Banking StandardsWritten evidence from Paul and Nikki Turner The Commission redacted part of this submission for reasons of sub-judice. Paul and Nikki Turner requested that this be made clear.
1. This submission is from Paul and Nikki Turner and our view is that of people who: a) have been victims of systemic bank fraud; b) have experienced firsthand the unethical way in which a major bank has attempted to conceal fraudulent behaviour in their organisation to the detriment of clients and shareholders; c) have experienced firsthand how the regulatory system in the UK has been manipulated by banks to the detriment of the consumer; d) have had to investigate a massive fraud ourselves because no authority that should have looked into the matter, did; e) have adduced evidence which confirms the corruption endemic in the banking sector, is not confined to banks.
2. Surprisingly perhaps, we would call many bankers and ex-bankers we have met, friends. So our submission is not an attack—but rather an informed “layman’s” view of how key, influential people in the banking industry and other “supporting” sectors, have corrupted the system to the detriment of a society which also includes the majority of people in the banking and other sectors.
3. It is clear to us from the evidence we have scrutinised, to address the issue of “Banking Standards”, the Commission must also look into all the related services which have facilitated the demise of “Banking Standards” because of the business and rewards they derive from the banking sector.
4. Accountancy Firms, Law Firms, Insolvency Practitioners and, sadly, the Judicial system (both criminal and civil), have all become complicit in enabling banks and other financial service providers to continue with practices which have caused the complete loss of faith and trust in the sector. They too have become victims of greed and, in doing so and like the banking sector, they have lost their integrity. It may be a bitter pill for the Commission to swallow but sadly, corruption is endemic at all levels and across the whole of these sectors. You have a huge mountain to climb and very little time in which to achieve the goals you have set. We hope you are steadfast in your aims.
To what extent are professional standards in UK banking absent or defective? How does this compare to (a) other leading markets (b) other professions and (c) the historic experience of the UK and its place in global markets?
5. In light of the myriad of scandals being exposed across the UK Banking sector, we would ask if the Commission itself considers the Banking sector has any “professional standards”? As part of our own investigation, we have read all the voluntary Codes of Conduct for Banks and the Statutory Principles and Regulations of the regulators. In our experience, the Codes are not adhered to at all and the FSA Principles are repeatedly and deliberately breached with little or no penalty for doing so. There simply are no “professional standards” for the “too big to fail” banks. There is only the banks’ conduct which flies in the face of every professional standard.
6. In our opinion, whatever good intent the FSA may have is automatically crippled by its key remit of “market confidence”. While “consumer protection” and “reduction of financial crime” may suggest the FSA require Firms to adhere to ethical, professional standards, “market confidence” overrides any other consideration and effectively gives bankers free rein to behave however they want to.
7. It is a fact the banking sector is not only “too big to fail” it is also “too big to regulate”.
8. Between them, the part state owned banks (RBS and LBG) employ approximately 250,000 people and have approximately 60 million customers worldwide. Any scandal likely to cause even a minimal percentage of those customers to move to other banks or, worse still, to remove their money from the big banks, is not considered to be “in the public interest”. Anything likely to destabilise any of the big banks is considered to be potentially dangerous to Government and this includes any forceful action by the FSA. “Market confidence” means the FSA or its successor has its hands tied as a regulator but it gives the banks grounds to act without regard to any standards in the way it does business.
9. The Notice explicitly laid out the serious breaches of FSA Principles and of FSMA 2000 by HBOS. And then what happened? No fine was imposed and an FSA officer told us some executives of HBOS may, in the future, be banned from holding positions in the sector. But, as those same people have already walked away from the failed Bank with their substantial earnings and pensions intact, we would question how such a penalty really reflects the enormous damage the Bank has done?
10. Most importantly we would ask why the Regulator would need the Bank’s permission to publish its findings over and above it being provided for in FSMA 2000? It suggests a bank is able to dictate what the regulator can do—a situation we believe we have observed happening repeatedly.
11. To the general public, the situation between the FSA and the banks has long been seen as a case of the tail wagging the dog. It is the job of the FSA to make sure professional standards are upheld but, in our experience, the “revolving door” scenario between banks and their regulator combined with the necessity not to “rock the boat” because of “market confidence”, has led to the untenable situation we now have.
12. And this “revolving door” situation is, we suggest, another way in which banks manipulate regulation and authority. One example is a Director of Lloyds Banking Group who was simultaneously the Chairman of an influential media Group which owns financial publications and the Deputy Chairman of the FRC. He was also, for a short time, the Chairman of UKFI. Are these not a “conflict of interest”?
13. We ask how this “many hats” scenario, which has a very small number of the same people in key positions, can be allowed to continue? Or how this will raise standards? A lot of these people were in these senior positions running up to the so called “Credit Crunch”. Changing titles does not change attitudes. We have all noted standards in banking have not improved. It seems those involved have only worked harder to conceal what has happened in the misguided belief it protects “market confidence”.
14. We do not know how this compares to other markets. We do believe it is logical to compare banking to other “professions” because the real comparison and the real problem is between “Corporate” behaviour and “non Corporate” behaviour. Across the board and with few exceptions, professional standards have declined as “globalism”, the “sales culture”—which is entirely focused on “profit”—and consequently greed, has replaced any consideration for ethics, professionalism and, sadly, even society.
15. A worrying aspect of the immoral culture pervading professional standards in banking and business, is the control of business, especially the thousands of SMEs who are its backbone, has been handed to the banks on a plate in the same way feudal barons were handed land, title and workers. A mere handful of people (78 we believe) run our 5 biggest banks and dictate policy for millions of ordinary people. These few people do not seem to have contact with the public—nor, it also seems, any desire to communicate.
16. It is common practice for all these agencies not to have contact with the public even when the public have information that would assist the agencies to fulfil their role. UKFI, the BBA and the FSA, are failing to protect the integrity of the financial sector by covering up its failings—wilful blindness?
17. Senior bankers, often referred to as “Masters of the Universe”, perhaps understandably have no concept of how disastrously their decisions, invariably based on a need to “increase profit” above all else, impact on ordinary people, as they live in a parallel universe completely cocooned from everyday hardship.
18. The “hands off” attitude of the regulators, BBA or even the organisation charged with protecting the public’s interest in banks, does nothing at all to challenge underperforming professional standards which have disastrous consequences even for people working in banks.
19. We recently attended a meeting at the FSA as independent witnesses for a friend who is a whistle blower. This person gave the FSA substantial detail of how the culture of “profit above all else” meant that when working as an IFA for a major bank (which in itself is an oxymoron) he was expected to a) deliberately miss sell financial products and b) segment and penalise less wealthy customers b y imposing the highest charges to the “poorest” customers.
20. When he raised these irregularities with his boss and pointed out it is in breach of the FSA Principles, he lost his job. The practice continues and it appears anyone challenging it, risks the same treatment.
21. Therefore, not only is a high street bank deliberately breaching FSA Principles, few people inside the bank can report such wrong doing without losing their livelihood.
22. The only prevailing standard in banking appears to be “money is our God—how we get it, who we get it from and who we damage in the process, doesn’t matter.”
What have been the consequences of the above for (a) consumers, both retail and wholesale, and (b) the economy as a whole?
23. The most damaging consequence to the consumer has been that while, on the one hand, we have all now seen detailed evidence of systemic fraud by the major banks, on the other hand we are all still entirely subject to a system we now know is corrupt and in complete denial.
24. As we know from our experience, any member of the public who identifies crime in the financial sector cannot expect the authorities to take the appropriate action. What we have now is a situation where the banks say black is white and the lack of proper oversight combined with a Government policy that has no appetite to punish financial crime, means black is indeed white.
25. We give the following example of how banking is now detrimental to people at all levels of life:
26. On Tuesday 14 August, we attempted to help a 19 year old family friend with a banking problem.
27. In the first instance, we tried to get through to his local branch. We got through to India and the Philippines but it took over an hour to get through to a local branch.
28. The lad in question works as a builder and gets paid erratically depending on completion of jobs. Some weeks ago, concerned he would miss a DD payment, he asked his branch for a temporary OD of £200.00. The branch manager would not grant it. He did however increase the lad’s banking costs by persuading him he should have a “silver account” instead of a regular account.
29. The DD was returned and he was charged £20.00. The £8.00 for the silver account went through even although there were no funds. The Bank wrote to him saying he would be charged £5.00 per day if he was OD. However, these amounts were not shown on his online statement and consequently he could not see the true amount by which he had actually gone OD.
30. In no time at all, the charge for the silver account caused a £50.00 OD but this would not show on the account for a further month. The Bank wrote again to say he would be charged £10.00 per day for going OD. The lad, who was paying money into his account, was unable to ascertain whether or not he remained OD. Thus our call.
31. When we finally did get through to a Cambridge branch (still not his branch), the person we spoke to explained the lad’s account had been moved to collections because he had gone OD—which is why we had been put through to India. Cambridge branches could not deal with the account.
32. It was explained that, at present, they were charging him £10.00 per day for being OD. They could charge for a maximum of eight days per month + a £5.00 monthly charge. As this doesn’t show on the account until the next month, an account that appeared to be in credit, was hiding a debt of £85.00.
33. A simple calculation would show the Commission that, going OD by £30.00 with this major high street bank could, over the course of a year, become a debt of £1,050.00 + any interest also accrued.
34. The Commission might think the lad should simply not have gone OD. But, in this instance, the lad had taken the responsible action of talking to his bank and asking for a £200.00 OD facility to mitigate the erratic nature of getting paid in the building trade. The requested facility would have incurred minimum charges and kept his account within its agreed facility.
35. The OD facility was not granted and this entitled the Bank to charge the customer up to £85.00 per month. Multiply this amount by a few thousand customers and what you have is a license to print money. The bank want to have these circumstances as they make far more money alleging imprudence than allowing the customer a minimal OD to allow for the vagaries of getting paid on time, exacerbated in these times of “austerity” caused by the banks in the first place.
36. In a lot of cases, it is the knock effect of the way banks are in so much control now of peoples’ money, which has caused and continues to cause havoc and which is the root cause of the problem.
37. The effect a lack of professional standards by banks has had on SMEs has been even more catastrophic than for personal accounts. Without considering the effect of frauds like the one originating at HBOS Reading, it is a fact many banks impose third party consultants on SMEs with crippling effect and the banks claim this is best (and normal) practice.
38. In recent years, banks’ “sales culture” has made life untenable for business owners. Much is made of the banks lack of lending in the press but as big a problem is the conduct of banks where they do lend to businesses. Over and above the now well publicised Interest Rates Swaps scandal and the Libor rigging, banks frequently impose additional, unnecessary and inflated charges on SMEs.
39. These exorbitant charges combined with penalty interest rates if an SME exceeds its limit, is effectively causing a “sub prime” for SMEs. We would draw the Committees attention to the BBC article on this link http://www.bbc.co.uk/news/business-16002022 entitled “UK banks charging as much as 800,000% on overdrafts”.
What have been the consequences of any problems identified in question 1 for public trust and in, and expectations of, the banking sector?
40. There is no trust left. Most people now expect bad treatment from banks and most people get it. This is not because everyone working in a bank intends to treat customers badly but most people working in banks are not in a position to challenge the policies they must follow, because of losing their jobs.
41. A bigger but related problem is the distrust people now have for authority and Government. Repeatedly we are being told there is no Law to prosecute bankers when the Law is very clear on matters of fraud, theft, corruption and money laundering. Deliberate miss selling is, after all, a fraudulent activity.
42. These crimes are exposed on a daily basis and we repeatedly see shareholders penalised for banking crimes with huge fines to the banks. We never see any individual held to account for the crimes shareholders and the public pay for.
43. A frequent debate amongst the many people we know who are fighting for change and reform in the banking world is: Are bankers exempt from the Law because of Government policy?
44. This article on Ian Fraser’s blog site by Rowan Boswell Davis, suggests such an agreement was put in place in the 1980’s http://www.ianfraser.org/has-the-uk-rediscovered-its-long-lost-appetite-for- prosecuting-white-collar-crime/
45. It states: After the “Blue Arrow” case, a friend of mine in the SFO told me that the message had come down from on high that there would never again be any similar kind of prosecution of any City institution or its senior executives. The reason the “Blue Arrow” affair proved so terrifying for the managerial classes and senior financiers was that it demonstrated that ordinary juries could understand the ramifications of complex fraud cases, and that they could convict.
46. Evidence we have seen regarding the exclusion of bankers from specific (and recent) criminal actions, suggests there still is an agreement to keep bankers and influential executives exempt from prosecution.
47. Similarly, we repeatedly see major banks breach FSMA 2000 and the FSA Principles For Business. With the exception of small IFAs, we rarely see any individual brought to book. And where they are, it is usually just a case of stopping them from holding authorised positions.
48. In our opinion, the FSA and various Committees tasked with looking at irregularities in bankers conduct, have little idea how badly this conduct and the apparent inability of any authority to curtail it, adversely effects not only most of the population but also the overall morale of the Country.
49. There is no doubt banks and the financial sector have not simply caused austerity for the masses, they have authored a situation most usuall y associated with dictatorships.
What caused any problems in banking standards identified in question 1? The Commission requests that respondents consider (a) the following general themes:
The culture of banking, including the incentivisation of risk-taking
50. It is only through talking to bankers, we realised how badly incentivisation has promoted a risk culture.
51. An IFA we have spoken with on many occasions, gave us the following example:
52. An elderly person sells their property (which they may have bought years earlier) and moves into a nursing home. The sale results in a large deposit to their bank account. That person’s bank manager will immediately inform the bank’s IFA of the increase in funds. Again we point out the incongruity of an Independent Financial Advisor working for a bank.
53. The IFA will contact the client and suggest various ways the money should be invested. The IFA can only offer the bank’s own products to the client unless the client is in the top wealth bracket.
54. Interestingly, the less money the client has, the higher fees and percentage they will pay for this service.
55. Also, the less money they have, the fewer investment options they will be offered and there is a structure of what a bank will offer its clients based on what wealth bracket the client falls under.
56. If the client agrees to the investment products, a specialist IFA will then visit.
57. Additionally, the client will be offered what will be called a specialist bank account (complete with elegant packaging) on the grounds they are entitled to this because of their new status.
58. These specialist accounts attract charges for all sorts of things the elderly client does not necessarily need, like mobile phone insurance, travel insurance, breakdown insurance and many other things.
59. Because the riskier products produce higher fees and returns for the bank, often elderly clients who have no need to risk money for greater returns and simply want to ensure their money is safe, end up with financial products that can equally result in them losing substantial amounts of their savings.
60. Many bank staff and IFAs are aware of this situation. But everyone, including; the original bank manager reporting the client’s increase in funds; that manager’s boss; all the IFAs involved; and the new manager of the specialist account, will all get a bonus based on this elderly person’s deposit and investments. The client trusts the bank but the bank usurps that trust and covers the action by denying any liability in the T&C, on the basis the client should not solely rely upon their “advice”.
61. By breaking the chain, the IFA jeopardises not only their own bonus but those of all their colleagues.
62. While the debate about top bankers’ bonuses continues on a regular basis, we had never considered, prior to the advice from our friend, how bonuses run right through the banking sector and are used to ensure compliance with policy—even where that policy is seriously flawed.
63. The IFA mentioned above has reported his serious allegations of deliberate mistreatment of customers, to the FSA and we attended a meeting at the FSA as independent witnesses for him.
64. At that meeting the FSA confirmed that, even if they do take action on his allegations, he will not be informed because Section 348 of FSMA prohibits them from disclosing information.
65. We hope the Commission finds that statement as worrying as we and others do.
The impact of globalisation on standards and culture
66. Perhaps the only thing that has done more damage to societies globally than the financial sector, is globalisation itself. It has undoubtedly damaged the motivation of the many who aspire to creating a fair society, because the many have seen the exploitation of their good intentions, for the profit of the few.
67. Banks and multi national corporations have, together, heavily impacted standards and culture because they are global and their aims are at odds with that of societies worldwide.
68. We all consider ourselves as individuals no matter what part of the globe we live in. Yet globalisation takes little if any account of the individual apart from rewarding their work in global institutions. The practices utilised in one part of the globe may not be suitable for use in another but there seems little account taken of these fundamental differences despite the advertising suggesting the contrary. When decisions are made for reasons that are out with the individual’s scope and requirements, they would probably have a negative impact but this will not be a consideration in a global sense.
69. Given the banks heavy involvement with global business and the rewards it receives from that involvement, it has had a negative impact on both standards and culture as it is perceived the individual is of less consequence and worth than a global business and makes less profit for the bank.
70. For years England was referred to as “a nation of shop keepers”. Looking at our high streets now, we are clearly a nation of shop keepers without shops.
71. It is obvious a High Street butcher, that may have been in existence for years but suddenly it has three supermarkets with free parking within a two mile radius, will struggle to compete with supermarket prices and will probably be forced out of business.
72. It is also obvious banks prefer to support and deal with big business rather than 10 high street butchers because the margins for dealing with big business are better and, by comparison, involve less work than the high street butchers. Big, multi national business is therefore more profitable to the banks.
73. In our business (we were in the music business and not the bank investigation business) we have seen the demise of the independent record shop as major supermarkets and global chains were increasingly given preferential treatment and controlled “dealer prices” (PPD). A “free market”?
74. Apply this to food, clothing, music, cups, saucers and even kitchen sinks, we would ask how anyone making policy, including the banks, could ever believe our High Streets could survive.
75. The knock on effect is supermarkets and global chains competing against each other are permanently on the look out for the cheapest product—regardless of where it comes from or if it is “ethically” produced.
76. Therefore, British farmers are receiving less in revenue for milk than it costs to produce it; British fashion, while possibly still designed here, is manufactured in China or India; British industry (what’s left of it) struggles to compete in global markets and is relatively ignored in our own market, etc, etc.
77. Additionally, the morale of the people working for multi billion pound companies where they are simply another tiny cog in an enormous wheel, is reflected in the level of customer service we now expect and therefore get in the UK.
78. You do not need to be brain of Britain to realise bright people, whether or not they have been to University, will not be happy or inspired stacking shelves in a supermarket or stocking rails in a shop.
79. None of this is a consideration for banks as their sights are set in the short term and solely on their balance sheet. The culture is for profit today and make it wherever you can in the world.
80. The work conditions in many of our well known global chains are not good. Relatively inexperienced and ill prepared people are given key positions on the shop floor—they do not know how to treat or encourage their staff—they are paid minimum wages—their breaks are minimal and short. Often the regime they work under is a culture of fear, a culture where the bully thrives—very much like shop floor level of the banks. Very little consideration is given to individual circumstance, so a junior employee arriving ten minutes late for work because a bus was cancelled, is likely to be chastised, financially penalized and even expected to stay late and miss their transport home.
81. Meanwhile they too read in the papers how people who have been responsible for destroying our economy, continue to be paid millions of pounds. Or how traders who have lost millions of pounds of other people’s money, can spend thousands of pounds on “a bottle of Bolly”. They too want some of that.
Global regulatory arbitrage
82. As we have no direct experience, we cannot comment on global regulatory arbitrage.
The impact of financial innovation on standards and culture
83. Innovation implies we have moved forward. While undoubtedly the advent of online banking and debit cards is something everyone now accepts as “the norm” but is a fairly recent innovation, the majority of innovations appear to have been much less positive for the consumer.
84. We would ask the Committee to read the following article which demonstrates how “interest rate swaps” have ruined the life of one small business owner. http://in.reuters.com/article/2012/08/22/uk- banks-insurance-idINDEE87L06P20120822
85. We suggest Mr Colin Jones experience can be multiplied many thousands of times with regard to IRSA and, combined with LIBOR rigging (so that first the banks rig the rates and then insist customers buy costly insurance the banks know will cause them loss), there can be no doubt banks intended to use such products to steal thousands upon thousands of pounds from their customers.
86. The many and varied financial products consumers have been encouraged to buy to their detriment have been catastrophic whether on a personal level with PPI, on a business level with IRSA or on a national level with the continual rolling over of toxic debt that was packaged up as triple A rated product.
87. Any culture where bankers or their lawyers deliberately and repeatedly invent toxic or flawed products they know will damage the consumer while increasing bank profits, is inherently immoral.
88. Even when an innovation is designed and promoted to aid the consumer, it is usurped to make money.
89. The promotion of the Direct Debit system to help the consumer is probably the best example given it is now common place that consumers pay a penalty if they don’t pay their bills using Direct Debit and the banks will usually not accept an instruction from the account holder to stop an amount being debited.
90. If this is the innovation of the banking industry, we would be better walking backwards.
The impact of technological developments on standards and culture
91. While no one would sensibly deny the advantages of technological development or the fact the British have always been at the forefront of it (albeit it seems it is now developed oversees and benefits other economies), we cannot help but wonder if technology is now being used by banks as an excuse for inefficiency and negligence or even something more sinister, like a cash crisis or worse?
92. Like many people, we have been against the demise of the cheque book and the check guarantee card.
93. As seen recently when technical problems denied many RBS customers access to funds for a prolonged period, we are asked to rely on well functioning technology in banking when it isn’t always in place.
94. A darker suggestion (but not entirely unreasonable) is that banks experiencing cash flow difficulties can, at any time, close their ATM machines or their clients’ ability to use debit cards, blaming technology.
95. Even major power cuts can now have a seriously damaging consequence for consumers as credit and debit card terminals become impotent.
96. We believe Government should ensure an alternative scenario exists for the consumer where technology in the banking sector fails. The easiest way to ensure this safety valve is in place, is to simply re- introduce the cheque book and guarantee card.
97. Therefore we would say that while technology in general is good, an over reliance on it with no plausible back up, is dangerous. An over reliance on its veracity, is also very dangerous as technology almost always relies on human input. This can lead to either innocent mistakes being made which cause the customers problems or, more worryingly, deliberate and fraudulent entries to cover up criminality.
98. While banks will say this costs them money, we would say it is time banks took a cut in profits (and bankers took a cut in remuneration), if it will benefit society overall.
Corporate structure, including the relationship between retail and investment banking
99. We cannot comment on the relationship between retail and investment banking except to say that, like many ordinary people watching the recent banking catastrophes, the combination of the two banking sectors seems akin to sending a compulsive gambler to Las Vegas with someone else’s savings.
The level and effectiveness of competition in both retail and wholesale markets, domestically and internationally, and its effects
100. We have insufficient knowledge of the competition in both retail and wholesale markets anywhere.
Other themes not included above
101. We have genuine concerns regarding the limited remedy or redress available to SMEs and individuals who fall victim to banking irregularities or malpractice caused by defective professional standards.
102. We ask the Committee to consider the appalling situation whereby a business, that may have been damaged to the tune of millions, only has two remedies—both invariably futile.
103. An SME can take an action in the Civil Courts —and we can assure the Committee this route is invariably disastrous. Banks, some of which only exist thanks to tax payers’ money, will spend huge amounts in legal fees to fight such cases.
104. The Civil Courts are a) not affordable to SMEs and b) not a level playing field.
105. While there are law firms who will work on CFAs or even Pro Bono, experience has shown that, with the best will in the world, you get what you pay for with the legal profession.
106. A CFA client invariably must play second fiddle to paying clients and it is a fact most of the top law firms form part of the banks’ panels of law firms.
107. In our view the legal profession (like the banking profession) is long overdue for reform. We can assure the Commission, what happened in the Reading fraud could not have occurred without the complicity of lawyers. However, this is a matter we cannot expand upon until Operation Hornet is finished.
108. Suffice it to say, the Civil Courts are rarely an option for SMEs to challenge major financial institutions and we have repeatedly seen good cases thwarted by top lawyers and barristers using legal trickery and the wealth of the banks, to manipulate Justice. The Internal Complaints procedures are a joke.
109. The only alternative for an SME is the Financial Ombudsman Service and, with no disrespect to individual officers of the FOS, the term “Chocolate teapot” is one frequently used by both individuals and company officers in relation to the FOS.
110. The process is long and, even if the Ombudsman finds for an SME, the maximum award is £150,000.
111. And even in such a clear cut case, when we first reported our matter to the FOS we were asked for relatively little evidence or explanation while the Bank was asked for a full defence and the FOS was even unwilling to consider all our allegations. We still have not got a definitive response and, until the involvement of the police and the FSA, we feel the Ombudsman had a definite bias towards the Bank.
112. The inability of SMEs to challenge banks successfully or at all is a situation much exploited by the banks. And their knowledge of this inequitable situation promotes the unhealthy contempt with which banks continue to treat their business customers.
113. Contrary to the FSA Principles of Business, bank employees right to the top of the executive chain, feel able to deal with serious complaint or irregularity by adopting the 3D scenario. “Delay, deny, dilute”.
114. Over the last five years and given the seriousness of the HBOS Reading situation, we have corresponded with the most senior executives of HBOS, Bank of Scotland and Lloyds Banking Group. This includes both past and present CEO’s and Chairmen of all 3 Banks.
115. They have all, without fail, ultimately resorted to responses saying “we do not intend to correspond further”. The last letter informing us of this position was on 26 June 2012, from Lloyds Banking Group. We have met with victims of other bank scandals who have been treated similarly.
116. While we do not ask the Commission to consider our particular circumstances, we do ask: how can a situation exist in a democracy whereby victims of financial crime have little or no redress because, to get Justice against such wealthy opponents, is unaffordable and; how can it be permissible for banks to exploit this further by blatantly breaching FSA Principles and their own Codes of Conduct which clearly state they must treat people or businesses, both fairly and reasonably?
117. This contempt combined with the disappointing lack of appetite from any authority (except TVP) to apply the Law of the land to financial institutions or their employees, is a major contributory reason why no one should expect a change in policy or conduct from the banking industry, in the near future.
118. In our opinion, banks have been given such overwhelming powers, they not only control the economy but have also taken control of the judicial system. If this power is not given back to the democratic process, we believe the banks will continue to cripple our society until the situation is irreversible.
Weaknesses in the following somewhat more specific areas:
The role of shareholders, and particularly institutional shareholders
119. We believe the role of the institutional shareholder has been a significant, contributory factor in allowing the professional standards of banks to decline and almost disappear. They have a vested interest in not rocking the boat. It is even the case some major global investors often practice business with the same lack of adherence to social and ethical rules, as banks. It is only recently that institutional shareholders have appeared to take a position against the boards of banks whereas individual shareholders have always seen their role as holding the board to account on matters including standards.
Creditor discipline and incentives
120. Given the amount of “toxic assets” revealed by the 2008 crash and the inability for professionals to be able to understand the true “creditor” involved in those assets because of the number of times the same asset would have appeared to underpin the multiple risks involved, it would take years and a voluminous tome to provide a constructive opinion.
121. It is the new business models the banks have freely used since at least the late 90’s which are fundamentally flawed and far too complicated for even the banks’ auditors to comprehend.
Corporate governance, including; the role of non-executive directors
122. Over the past five years we have come to ask if such a thing as corporate governance in some banks even exists? One would assume corporate governance requires the board of the banks to ensure compliance with the Law, the Regulator, the FSA Principles and the various codes of practice.
123. Overall in the banking sector, the working model of boards has been seen to fail dismally. Just recently Bob Diamond has confirmed just how negligent or “uninformed” the Board of Barclays was with regard to the very serious issue of Libor rigging. And that is just one bank that has been exposed so far.
124. Amongst the many questions posed about the credit crunch and the demise of various banks, some have asked if non executives in banks have done effective jobs and concluded they have not. Lord Stevenson made the point on many occasions in the past, that you cannot expect the best performance from non- executives unless they are well remunerated.
125. These days most bank non exec’s are paid (for a few days work a month) more than most people make in a few years. For example, we randomly looked at the 2011 remuneration for the non executives at Barclays Bank and the lowest paid received £98,000.
126. When making his point about suitable remuneration, we believe Lord Stevenson overlooked the obvious problem—the fact many non executives are on multiple boards.
127. Many are also simultaneously executive directors or chairman of other companies while acting as non executives of banks.
128. Therefore we would ask the Commission to consider whether the obvious lack of attention by non executives of banks running up to the credit crunch was, as Lord Stevenson has implied, because poor remuneration leads to a lack of good candidates for the job or is it because too many non executives are on so many other boards, they simply do not have the time to do any one job effectively?
129. We would ask; given how important the banking system is to the economic stability of the Country, is it reasonable that non executives of banks are sometimes able to dedicate a very limited amount of time because they have so many other commitments?
130. Also, is it reasonable that some executive directors of banks are simultaneously holding multiple directorships? For example, a former CEO of a major bank has held 147 directorships from 2000. Another former CEO in 2006 held at least 11 including while also holding a position at the FSA.
131. We suggest that, as long as banks choose their executive and non executive directors from an elite circle of individuals who, between them, hold hundreds of well paid executive jobs, the likelihood of promoting good corporate governance in banks for the well being of the economy, is unlikely.
The compliance function
132. As stated above, we believe the banks have simply become too big for meaningful oversight and regulation and recent events clearly identify the compliance function in banks has just had lip service paid to it because it is detrimental to their business models and the pursuit of profit at any cost.
133. We believe the reason for this lack of compliance is simple—if you get caught, you pay a fine and the fine is unlikely to exceed the amount of profit made by not complying in the first instance.
134. The evidence of this has never been more obvious or available than recently, when most major banks in the UK have been accused of potentially criminal conduct and serious regulatory breaches.
135. For breaching their compliance functions, some banks have been fined millions of pounds which, realistically, is only a penalty on the banks’ shareholders.
136. In a few cases, senior executives have resigned from their posts but it is hard for the general public, many of whom have lost their jobs, savings or even homes as a result of the credit crunch and banking failures, to understand how anyone resigning with substantial wealth and a six figure pension gained from presiding over these catastrophes, is actually being penalised?
137. The Regulator and Government ministers have repeatedly said there is no Law under which bankers can be prosecuted and this is why no individuals have received a custodial sentence for their conduct.
138. We find this hard to accept as the Law is very clear on matters of fraud, theft, money laundering and corruption. Until the Law is applied to the financial sector, we think it highly likely our banks will remain rife with corruption aimed at “making a quick buck”, ignoring compliance functions.
139. Why would banks stop abusing the Law if they are told the Law does not apply to them? Why would they be concerned about the lack of compliance when, as in the case of Bank of Scotland, the Regulator has identified serious breaches of FSMA 2000 but has little, if any, ability to penalise the Bank or the individuals responsible for the breaches other than publishing a report which, in the first instance, required the permission of the Bank before it could be released?
140. This is very clearly an aspect of oversight that does not work and cannot work as it is presently open to maximum abuse and minimum, if any, consequences.
Internal audit and controls
141. In the last two years, it would appear the FSA has become much less cavalier in its acceptance of the banks’ submissions. However, realistically and unless the FSA is able to examine every internal bank audit with a fine tooth comb, there is no conclusive way for the Regulator to ensure the “Control issues” reported are any more than well worded documents masking the true events occurring inside the banks.
142. We ask how, across the board, internal audits and controls (and the resultant control issues reported to the Regulator) have failed to alert the FSA to any of the scandals that have recently been exposed, as many of these date back years and should, had the correct information been made available to the Regulator, been identified earlier?
143. Given internal audits should be reflected in the annual audit, we believe the sector has been presenting creative accountancy to the “enth” degree. Sadly the public are now paying the price for this creativity.
144. We also believe banks have traded heavily on the historical reputation, wherein the bank manager was seen as a pillar of society, to impart any information they choose in the belief it will go unchallenged. We assume this belief prompted Government to employ bankers on a regular basis and why the CEO of the “basket case” bank, was invited to become deputy Chairman of the FSA and the “Mortgage Tsar”.
145. Our experience shows that, in one major bank at least, the misinformation disseminated from internal audits and controls far exceeds any correct information. Otherwise, how could the loss of billions of pounds from HBOS have gone undetected for so long?
146. This kind of “creative accounting” inside a bank does, we suggest, continue to mislead both shareholders and external auditors as to the true state of the bank balance sheets and it lays the ground for yet another banking disaster when the true figures will probably and yet again, affect the public purse.
Remuneration incentives at all levels
147. As mentioned above, we had no idea the remuneration package which includes the bonuses for all bank staff, worked as a form of pyramid system.
148. The entire Country knows and objects to the sometimes ludicrous bonuses senior bankers are given while their banks make continual losses. We believe few know this bonus scheme works right through the banking sector and is a way of suppressing any objection to unethical behaviour.
149. As people from the music industry, we note bankers sometimes complain that musicians often make phenomenal amounts of money which no one appears to object to. Similarly footballers.
150. There is a definite difference of opinion here between the two authors of this document with regard to the footballers, as one of the authors cannot see how kicking a ball into a net, necessitates millions of pounds in remuneration.
151. However, the dissenter can see very well the difference between football and banking. There is no doubt some footballers are talented and they generate huge amounts of money because fans watch their talent.
152. Similarly, a popular musician or singer (especially those who write their own music) generate huge revenues for their label and even for the economy. We don’t know if the calculation has ever been done into how much of the income of the Beatles, the Stones or Elton John, has generated in revenue for the Country. But one thing is for sure, that revenue is generated from the talent of these individuals and therefore it is only right the lion’s share of that income should go to them.
153. As far as we know, Bankers don’t write songs or paint pictures; they’re not sportsmen; they’re not brilliant academics or scientists who discover life saving solutions. They deal entirely with other people’s money and it would be hard for anyone to say their ability to manage money has shown talent, forethought or anything other than a talent to create money to feather their own nests with the profits they have created and mismanaged from the talent and savings of others.
154. The fact the people in charge of the banking industry who have failed with vigour to protect and grow the assets of their customers and therefore the economy of the Country, continue to demand and get excessive reward for failure and the fact successive Governments continue to allow this, is an anathema that will surely go down in history.
Recruitment and retention
155. It would be wrong for us to comment on this aspect as we do not work in the banking sector. We again urge the Commission to look at the “revolving door” scenario and ask you to consider whether this is at all beneficial for the most important sector in the Country with regard to the stability and growth of the UK economy. Should the sector be allowed to continue to act as “an old boys club”?
156. Many people might say the City is akin to “The Green Mile” whereby what happens in the City, stays in the City. This lack of transparency could not, we suggest, be maintained without the careful recruitment selection of like minded people who are all happy to play the game for their own personal gain.
157. In our opinion it is time the banks opened their doors to “new blood”, definitely at non executive level.
Arrangements for whistle-blowing
158. Over the last few years we have been in regular contact with Paul Moore, the well known HBOS whistleblower and many other whistleblowers. In the whistle blowing community, we are seen as “external” whistleblowers.
159. Recently we have become members of a new organisation dedicated to the support of whistleblowers and, talking to many of them who are part of that group, we can confirm there are currently no effective strategies in place to protect whistleblowers from the extreme consequences that result when individuals attempt to expose wrong doing across any corporate or public sector. It is called “Whistleblowers UK”.
160. Paul Moore’s evidence is widely published and he has also given it to the Treasury Select Committee. We believe Mr Moore has now been exonerated but, remarkably, no one has been seriously challenged or penalised for ignoring his concerns in 2004–05. Neither has any official body looked at the reasons why whistle blowing remains to be seen as a negative action rather than a positive remedy to corruption. We are now in 2012 and little has changed for whistleblowers. They face the same isolation, discrimination and trauma Mr Moore faced in 2005.
161. In the banking industry, blowing the whistle is often seen as an attack on colleagues who may face loss of remuneration if one of their team exposes wrong doing. Again this is down to the fear based, pyramid bonus scheme. And whatever the official policy is on reporting wrongdoing, internal whistleblowers in banks would say the unofficial policy was and is, “blow the whistle at your own risk”.
162. Clearly this situation is wrong. We conclude there should be a dedicated agency charged with protecting legitimate whistleblowers, which has the powers to both protect and investigate their allegations or direct them to the relevant authority for investigation. Where appropriate and where allegations are proven, whistleblowers should be remunerated for their public service.
163. Some of the most effective whistle blowing we have seen is in the health sector, where individuals have witnessed serious mistreatment of patients and the elderly. It should be the same for the banking sector. No one knows what is going on in a bank better than the people who work there and reports of malpractice should be welcomed and not punished. If legitimate challenge continues to meet with such alarming condemnation, we can only expect such misconduct to continue unabated.
164. Many bankers and ex bankers we have spoken to have confirmed they were well aware of the miss selling of PPI for years. Many of them attempted to report it. Some of them had to make the choice of losing their job or turning a blind eye.
165. We hope the Commission will consider support for legitimate whistleblowers and even consider a similar model as the one used in the US, which appears to be an effective way of insuring irregularities and malpractice in banking are dealt with and not buried.
External audit and accounting standards
166. Never does the phrase “you scratch my back, I’ll scratch yours” comes into play more meaningfully than in the unwholesome relationship between banks and their external auditors. We would say the same applies to the very unhealthy relationship between banks and administrators, receivers and liquidators.
167. The cosy relationship between the Big 4 auditors and the Big 4 banks is, without any doubt, a risk to the economy of this Country. Never was this better evidenced than at the hearing of the Economic Affairs Committee on 23 November 2010 of senior executives of PwC, KPMG, Deloitte and Ernst & Young.
168. We ask the Commission to consider the transcript of that hearing from Q263 to Q267 inclusive, wherein the auditors confirmed the big banks’ accounts were prepared on a “going concern” basis based on the auditors’ view the banks would be bailed out.
169. In reply to Lord Lawson of Blaby, Mr Powell of Deloitte said (in Q263, final paragraph):
(a)
170. Not surprisingly, Lord Lawson of Blaby responded to say (In Q264):
(a)
171. What is surprising is that nothing has changed. The Big Four Banks and their “enablers”, the Big Four Auditors, are able to continue with “business as usual.” It is unbelievable to us and others that no further action was taken and no public inquiry into the conduct of the auditors in relation to the credit crunch and the need for taxpayer bailouts, ensued after that hearing of 23 November 2011.
172. An additional burden on society by this cartel approach to auditing and banking, is the appalling insistence by the banks that, at every possible opportunity, their accountancy “chums” must also be imposed on businesses as consultants.
173. The astronomical fees charged by these firms—where the client (business) has absolutely no option but to accept a) their appointment and b) the cost—is no less than an example of legalised “Mafia” conduct.
174. We give the example of the shameful demise of Farepak, where every attempt the Directors of EHR made to find a solvent solution and save the Christmas money of 133,000 low income people, caused HBOS and other third parties to involve the Big 4 accountancy firms. The fees for this (charged to EHR) amounted to over £2 million and we would say, this merry go round of banks and their external audit partners, whether for accountancy, consultancy or for administration/liquidation purposes, is a license to print money and destroy business. We mention Farepak in more detail below.
The regulatory and supervisory approach, culture and accountability
175. We have attended the FSA on many occasions. It is housed in a large building and employs thousands.
176. Like many others and with no disrespect to those working for it, we ask—what is the point?
177. In our opinion, the supervisory division is absolutely not able to exercise any control over the banks and instead, takes the role of the banks’ puppets.
178. The enforcement side of the FSA, which has enormous powers on the one hand, is handcuffed by FSMA 2000 which forces the FSA to proceed always as a slow, lumbering giant.
179. We do not have any issue with any individual at the FSA and, if anything, we were concerned by the very quick exit of Hector Sants who, we believe, had fully come to terms with the level of immorality and criminality in the banking sector. However, we are not at all optimistic the successor of the FSA will fare any better than the present organisation.
180. We believe the problem lies in FSMA 2000 which enables banks to manipulate both the regulator and the Law. Until FSMA is challenged, we ask again, what is the point of the FSA which, it cannot be denied, failed to identify any of the major irregularities in our banking system.
181. In our opinion, the probable appointment of Mr Griffith-Jones as head of the new regulator, is another blatant example of the “revolving door” scenario and is a perfect case of putting a fox in charge of looking after the chickens.
The corporate legal framework and general criminal law
182. We have already stated above we are concerned there may be a Government directive that exempts bankers from the criminal justice system. And this is evidenced by the legal advice the banks adhere to.
183. In our opinion this approach stems from a genuine concern in the banks, of contagion. Recently we have seen evidence suggesting bankers guilty of criminality have been excluded from prosecution. Aside from the very worrying fact this has been able to happen, is the more worrying issue of why?
184. We note Mr Bob Diamond in the LIBOR rigging case against Barclays, like Mr Murdoch in the News International case, opted for the negligence scenario. He did not know what was going on in his own Bank. While this has resulted in Mr Diamond resigning and may have damaged his reputation, he cannot be criminally prosecuted for “negligence”. Had he taken any other approach, he may well have been prosecuted and found guilty of either being complicit in a crime or perverting the course of justice.
185. It is this last proposition we believe has resulted in serious manipulation of the justice system and is a proposition that has bank legal teams working day and night to maintain a very unhealthy scenario.
For example; in a case where a senior manager lends billions of pounds to specific clients when his actual discretion to lend without higher authorisation, is limited to, say, £2 million, it is reasonable to suppose his superiors have sanctioned the larger loans and will know their purpose. If it later transpires there has been irregularities or criminality either in making the loans or the use of the money loaned (eg money laundering), is it reasonable to pretend senior management were not complicit?
186. If senior management insist they did not know what was happening but are then informed in detail of criminality but take no action except to conceal the matter, is it not the case they are guilty of perverting the course of justice?
187. We suggest, wherever criminality occurs in a bank or is perpetrated by its employees but reveals systemic failures of governance, is when (and by any means whatsoever) criminal prosecution is avoided. At all costs, senior management of our big banks must not be seen to have endorsed any potentially scandalous situation, as the result of such a scenario could be detrimental to “market confidence” and consequently, detrimental to the economy.
188. We have not been able to get any answers from any official body as to how a banker, “intimately involved” in a serious crime, was excluded from the criminal prosecution. The question is posed on an almost daily basis across the media or the social media networks of “why are no bankers going to jail?” We seriously believe the answer is contagion but that argument is wearing very thin and holds no water.
189. As a consequence of the above, we now have a situation whereby banks will spend millions of pounds to fight legal battles rather than admit and address the criminality that has occurred in their business.
Other areas not included above
190. It seems to us, not only are “Professional Standards” so poor as to be non existent at the moment, any person opening a bank account, whether personally of for a business, is seriously at risk. The public have to rely on the FSA Principles for Business, the Banking Code of Conduct, the banks’ own Codes of Conduct, because these are the only criteria we have to judge the conduct we should expect from banks.
191. As things stand, we rely on these statements while the banking sector overall, simply ignores them.
What can and should be done to address any weaknesses identified? To what extent are such weaknesses subject to remedial corporate, regulatory or legislative action, domestically or internationally?
192. In our opinion, it is still not too late to remedy the weaknesses that are so evident in the banking sector.
193. What we need is for the authorities to stop pussy footing around bankers and do their jobs.
194. The handcuffs must be taken off the FSA or its successor and we suggest the only way to do so, is a complete revision of FSMA 2000 which currently and despite its intended use, is being used to protect the banks from the public and not the public from the banks.
195. The banks themselves must be made to take serious and effective action where they identify irregularities. For example, even now and in the face of an FSA Section 168 Investigation and a two year + police investigation, LBG, like HBOS before them, have taken no action against the people who caused the Bank to lose billions of pounds. Nor has the FSA.
196. Unless we want to continue with our present, unwholesome scenario, we believe the “cartel” situation where a handful of banks use shareholder and public money to employ a handful of accountancy firms and a handful of legal firms, have complete control over the financial status of the whole of the UK.
197. If banks are “too big to fail” then surely they must be smaller and new banks must be more readily introduced to promote healthy competition?
198. If Globalisation is becoming a danger to society and while big banks are only interested in global, corporate companies which generate big profits and therefore big bonuses, it would make sense for the Government to stop pouring millions of pounds into our badly run banking institutions and create a bank specifically to fund SMEs.
199. In January 2009, Mr Cameron told Jeff Randall Live on Sky News: “I think that we need to look at the behaviour of banks and bankers and, where people have behaved inappropriately, that needs to be identified and if anyone has behaved criminally, in my view, there is a role for the criminal law and I don’t understand why in this country the regulatory authorities seem to be doing so little to investigate it, whereas in America they’re doing quite a lot.”
200. Such brave words seem to have evaporated when the Coalition got into power and we have watched as additional billions have been channelled into banks to supposedly help the economy when, in fact, it has simply increased the banks’ balance sheets but caused yet more austerity for the country.
We are not at all revolutionary by nature but everything we have experienced over the last nine years convinces us the banking sector has caused an “unjust society”.
201. We do not believe the Government, the authorities or the Commission, have any idea how angry the British people are about the demise of our economy at the hands of a few bankers.
202. We believe now is the time our Government and our judicial system “does what it says on the tin” and puts Justice and the protection of society before the interests of a small elite who have been allowed to mug this country for at least the last 10 years.
Are the changes already proposed by (a) the Government, (b) regulators and (c) the industry sufficient? Respondents may wish to refer to the Financial Services Bill and the Government’s proposals for the Banking Reform Bill. They may also wish to refer to proposals by the Bank of England and the Financial Services Authority on how the Financial Policy Committee, Prudential Regulation Authority and Financial Conduct Authority will operate in practice
203. In a word, NO. We have seen endless reviews, Commissions and Committees examining what went wrong leading up to the 2008 Credit Crunch. None of them has provided any effective, remedial action.
204. Without doubt, the only thing that will restore public faith in the banking sector or in our Government, is for the Government and the authorities to make it absolutely clear:
We have the Law in this Country. Everyone is subject to it and that does includes bankers.
205. We do not agree with the witch hunt, “hang bankers from lamp posts” strategy but we believe 100% some bankers have committed some heinous crimes in recent years and have got off Scot free. In some cases they have walked away with millions of pounds of shareholder and taxpayers’ money when they should have gone to jail.
206. The arrogant “let them eat cake” approach banks seem to have toward the taxpayers who bailed them out is, we suggest, causing a very hot pot to reach boiling point. We have a situation where banks and senior bankers are completely contemptuous of the public. This is evident via their policies. But we also have a situation where the public are completely contemptuous of bankers. It is not a good situation.
207. To quote Lord Stevenson of Coddenham “We’ve jolly well got to stop bad people doing the modern day equivalent of bank robbery.” We would agree with his Lordship but we would suggest the first stop is to curtail such conduct in the banks themselves. When that happens, we can then build a better society.
What other matters should the Commission take into account?
208. We think we’ve probably said enough already although, due to our probably unique experience over the last five years, we undoubtedly could say a whole lot more, but that would involve jeopardising the criminal investigation we have fought so hard to ensure happened.
209. We thank the Commission for reading this submission and would be happy to attend in person should the Commission feel that is appropriate.
28 August 2012
1 The Commission redacted part of this submission for reasons of sub-judice. Paul and Nikki Turner requested that this be made clear.