Regulation  

Calls grow for tougher banking reform proposals

Calls are growing for the government to toughen up its reform proposals for the banking sector as the fallout from the latest scandal involving taxpayer-owned Royal Bank of Scotland spreads, with Tory peers and parliamentary banking commission members demanding a strengthened response.

There is a fundamental cultural problem with the Royal Bank of Scotland’s lending to and treatment of small businesses and the remedy must force “big cultural change”, Treasury Select Committee chairman Andrew Tyrie said.

This follows the news that City regulators have been handed a damning dossier of evidence compiled by an adviser to Vince Cable, secretary of state for business, innovation and skills, which claims that RBS was deliberately wrecking viable small businesses to make profits for the bailed out bank.

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According to reports, Mr Cable said some of the allegations were so serious that he had handed the report, compiled by businessman Lawrence Tomlinson, to the regulators and the bank. It has also been given to Sir Andrew Large, a former deputy governor of the Bank of England.

FTAdviser sister title the Financial Times has reported this morning that former Conservative chancellor Lord Lawson and a number of other senior peers, alongside parliamentary banking commission member and Archbishop of Canterbury Justin Welby, are demanding changes to the reform package in the wake of the revelations and other recent scandals.

The peers are calling for the reforms to include a requirement for senior bankers to be required to hold licences, which was recommended by the banking commission but not implemented as part of the proposals.

They are also said to be set to demand tough new sanctions for any bank seen to be undermining the banking ‘ringfence’ separating high street lending activities from investment banking.

Andrew Tyrie, chairman of the TSC, said of the RBS reports: “This is unwelcome but not wholly surprising. It confirms what my Parliamentary colleagues and I have been hearing for a number of years and which was, at various times, vigorously rebutted by RBS.

“The actions and reputation of RBS have discouraged would-be customers and reduced SME activity. We have all lost out as a result.

“This dysfunctionality was at the heart of the Banking Commission’s recommendations on RBS. The government and RBS have since come forward with plans for remedy.

“RBS’ SME lending has serious problems. Any remedy must be real enough to force big cultural change and to convince would-be SME borrowers. It remains to be seen whether the planned internal re-organisation will suffice.”

The latest debacle has added to the renewed opprobrium over banking activities and regulation following the recent Co-operative Bank drug scandal involving its former chairman Paul Flowers, who was appointed despite having no banking experience.

Questions have been raised over the approvals process that led to his appointment, in particular because Mr Flowers had no banking experience prior to his appointment. One of the members of the FSA panel that approved Mr Flowers later took a non-executive director role at the bank.