The Government has suffered a narrow defeat in the Banking Reform Bill at the hands of a Labour amendment calling for higher professional standards for bankers.
In the House of Lords report stage of the Bill today, Labour won the support of the Archbishop of Canterbury Justin Welby and 41 cross-benchers to create a licensing regime.
The amendment imposes and annually renewed licensing regime for senior bankers, based on banking commission proposals.
It will create minimum thresholds of competence for bankers including integrity, professional qualifications, continuous professional development and adherence to a recognised code of conduct.
The Treasury had accepted the need for a licensing regime to be introduced but not on the face of the bill.
The 222 to 217 defeat comes in a week of major changes to the Banking Reform Bill as the Government has sought to head off rebellions and sustained pressure from political heavyweights in the banking commission.
Treasury commercial secretary Lord Paul Deighton also tabled an amendment which agreed with banking commission members and Labour that a statutory review of its ring-fence rules is needed.
The Bill’s main purpose is to ring-fence banks’ retail arms from their investment divisions in a bid to prevent another systematic banking collapse. Some reformers have called for full separation as the only way to make banks safe.
The Government has already amended the Bill to “electrify” the ring-fence by introducing a reserve power to separate individual banks. However, it again rejected banking commission calls for the Treasury to have a reserve power to separate retail from investment lending across all banks, narrowly defeating a Labour amendment.
Banking commission members former chancellor Lord Nigel Lawson and Welby, made speeches calling for full separation to be considered as part of the review.
The Government said it had an “open mind” on when the review should take place but said it would consider Labour’s amendment for it to take place within two years of the ring-fence coming into force.
Lord Deighton said: “Having listened to the arguments made, in particular by members of the banking commission, we have accepted the case for a statutory review [of the ring-fence] in the interests of certainty.
“It will test it is as robust as we would like it to be. Our amendments provide for a review of the ring-fence provided by a panel of independent experts once the ring-fence has come into force.”
“The review’s central task will be to assess how well the ring-fence is working. Its conclusions are not constrained, it can make any recommendations it sees as appropriate.
“If it believes the ring-fence is in need of improvement or repair it will be able to make recommendations on changes in legislation or rules to make it happen. Let me give the unequivocal commitment that if the review concludes the ring-fence is broken it will gave the scope to recommend an alternative approach, including full separation.”
Lord Deighton says the amendments have been drawn up closely with members of the PCBS and it addresses their concerns.