It's presided over all sorts of sleaze.
Prem Sikka is an Emeritus Professor of Accounting and a Labour member of the House of Lords.
This week, the House of Lords debated the Financial Services Bill. The government ministers and sundry neoliberals sang praises of the finance industry, deliberately ignoring its corrupt practices that have destroyed jobs, investment, savings and businesses.
Such practices have enabled directors of financial enterprises to collect mega profit-related bonuses. The failure of successive governments to clean-up the industry has only emboldened them.
My contribution to the debate was to draw attention to abusive practices and demand an investigation into the conduct of the Financial Conduct Authority (FCA) for presiding over the sleaze.
The finance industry has been a serial offender. It continues to engage in abusive practices. Numerous financial products, including pensions, endowment mortgages, precipice bonds, split capital investment trusts, interest-rate swaps, mini-bonds and payment protection insurance have been mis-sold to create misery for many and profits for a few. The FCA has done little to deal with the culture of abuse.
Banks have been accused of forging signatures to repossess people’s homes, businesses and savings. I informed parliament that there are over 500 documented cases. A senior Metropolitan Police fraud officer wrote to the Treasury Select Committee in 2017, stating that the executive boards of some of the most prominent banks were “serious organised crime syndicates”. Yet there is no investigation by the FCA.
Financial malpractices have been rife in this industry for decades. The episodes relating to RBS, HBOS and London Capital & Finance continue to make headlines. A simple inquiry on search engines will show you decades of malpractices and names such as the Bank of Credit and Commerce International (BCCI), Barings, Levitt, Dunsdale, Barlow Clowes, Maxwell and many others pop-up. In every decade since the 1970s, the UK has experienced a banking crisis, often caused by abusive practices.
Financial enterprises have rigged interest and exchange rates and engaged in bribery, corruption, tax avoidance, money laundering and sanctions-busting on a huge scale. Goldman Sachs paid a fine of $2.9bn to US regulators to settle charges of bribery is just another example, but did not draw any investigation from the UK regulators. Lax regulation gave us the 2007-08 financial crash which decimated the economy and we are yet to recover from it.
We all use and value financial services of various kinds, such as bank accounts, loans, overdrafts, debit/credit cards. Insurances, pensions and foreign currency, but what we do not need are frauds and fiddles or speculative binges which created the 2007-08 crash.
Contrary to the public relations image promoted by the industry, it has been a wealth extractor. Research shows that the finance industry made a negative contribution of £4.5 trillion to the UK economy during the period 1997-2015.
This is roughly equal to two and a half years of the average gross domestic product across the period. Yet there is no sign that regulators have secured any positive qualitative change in business culture.
The occasional puny sanctions have done little to check predatory practices. Executives continue to play with other people’s monies and collect mega bonuses, but when their schemes don’t work, the government bails them out. Executives determined to get-rich quick have little incentive to check their practices.
The typical response of the government to scandals is to rearrange the regulatory deckchairs. After the secondary banking crash of the mid-1970s, the Bank of England became a regulator, replacing its nudge and wink approach to regulation with formal rules.
As a regulator it was conflicted as it tried to promote the industry and protect people from malpractices. It remained captured by the industry. Its failures were laid bare by frauds at BCCI and its forced closure in 1991. In 2001, the Financial Services Authority (FSA) replaced the Bank of England, but the chumminess with the industry remained.
The 2007-8 crash showed the failures. In 2013, the FSA was replaced by the FCA and the Prudential Regulation Authority (PRA). The names may change but the fault lines of capture and negligence have not.
So we need a sea change in the regulatory philosophy and edifice. A necessary first step is an independent investigation into the failures. The investigation needs to hear from the victims of the industry.
Finance executives need to be publicly examined on oath and crucial documents need to be subpoenaed to draw attention to the fact that malpractices are sanctioned at the highest level. They are not created by some isolated individuals but are instituted by some of the highly paid senior people in organisations. The investigation can also highlight shortcomings of the legal framework.
During the parliamentary debate there was considerable agreement amongst speakers that the FCA has failed and a variety of proposals for parliamentary oversight were put forward. However, the Minister was not moved. He rejected all proposals.
It is worth bearing in mind that in 2017 Australia appointed a Royal Commission to clean-up its finance industry. Here the government does not want any inquiry. This may be partly linked to cost of inquiry, but status-quo imposes heavy costs too. Just ask anyone who have been cheated out of their home, business, job, pension, savings and investment.
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