MPs strike down "licenses for bankers" as Banking Reform Bill debate reaches final stages

The Banking Reform Bill returned to the House of Lords as part of the parliamentary 'ping-pong' process last night, after MPs voted down a proposed new licensing regime backed with continuing professional development requirements for bank staff as "incompatible" with provisions elsewhere in the legislation. The Bill will be cleared to receive Royal Assent and become law on Monday if the House of Lords agree.

"The Government have always supported the spirit and the substance of the [Parliamentary Commission on Banking Standards'] licensing regime recommendations," said Sajid Javid, Financial Secretary to the Treasury. "However, we do not consider it appropriate to call it a licensing regime. That would imply that the individuals concerned had been given licences by a regulator. That is precisely the opposite of what the commission recommended."

"I do not accept [the Lords' amendment] because it would do nothing other than rename the existing approved persons regime as a licensed persons regime – that is about all it does. It would not deal with problems with the existing regime identified by the PCBS, or deliver the improvements recommended by that commission. I assure the House that, under the Government's approach ... firms will have to certify that people who perform roles through which they could do significant harm to the firm or its customers are fit and proper to perform those functions," he said.

If enacted in its current form, the Banking Reform Bill would 'ring-fence' retail banking activities from a wider banking group's riskier investment activities. Ring-fenced banks would need to be legally and operationally distinct entities from non ring-fenced banks, and would not be able to hold or own the capital of other non ring-fenced entities within the group. Banks would have until 2019 to comply with this requirement.

During the debate Andrew Tyrie, the MP who chairs the PCBS, commented on the length of the Bill compared to when it began its Parliamentary journey. A number of additions and amendments have been made by the Government throughout the process, many of which were first proposed by the PCBS. The committee was set up following allegations of misconduct in relation to LIBOR against domestic and international banks, but has also made a number of recommendations for reform of the professional culture and standards of the UK banking industry as part of its remit.

"It was clear [at the Report stage of the Bill] that the Government's commitment to implement our proposals was, frankly, somewhat lukewarm," he told MPs. "So I am delighted to report that there has recently been a dramatic change of heart from the Government. Over the past few weeks, this Bill has been transformed. We believe that the Government have converted the lion's share of the Banking Commission's recommendations into statutory action, where required."

Among the additions to the Bill made by the Government in recent weeks is the requirement for an independent review of the effectiveness of the ring-fence within four years of it fully coming into force, the introduction of a new two-tier authorisation process for bank staff and the creation of a new criminal offence of reckless misconduct by senior bankers. PCBS recommendations which have not been taken forward include reforms to the governance of the Bank of England and the abolition of UK Financial Investments, the arm's length Treasury body that manages its stake in bailed-out banks.

Although the final report of the PCBS described the proposed new authorisation process as a "licensing" regime, Tyrie said that he did not support the House of Lords' proposal.

"[The amendment] would require regulators to pre-approve all people covered by licensing – or what is now going to be called certification," he said. "I fear that would risk recreating many of the problems we had with the [current Approved Persons Regime] – the box-ticking bureaucratic culture that we are trying to get rid of."

"My other concern with the amendment is that it appears to mix up licensing with the professionalisation of the banking industry. It would be imprudent to link professionalisation to licensing too closely ... Even if banking is something that could acquire the characteristics of a profession - which many people are not yet convinced of - it would, as the commission reported, take a generation to build that sense of a professional standard," he said.