British Government defeated on bank reforms

British Government defeated on bank reforms

The British Government was defeated in the Lords tonight over its banking reform plans in the wake of the 2008 crash.

Peers backed - by 222 votes to 217, majority five - a Labour move to drive up professional standards for bankers.

The amendment to the Financial Services (Banking Reform) Bill requires a licensing regime specifying "minimum thresholds of competence" and adherence to a recognised code of conduct.

The vote, in report stage debate on the Bill, came shortly after the Government narrowly avoided a defeat as peers rejected an earlier move aimed at strengthening banking regulation.

Britain's Shadow Treasury minister Lord Eatwell demanded that bankers should be subject not just to rules of conduct but full professional standards.

If members of the professions, like lawyers and doctors, should be required to face examinations to establish professional competence and undertake rigorous training, so should bankers, he said.

The Archbishop of Canterbury, the Most Rev Justin Welby, a member of the Parliamentary Commission on Banking Standards, backed demands for higher professional standards.

"The expectations on senior managers must be high. However, it is also right that those who are not part of the senior management of the bank also have high standards."

Rules of conduct and the definition of misconduct should apply to employees whose actions could "seriously harm" their employer or its customers.

Dr Welby said it was not always the most senior staff who could inflict the most serious damage.

"They could be a junior dealer, new in the business, who ignoring his internal limits deals in a way that does great damage both to customers and his employer."

For the Government, Lord Newby said ministers were committed to implementing the "vast majority" of the commission's recommendations on the regulation of bankers including introducing a licensing regime.

"There will be a regime of regulatory standards for employees encapsulated in enforceable banking standard rules," he said.

"Firms will inevitably have a role in ensuring their staff comply with those standards and taking action if they do not, whilst the regulator will be able to take action if needed."

Lord Newby said Labour's amendment would not deliver the "real reforms" the Government was planning and would just "add to regulatory burdens without introducing any real improvements in standards in the industry".

He said the only extra feature proposed by Lord Eatwell was for "annual validation of competence" by the regulator.

"This would have the effect of increasing the number of approved person applications from about 30,000 to around 150,000 a year," he said.

"This would just in our view be an unnecessary costly extra burden on firms and regulators."

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