The revelations published in the Guardian yesterday about the criminal network that is processing money through major British banks are a damning indictment of the failings of our banking system. For a period of at least four years, shortly after the financial crisis in the early 2010s, Russian criminal interests moved nearly $740m through British banks, including HSBC, RBS, Barclays, Lloyds and Coutts, with HSBC as the largest conduit by far.

They could do this, despite regulations expressly designed to prevent such activity taking place. Yet, when presented with a series of urgent questions, demanding answers and action, the response from the government was astonishingly complacent. A mere week after the self-employment tax U-turn, it is following a path well-worn since 2010 – pathetically easy on the big banks and the super-rich, but tough on those just trying to earn a living.

George Osborne, the then chancellor, intervened directly into a 2012 US investigation into HSBC’s money laundering, emailing the Department of Justice (DoJ) to warn that prosecuting Britain’s largest bank would lead to a “global financial disaster” and “financial calamity”. A later Congressional investigation found that the intervention, by the now new editor of the Evening Standard, “played a significant role in ultimately persuading the DoJ not to prosecute HSBC”.

Hammond said he’d press the reset button on the economy – but he’s stuck to the Osborne-era failed austerity policy

It was under Osborne’s watch that the bank levy, introduced by the last Labour government to claw back some of the astronomical returns major banks had been making, was phased out, in his first budget after the 2015 election. HSBC had previously threatened to leave the country if its £700m bank levy charge wasn’t reduced, lobbying the government heavily. Osborne’s new tax regime for banks, introduced in summer 2015, instead leant most heavily on the smaller banks that had been looking to break the high street dominance of the big banks, and eased the burden substantially on the biggest institutions with major international interests – happily enough, HSBC was the biggest winner of all.

The current chancellor, Philip Hammond, although appointing HSBC’s former European chief economist as his economic advisor, had claimed he was going to “press the reset button” on economic policy shortly after arriving in office. It is now clear that he is sticking to the same failed Osborne-era austerity policy, married to the same degree of incompetence in presenting his budgets.

He is also showing the same unwillingness to challenge seriously financial practices at our major banks, failing to answer Labour’s urgent question himself and instead sending over an inexcusably poorly briefed and complacent junior minister in his stead.

This failure to challenge bad practices extends even to those cases in which the taxpayer is the major shareholder in a bank. The failures of governance, management and in some cases basic morality at taxpayer-owned RBS are legion. The activities of its “global restructuring group” in grinding viable small businesses into the ground so the rest of the bank could pick off the carcasses were under any circumstances wholly unacceptable. But when this is an institution still 72% owned by the public, and when that institution is seemingly so lax as to allow $113m of laundered cash through its doors, it is adding insult to existing injury.

There are three assurances the government must now give. First, that it will not – as it has in the past – interfere in any potential criminal investigations on the spurious grounds of “financial stability”. The major risk to financial stability is not from investigations intended to clear out criminal activity from our banking system. The risk is from failing to act and to ensure that our major banks are clean and fit for purpose.

Second, all the banks involved claim to have strict internal policies to deal with money laundering, and both the Financial Conduct Authority and the National Crime Agency offer guidance on dealing with suspicious transactions. But yesterday’s revelations make clear that these are not working.

The House of Commons Home Affairs Select Committee found last summer that the “suspicious activity reporting” system, by which banks and other financial institutions could report suspicious transactions, was “not fit for purpose”. Designed originally to handle 20,000 reports, it was collapsing under the weight of over 381,000 suspicious activity reports. The select committee demanded the government replace the current system by the end of last year. This has not happened and there is no indication or timetable given in the government’s own reply to the select committee to suggest that it will.

Third, it is time to cleanse the Augean Stables at RBS. Now that the government has given up attempting to sell its stake in RBS, a new approach must be taken. Having spectacularly missed the opportunity earlier today, the chancellor must now clarify how he will restore public trust and confidence in our financial system.