart. I call them the five golden rules, and I commend them to all investors and depositors. I hope that I will not sound too preachy if I reiterate them now, but they are worthy of repetition.

First, the buyer, investor, and depositor must always beware. Secondly, one should spread one's investments and not put all one's eggs in one basket. Thirdly, one should obtain good advice from independent or

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professional sources. Fourthly, one should always read the small print. Finally, one should never confuse authorisation with a guarantee.

The House has a proper interest in ensuring public confidence in the United Kingdom banking system. The Government and the Bank of England considered carefully, learned from, and implemented changes in line with the recommendations of not only the Select Committee but of Sir Thomas Bingham. In doing so, we have considerably improved the Bank's ability to spot at an earlier stage miscreants within our banking system ; enhanced public confidence in the banking system ; and met the real responsibilities that the Government accept in responding to a report such as that produced by Sir Thomas. There were lessons to be learned and the Government have learnt them. This debate provides the House with an opportunity to express its views on Bingham's recommendations, and I hope that my right hon. Friend's response will be welcomed by all concerned.

10.22 am

Mr. Alistair Darling (Edinburgh, Central) : When the Minister set out his five golden rules, I was reminded of an expression familiar to many of us--as safe as the Bank of England. In debating the Bingham report, we should bear it in mind that some members of the public in the United Kingdom and other countries are entitled to expect that certain standards can be relied upon in an institution regulated by the Bank of England.

The Bingham report is set in the context of the whole banking and financial services regulation system being called into question. The regulators can, of course, point to their successes, but we are entitled to assess and to judge their weaknesses by examining also the system's failures. The most damning conclusion that one can draw from the Bingham report is not that the Bank lacked sufficient powers--even in 1979--but that it lacked proper judgment.

The Minister invites the House to acquiesce in allowing the same Bank--and in many cases the same personnel who made bad errors of judgment throughout the 1980s--to continue to exercise the same functions that they have had for some years. The House is entitled to question whether that is appropriate in all the circumstances. Of course, one can reach judgments with the benefit of hindsight. In considering my contribution, I first thought of addressing the Bingham report briefly and concentrating on the future--but one cannot do that without drawing conclusions from Bingham's telling criticism, which, because it is so understated, is so powerful.

BCCI's problems arose long before it collapsed, but I shall not dwell on the final years before its closure. In many ways, the lessons to be learned for the future are to be drawn from the bank's early days. As my hon. Friend the Member for Western Isles (Mr. Macdonald) said, Lord Justice Bingham reached the conclusion that BCCI should not have been licensed in 1979--or that it should only have been permitted to operate under strict conditions.

The Minister seemed to suggest that the only option open to the Bank of England was to allow BCCI to trade or to shut it completely. Bingham makes the point that, even under the 1979 legislation, the Bank could have used available powers to bring pressure to bear on Mr. Abedi to comply with the Bank's understandable concern, or made

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much greater use of the power of which it has always boasted, in bringing its influence to bear. That influence might have been far greater in the earlier stages than was the case as matters progressed.

Between 1980 and 1984, the Bank of England tried to exert pressure to put in place a structure that it could regulate. It found a solution, but was rebuffed by Mr. Abedi. Lord Justice Bingham is extremely critical of that aspect, commenting that the Bank simply walked away from the situation. At paragraph 246, he states : "I find it surprising that no effort was made to bring the Bank's traditional authority to bear on Abedi to secure his compliance Abedi's truculence would have made clear that the authority of the Deputy Governor, or even the Governor, would have had to be brought to bear."

The alarm was sounded even in the early 1980s that BCCI was no ordinary bank and that it could not be treated as a member of the gentlemen's club-- which has been the Bank's traditional approach to regulation in this country. Instead, the Bank was rebuffed in 1984 and then seemed to change tack.

Throughout the 1980s, the Bank of England received, with increasing regularity, reports that should have given notice that something was very wrong. The Bank and the auditors made considerable efforts during that decade to put in place a structure with which they could cope, when all the time BCCI appeared to be leading the Bank on a merry dance.

The Minister said that BCCI was a bank in search of a home. I do not think so. It successfully avoided finding a home. It might be said that it was a role model for latter-day poll tax evasion. It was obvious that BCCI did not want to be regulated and regarded the Bank of England as a soft touch-- which it was.

In 1985, the Bank was alerted to substantial trading losses in BCCI's central treasury. Lord Justice Bingham is especially critical of the Bank's response in that regard. Although it is clear that it sent in inspectors, they were taken in by BCCI and had no idea what it was doing at that time.

Between 1986 and 1988, the Bank of England heard of more and more problems- -of fraud in London and--from MI6--of fraud in the Gulf. There was evidence also of doubtful loans. It is clear that although individuals in the Bank and Price Waterhouse, latterly the auditors, had that information, that intelligence was not brought together at an early stage and channelled ultimately, I suppose, to the Governor--who must, as the individual in charge of the Bank, accept responsibility for regulation.

Instead, lines of communication left much to be desired. At no time did anyone stand back and ask, "What on earth is going on at BCCI? Why have we made no progress? Why are we allowing months and years to elapse before taking firm action?"

Mr. David Shaw : I attended a meeting in the Grand Committee Room at which many members of BCCI's staff were represented. They argued that the closure had been a CIA plot against the Muslim world. They seemed to think that it had taken place far too early, and that the bank should have been given a longer chance to stay in business. How does the hon. Gentleman reconcile the early warnings with the considerable political pressure that was

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exerted world wide, to the effect that the bank was looking after the interests of the third world and should be allowed to continue in existence?

Mr. Darling : I do not accept the argument that, according to the hon. Gentleman, was put to him and others in the Grand Committee Room, but that is neither here nor there. It would appear that the Bank of England considered the possible consequences of closing BCCI throughout the 1980s. It might more profitably have considered the consequences that would be visited on it if it took no action. Let me repeat that the sole option was not always closure. If the Bank of England had told BCCI earlier that it was not prepared to allow it to continue in business without the imposition of conditions, matters might have been different. I do not disagree with the Economic Secretary's assertion that, whenever the bank was closed, some losses, somewhere, were inevitable. We must ask, however, whether it might have been better to take firmer action at the outset, rather than letting matters build up.

The Bank of England was in a difficult position. It was trying to arrange the restructuring of BCCI, and latterly, when the new majority shareholders appeared on the scene, it was trying to take advantage of that. Throughout that time, however, it should have focused on the main problem--that BCCI was not being regulated because its structure made regulation impossible. The Bank did not address itself to that problem ; indeed, as 1991 approached, it became so confused that, in my view, it lost sight of what it was supposed to be doing. To that extent, its judgment was severely wanting.

Mr. Vaz : My hon. Friend is giving an excellent account of the Bingham report. Does he agree that it is very odd that, in a 45-minute speech, the Economic Secretary did not once defend the role of the Governor of the Bank of England? Is it not extraordinary that, following the savage criticism directed at him, the Governor has not resigned--or, at least, tendered his resignation and left Ministers to decide whether it should be accepted?

Mr. Darling : I shall deal with that point shortly.

Let us consider Bingham's criticism of the way in which the Bank of England handled reports that came to it from the fraud squad in England, from MI6 and from other sources. According to chapter 2, paragraph 14,

"it was in my view incumbent on the Bank to see that serious and apparently credible allegations capable of investigation were fully investigated. As it was, the police complaint petered out and the report from the Gulf was neither investigated"

nor pursued.

Alarm bells should also have rung in respect of the Tampa indictment. According to paragraph 2.166, the auditors felt it necessary to enter the Bank of England separately in case they were seen by their clients. Yet, after they had spoken to an official of the Bank about the matter and acted accordingly, nothing was done. As Bingham points out, the Bank showed a "marked lack of curiosity". In paragraph 2.162, he observes :

"The likelihood of involvement in handling the proceeds of drug-trafficking could scarcely have eluded a competent and diligent banker contemplating such an investment, particularly if he had branches in Panama and agencies in Florida it was a pertinent enquiry, to which a rigorous supervisor would have wished to know the answer."

I have cited those passages because they are relevant to what is to happen in the future. Bingham has made a

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damning criticism of the judgment of junior, middle-ranking and senior officials in the Bank of England, and at the end of the day the Governor must accept responsibility.

We all know that the Bank of England is immune from prosecution or suit because of the terms of the Banking Act 1987. Surely, if those who rely on the Bank have no normal legal remedy, the counterbalance must be that those who accept responsibility--and all that goes with the governorship of the Bank of England--should accept the other side of the coin. When things go wrong and the organisation for which they are responsible fails to live up to the expectations to which we are entitled, they should accept the logical consequences and resign. It is never pleasant to put someone in such a position ; ultimately, however, responsibility for one's actions is a crucial part of accountability. I think that, after receiving the Bingham report, the Chancellor himself should have said to the Governor, "This is a damning criticism of the stewardship of the Bank, and you cannot do other than accept responsibility." There is a problem with that, however : I can imagine the Governor turning around and replying, "Well, Chancellor, I will go, but what about you? What about your conduct of matters for which we were both responsible?"

That has been one of our difficulties with the Government over the past few weeks. No one is prepared to accept responsibility for his actions. That debases public life, because the public are entitled to expect someone to accept responsibility when something goes wrong. Surely, when no legal remedy is available--I shall say more about that when I deal with the question of compensation--and no one is prepared to carry the can, the Chancellor is duty bound to insist that standards are upheld.

I find it extraordinary that the Governor seems to be maintaining the line that the Bank is blameless. I understand that he continued to take that stance when he was invited back to give evidence to the Select Committee earlier this week. According to him, no one was at fault ; it was all a mistake ; perhaps it should not have happened, but no one was to blame. I cannot accept that. Is the Economic Secretary asking us to accept that the Bank of England, in its present form--with many of its officials still occupying the desks that they occupied during the BCCI affair--is to continue to be responsible for regulation? If so, many people are bound to ask when the same thing will happen again.

This is not the first time that such a problem has arisen. The affair involving the Johnson Matthey bank--which, of course, entailed different circumstances--illustrates the problem. The Bank of England may enjoy many successes, but it has yet to get on top of affairs such as those involving Johnson Matthey and BCCI. Warning signs were there, but the Bank of England did nothing.

Mr. Beith : I believe that I am the only Select Committee member who took part in the questioning on Wednesday and who is present today. For many years, the Governor of the Bank of England has proved a courteous, frank, helpful and honest witness before the Committee. Like other Committee members, I was appalled by such a defensive approach to such a catalogue of failures as that listed in the Bingham report. I was genuinely amazed that neither the Governor nor his colleagues seemed willing to accept responsibility for what had happened.

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Mr. Darling : I have not met the Governor ; I believe that I am to meet him in the next couple of weeks, which makes matters rather difficult. I dare say that he will be delighted to meet me after what I have said! I think, however, that I should be failing in my duty on behalf of my party, and on behalf of many other hon. Members, if I did not say what I believe ought to be said : that someone should accept responsibility.

This is the biggest banking failure that we have seen. Many depositors, in this country and abroad, have lost all their money and are in severe financial difficulties. No matter what the Economic Secretary may say, when a bank is regulated its depositors are entitled to expect the regulator to discharge the duties incumbent on it. I do not suggest for a minute that they should not use their own commercial judgment in many respects, but there is no point in regulation unless it means regulation.

I think that I have made the point strongly enough. I find it extraordinary that the attitude of the Bank's senior management is "business as usual." I suppose that all that can be said in their defence is that exactly the same attitude prevails in the Treasury. Its approach is, "Nothing has happened. The public may have lost out ; tough luck . We are carrying on." That attitude needs to be corrected.

Does the Economic Secretary believe that the Bank of England is the appropriate body to continue regulation? I know that that point has been canvassed by the Select Committee, but I wish to raise it again. I was struck by many features of Lord Lawson's book, which was published yesterday, but one aspect struck me particularly. I would not normally seek an ally in Lord Lawson, and some of his criticisms are in what I would call typically Lawsonesque style : everyone seems to have been to blame except him. However, he points out that the Bank of England has two tasks. One is to implement monetary policy ; the other is to supervise banking policy.

On page 406 of his book, Lord Lawson says :

"despite the Bank's subordinate role in monetary policy and its leading role in bank supervision, the high fliers were all attracted to the former, much sexier side, while the humdrum but important" task of regulation was

"always in danger in becoming something of a backwater." Two points arise. First, why did not Lord Lawson, during the six years that he was Chancellor of the Exchequer, do anything about it, if that is what he thought? Secondly, is he right? I understand that the Bank of England will say that that is not necessarily the case and that it has high-calibre people on the regulatory side. I wonder, however, whether an organisation whose sole job is regulation ought not to have focused on the problems that arose with BCCI at a much earlier stage. The Minister should look into that point.

To digress for a moment, if the treaty of Maastricht is concluded and a European central bank is established, the structure, composition and powers of the United Kingdom's own national Bank will have to be looked at. We ought, therefore, to consider whether the Bank of England should be responsible for regulation.

I say no more than that the situation might have been different had there been an organisation whose sole job was to look at these issues. Bingham makes the point that the Governor and deputy Governor were busy men, that they had many other matters to worry about in the 1980s and that it might have been better if someone had had sole responsibility for regulation.

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I am glad that the Minister accepts the Bingham recommendations and also the Select Committee's recommendations, to which I shall return. I disagree with one of Lord Bingham's recommendations. He said : "the Board of Banking Supervision played a valuable role but must be alerted to any fact which even might cause their antennae to twitch".

There were a number of facts that would have made anybody's antennae twitch a trifle. Lord Bingham is a little complacent when he says that the Board of Banking Supervision had played a valuable role. I argue that it did not do so. It had the information, or had cause to ask for information to be put before it. I do not know the two gentleman to whom the Minister referred and I do not criticise them, but I wonder whether hon. Members can leave the House today feeling happy that the same people appear to be doing the same job that they were doing throughout this episode. Apart from that, I have no quarrel with the Bingham recommendations.

As for international co-operation, the House will be aware that under the European directive that comes into force in January 1993 we shall be faced with the curious fact that banks operating in the United Kingdom will be regulated by other European Community member states. The standards of regulation are not the same throughout the Community. The Treasury and the Bank of England will have to consider very carefully how that works out in practice so that we do not find that someone takes advantage of the fact that somewhere in the European Community there may be a regulatory regime that is less strong than the United Kingdom's regime.

The other important point is that the statutory duty of auditors ought to be clear so that if whistles are to be blown they are blown without doubt. It should never be necessary for auditors to have to go to the Bank of England and use separate entrances in such a clandestine manner as happened in the case of BCCI.

On the question of compensation, I have to remind the Minister that on the same day that he said that he was confident that the Bank of England would be exonerated, the Chancellor of the Exchequer said something different. The Minister may come to the Dispatch Box with a clean sheet, but the Treasury, for which he is now responsible, does not come to this matter with a clean sheet. The Chancellor is still the same Chancellor that we had in 1991. In reply to a question from my right hon. Friend the Member for Bethnal Green and Stepney (Mr. Shore) the Chancellor of the Exchequer said

"I said that I would have to consider the position if the conclusion was that blame applied to the authorities or individuals, or there were findings of negligence."--[ Official Report, 19 July 1991 ; Vol. 195, c. 722.]

The Minister muttered the word "negligence". Negligence is a high test, but the Chancellor used the word "blame". I challenge anybody who has read the Bingham report to tell me that no blame attaches to the Bank of England. Ministers sometimes say things that they subsequently regret, but the tradition is that if they say things to the House they are stuck with them.

I know that the Chancellor will claim that he said that he would consider it and that he has now considered it. I dare say the minute he sat down he considered the matter and thought to himself, "I shouldn't have said that." However, he did lead people to believe that if there were blame, the matter might be different. The Government

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have some responsibility because, as I said, the Treasury is responsible for the Bank of England. That is the line of communication and the line of accountability.

From 1988 onwards the Treasury was well aware of the problems with BCCI. When the Chancellor of the Exchequer made his statement on 22 October I said that the Treasury had to ask itself whether it ought to have done more. It certainly briefed Ministers that all was well, but the Treasury, for which Ministers must accept responsibility, must have known that alarm bells were sounding. In my wanderings around the City in the last couple of months or so, anybody who mentions these things tells me, "Anyone could have told you about BCCI. It's just unfortunate that nobody appears to have told the Governor of the Bank of England that there were problems."

Mr. Vaz : My hon. Friend raises a very important point about what the Chancellor said on 19 January 1991. Will he take it from me that the Economic Secretary's predecessor, Mr. Maples, gave exactly the same commitment when he met an all-party delegation of Members just after the Bingham inquiry was set up? He told us that if there were any question of negligence or blame, he would look into the question of compensation.

Mr. Darling : I must accept what my hon. Friend tells me. I dare say that someone on the Treasury Bench will have made a note of that point, though I suppose that in this era of open government we shall not see it.

The Chancellor certainly led the House to believe that if blame were to be attached to anybody he would have to consider the position. Most hon. Members took the view at the time that this looked like another Barlow Clowes. It could be, though, that the Chancellor had been briefed by the Governor of the Bank of England and that the Chancellor was clear in his own mind at that time that no blame was going to be attached to the Bank of England. It is possible that the Bingham report came as much of a surprise to the Chancellor as the section 41 report by Price Waterhouse came to the Bank of England in 1991.

The local authorities make one point that seems to me to have some force. Under the Banking Act 1987, the Bank of England has immunity. Local authorities cannot go to the ombudsman. It was the ombudsman's report that led to the recommendation that compensation should be paid to Barlow Clowes investors. The local authorities are in a difficult position.

The second report of the Treasury and Civil Service Select Committee deals with the local authorities. It makes useful comments about the Bank of England's approved list. Even those who criticise the local authorities--I am critical of one or two of them--accept that there is some ambiguity about the approved list that is published by the Bank of England. There was no point in having an approved list if the Bank of England knew, as one member of the Bank of England's staff said, that BCCI was a cesspool but then stuck it on the approved list, in the knowledge that people were likely to do business with it. Although he did not mention it specifically, I hope that the Minister accepts the Select Committee's recommendation. I return to the point that I made earlier : there are two possibilities. Either the Bank of England is to be made available for prosecution or legal redress, in the event of negligence, or we are entitled to expect, when things go wrong, that somebody carries the can. We cannot have it

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both ways. We cannot have the Bank of England being unable to be sued and, no matter what happens, nobody accepting responsibility for what goes wrong. It is unfortunate that poll tax payers in some local authorities will have to shoulder a very heavy burden.

Criticism has been levelled at the conduct of officials in the Western Isles council. When one looks at the catastrophic consequences for the economy of the Western Isles and for the poll tax payers--or for council tax payers next year--the Government's attitude appears to be high handed. Therefore, they ought to look into that question.

Individual depositors pose a difficult problem. Under the Banking Act, the maximum amount payable under the deposit protection scheme is £15,000. Under the Finance Act 1987--a different regime--the maximum sum payable is £48,000. Does the Minister intend to review the working of both schemes? There appears to be an anomaly. In the United States, the equivalent of about £68,000 can be paid to individual depositors.

If the Treasury and Civil Service Select Committee returns to the question of compensation and recommends that compensation ought to be paid to investors over and above what is provided for under the deposit protection scheme, I hope that the lavish praise that the Minister heaped upon the Select Committee will not cease and that he will accept such a recommendation. The Chancellor gave an undertaking, from which Ministers cannot lightly depart. I would not go so far as to say that the statement was misleading. It would be improper of me to do so. If, however, Ministers say something to the House and, therefore, to the country, people are entitled to rely upon it. I accept the difficulties that the Government would have concerning the relationship between depositors, major shareholders and the compensation scheme. Nevertheless, if the Government can do anything to bring pressure to bear, as Governments can, I ask them to do so. There is no doubt that many people in this country feel that they have had a raw deal, and that they are not being given the same consideration as were the more articulate investors in other schemes. They feel badly done by, and they are beginning to wonder whether the Government regard them as less important than other investors. As the bank is now in liquidation, there is the problem that the liquidators are responsible for all the creditors throughout the world, not just the United Kingdom creditors. I understand that, as ever, rapacious accountants and lawyers are having a field day with what funds remain in the bank. That matter must be investigated. Finally, there are some relevant questions about which I had hoped the Minister would speak. For example, the whole subject of regulation has a direct bearing on the report, whose publication coincided with increasing problems in the regulation of financial services. There have been many problems, and the Government will have to get a grip on the situation.

Next year the European directive will introduce a new area to consider. The Securities and Investments Board and its subsidiaries, if I may use that word, are relevant. The Minister will be aware that over the past few months there has been controversy, to put it mildly, over the amalgamation of the Life Assurance and Unit Trust Regulatory Organisation--LAUTRO--and the Financial Intermediaries, Managers and Brokers Regulatory Organisation- -FIMBRA. Mr. Newmarch of the Prudential Assurance company made a speech on Tuesday

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night which brought to a head a simmering row. It is difficult to see how the PIA--the new amalgamated body, the Personal Investment Authority--will be able to get off the ground if an organisation as large as the Prudential will have nothing to do with it. The Government must get a grip on the situation. They cannot allow the debate to become dominated by producer interests. There is a large public interest.

I believe that the hon. Member for Dover (Mr. Shaw) complained that small firms might be regulated. May I tell him that many of the problems arise from small firms--the kind that are set up in January and are gone by November, leaving a trail of devastation and hardship in their wake. The Government must consider that aspect, although it is extremely difficult. In some ways banks are easy, because one is dealing with one or two large players, whereas financial services involve many very small firms trading with hundreds of thousands of people. Nevertheless, the Government cannot allow the industry to carry on in its present state.

I know that Andrew Large of the SIB is due to present a report to Ministers in March, but I am not sure that the Government can wait until then before making preparatory plans. Even after the report is presented in March there will have to be consultation, and it may be 1995 or 1996 before new legislation is passed. The Government will have to legislate next year and, if they are to do so, some of the more difficult problems, such as the lack of compulsion available to the SIB for knocking heads together, could be tackled.

It is depressing to speak to people in banks and insurance companies and hear them say, "We know that we shall have to co-operate, but we shall not do so until we are forced to." The Government cannot allow that to continue, because every day somewhere in this country someone is selling duff policies to vulnerable members of the public. The public are entitled to expect that the Government regulatory regime will protect them. I hope that the Government will take that on board.

The Government must deal with the problem of the Investment Management Regulatory Organisation--IMRO--and the blot that the Maxwell affair has left on its record. And they really must resolve the problem of LAUTRO and FIMBRA.

The term "self regulation." is not only inappropriate but perhaps symbolic of an atmosphere that prevailed in the mid-1980s, and which is not relevant to the mid-1990s. Mr. Newmarch is right that the climate must change. That term is inappropriate--but, equally, statutory regulation should not mean a United States style civil service regulator, with the taxpayer picking up the tab when anything goes wrong. Industry should be allowed to regulate its constituent parts, provided that the interests of depositors and investors are looked after.

Parliament is entitled to lay down the framework of what it expects from the regulators--to ensure that companies are regulated, that interests are protected and that regulation means efficient and adequate policing of a regime, so that someone will knock on the door and say, "Where are your accounts? What policies are you selling? Are you deceiving people?" Yes, that will cost money, but in the long term it is a lot cheaper to have a proper regulatory regime in force than to allow the present situation to continue, claiming more victims every week.

The Government cannot avoid blame for what has happened, either with BCCI or in the financial services

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regime. They created the culture of the 1980s, when a nod and a wink were given in the direction of regulation, but they made it clear that they did not want to know about it. That has changed. Indeed, some of the utterances of the Economic Secretary to the Treasury have contrasted favourably with some of those of his predecessors. That is why I am so disappointed that today he seems to be returning to the bad old days, saying, "This is a bit unfortunate ; let us walk away and hope that it never happens again." We cannot do that ; the culture must change. The Bingham report clearly illustrates what goes wrong when we have a culture of the soft touch. People will take us for a ride, and the Government must remember that.

I know that compensation is a difficult problem, but I strongly believe that, with proper regulation, it will be solved. I believe, too, that the fact that the industry will regulate itself makes abuses less likely. People will hear about things going wrong, so they will be more alert than they might otherwise be. I do not see why people who buy policies should have to pay for compensation in advance, by having it loaded onto the price of the product. That is equally wrong. The Government must get a grip on the situation, and show that they are prepared to regulate. At present, the industry is simply not doing the job.

Regulation is important for two reasons. First, the public, the depositors and the investors expect that when they do business with a regulatory body they are entitled to certain standards, which will be actively policed. Secondly, we must consider the reputation and standing not only of the industry but of the City and of United Kingdom financial services. The United Kingdom is still a world centre, partly because of that reputation, so it is important in terms of this country's income, GDP and employment prospects. If the Government accept that, they must accept that we need a regulatory regime that works. Those two aspects--the protection of the public, and the integrity and reputation of the industry in the United Kingdom--go together.

The Government must show that they are prepared to act quickly. Bingham and the Financial Services Act experience show that the Government and the House have been warned. We should take the opportunity that now arises. We cannot walk away from this. If we do, sooner or later we shall be back discussing the next catastrophe. I ask the Minister to bear in mind the fact that he has been warned. He may be the Minister responsible for such matters for a short time or for a long time, but he and the Government have been warned that there are problems, and that they must be tackled immediately.

Mr. Nigel Spearing (Newham, South) : On a point of order, Mr. Deputy Speaker. You will be aware that yesterday the President of the Board of Trade and Secretary of State for Trade and Industry made a statement on the GATT, which finished at 5.40 pm or thereabouts. Since then there have been considerable developments--the resignation of Mr. MacSharry and other matters concerning the President of the European Commission, who is responsible for the discharge of £25 billion of public money in connection with exports and agricultural support.

In answer to a question from me yesterday, as reported in columns 443-44 of the Official Report, the President of

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the Board of Trade did not dissent from the proposition that he was the prime political person in this country, and throughout the Community, in his capacity as President of the Trade Council, responsible to the public here and in the Community.

The Government have said that they wish to bring the proceedings of national Parliaments closer to the people, so I expected that it would be their duty to arrange for a statement to be made. Looking at the clock, Mr. Deputy Speaker, I gather that you have received no such application. I should be grateful if you would tell me whether that is so and, if it is, how the House can express its concern at the Government's lack of action on behalf of the people of this country and of the rest of the Community in this crucial matter.

Mr. James Molyneaux (Lagan Valley) : Further to that point of order, Mr. Deputy Speaker. You will be aware that I have no vested interest in interrupting this debate, because I hope to catch your eye later. However, in the light of all the developments that have taken place in the House and the fact that the United Kingdom has held the presidency in Europe for the past six months, it is important that we should be given some information about what measures may be taken urgently to restrict the destructive tendencies of Mr. Delors, who has already done a great deal of damage to relations between the European Community and the countries across the Atlantic.

Mr. John Greenway : Further to that point of order, Mr. Deputy Speaker. Given the thin attendance that we normally see in the House on a Friday when we have an Adjournment debate of this nature, would it not be more satisfactory to the House for the President of the Board of Trade to make a further statement on Monday rather than today, when he should spend his time negotiating the GATT settlement?

Mr. Deputy Speaker : Order. Let us not have a debate on this matter. I have had no request for a statement on any issue, but I am sure that those on the Government Front Bench heard what the right hon. and hon. Members said and obviously took note of it.

11 am

Mr. Terence L. Higgins (Worthing) : The disastrous collapse of BCCI has set a number of records, which stem from the sheer scale of the fraud. It is probably also on the way to setting a record for the number of inquiries and reports that have been made into it. We have had two reports from the Treasury and Civil Service Select Committee, together with the responses of the Government and the Bank of England. We have also had the reports of Senator Kerry's inquiry and that of Sir Thomas Bingham.

I am grateful to the Economic Secretary for his kind remarks about the report of the Treasury Select Committee, since, in one sense, it was my swansong as Chairman. I believe that it is a good report. I also noted with interest what he said about Senator Kerry's report. From reports in the press, I came to the conclusion that it was long on rhetoric but not very long on evidence or analysis.

The reports of the Select Committee and that of Sir Thomas Bingham provide the House with a sound basis for a debate on the relevant issues--which, if I may

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presume to say so, has been apparent from the two speeches that we have already heard. There is a difference between the two reports, because the Committee's was based on evidence taken in public, which was an important contribution to the general debate on the issue, whereas Sir Thomas took evidence in private.

It is also true to say that, excellent though Sir Thomas's report undoubtedly is, it does not greatly add to the conclusions or recommendations that were made by the Treasury Select Committee. I am glad that the Government have been prepared to accept not only all of Sir Thomas's recommendations, but virtually all of those made by the Treasury Select Committee. It is vital that we should look forward in our consideration of this matter.

I should like to declare an interest ; I am a consultant to a firm of accountants, and obviously the role of auditors was pretty important in this matter.

My first main point is a simple one. It is clear from the evidence that we have received that responsibility for bank supervision by statute rests with the Bank of England and not with the Government. Also apparent from the evidence we received was the extent to which the Governor of the Bank of England did--or, more accurately, did not--keep Ministers informed of what was going on.

There is no doubt that there has been a serious failure in the regulatory mechanism, so it is important that we analyse exactly what happened. I am aware that the Treasury Select Committee is now considering the issue of compensation, and I would not wish to comment further on that, except to note the rather extraordinary statistic that the Economic Secretary has already mentioned. About 42,000 claim forms have been sent out to depositors, but only 16,000 claims have been made. It might be relevant to consider what has happened to the other 26,000 claim forms.

Mr. Vaz : The right hon. Gentleman has highlighted part of our argument about compensation. The amounts of compensation that will be paid eventually, if the Government pay out to all the depositors, creditors, local authorities and former employees, would be a good deal less than the £6 billion mentioned, simply because people who want that compensation will under-claim.

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