Banking Bill


[back to previous text]

Clause 184

Penalty
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?
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 185

Closure
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 186

Management disqualification
Question proposed, That the clause stand part of the Bill.
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?
 
Previous Contents Continue
House of Commons 
home page Parliament home page House of 
Lords home page search page enquiries ordering index

©Parliamentary copyright 2008
Prepared 29 October 2008