Clause
184Penalty Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: Will the Minister confirm that there is no limit on
the level of fine that may be imposed as a penalty in accordance with
the
clause?
Stewart
Hosie: May we have some comfort from the Minister about
whether the penalty that may be levied for a compliance failure can be
variable and could be zero? Failures in respect of the code of practice
and the system rules, a failure to provide a direction, or a failure to
report, can mean anything between being late in issuing a report, as
specified in clause 181, and a serious breach of the guidelines or
rules, as in previous
clauses. In
terms of the limit on the fine, clause 187 says that before a sanction
is imposed, a warning is to be issued, and so on. Clause 186, which
deals with management disqualification,
states: “A
person guilty of an offence is liable...to a fine not exceeding
the statutory
maximum”. These
things apply in specific circumstances. Clause 184 uses the words,
“pay a penalty”, as opposed to imposing a sanction. Can
the Minister provide some clarity on the nature of the penalties and
say whether they are the same as a sanction? Will he clarify whether
the penalty or the sanction might be small in the case of a minor
breach but larger in the case of a significant systemic failure
breach? Dr.
John Pugh (Southport) (LD): I have a concern, brought
about by the comments of other hon. Members, about the excessive use of
“may” in the context of other verbs. An initial reading
of clauses 183 and 184 might
lead one to assume that the Bank of England will not act, will not
publish and will not inflict a penalty for a minor offence that does
not really require and necessitate such action. The hon. Member for
Wellingborough said that there might be various reasons for that; it
might not happen owing to information being highly commercially
sensitive and because the payments agency and the Bank of England, and
its chief executives, have had a really good lunch somewhere—we
simply do not know. However, it is a quasi-judicial system. Some people
whose details are published and who have penalties inflicted on them
will, presumably, be commercially
damaged. I
am wondering—this is a serious anxiety—how one resolves
concerns about equity, if, for example, the Bank of England uses its
discretion in one way, in favour of one organisation, and in another
way, possibly for good reasons, against another organisation. Should
the organisation that is commercially damaged or embarrassed, or
whatever, feel itself to have any kind of grievance, what precisely may
they do about it? I cannot see an appeal mechanism here, nor can I see
a mechanism whereby the reasons that the Bank may have for acting in
one case and not in another will be made explicit to such
organisations. I am worried that rumour may spread to the effect that
decisions are made on a partial and less than equitable basis.
Obviously, if the system is to work well it has to embody
equity. 5.15
pm
Sir
Peter Viggers: I concur with colleagues who feel that we
need rather more detail in the clause. It mentions a penalty. Are we
talking about a fine or could there be a penalty other than a financial
fine? We need to know the basis of the
assessment. We
Members of Parliament spend a lot of time talking about penalties in
criminal and civil cases. I had to discover from a constituency case
that, for example, Customs and Excise operates way outside any
statutory scale and it is open to it to impose such a penalty for
offences as it thinks fit. There needs to be some sort of calibration
of the penalty that can be
imposed. Moving
ahead to the appeal procedure under clause 188, which we are not
discussing at the moment, I see that there can be an appeal against a
warning notice of a requirement to pay a penalty. That wording sounds a
little cumbersome to me, but at this point I simply refer to clause 184
and ask for a degree of clarity on the amount of final penalty that the
Government have in mind.
Ian
Pearson: It is right that hon. Members ask questions about
clause 184 and what we have in mind for the penalty. It might be
helpful if I explain that the power to impose a financial penalty is
intended to act as a further deterrent against the non-compliance of
operators of recognised payment systems with their obligations under
this part of Bill. It reinforces the need to comply with, for example,
the provision of codes of practice or directions, which is intended to
ensure that systems are not being operated in a manner that could
represent a threat to financial stability, and to ensure the overall
robustness of the payment systems. We have no reason to believe that
operators will not want to co-operate and operate fully, but it is
right that we legislate to have an enforcement regime in
place.
The hon.
Member for Southport suggested that there was no appeal system, but he
clearly has not appreciated what we have proposed in clause 188, or the
warning system set out in clause 187. Clause 184(1) gives the bank the
bank the power to impose a penalty in the event of a compliance
failure, and subsection (2) makes it clear that the penalty is payable
to the Bank of England and is enforceable as a debt. The term
“sanction” is defined in clause 187(2) and includes
penalties or other sanctions contained in this part.
A number of
hon. Members rightly asked how much the penalty will be. To answer the
hon. Members for South-West Hertfordshire and for the Dundee, East in
particular, it is intended that the Bank will impose financial
penalties in proportion to the seriousness of the compliance failure
and the system operator’s ability to pay. There is no statutory
limit, but as the hon. Member for Dundee, East rightly pointed out,
compliance failure could occur in a wide variety of circumstances, and
it would not be sensible to try to envisage all those circumstances and
include them in the Bill. However, I am happy to confirm in Committee
that it is our intention that if the Bank was in a situation where it
wanted to impose financial penalties, it would do so in a proportionate
way, depending on the circumstances.
Question
put and agreed
to. Clause
184 ordered to stand part of the Bill.
Clause
185Closure Amendment
made: No. 43, in clause 185, page 91, line 33, leave out
‘think’ and insert
‘thinks’.—[Mr.
Gauke.] Question
proposed, That the clause, as amended, stand part of the
Bill.
Mr.
Gauke: Buoyed up by that triumph, I would like to ask the
Minister a question on a point of clarification. The sanction of
closure of a payment system is clearly a serious one. I am sure that he
will confirm that it will be used in exceptional circumstances only,
but I draw the Committee’s attention to the fact that clause 185
applies
where “a
compliance failure threatens the stability of the UK financial
system.” Returning
to the debate we had this morning on clause 171 and the dual
criteria for assessing whether a payment system should be recognised or
not, those criteria
are: “(a)
to threaten the stability of, or confidence in, the UK financial
system,
or (b)
to have serious consequences for business or other interests throughout
the United
Kingdom.” I
quoted the Bank of England in putting the argument to the Minister that
it is essentially the wholesale payment systems that can be described
as systemic. The more retail-based payment systems cannot be described
as systemic, but could none the less have serious consequences for
businesses. The Minister did not accept that distinction. Would he say,
however, that the clause is more likely to apply to big payment
systems, which deal with large amounts of money? If so, significant and
disruptive failures in payment systems that are not of such a scale
would not be systemic and therefore would not be liable to closure
under the clause. I hope that I have made my point
clear.
Mr.
Bone: I understand the reason behind the Government
wanting to stop the operation of a payment system. However, have they
considered the reverse? Are there provisions in the Bill to keep a
payment system open when the company wants to shut it down, but the
Government want to keep it going so that there is no failure in the
system?
Ian
Pearson: None of the enforcement powers proposed in the
Bill should be taken lightly. I am happy to confirm that we anticipate
their being used only in unusual and exceptional circumstances. The
power to make a closure order is necessary as the ultimate sanction in
cases of a compliance failure that is considered so serious that the
Bank of England believes that the continued operation of a recognised
inter-bank payment system could destabilise the UK financial system. It
is entirely appropriate for the Bank to have such a power in such
circumstances, because it will have to act decisively to address such
threats by closing down all or part of a recognised inter-bank payment
system. I
say again that that could happen to a payment system on the wholesale
or retail end of spectrum, but it would have to be of systemic or
system-wide importance. The combination of this power and the others
that we have discussed on publication compliance failures and financial
penalties provides a suite of tools that may be applied, depending on
the severity of the compliance
failure. The
hon. Member for Wellingborough raised an interesting point. It is not
likely that the circumstance he described could or would ever arise,
but I have in the back of my mind that there are already powers that
could deal with it. If I find that that is not the case, I will think
about whether anything needs to be done in that area. However, I am
pretty confident that the matter is
covered.
Mr.
Bone: The Minister is being very generous. During
pre-legislative scrutiny, the British Bankers Association said if a
bank failed, an issue in retail banking would be to keep payments
flowing. Thinking about that in relation to the present example, if the
owners of a payment system fail for another reason, it may be desirable
to keep the payment system running so that there is not a systemic
failure.
Ian
Pearson: I understand the hon. Gentleman’s point.
It is probably covered in the clauses concerning system rules and
directorates. If a problem remains, I will reflect on whether
improvements need to be made at a later
stage. Question
put and agreed
to. Clause
185, as amended, ordered to stand part of the
Bill.
Clause
186Management
disqualification Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: I shall make just two points about the clause.
First, I am sure the Minister would not want us to have a system in
place that discourages good people from being involved in the operation
of payment systems,
so if he can provide some comfort to the Committee about how the powers
under clause 186 will operate, it will be helpful. The powers are quite
widely drawn and there is concern that that might discourage people
from operating in that area—although I also note that similar
provisions exist with regard to approved persons within FSA-regulated
entities as a whole.
Secondly, I
said to the Minister this morning that clause 177 is broadly defined
and that the Bank of England will be able to give a direction to the
operator of a recognised inter-bank payment system to take specified
action and that that power could be used against particular
individuals. The Minister referred me to clause 186 and was right to do
so, but considering clause 177 in isolation, it seems to be broad
enough to take into account various elements of clause 186. Therefore,
in the context of clause 186, I ask again if the Minister can confirm
that clause 177 will not be used as a mechanism for prohibiting
individuals and that, as far as the treatment of individuals is
concerned, that will be dealt with under clause 186. If he cannot
confirm that, perhaps he will elaborate on why that is the
case.
Mr.
Breed: In the past, we have talked about the operator
being an entity and said that therefore the entity can or cannot carry
on. This clause specifically refers to a person. Unless the Bank of
England has authorised or qualified that person, it is difficult to see
how it can disqualify that person. Is it intended that people who are
in some sort of management position of responsibility in these payment
systems will have to be authorised by the Bank and then that
authorisation could be withdrawn, or will the Bank of England
effectively be able to override any service agreement that an
individual bank has entered into in respect of its personnel? In other
words, can it in some way insist that the bank disqualifies the person
who is operating in that way? That would be a massive change in the way
in which any regulator operates in relation to the institutions under
its powers. At the moment, yes, a regulator can regulate a company, a
bank, a business and everything else, but unless it is going to
specifically authorise individual people and they are going to have to
maintain that sort of qualification or authorisation, it is difficult
to see how the Bank of England can do
that.
Mr.
Gauke: The hon. Gentleman will be aware that in entities
regulated by the Financial Services Authority, there is an approved
persons regime. Before one can perform a controlled function with an
FSA-regulated entity, it is necessary to have obtained approval from
the FSA, and the FSA is entitled to withdraw that approval and so on.
In that sense, there is a parallel. Does he agree that the distinction
under clause 186 is that there is not an approval regime in the first
place? Perhaps there is a point to be made about notification and the
Bank of England being aware of who is employed. That matter does not
appear to have been specifically
addressed.
Mr.
Breed: That is the specific point I am making. If we are
going to get down to the situation of people being authorised to
undertake management functions in this way and therefore carrying some
sort of approval by the Bank of England, that is fine, because that
approval can be removed. The fact that approval has
been removed will mean that they cannot continue to operate in the
management role and so on. What is not clear is to what extent the Bank
of England is now involving itself in the approval of management in
those
instances. 5.30
pm
Sir
Peter Viggers: My point is rather similar. I derive my
text from the proverb, “You don’t shoot the pianist, you
shoot the person who asked him to play.” Clause 186
says: “The
Bank of England may by order prohibit a specified person from being an
operator”. It
goes on to
say: “The
Bank may by order prohibit a specified person from holding an
office”.
What it does not say is
that the Bank may by order prohibit a bank from appointing a certain
person. I wonder whether there is a provision in the Bill that enables
the Bank of England to move against banks and not just individuals who
are operators or who are holding an office or
position?
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