|Banking Bill - continued||House of Commons|
|back to previous text|
501. This clause modifies the application of references to the functions of the Financial Services Authority to encompass the functions in the Bill.
502. Subsection (1) specifies that references to functions of the Authority by or under the Financial Services and Markets Act, 2000 are taken to include a reference to functions conferred under the Bill.
503. Subsection (2) specifies that any other references to functions of the Authority in an enactment are taken to include a reference to the functions under the Bill.
504. Subsection (3) enables the Treasury by Order to disapply subsections (1) or (2), in case of a reference to functions which needs to be given a narrower meaning.
505. This clause requires the Financial Services Authority to collect information relevant to financial stability of financial institutions or the financial system and enables it to use its powers in section 165 of the Financial Services and Markets Act 2000 for this purpose. This information (which the Authority will be able to share under its existing powers) will be used to support the Authorities oversight of financial stability and will inform the work of the Financial Stability Committee of the Bank of England which is established in this Bill.
506. This clause provides HM Treasury with power to make amendments to the Building Societies Act, 1986 and certain consequential amendments with regard to the provision of financial assistance to building societies.
507. Subsection (1) provides a power to modify the Building Societies Act 1986 and that the financial assistance under the clause may be provided by HM Treasury, the Bank of England, and other central banks (including the European Central Bank).
508. This clause concerns the potential for those listed in subsection (1) to provide liquidity assistance to building societies where necessary.
509. The Building Societies Act 1986 (c.53) includes various provisions that deal with the ability of building societies to grant floating charges and other provisions which impose limits on what building societies can lend and how they fund themselves.
510. Section 11 of the Banking (Special Provisions) Act 2008 (c.2) makes similar provision to this clause, but in relation to financial assistance provided by the Bank of England, the new provisions applies in addition to the Treasury and other central banks (including the ECB) and removes the reference to financial assistance provided for the purpose of maintaining financial stability, which in the context of a provision which removes restrictions where there is a public interest in providing financial assistance to building societies may be too narrow.
511. Subsection (2) sets out the purpose of the modifications of the 1986 Act, which is to modify provisions which would be capable of preventing, impeding or affecting the provision of financial assistance under the clause. The subsection sets out examples of the matters which may be modified in the 1986 Act, which include provisions about establishment, constitution or powers, restrictions on raising funds or borrowing, provision about security and the application of insolvency law and other legislation concerning companies to building societies.
512. Subsection (3) provides that the order may disapply or modify the provisions referred to in subsection (2). The provisions can be by way of textual amendment or modification of the effect of a provision. An order to modify the Building Societies Act 1986 under this clause is subject to the affirmative resolution procedure.
513. This clause disapplies the requirements in the Companies Act, 2006, that institutions must register charges that they enter into at Companies House and in a public register at their office. The clause provides that the requirements do not apply to charges granted in favour of the Bank of England, other central banks or the European Central Bank. This is because registration could otherwise lead to early disclosure of liquidity support.
Funds attached rule (Scotland)
514. Subsection (1) explains what is meant by the funds attached rule. It describes the rule of Scots law whereby, when a bill of exchange (for example a cheque) is presented for payment, the amount stated on the bill is assigned to the holder of the bill. Where insufficient funds are available to satisfy the bill, such lesser amount as is available is assigned to the holder of the bill.
515. Subsection (2) provides for the abolition of the funds attached rule in relation to cheques. The abolition has effect only in relation to cheques presented for payment after clause 231 comes into force.
516. Subsection (3) establishes that the meanings of terms used in clause 231 are as defined in the Bills of Exchange Act 1882. Specifically:
517. Subsection (4)(a) amends section 53(2) of the Bills of Exchange Act 1882, in which the funds attached principle is set out. The amendment provides that section 53(2) no longer applies in relation to cheques.
518. Subsection (4)(b) repeals section 75A of the Bills of Exchange Act 1882, which was inserted by section 11 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985 to deal with a problem that arose in relation to stopped cheques in the context of the operation of the funds attached rule. With the abolition of the rule in relation to cheques, the problem which section 75A addressed ceases to arise.
519. Subsection (5) repeals section 11 of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1985. See also paragraph 527 above.
520. In accordance with clause 238 in Part 8, this section will come into force automatically two months after the Banking Bill receives Royal Assent.
Clause 232: Regulations
521. This clause concerns a power to make regulations concerning financial collateral arrangements. Financial collateral arrangements are arrangements between specified types of persons, often involved in the financial markets, where the obligations under an agreement are secured by the provision of collateral (under the Directive, cash and financial instruments, such as shares) either by way of creating security over collateral or by title transfer of the collateral.
522. The background to the power is the EU Financial Collateral Arrangements Directive (2002/47/EC). The Directive covers the ground of removing formalities in relation to financial collateral arrangements, making provisions in relation to how such arrangements may be enforced, how they must be capable of taking effect, in particular in relation to the effect of insolvency proceedings and of choice of law in relation to particular forms of financial collateral arrangements.
523. This Directive is implemented in UK law by the Financial Collateral Arrangements (No.2) Regulations 2003, S.I. 2003/3226 (the 2003 Regulations). The power exercised to make the regulations was section 2(2) of the European Communities Act 1972 (ECA). The power under the ECA relates to the scope of the Directive and the new power, as noted in subsection (3), extends beyond provision in connection with the Directive.
524. Subsection (2) sets out the scope of what are financial collateral arrangements, that collateral may be cash, securities or in any other form and that an arrangement can be by way of security or title transfer.
525. Subsection (3) sets out that the power enables the Treasury to cover the ground relating to the Directive, but also to go beyond that field to include provisions that the Treasury thinks are necessary or desirable for the purpose of enabling financial collateral arrangements to be commercially useful and effective.
526. Subsection (4) sets out examples of the provision that may be made under the power to disapply or modify legislation, the scope relates to the scope of the Directive and the 2003 Regulations.
527. The clause also includes power to make provision on a retrospective basis.
528. This clause provides the Parliamentary procedure applicable to the regulations made under the previous clause concerning financial collateral arrangements together with incidental, consequential and transitional provision that may be made.
Clause 234: Statutory instruments
529. This clause provides that the statutory instruments made under this Act can apply generally or to specific cases and can be of any type or form, but that they cannot be treated as hybrid instruments.
Clauses 235-240: General
530. This part gives an index of which sections contain important definitions.
531. The short title of the legislation is the Banking Act 2008.
532. The financial effects of this Bill are largely related to the administration of the special resolution regime. As described in the Impact Assessment (which will be placed in the Vote Office), the Bank of England, given its central role in the SRR tools, is likely to need to invest in additional resources to enable it to carry out its functions. However, dealing with failing banks is already a responsibility of the Authorities and, as such, this should not impose an additional cost on total public expenditure.
533. In terms of the costs associated with resolving failing banks, the Government anticipates that the provisions in this Bill will lessen the risk posed to public expenditure by the need to resolve failing banks. First, allowing the resolution to take place in the most orderly and efficient manner possible and second, by providing that, where appropriate, the Financial Services Compensation Scheme will fund the resolution costs, capped to the amount that it would have paid out to depositors if the bank had gone into insolvency or administration.
534. Allowing the National Loans Fund to make loans to the FSCS would occasion expenditure on the part of the NLF only if the FSCS were to take out a loan or loans. This is clearly a contingent cost and will vary depending on the magnitude and terms of the particular loans.
535. There are no other significant financial effects of the Bill.
536. As discussed in the Impact Assessment, the Bank of England is continuing to work up its operational plan as the lead SRR authority, liaising closely with international counterparts to learn from best practice. At this time, however, the Bank of England estimates that the model will be based on a limited standing staff whose role will be to monitor situations and contingency plans for the SRR tools. When the SRR is invoked, these staff will be supplemented by external professionals such as lawyers, insolvency professionals and banking experts.
537. The Impact Assessment has been published with the draft Bill.
538. As described in the Impact Assessment, the Government expects this Bill to benefit the UK economy by preventing costs associated with financial instability and loss of confidence in the financial system. The majority of the policies that are implemented in this Bill impose minimal costs. Others reduce costs by simplifying existing processes. The only policy that could impose significant costs is the power to allow pre-funding of the Financial Services Compensation Scheme. The possible costs of this proposal are examined in the Impact Assessment. However, the Government will not use this power until the market circumstances made it appropriate to do so - in which case, the statutory instrument to implement it will be subject to a full consultation and impact assessment.
539. The measures in Parts 1-3 of the Bill will make important changes to the legal and insolvency arrangements for banks operating in the UK and give rise to a number of significant human rights considerations. In particular, the rights under Article 1 Protocol 1 (A1P1) (right to property), Article 6 (right to a fair trial) and, to a much lesser extent, Article 8 (right to respect for private and family life) and Article 14 (right not to be discriminated against) European Convention on Human Rights are engaged.
540. Most significantly, an exercise of the stabilisation powers, for example to transfer compulsorily shares in a distressed bank to a private sector purchaser, will constitute an interference in a persons A1P1 right, which specifies that every natural or legal person is entitled to the peaceful enjoyment of his possessions.4 This right is not absolute. Instead, a State may interfere in that right, particularly when acting for economic and public policy reasons, where that interference is lawful, proportionate and justified in the public interest.
4 Three classes of persons may be considered victims of an exercise of the stabilisation powers: (i) In the case of share transfers, the victims will be the former shareholders in the distressed bank whose shares will be transferred compulsorily (expropriated) from the shareholders. (ii) In the case of property transfers, the victim will be the distressed bank from whom property etc will be expropriated. (iii) Creditors and other third parties may also be victims, for example, if they have their contractual rights interfered with if they have certain contractual rights interfered with.
541. The Government is of the view that the substantive limitations on the exercise of the stabilisation powers and the procedural steps the Authorities are obliged to take before exercising the stabilisation powers will ensure that the stabilisation powers are only used where there are significant and legitimate public interest justifications for doing so (for example, the public interests in protecting financial stability, and the protection of depositors). The Government therefore considers that any interference with Convention rights will be for a legitimate aim. There are in addition a number of safeguards in the Bill to ensure that any interference with Convention rights is proportionate. In particular, provision is made in the Bill for compensation to be paid for compensatable interferences in property rights arising as a result of an exercise of the stabilisation powers.5
5 We note that it is normally a case that expropriations of property, and, in some cases, serious interferences in property rights falling short of total deprivations, without compensation will constitute a disproportionate interference in property rights.
542. The exercise of the powers conferred by Parts 1-3 may also engage Article 6 (for example), the determination of compensation constitutes a determination of a civil right for Article 6 purposes). The Government is content that the procedural safeguards in place satisfy the fair trial requirements of that Article.
543. Parts 4-7 of the Bill also engage A1P1, Article 6, Article 8 and Article 14 ECHR. However, the Government is content that the provisions of the Bill are compatible or can be exercised in a way that is compatible with Convention rights.
ATMs - Automated Teller Machines
Bacs - Bankers Automated Clearing Services
BAP - Bank Administration Procedure
BAO - Bank Administration Order
BCA - Bank Charter Act 1844
BCD - Banking Consolidation Directive
BERR - Department for Business, Enterprise and Regulatory Reform
BIP - Bank Insolvency Procedure
BIS - Bank for International Settlements
BSPA/ SPA - Banking (Special Provisions) Act 2008
CHAPS - Clearing House Automated Payment System
CDDA - Company Directors Disqualification Act 1986
CPSS - Committee on Payment and Settlement Systems
ECA - European Communities Act 1972
ECB - European Central Bank
ECHR - European Convention on Human Rights
EA - Enterprise Act 2002
FSA - Financial Services Authority
FSCS -Financial Services Compensation Scheme
FSC - Financial Stability Committee
FSMA - Financial Services and Markets Act 2000
HMRC - Her Majestys Revenue and Customs
HMT - Her Majestys Treasury
MPC - Monetary Policy Committee
NLA - National Loans Act
NLF - National Loans Fund
RTGSS - Real Time Gross Settlement System
SFD - Settlement Finality Directive
SRA - Special Resolution Authority
SRR - Special Resolution Regime
TARP - Troubled Asset Recovery Program
The Tripartite/ The Authorities - The Treasury, FSA and Bank of England
The 1845 legislation - Bank Notes (Scotland) Act 1845, the Bankers (Ireland) Act 1845 and the Bankers (Northern Ireland) Act 1928
|© Parliamentary copyright 2008||Prepared: 7 October 2008|