Commercial Financial Dispute Resolution Platform — House of Commons, 2016-12-15
Topic: Domestic Commerce
George Kerevan (Scottish National Party, Centre-left): For that reason, having been reasonably accommodating, I will press on to the nub of my argument For a permanent resolution of the problem, we need three different mechanisms. First, we need a shift in the legal onus on banks to provide a duty of care or good faith in how they deal with customers, particularly business customers. That is open for broad debate—over the years, the banks have been unwilling to accept a narrow duty of care—but we need to redress the balance between major banks and small business clients by providing a mechanism around the legal onus on banks. I would even accept it, initially, if the banks collectively were prepared to come forward with a solution themselves. Secondly, given that many small companies end up insolvent, we need a more balanced insolvency practice to remove the possibility of banks or lenders being tempted to force small and medium-sized enterprises into unnecessary or premature insolvency. Finally, we need a new permanent and effective redress system for banks and small businesses in dispute. In effect, putting those three together, we need to change bank culture In order, I hope, to build some common ground with the Minister, I should acknowledge that the Government have already moved some way in recognising this issue. The Government’s impact assessment on the establishment of a small business commissioner in the Enterprise Act 2016 reads: "The Government is concerned that for small firms, negotiating a contract with a larger business can be challenging… Government has been told that small businesses often feel intimidated and accept such terms (rather than walking away from a proposed contract or refusing to agree to a change) and there is concern that larger firms"— for that, read "banks"— "sometimes use their market power to impose unfavourable terms." That, I think, is what lay behind the issue of the hedging products sold to small businesses during the economic boom in 2006 to 2008. The Government have recognised the general problem, therefore; it is just a matter of how we resolve it Just to show that there is a broader political agreement on this, from right and left, I want to quote the Minister of State, Department for Environment, Food and Rural Affairs, the hon. Member for Camborne and Redruth (George Eustice), who wrote a piece for the Free Enterprise Group three years ago, entitled "Defending the rights of those who take risks", in which he wrote: "Over the years...the banks have contractually extended their rights through their ‘standard terms and conditions’ to give LPA"— the Law of Property Act 1925— "receivers general powers of sale, to set aside the limit on the fees that a receiver may charge and to load all associated costs on to the borrower. They have even moved to grant themselves the right to peaceably re-enter properties over which they have a charge without any recourse to the courts. The contractual extension of power taken by the banks goes well beyond what was originally envisaged in the Law of Property Act 1925." In other words, the banks have gradually extended their powers of receivership, making it increasingly difficult for small companies in financial difficulties to get redress, and leading to the situation with RBS’s Global Restructuring Group, which has now re-entered the public domain with the initial report from the Financial Conduct Authority I expect the Minister to tell us that ultimately, if there is to be a change in the redress process, it has to come from the FCA. To that end, the all-party group on fair business banking has been consulting the FCA, and subsequent to that, I raised the matter with Mr Andrew Bailey, its new chief executive, when he appeared before the Treasury Committee. I asked if he drew any relevant conclusions from the FCA’s experience with the banks in drawing up ad hoc processes of redress for the various mis-selling schemes, and he said that he did. He said that the problem arose where schemes lay "outside the regulatory perimeter"—much of the mis-selling was of unregulated products—but that the FCA had learnt from the experience, having come late to it, that businesses felt they had not had their day in court. He went on: "Now, they do not want to have a literal day in court because that is obviously very expensive. However, what I conclude from this is that it"— the ad hoc procedures— "is not satisfactory from the point of view of the FCA, because the FCA has been involved in creating a lot of bespoke processes. We discussed this on the board a number of times. Were there to be a mechanism that could substitute for these—let us loosely call it a tribunal, for the sake of argument—rather like the ombudsman but for more complex cases, because corporate cases often are more complex, this would be a big step forward. From the point of view of the things that come out, we are creating a lot of work for ourselves. However, I am very sympathetic to the people involved, so we have to do it. However, if there were to be a process that could substitute for this…I think this would be a big step forward." We are proposing the idea of a tribunal. At this stage, it is a generic proposal, and there are issues to be discussed. It would, for example, cross the boundaries of the devolved Administrations, so if we went down this road, there might have to be separate institutional tribunal procedures in Scotland. There are also financial issues, but since we are dealing with redress where the FCA has decided that a bank has been involved in mis-selling—in other words, since we are already in the territory where a bank is going to pay—any permanent tribunal system could be funded by the banks. The all-party group is open to a general discussion with the Government about how to proceed, but the general backing from the FCA is there; it is just a matter of the detail This is important because the issue has not gone away. The situation with RBS GRG is coming back into the public domain. RBS has put forward a new ad hoc procedure for dealing with complaints from small businesses put into GRG. We have advance notice of a report, not yet finalised by the FCA, in which, having taken technical advice, it has clearly found a conflict of interest in how RBS handled the cases of companies put into GRG: the part of the bank taking over and reselling properties from the insolvent companies was part of GRG. In effect, therefore, the bank was putting companies into insolvency, taking their property and handing it over to another part of the bank, and generating cash that way Given that this issue has reappeared and that there is a public debate over the nature of the redress system, we are not looking at legacy items; we are looking at a future situation in which the Royal Bank of Scotland is creating an ad hoc redress system that we need to ensure is a correct one I know that other Members want to participate in the debate. The bottom line for the Minister is that there is now an ongoing process of debate and a general consensus, even from the FCA, that we need a more permanent resolution system and that we need to go beyond just looking at insolvency law. The door is open for the Government to join the rest of us on both sides of the House to ensure that that resolution process is provided.