 House of Commons |
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 CommitteeTuesday 28 October 2008[Mr. Jim Hood in the Chair]Banking BillClause 179Inspection Question
proposed [this day], That the clause stand part of the
Bill. 4.30
pm Question
again proposed.
Stewart
Hosie (Dundee, East) (SNP): As I was saying before lunch,
the clause is similar in form to a clause we considered on another
Bill. That clause gave Her Majesty’s Revenue and Customs
officials the right to access and seize documents. I argued that if a
document was an electronic document hosted on an overseas computer, it
would be wholly unreasonable to expect that the person being asked to
provide it could necessarily do so. Such legislation, because it could
be seen as extraterritorial, might be unenforceable. The same argument
applies in this case.
The
clause states that the Bank of England may appoint someone to inspect
an inter-bank payment system and that the operator of that system
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”. Clearly,
if the data centre is overseas, that might be impossible and legally
unenforceable. However, although the extraterritorial argument is a
real one that needs to be addressed, the issue of the operator is more
important in terms of the Bill. The operator may be a fairly junior
member of staff in a bank, certainly not a senior figure, who may not
have access or be able to arrange it.
If an
overseas data centre forms part of the system that is to be inspected,
it would make more sense for the legislation to suggest that failure
would be only if all reasonable efforts to gain access or to allow the
inspector access were not made, rather than the pretty blunt
description in the clause that the operator of a recognised inter-bank
payment system must grant an inspector access even when the centre may
be overseas or he or she simply cannot organise that access. I should
like to hear what the Minister has to say about that. I would not like
to see a piece of legislation that could land someone in court, or
subject them to an inspection warrant, for something that they
physically cannot do, or do not have the status to do. Would not the
phrase “make all reasonable efforts” be better than the
wording in the clause? I will listen to what the Minister has to say
before we look at other amendments to this part of the
Bill.
The
Economic Secretary to the Treasury (Ian Pearson): Clause
179, as Members have outlined, gives the Bank of England the power to
appoint inspectors whose role is to inspect the operation of a
recognised inter-bank
system. It is relatively straightforward and is the first of a number of
clauses in the enforcement section of part 5. It places the operator of
the system under a statutory obligation to grant the inspector access
to the premises from which all or part of the system is operated or
managed and to co-operate with the inspector.
The power
allows the Bank of England to appoint an inspector to check that codes
of practice, principles, system rules or directions are being complied
with and that the recognised inter-bank payment system is otherwise
operating in a satisfactory manner. The power is an important tool of
oversight that strengthens the Bank’s ability to ensure that
payment systems identified as of systemic or system-wide importance are
being operated in a manner that does not pose a threat to business or
other interests, or to financial stability in the United Kingdom as a
whole. The
hon. Member for South-West Hertfordshire asked whether the power would
be routinely used. I am happy to confirm that we do not anticipate that
it will be routinely used. We expect that if the Bank of England had
any concerns about the operation of an inter-bank system it would
discuss them in the first instance with the operator concerned. In
most, if not all cases, I imagine that things would be sorted out.
However, given the importance of oversight of those critical systems, I
think it right that there are powers for inspection, so the later
powers that we shall discuss are in
reserve. Mr.
Colin Breed (South-East Cornwall) (LD): Would that be
similar to the non-routine use of the Anti-terrorism, Crime and
Security Act 2001 for the inspection of Landsbanki, for
instance?
Ian
Pearson: I will not be tempted to speculate or to respond
to that comment; I discussed the issue at some length yesterday in the
statutory instrument Committee dealing with
Landsbanki. The
hon. Member for Dundee, East made a number of interesting points
relating to the fact that some bank systems are outsourced. I recognise
that, and it will have to be taken into account by the Bank of England
as part of its supervisory role. The Bank will want to ensure that it
has confidence that the systemic and system-wide recognised
inter-banking systems are being operated in an appropriate manner. I
cannot prejudge all the circumstances in which an inter-bank system
might operate and I do not think that it would be right to put them in
the Bill; that is not the purpose of primary legislation. However, the
hon. Gentleman makes a valid point that will have to be considered as
part of how the Bank views its oversight
arrangements.
Sir
Peter Viggers (Gosport) (Con): I last came across the
exercise of powers such as this last week in parallel circumstances,
when I found myself answering questions on behalf of the
Speaker’s Committee on the Electoral Commission about the powers
of the Electoral Commission to investigate premises and to call for
papers. I am thus looking with some interest at clause 179 and
wondering whether the Minister can tell me what the previous powers
were in this field. No doubt there were powers for the Bank of England
to carry out investigations, and the provision may be a repetition or a
strengthening of powers that previously existed. I would be interested
to know whether there were such powers.
Secondly, I
wonder if the operator of a recognised inter-bank payment system knows
that he is an operator of a recognised inter-bank payment system. What
process is there for ensuring that when the inspector authorised by the
Bank of England arrives to inspect the premises, the operator realises
that he must give the inspector access?
My third
point is about the
phrase “otherwise
co-operate with an
inspector,” which
seems very broad and seems to mean that the operator must do everything
that the inspector requires him to do. However, one would like rather
more clarification of exactly what it is that the inspector can require
the operator to do. To say that they must “otherwise
co-operate” with the inspector is really very broad and might
leave the operator, who might not be briefed in banking law, at a loss
as to what exactly they are required to do. I would be grateful for
some clarification of what appears, on the face of it, to be a very
general clause.
Ian
Pearson: The hon. Gentleman raises three points. The first
is the question of whether the operator understands that he is
operating a recognised system. As we explained when considering some of
the earlier clauses, there is a process whereby the Treasury will
establish that a system is a recognised system because it is of either
systemic or system-wide importance. In the consultation exercise, we
gave examples of those systems and it would be readily apparent to
those who work in such areas that they are operating a systemic or
system-wide inter-bank system.
The second
issue that the hon. Gentleman raised related to the fact that the Bank
of England already has a number of investigatory powers. The Bank has
not previously had statutory responsibilities for the oversight of
inter-bank systems. Under the clause, we are talking specifically about
inter-bank systems and giving the power of inspection, if it is
required, to the Bank.
The third
point that the hon. Gentleman made was about the
words “otherwise
co-operate with an
inspector”. I
understand that the power is relatively broad. It will be used in a
reasonable way by the Bank of England, just as we expect all our public
institutions to operate in a reasonable manner. I do not think it
unreasonable to put the power in the
Bill. Question
put and agreed
to. Clause
179 ordered to stand part of the
Bill.
Clause 180Inspection:
warrant Mr.
David Gauke (South-West Hertfordshire) (Con): I beg to
move amendment No. 39, in clause 180, page 90, line 34, at end insert
‘acting
reasonably’.
The
Chairman: With this it will be convenient to discuss the
following amendments: No. 40, in clause 181, page 91, line
4, after ‘it’, insert
‘reasonably’. No.
41, in
clause 180, page 91, line 9, after
‘assist’, insert ‘substantially’.
No. 42, in
clause 185, page 91, line 33, after
‘England’, insert
‘reasonably’. No.
43, in
clause 185, page 91, line 33, leave
out ‘think’ and insert
‘thinks’. No.
44, in
clause 190, page 93, line 31, after
‘Bank’, insert
‘reasonably’. No.
45, in
clause 190, page 93, line 33, after
‘otherwise’, insert
‘reasonably’.
Mr.
Gauke: The clause deals with the circumstances in
which Bank of England inspectors may apply for a warrant entitling them
to enter the premises of an operator of a payment system and in which
justices of the peace may issue one. A number of conditions are set out
and if any one of them is fulfilled, an inspector will be permitted to
seek to obtain a warrant for entry. The amendment relates to condition
4, which states
that “a
person occupying or managing the premises has failed to co-operate with
an
inspector.” To
understand the thinking behind the amendment, it is worth looking at
the other conditions. It must be remembered that it is necessary to
satisfy only one of them. Conditions 1 and 2 relate to the
information-gathering process set out in clause 190. Condition 3
relates to refusing to give an inspector access to premises, despite
reasonable notice having been given. If an operator has not failed to
provide information or access, a warrant can none the less be issued on
the basis that the person occupying or managing the premises failed to
co-operate with an
inspector. The
point of the amendment is that only an inspector who is acting
reasonably should be able to obtain a warrant. The other conditions are
set at the appropriate level, but condition 4 simply allows an
inspector to make requests of the occupier of premises that are part of
a payment system. If he refuses to co-operate in any way, he makes
himself vulnerable to a warrant from a justice of the peace. I would be
grateful for the Minister’s views on that
point. If
I may talk generally on the clause, it would preclude the need, from my
point of view, for a stand part debate. I shall raise the usual points
and I am sure that the Minister will be obliging in responding to them.
Will he give an assurance that the procedure in the clause will be used
only in exceptional circumstances? Does he anticipate the Bank of
England looking to obtain warrants to enter premises as a routine
matter? Given his comments on clause 179, I am sure that he will have
no problem in giving that
assurance. 4.45
pm
Amendments
Nos. 40 and 41 relate to clause 181, which sets out that the Bank of
England may require the operator of an inter-bank payment system to
appoint an expert to report on the operation of the system. Amendment
No. 40 would insert the word “reasonably” so that the
Bank may impose a requirement only if it reasonably thinks that the
operator is not taking sufficient account of the published principles
or the code of practice. Amendment No. 41 would insert the word
“substantially” in subsection (2)(c) so that the Bank may
impose a requirement only if it reasonably thinks that the report is
likely for any other reason substantially to assist the Bank in the
performance of its functions under this part. Both amendments attempt
to be slightly
more specific, because a report might be of only marginal benefit to the
Bank yet cause substantial inconvenience and costs for the payment
system, so it should not be issued
lightly.
Amendment No.
42 relates to clause 185, which sets out the Bank of England’s
powers to close a payment system, which is clearly a draconian
sanction. The amendment proposes that those powers may be applied only
if the Bank reasonably thinks that the compliance failure threatens the
stability of the UK financial system. It is a probing amendment, so I
would be grateful for the Minister’s thoughts on
it. Amendment
No. 43 also relates to clause 185 but is less of a probing amendment.
Although it would not be fair to claim that it goes to the heart of the
Bill, I feel quite bullish about it. The current drafting
states:
“This
section applies if the Bank of England think that a compliance failure
threatens the stability of the UK financial system.”
The amendment would
instead state that the Bank of England “thinks” that the
compliance failure threatens the stability of the UK financial system.
Elsewhere, the Bill states that the Bank “thinks”, so I
hope that the Minister will accept the
amendment. Amendments
Nos. 44 and 45 relate to clause 190, which provides that the Bank of
England may request information from an operator of a payment system.
Again, I propose that that should occur when the Bank
“reasonably” thinks that it will help the Treasury in
determining whether to make a recognition order and when it
“reasonably” requires the information in connection with
its functions under Part 5. I am sure that the Minister will say that
the Bank of England will act reasonably in all circumstances, but I
suggest that we should include the provision in the
Bill.
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