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I suspect, however, that other institutions would not have participated because they did not see participation as a core function of their organisation. I suppose that they would be right in that view, but nevertheless they would not have been willing to give up the time or effort to demonstrate the good will that would be part of complying with the scheme. They would see the benefits to society as a whole as conferring no immediate benefits to them, and would therefore regard participation as a waste of their time. That strikes me as a far less attractive reason for non-participation.
All that amendment No. 11 does is enable the information to be put before us. We should not automatically draw conclusions from the composition of the list, but it would enable us and the wider public to ask further questions that would be useful in revealing the motives of organisations that had sought not to participate.
Ian Pearson: Clause 5(4) contains a direction-making power as an ultimate safeguard allowing the Treasury to take action to ensure that a reclaim fund complies with its company objects and articles of association. We discussed the clause in Committee, and I am grateful for the contributions that were made then. I emphasise that the direction does no more than require the reclaim fund to give effect to, or comply with, requirements to which it is already subject under the Bill, which place restrictions on its objects and articles of association, and which will have been approved by Parliament. In other words, the fund must comply with the law.
Let me explain why I believe the direction to be a necessary part of the Bill, and respond to what has been said by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) and others. The Financial Services Authority will authorise the reclaim fund, and establish ongoing prudential regulation to ensure that it has enough money to repay customers. That is in keeping with its role as a financial regulator, and with its consumer protection role. However, the FSA is not expected to go beyond its statutory objectives and make rules governing other areas of the funds operations.
The Government do not intend to use the direction-making power to involve themselves in the day-to-day running of the reclaim fund and the management of its money. That will be the sole responsibility of the FSA, which will regulate the reclaim fund for prudential purposes. This power is different: it is an ultimate sanction that the public will rightly expect us to have to ensure that the reclaim fund functions in accordance with our legislation in areas that the FSA will not regulate for prudential purposes.
Opposition Members invited me to be specific, so let me give two examples. The first concerns the requirements in schedule 1 relating to the publication of information by the reclaim fund. A private sector company might decide for some reason that it did not want to make public the information whose publication is required by the schedule. Such publication would not be part of ordinary prudential regulation, but would clearly be desirable in the interests of transparency. I have no
reason to doubt that a company would want to publish its accounts, but I think it right for us to provide that ultimate safeguard as a back-up.
My second example involves the reclaim funds use of money to cover reasonable running costs. That too might not be covered by an ordinary prudential regulation regime, and might therefore fall outwith the FSAs powers. If we considered that a company was acting unreasonably and in an excessive way, we would think it right to take action. That would not be covered in normal circumstances. I do not think that it is likely to happen, but I think that we should have powers to act in that unlikely event. I stress that the powers would enable us to act in wholly exceptional circumstances, when serious concerns arise about the behaviour of the reclaim fund which are not covered by the prudential regulatory regime, and when we believe that the Government are required to act.
Rob Marris: In my experience, we in this Chamber do not generally pass provisions in Bills that simply say, Thou shalt comply with the law. Instead, we set out what the law is in our democracy, after which it passes through Parliamentand very often it includes sanctions to encourage people to comply with the law and to extract penalties if they fail to do so. Clause 5(4) is therefore a curious measure, because it simply says, in terms, Thou shalt comply with the law, albeit the law and the rules of the company. This returns us to the question I put earlier, which I hope my hon. Friend might address: who are to be the members of the company?
Ian Pearson: I understand my hon. Friends point, but let me explain what we are doing. We are setting up a reclaim fund which will be a private company. We have made it clear that it is not the Governments intention to appoint members of the reclaim fund, and clause 5(4) does not allow the Government to do that. As a private company, the reclaim fund will also have to comply with company law, and we would expect it to have the highest standards of corporate governance. There might be instances in which that is not the case, however, which is why we think these powers are needed as an ultimate sanction. We do not expect to use them, and let me emphasise again that day-to-day issues are matters for the companys directors and members.
Mr. Walker: I thank the Economic Secretary for the reassurances he gave me a few moments ago. Will it be for the company to set direct remuneration at the outset, or will it receive guidance from the Treasury?
Ian Pearson: That will essentially be a matter for the company, because it is a private company. I imagine that discussions will be held between members of the Treasury and members of the reclaim fund, and that they will also include the Financial Services Authority, which has some overall responsibilities with regard to remuneration. Let me emphasise again that we expect the reclaim fund to be run in accordance with our legislation, FSA regulation and company law, and for it to meet the highest standards of corporate governance, but we need the power to ensure that that is the case, which is why we shall invite Members to reject amendment No. 10.
Rob Marris: My hon. Friend refers to clause 5(4) as being the ultimate sanction, but the provision itself simply refers to a direction. Usually when the House talks about sanctions, they are specified, as with a fine of up to level 5 in a magistrates court, for example. A criminal penalty, or a mechanism for determining such a penalty, is usually specified in such Bills. That is what I regard as a sanction. I do not regard the phrase give a direction as a sanction, however. If we reject amendment No. 10, as I suspect we will, and retain clause 5(4), I shall be unsure what sanction would be imposed if a reclaim company failed to follow such a direction.
Ian Pearson: It is my understanding that the normal parliamentary use of the word sanction is such that it can include a range of measures; there might be penalties and fines, but others might also apply. Perhaps I am using the word loosely in this circumstance, but the direction in question is clearly a power to direct a company to conform with its articles of association under the law.
Amendment No. 11 would add the requirement for the reclaim fund to include in its articles an obligation to publish the names of all banks and building societies on the FSA register in respect of which no moneys were transferred. As I said in Committee, I have reflected carefully on the debate about having a requirement to publish a list of non-participants, and I am grateful for the opportunity to address the point again today. We remain committed to doing everything we can to ensure that the scheme is transparent. Our scheme already places comprehensive requirements on the reclaim fund to publish information about how the scheme is working, including the following: a list of participating institutions; the amount of money that is going to be transferred into the scheme, by individual institution; the amount of money reclaimed by account holders post-transfer, by individual institution; and the amounts transferred to the Big Lottery Fund. The Governments amendments in Committee also require the reclaim fund to publish its annual accounts and company reports as soon as possible after the end of the financial year.
I hope that that demonstrates that we have listened to the debate and are seeking to reinforce the transparency of the scheme where it is possible to do so, but I remain of the view that we should not go further and require the reclaim fund to publish a list of non-participants drawn from the FSA online register of all FSA-authorised institutions. On one level, that would be unnecessary. The names of all banks and building societies operating in the UK are available from the FSAs website. The FSA currently publishes a bespoke list of banks, which is updated on a monthly basis, and a list of building societies is also accessible from its website via a simple search of its online register, which is updated every day. New requirements, in addition to the material published by the FSA, would place an unnecessary burden on the reclaim fund. If the reclaim fund were obliged to recreate or redesign the FSAs lists, it would effectively have to monitor the market, as the regulator currently does, for firms entering and exiting the market, and that is not its function.
On the amendment, I am concerned about the unintended consequences of naming and shaming institutions that appear on the FSA register but are not participating in the scheme, because some might be
eligible to participate but not be in possession of dormant accounts to transfer into the scheme. Banks may be FSA-authorised to accept retail deposits, but may not currently undertake this activity, or they may not have a book going back as far as 15 years. More than 300 banks and building societies are authorised as deposit takers by the FSA. Among them, there may be institutions without dormant accounts. Such a requirement would not be useful for consumers or fair for the individual institutions. Requiring the reclaim fund to publish a more refined list of institutions would be an additional and unreasonable burden on it.
Before moving on to amendment No. 12, let me clarify the position I outlined on remuneration in response to a question from the hon. Member for Broxbourne (Mr. Walker). Expenses must be reasonable, as set out in schedule 1, and the reclaim fund will make this transparent. On the point about sanctions raised by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), if the reclaim fund failed to comply with legislation, the Government would have the power to seek an injunction from the court to ensure that that was rectified.
On amendment No. 12, I am inching towards what the hon. Member for Fareham (Mr. Hoban) had to say. The amendment would require the Treasury to publish its direction-making powers. This provision was set out in the memorandum to the Delegated Powers and Regulatory Reform Committee, which did not comment on it in its report. We therefore do not feel that there is any particular reason to include in legislation a requirement that any direction be published. As I have said, although we do not expect to use this power, I am not aware of any likely reasons why, if we were to do so, it should not be made public to the House in the form of a written or oral statement, without having put a requirement in the Bill for it to be published. We could return to this matter in the other place, but I do not think it is a substantive issue, because we do not expect to use this power, and if we were to do so, we would want to be clear about why we were using it and make statements in the usual way.
Mr. Hoban: May I deal with some of the comments that the Minister made? Amendment No. 11 proposes the publication of the names of the banks and building societies that have not contributed to the reclaim fund. I do not mind if they have to explain to the public why they have not contributed. If their argument is that they do not have dormant accounts or retail deposits, that is a fine explanation. I am more interested in those that have dormant retail accounts and do not make transfers to the reclaim fund. It should be easy for people to identify those institutions, and that is why I tabled the amendment.
On amendments Nos. 10 and 11, we are in the curious position of having a power that the Government do not expect to use. It is very difficult for the Minister to define when they would use it. When challenged by my hon. Friend the Member for Broxbourne (Mr. Walker) on remuneration, the Minister pointed out that schedule 1 requires the fund to incur only reasonable expenses and said that the FSA could look after remuneration. I
am not sure that the FSAs responsibilities in respect of prudential supervision flow as far as board directors remuneration.
There is a gap, because the Bill contains powers that the Minister is not prepared to submit to parliamentary scrutiny through the statutory instrument process; he does not know when those powers will be used; there may be other people who can exercise those powers; and, as he said in response to the intervention by the hon. Member for Wolverhampton, South-West (Rob Marris), there are other ways, such as through an injunction, in which the Government could take action against a company that breaches its articles of association. The sanctions are available through a different route if the Government need to take action against the company.
I do not think that the Minister has made a persuasive case for the powers to be in the Bill. He would have made a more persuasive case if he had decided that they needed to be subject to parliamentary scrutiny, and on that basis, I urge my colleagues to vote in favour of amendment No. 10.
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