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Session 2007 - 08 Publications on the internet General Committee Debates Banking Bill |
Banking Bill |
The Committee consisted of the following Members:Alan
Sandall, Mick Hillyard, Committee
Clerks † attended the
Committee Public Bill CommitteeThursday 23 October 2008(Afternoon)[Mr. Roger Gale in the Chair]Banking BillClause 155Overview Question
proposed [this day]: That the clause stand part of the
Bill. 1
pm
The
Chairman: I remind the Committee that with this we are
taking New clause 1—Objectives of the compensation scheme for
depositors— ‘(1) This
section sets out the objectives for the compensation scheme for
depositors. (2) Objective 1 is
to maintain customers’ confidence in the UK banking system
regardless of whether the bank is incorporated in the UK or another EEA
country. (3) Objective 2 is to
be able to make payments to depositors within seven days and to have
eligibility criteria, qualification processes and information
requirements which facilitate
that. (4) Objective 3 is to
ensure that there are compensation arrangements for each bank
brand. (5) Objective 4 is to
require that the scheme pays customers their gross balance and that any
amounts due from customers are collected in the usual
way.’. New
clause 2—Compensation payable to
depositors— ‘(1) Each
depositor will be entitled to receive from the manager of the scheme
referred to in section [Objectives of the compensation scheme for
depositors] a sum which is the lower
of— (a) the deposit
protection amount; and (b) the
gross balance held by the
person. (2) The “deposit
protection amount” is
£50,000. (3) The
Treasury may by order amend the figure in subsection
(2). (4) An order under this
section may not be made unless a draft statutory instrument containing
such an order has been laid before, and approved by a resolution of,
each House of
Parliament.’.
The
Economic Secretary to the Treasury (Ian Pearson): In
addition to the points that I covered this morning, I want to emphasise
that the Financial Services and Markets Act 2000 already provides a
flexible and wide-ranging framework for the compensation scheme. Most
of the improvements to the United Kingdom’s arrangements for
depositor protection—a goal to which the Government and other
authorities are strongly committed—can be delivered within that
framework, including the matters in objectives 3 and 4 of new clause 1,
and the change in the limit in new clause
2. Part
4 of the Bill therefore covers only the matters that cannot be dealt
with under existing FSMA provisions, and the changes in this part
should be considered
alongside other changes being made to the legal framework of the
Financial Services Compensation Scheme. The Financial Services
Authority, as I said, is consulting on changes that may be made under
FSMA powers, including, in the latest consultation paper on the review
of limits, the compensation limits for other sorts of investment,
payment of compensation by brand, dealing with temporary high balances,
and changes to the way in which recoveries from a failed firm are
calculated. The FSA is also considering the eligibility criteria for
claimants under the scheme, information requirements for firms, and
consumer awareness. So there is plenty going on at a detailed level to
improve the arrangements for depositor protection in the UK. In our
view, it would neither sensible nor desirable to cherry-pick some items
and put them in the Bill as objectives or requirements.
Part 4 makes
changes to the overall compensation framework that only primary
legislation can do. If at a later time the hon. Member for Fareham
wants to press new clauses 1 and 2—I do not think he will,
because I think he was genuinely trying to promote a worthwhile
debate—I would ask the Committee to reject
them. Mr.
Mark Hoban (Fareham) (Con): Let me summarise where we are.
Members of the Committee have expressed views about various aspects of
the Financial Services Compensation Scheme, with the one exception of
the Minister, who has spoken about the generality of the scheme, but
has not expressed a view on the Government’s approach. Before
the lunch break, he said that the FSA was consulting—which it
is, and the various stakeholders will respond to that
consultation—but I question where the Government’s
intervention or input will come in the process. It is right and
refreshing to hear a Minister say that we had better await the outcome
of a consultation process—I had not realised that it always
worked like that—but at what point will the Government say that
the scheme is right, or that there is an issue? Taxpayers have ended up
being the back-up in the scheme. We have talked about consultation on
limits and, of course, the decision has been made about the limit,
which is now £50,000, but the Government decided in connection
with Northern Rock and the Icelandic bank accounts that there was no
limit.
The
Government will always be in a fall-back position if the scheme does
not work effectively, to step in and intervene. It would be helpful to
the Committee to understand how the Government will comment on the
emerging consensus that will result from the FSA’s consultation
to ensure that taxpayers’ future liabilities are
limited. I
want to pick up a couple of comments made by other hon. Members. The
hon. Member for South-East Cornwall, who speaks from practical
experience of the banking sector, raised a broader issue that is not
covered by the new clause—whether the current scheme is still
fit for purpose. It was designed for normal activities, such as the
collapse of the odd credit union or an insurance company such as
Independent Insurance, and I am not sure whether anyone had thought
through the consequences for the scheme of a major bank becoming
insolvent, and how those costs should be borne. We can perhaps touch on
that in later
sittings. There
was a broader issue about how the compensation scheme should be
revisited. We never got to the bottom of the comment that my hon.
Friend the Member for
Wellingborough made about the current limit—about whether there
is a de facto unlimited amount, or whether there is a £50,000
limit. My impression is that the Minister feels that we should wait and
see, depending on the circumstances. That may be prudent, but it does
not give constituents clarity as to how they should manage their
affairs. We
will not come to the formal moving of new clauses until later, as you
have indicated, Mr. Gale. This was a probing debate and we
have covered a fair amount of territory, so I will not move the two new
clauses, at the appropriate
time.
Question
put and agreed
to. Clause
155 ordered to stand part of the
Bill.
Clause 156Contingency
funding
Mr.
Hoban: I beg to move amendment No. 34, in
clause 156, page 81, line 4, after
‘the’, insert ‘Authority to make rules enabling
the’.
No. 35, in
clause 156, page 81, leave out lines 7 to 9
and insert— ‘(2) Rules made
by the Authority may make provision about the establishment and
management of contingency funds provided that such rules are limited to
the deposit protection element of the compensation scheme; in
particular, the rules may make provision
about—’.
Mr.
Hoban: We now move on to one of the less consensual issues
in the Bill—contingency funding. We will come on to other
amendments, and hopefully a clause stand part debate, to discuss some
of the principles behind the
issue.
The
Chairman: Order. Those of you who have not experienced my
chairmanship should know that I have an absolute golden rule. I am
particularly aware that complex issues can arise from a clause and I am
perfectly prepared to have a broad debate on tabled amendments at the
start of the clause. What I am not prepared to do is allow such debate
twice. Therefore, if hon. Members choose to discuss certain issues
early on to make the tabled amendments make more sense, that is fine by
me, but they should not then expect a stand part
debate.
Mr.
Hoban: As a veteran of your chairmanship, Mr.
Gale, I know exactly where the limits are drawn on those matters, and I
will seek to confine my remarks on the amendments precisely to how the
regulations are
made. As
the Minister alluded to earlier, the broad framework for the FSCS is
set out in the 2000 Act. In that Act, the FSA has responsibility for
drawing up the detailed regulations. Section 213 clearly
states:
“The
Authority must by rules establish a scheme for compensating persons in
cases where relevant persons are unable, or are likely to be unable, to
satisfy claims against
them.” The
responsibility to draw up the detailed rules therefore rests with the
authority. Clause 156 of the Bill states that the Treasury will make
regulations, not that the authority will make rules. Amendment No. 34
and the first part of amendment No. 35—I will not address the
second part now as it pertains more to the next group of
amendments—are designed to reassert the role of the FSA in
making those detailed rules. Once the principle of contingent funding
has been introduced by the Bill, and once the provision for that
funding has been triggered, it is down to the FSA to make the rules and
not to the Treasury to set out detailed regulations about how that
funding may work in practice. This is therefore a straightforward pair
of
amendments.
Ian
Pearson: The overall effect of the proposed amendments
would be to divide responsibility for the introduction of pre-funding
between the Treasury and the FSA. The Treasury, after obtaining
parliamentary approval through the affirmative resolution procedure,
would give the green light to the FSA to make rules to cover the
matters set out in subsection (2) of proposed new section
214A. It
is not clear from the amendment whether the Treasury, with
parliamentary approval, could set any high-level parameters in those
areas. If the amendment were agreed by the Committee, we would need to
do further work to clarify that point. However, I am not persuaded that
a two-stage process for bringing in pre-funding is either necessary or
desirable. The reality is that the Government would never seek to
introduce pre-funding without consultation, including extensive
consultation with the FSA, the Bank of England and the FSCS.
Self-evidently, the Treasury would want to have a pretty good idea of
what the FSA might plan to do in its rules before it sought
parliamentary approval to give the FSA the green light. At the same
time, it could not say to Parliament, “These are the rules that
the FSA will make,” because FSA rules are a matter for the
FSA. It
seems much better, therefore, that the Treasury should ask Parliament
to approve all the key elements of any pre-funding package. In
particular, we thought it right that Parliament should have the final
say, through the affirmative resolution procedure, in a decision to
allow levies to be imposed. Under the current pay-as-you-go system, the
levies follow costs incurred by the FSCS or anticipate costs that the
FSCS might incur in the near future. With pre-funding, levies may be
imposed long before the FSCS incurs any costs, and costs will never be
incurred if no default
occurs. Our
approach is the right one, with the Treasury asking Parliament to
approve all the key elements of any pre-funding package and with the
affirmative resolution procedure, for which the hon. Member for Fareham
has expressed a strong preference in previous debates. I ask the
Committee to reject the amendments if they are pressed to a
vote.
Mr.
Hoban: I am slightly perplexed by the Minister’s
response. In the previous stand part debate, the Minister was happy to
leave all the detail to the FSA to sort out: “It’s not up
to us, guv. We’ll let the FSA decide all these
important issues.” Yet, in this scheme—the contingency
funding clause—the Minister has taken an alternative view:
“We’re going to do this, not the
FSA.” The
Minister has not explained to the outside world why this approach is
right for contingency funding, but the other approach is right for
reform of the FSCS in the light of recent experience. I find that
disappointing—there is a difference of approach. The Government
clearly want to have the right to trigger contingency
funding—for which the affirmative resolution procedure is
right—but I do not understand why they have gone further than
that, saying that they will set out the main principles of the
legislation. It is not clear why there is a divergence of practice
between the different parts of the scheme. It leaves external
stakeholders confused about the Government’s approach. Does the
Minister wish to clarify? I do not get the sense that he does, although
I am happy to give way if he wants me
to.
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