Memorandum from Graham Senior-Milne
Over the last few weeks I have watched the proceedings
of the Treasury Select Committee, which you chair, with a sense
of increasing outrage. Let me explain why, in terms which, as
a simple accountant and auditor, I hope most people will understand.
The global recession has been caused largely
by the banking crisis. The banking crisis has, in turn, been caused
largely by excessive risk-taking by banks around the world, but
principally in the USA and the UK, who have undeniably "led
the pack". The excessive risk-taking by UK banks has been
enabled by a weak regulatory regime. To put it the other way round,
a strong regulatory regime in this country could certainly have
avoided the worst effects of the banking crisis. The banking regulator
in this country is the FSA, which is a supervisory arm of government,
set up by and acting on behalf of the Treasury. It is therefore
largely the government's responsibility that the banking system
in this country is in such a mess.
The Labour Government in general, and Gordon
Brown in particular, have fostered a risk-taking and loosely-regulated
banking environment since coming into office and the blame for
doing that must be laid squarely at their feet.
So where does the Treasury Select Committee
come into it? Well, your Committee, like all Parliamentary Committees,
is there to hold the executive to account; that is, to ensure
that the Government is doing its job properly. On this basis your
Committee oversees the FSA on behalf of Parliament. The question
therefore arises as to how well your Committee has done its job
of overseeing the FSA in the past 10 years or so and whether it
(the Committee) could or should have done more to prevent the
current banking crisis.
In October 2008, the Parliamentary Ombudsman
issued her report on the Equitable Life Crisis, and that report
identified serious wrong-doing on the part of the FSA, including
that it had "actively misled" policyholders. What she
identified were not isolated acts of negligence or misconduct
by individuals, but widespread, continuing, systematic (institutionalized)
and conscious wrong-doing on the part of the organisation; in
short, a body that was clearly, to use John Reid's words, "not
fit for purpose" as a regulator.
The point is that the Equitable Life Crisis
happened back in 1999 and 2000.
All the key evidence that was available to the
Parliamentary Ombudsman for the purposes of her 2008 report was
available to your Committee when it investigated and reported
on the Equitable Life Crisis in 2001. The only conclusion is therefore
that had you investigated the Equitable Life Crisis properly in
2001 then you would have identified that the FSA was "not
fit for purpose" as a regulator at that time, and had you
done this then you could have taken steps to radically reform
the FSA 7 YEARS AGO. Had you done this (that is, turned the FSA
into an organisation that identified and dealt with problems robustly
rather than brushing them under the carpet) then it is probable
that the UK could have avoided the worst effects of the banking
crisis—or, at least, that we stood a good chance of doing
so.
But there is more. Not only was all the key
evidence concerning the FSA's lack of fitness for purpose available
to your Committee back in 2001, but on 22 August 2003 my then
MP, Sir Archy Kirkwood, wrote to your Committee on my behalf on
this very subject (the FSA's misconduct during the Equitable Life
crisis and in relation to GAR liabilities generally). You then
spent the next four years fighting what I can only describe as
a rear-guard action in order to avoid investigating this matter
and I even understand that, as a result of your efforts, it was
never even considered by the Committee as a whole.
As Chairman of the Treasury Select Committee
since 1999 you have been entrusted with a great responsibility,
which is to hold the Government to account on behalf of Parliament.
It is clear that you have, in fact, done precisely the opposite;
you have sought to protect the Government as far as you possibly
could. In acting as you did, you, and the other Labour members
of the Committee who have acted in concert with you, are primarily
responsible for the failure to ensure that the FSA was fit for
purpose as a regulator. In order to identify one of the main causes
of the banking crisis in the UK, you need to look no further than
your own mirror.
During the session of the Treasury Select Committee
on 10th February 2009, a member of the Committee, Nick Ainger
MP, asked the former bank executives attending at that time (Sir
Tom McKillop, Sir Fred Goodwin, Lord Stevenson and Andy Hornby)
what banking qualifications they had. Although I feel it might
be an idea to ask you this question as well, I am sure you will
appreciate why I feel it is not qualifications that matter in
the banking industry, it is trustworthiness. It is largely lack
of trust that is responsible for the current credit squeeze and
it is trust that must be rebuilt—but we need to be able
to trust not just the banks and the people who run them but the
regulator who oversees the banks and the politicians who oversee
the regulator.
In order to rebuild trust at the political level,
it is essential that, in future, the Treasury Select Committee
should be chaired by an opposition MP.
This is my recommendation to the Committee.
21 February 2009
|
