Pressure builds for tougher UK bank reform

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George Osborne will on Tuesday face fresh demands to toughen up “inadequate” new banking regulation as public pressure mounts over the controversies plaguing Royal Bank of Scotland, the Co-operative Bank and payday lenders.

Justin Welby, the Archbishop of Canterbury, will join Lord Lawson, the former Tory chancellor, and other senior peers in seeking to amend Mr Osborne’s banking reform bill, which is intended to draw a line under the banking scandals of the last five years.

The peers want a robust licensing regime for senior bankers below board level, draconian sanctions for banks that undermine the new “ringfence” separating high street lending from investment banking and other new powers for regulators.

Their intervention comes at what Andrew Tyrie, Tory chairman of the cross-party banking commission, called a “critical stage” in efforts to draw up a comprehensive new regulatory regime for the City.

“What we are doing here is designing a stable door and the arrangements for making sure it is kept locked,” he told the Financial Times. “What we are needing is a sharp, cultural change by regulators, almost as much as we require it of banks, away from box-ticking, back-covering, to a much more judgmental approach.”

The debate on banking standards has been given new urgency by claims that state-controlled RBS deliberately drove struggling businesses to the wall with the aim of snapping up their properties on the cheap.

RBS announced that Clifford Chance, the law firm, would lead an investigation into the allegations by Lawrence Tomlinson, an adviser to business secretary, Vince Cable, who has also referred the issue to regulators.

Sir Andrew Large, former Bank of England deputy governor, also criticised RBS’s lending practices in a report commissioned by the bank itself. Sir Andrew said other banks should look carefully to make sure they were not abusing their customers.

Mr Osborne on Monday sought to defuse one of the other controversies surrounding financial services, announcing plans to cap the charges of Britain’s payday lending industry in response to growing political pressure at Westminster and from Mr Welby, who has denounced “usurious lending” in the sector.

With a scandal raging over mismanagement of Co-operative Bank, the House of Lords has a final chance to tighten up the banking reform bill, which aims to impose new standards on bankers backed by criminal sanctions.

Lord Lawson said he was seeking to strengthen the bill where the government’s response was “inadequate” and has put his name to a number of amendments with fellow banking commission members Mr Welby, Lord Turnbull, former cabinet secretary, and Lord McFall, former Labour chairman of the Treasury committee. The amendments are backed by Labour.

A Treasury spokesman said: “Our basic policy intention has been set. If their contribution in the debate suggests ways in which we can achieve that intention more clearly, we would do it.”

The peers want to require banks to set up a licensing regime for senior traders who could damage the bank or the markets, including those working on Libor or derivatives desks.

They also want regulators to have a reserve power to formally split all City banks along retail/investment lines if any bank attempts to circumvent the ringfence designed to keep the separate divisions apart.

Letters in response to this report:

We’d like more details about this ‘Mr Welby’ / From Mr John Willman

Guides too scary for Archbishop / From Mr Justin Woodhouse

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