Banking Bill

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Mr. Gauke: This clause allows the Bank of England to give directions to an operator of a recognised inter-bank payment system. With regard to the consultation representations from the affected operator, those issues that apply to system rules also apply to directions. Does the Minister see a direction under the clause as being an exceptional route of action taken by the Bank of England or as routine? May I ask specifically what those directions might relate to? The clause states:
“A direction may...require or prohibit the taking of specified action in the operation of the system”.
Would the Minister elaborate on what “specified action” might mean so that we are sure that it does not mean rule change, for example? It could be helpful to throw out even one possibility of what a “specified action” might be. It might be a question, for example, of whether employing an individual would, or would not, be appropriate, or whether that enables the Bank of England to assess if particular individuals are fit and proper to perform a role within a payment system in the way that the FSA, as a matter of course, assesses people performing approved functions under the Financial Services and Markets Act 2000. Is that part of what clause 177 is designed to address?
Ian Pearson: The clause gives the Bank of England power to give directions to the operator of an organised inter-bank payment system. Directions may require, or conversely prohibit, certain actions in the course of the operation of a recognised inter-bank payment system. Directions may also set standards to be met in the operation of the system.
As I understand it, the purpose of the legislation is not that directions should be used routinely. To give a specific example, the Bank might direct the recognised inter-bank payment system to set up a programme of tests on its crisis management arrangements. One would hope that the operator of the inter-bank payment system would wish to do that in any event and that agreement would normally be reached. If the Bank thought that the operator was unwilling to do so and that it was necessary, it is right that it should have the power by direction to require a programme of tests. That is an important part of the Bank’s oversight role for payment systems, as it enables it to ensure that specific steps, such as the one I have just indicated, are taken in relation to a payment system as and when the need arises.
Directions, unlike system rules, will make specific instructions regarding the general conduct of the payment system, rather than its rules of operation. Directions could also be made as emergency measures to take immediate action, or conversely, to stop doing something with immediate effect. Those powers are therefore necessary because they are an important part of the suite of regulatory tools, which I mentioned earlier, that enable the Bank of England to ensure that the payment system is both designed and operated in a manner that does not threaten the stability of the UK’s financial system.
The hon. Member for South-West Hertfordshire asked what would happen in an instance when the Bank might not have confidence in an individual’s ability to operate the system. We will cover that when we come to clause 186, if he thinks it is acceptable to debate the issue then.
Question put and agreed to.
Clause 177 ordered to stand part of the Bill.

Clause 178

Role of FSA
Mr. Gauke: Briefly, the clause states that in exercising powers under this part of the Bill, the Bank of England shall have regard to
“any action that the FSA has taken or could take”.
This comes back to a theme that has run through the morning of the relationship between the various regulatory bodies. I can see that the purpose of the clause is to avoid any duplication. Are there any similar obligations on the FSA to have regard to any action taken by the Bank in respect of payment systems? I am also slightly curious about the phrase,
“any action that the FSA has taken or could take”,
as it is somewhat broad. I can see what the clause is trying to get at, but one could argue that it is vague.
Mr. Bone: The clause touches on the tripartite arrangements, which are not unique. There are other areas where there is more than one agency responsible for a set of affairs, but usually there is a clear memorandum of working between the organisations, setting out which organisation is paramount in an area where things overlap. I am still not clear whether one organisation will come out on top when there is duplication. The clause deals with the relationship between the Bank and the FSA. We have been unable to see these memorandums of working, so will the Minister tell us whether there will be duplication? If there is, will the Bank, the Treasury or the FSA come out on top?
Ian Pearson: As I explained earlier, the Bank of England clearly has the lead responsibility when it comes to the regulation of inter-bank payment systems. In the case of payment systems within recognised clearing houses and investment exchanges, which are regulated by the FSA, the Bank will again have responsibility for the regulation of the inter-bank payment systems. Certainly in all the consultations in this area, there was overwhelming recognition that there should be a single regulator when it comes to inter-bank payment systems. To avoid duplication between the responsibilities of the FSA in the regulation of recognised clearing houses and recognised investment exchanges and the role of the Bank in overseeing inter-bank payment systems, there will be a memorandum of understanding between the Bank and the FSA. It will ensure that there is effective co-ordination and minimum duplication of regulations.
Mr. Hoban: I dealt with the Investment Exchanges and Clearing Houses Act 2006 when it went through Parliament. In that Act, the FSA clearly has the responsibility for approving rule changes put forward by the clearing houses and investment exchanges. Would it not be better for that legislation to be modified through this Bill, rather than relying on a memorandum of understanding?
Ian Pearson: The Bill is clear—the Bank of England is responsible for the oversight of inter-bank payment systems. If it becomes necessary to take enforcement action, the Bank of England and the FSA will want to agree on which one of them is best placed to do so. It is important to recognise that we are setting out in different parts of the Bill the clear responsibilities of the tripartite authorities. It is right that the Treasury leads on, and has responsibility for, recognition, and that the Bank of England has lead responsibility on inter-bank payment systems.
Mr. Hoban: I am grateful to the Minister for being explicit about inter-bank payment systems. We support the Bank of England taking the lead. Why is there a statutory obligation on the Bank of England to have regard to the FSA, but, as far as we can see, no comparable obligation on the FSA to have regard to the Bank?
Ian Pearson: It is my understanding that the clause was designed to ensure that the role of the FSA was explicitly recognised, given its responsibilities on recognised clearing houses and investment exchanges. I am not sure that a reciprocal power is necessary, because there are other measures within architecture of the Bill to ensure that the tripartite authorities talk to one another. However, I will reflect on that point further and, if necessary, return to it at a later stage.
Question put and agreed to.
Clause 178 ordered to stand part of the Bill.

Clause 179

Question proposed, That the clause stand part of the Bill.
Mr. Gauke: We enter into the enforcement area of part 5. I have more comments to make on clause 180, some of which relate to this clause. Does the Minister consider the inspection powers in clause 179 to be exceptional? I assume that the Bank of England will be able to work co-operatively with operators of payment systems without recourse to the relevant clauses.
Subsection (2) says that an operator must
“grant an inspector access, on request and at any reasonable time, to premises on or from which any part of the system is operated”.
What will the notice period for an inspector to access premises be? Her Majesty’s Revenue and Customs, for example, has various rules and guidance about how much notice it should give an entity before it gains access to premises. What does the Minister see the position as being in those circumstances? It is particularly significant, given the issues regarding clause 180, but I hope to address those this afternoon.
Stewart Hosie: The clause is fairly similar to a clause that we discussed earlier with regard to the provision for HMRC officers to have access to ascertain documents. We had a debate in another Committee Room about what “a document” meant.
It being One o’clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.
Adjourned till this day at half-past Four o’clock.
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