Ian
Pearson: Again, I would like to make it clear that we are
talking about exceptional circumstances. Provisions in the Bill allow
action to be taken against the bank as an entity. It is right to ensure
that the inter-bank systems are robust, that there is no risk to those
recognised systems that are of systemic and system-wide significance,
and that they are being operated by responsible people. We have no
reason to doubt that that is the case. It is right to take powers in
legislation to disqualify a person from being an operator of a
recognised inter-bank payment system, or from holding a position of
management responsibility within such a system depending on
circumstances, to make it clear that the disqualification could
be
“for a specified
period, until further notice, or permanently,”
and to make it a
criminal offence to breach such a
prohibition. The
clause is necessary to prevent a person from being an operator of a
recognised inter-bank payment system if there is a potential threat to
the stability of the financial system or to business interests in the
UK. I am sure that the Committee will support that overall
intention. This
power is intended to capture a situation in which the Bank of England
feels strongly that a person who has been involved in the operation of
a payment system that has been ordered to close should not be in a
similar position in an alternative payment system. It also covers cases
in which the Bank of England may be aware that a particular person is
unsuitable to run a payment system because of inappropriate conduct
elsewhere. I stress that there are also checks on the Bank’s
power, including a requirement to give a warning, unless the
Bank’s emergency power under clause 187(3) is used. There is a
right of appeal to the independent financial services and markets
tribunal. The
power of direction under clause 177 will not be used by the Bank of
England to order an operator to remove or sack a person from its
operation. I am happy to give the assurances that the hon. Member for
South-West Hertfordshire seeks. This is not within the scope of the
power, but I can confirm that clause 186 deals with the
disqualification of specific persons from holding
office.
Obviously, the meaning of a “person” relates to the
Interpretation Act 1978, which refers to natural and legal persons, so
it can include banks and other corporate
bodies. Dr.
Pugh: I am not sure whether the Minister is making it
perfectly clear to all of us, but could he tell me whether there is a
presumption in the clause that anybody who holds a senior management
position in an inter-bank payment system is necessarily in danger of
being referred to as an operator, or is in the class of people who may
be operators? Are there some
exclusions?
Ian
Pearson: What we are trying to do in clause 186 is to be
clear that we are talking about a person who is an operator of a
recognised inter-bank payment system. If this power were ever to be
used—I would expect its use to be extremely rare—it would
be clearly targeted at individuals where the Bank felt very strongly
that that person was not an appropriate person to be running a payment
system, because of the reasons that I have cited
elsewhere.
Mr.
Breed: We are edging our way there. Can the Minister
envisage a circumstance, therefore, wherein such a person would not
necessarily have already been dismissed or taken out by the
operator—the company—before the Bank of England became
involved?
Ian
Pearson: As I said, I imagine that this power, if it was
going to be exercised, would be exercised extremely rarely, because I
would have thought that in normal circumstances the operator would have
already taken that decision. So I think that it is a power that would
be used only very rarely, because, as I have said, we would expect the
operator to have taken action previously.
Question
put and agreed
to. Clause
186 ordered to stand part of the
Bill.
Clause
187Warning Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: The clause relates to the warning procedure that
will exist before a sanction is made under clauses 183 to
186. We welcome subsections (1) and (2). Subsection (3) provides an
exception from the warning procedure, where it
says: “if
satisfied that it is necessary the Bank may without
notice— (a)
give a closure order under section 185,
or (b)
make an order under section
186.” The
wording is very
vague: “if
satisfied that it is
necessary”. Perhaps
this is one of those circumstances where I would be tempted to insert a
“reasonably” somewhere along the line and the Minister
would have argued against that.
The
explanatory notes provide a little more detail. They
say: “Such
situations may arise if, for instance, delaying the cessation of the
operation of the payment system...were to pose an imminent threat
to the stability of the UK financial
system.”
Clearly that is a fairly
high benchmark but it is not in the Bill, which is probably
regrettable. However, may I encourage the Minister to be as emphatic as
possible that the exception from the warning mechanism contained in
subsection (3) will only be used in the most exceptional circumstances?
I do not know whether the
wording “imminent
threat to the stability of the UK financial
system” is
merely illustrative or whether that is, in fact, the test that should
apply. However, I think that there is some argument for considering
whether subsection (3) should be amended to toughen it
up.
Dr.
Pugh: May I ask about subsection (1)(c) and the words
“consider any representations made”? I assume that there
is a narrow reading and a broad reading of those words. Clearly, we are
judging people against a code of conduct and the code of conduct can
obviously be broken to a major or minor degree, and when it is broken
people can simply judge whether there are extenuating circumstances.
However, the words “any representations” seem to go a bit
further than that. Again, I am inspired by the hon. Member for
Wellingborough and his comment that a representation that might be
relevant is that it is an inappropriate thing to do given the state of
commercial markets, and so on. I had a very satisfying answer from the
Minister about appeals, but the other issue is discretion and how it is
used, and I want to know whether the Bank of England, in receiving
representations, has to concentrate simply on the narrow business of
whether the code of conduct has been breached and the operator is bang
to rights on a very narrow reading of it, or whether the Bank can
receive from the payments agency broader representations, such that it
may be inappropriate, given the state of the market, to act at that
particular moment.
Ian
Pearson: Two points of substance have been made about the
clause, which covers warnings in relation to the previous four clauses,
which have all been about sanctions. The hon. Member for Southport made
a specific point about considering representations, and the clause
potentially covers all four sets of circumstances that we have
discussed: publication, penalty, closure and management
disqualification. The likely representations will differ, depending on
the category to which they are applied. Representations could be made,
for instance, by an individual, if they were to do with a management
disqualification, or they could be made by a company. Representations
can be made in confidence to the Bank, and it will be the Bank’s
responsibility to consider all the representations made to
it.
The hon.
Member for South-West
Hertfordshire—
Mr.
Gauke: I am grateful to the Minister for giving way. My
point was about the circumstances in which no warning was necessary,
and the fact that the explanatory notes illustrate that
situation.
Ian
Pearson: I thank the hon. Gentleman. That was the second
key point of substance to be raised, and I am happy to confirm our
intention that a high benchmark be set. We are talking about situations
in which a compliance failure would threaten the stability of the
financial situation—the threat being so immediate that closure
or disqualification should be imposed without
delay. In normal circumstances, subsections (1) and (2) would be the
relevant processes, and we would expect the warning process and the
21-day period to be used.
Mr.
Bone: Will the Minister give a practical example of when
the provision would come into practice, and a practical example of the
failure that would cause immediate action?
Ian
Pearson: No particular practical example comes to mind,
but the legal counsel who draft the measures like to consider all
potential eventualities, and as I think I explained earlier, we are
talking in all these cases about unusual or exceptional circumstances.
However, it is right that all theoretical possibilities be considered,
because it would not be appropriate for us to come back to the House to
pass emergency legislation owing to something that, at this stage, had
not been thought of and had therefore not been included. The measure is
a backstop, but it is completely exceptional, and in that spirit, I
hope that the Committee will accept that the clause should stand
part.
Question
put and agreed to.
Clause 187
ordered to stand part of the Bill.
Clause
188Appeal Question
proposed, That the clause stand part of the
Bill.
5.45
pm
Mr.
Gauke: The clause contains an appeals mechanism, which is
welcome. It makes use of the financial services and markets tribunal,
which generally applies for FSA-authorised entities seeking to make an
appeal. The provision shoehorns the payment systems legislation into
this, so will the Minister assure the Committee that he is satisfied
that the tribunal will have the necessary expertise in this specialised
area? It deals generally with FSA-regulated entities rather than Bank
of England-supervised entities, so will he assure the House on
that
point?
Ian
Pearson: Yes, I believe that I can. Thought was clearly
given when coming up with an appropriate body to consider appeals, and
we believe that the financial services and markets tribunal will have
the experience to consider the sort of decisions that may be referred
to it. I have confidence in the tribunal, and believe that it is
appropriate for the Bill to have an appeals procedure that refers to
it.
Question
put and agreed to.
Clause 188
ordered to stand part of the Bill.
Clause
189Fees Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: Given that the Bank of England may require operators of
inter-bank payment systems to pay fees, is it the intention that
supervision of the payment
systems will be essentially self-financing? Will the fees more or less
equate with the costs incurred by the Bank, and will the Minister state
the Bank’s likely costs of supervising and overseeing the
systems, notwithstanding any fees that it may
levy?
Ian
Pearson: The clause, as the hon. Gentleman rightly says,
enables the Bank to require the operators of recognised inter-bank
payment systems to charge fees. The Bank does not currently intend to
charge fees for its routine oversight of payment systems under this
part of the Bill, and instead will meet its costs from its overall
budget for financial stability policy functions, as is the case for its
non-statutory oversight. However, the clause ensures that the Bank
could continue to resource its oversight activity if the overall
funding model
changed. In
addition, if the Bank incurred exceptional expenses on its oversight
activities—for example, due to the engagement of an expert to
carry out an inspection under clause 179—it would aim to recover
those costs from the system concerned. The scale of fees would be set
by the Treasury in regulations to ensure that they are proportionate.
The provisions are sensible and
straightforward. Question
put and agreed
to. Clause
189 ordered to stand part of the
Bill.
Clause
190Information
Ian
Pearson: I beg to move amendment No. 20, in
clause 190, page 94, line 7, at
end insert— ‘(4A) Subsection
(4)— (a) overrides a
contractual or other requirement to keep information in confidence,
and (b) is without prejudice to
any other power to disclose
information.’. The
clause enables the authorities involved in the regulation of payment
systems to obtain and share information effectively. Subsection (4)
allows the Bank to disclose information obtained under the clause to
the Treasury and the FSA, and their international
counterparts—the European Central Bank and the Bank for
International Settlements. It also gives the Bank the right to publish
information obtained under powers conferred by the
clause. The
amendment inserts an additional provision to ensure that the Bank may
share information obtained under the clause with those authorities,
notwithstanding any contractual or other confidentiality obligations in
place, and without prejudice to other disclosure powers. The Committee
will be aware that the gathering and sharing of information between
domestic authorities and their colleagues in overseas authorities plays
an important role, and will play an increasingly important role in
informing and co-ordinating international regulatory activity, both to
pre-empt and to address problems in financial markets. Similarly, the
sharing of information plays a fundamental role in the framework
governing the formal oversight of payment
systems. Therefore,
it is vital that the Bank of England should be able to share
information obtained under this section, notwithstanding any
contractual or other confidentiality
requirements, in the interests of financial stability, among other
things. Accordingly, the amendment is appropriate in order to provide a
statutory gateway for the Bank of England to share
information. It
is appropriate to note that similar gateways are available to other
public authorities—for example, the FSA and the Competition
Commission—which may, in some circumstances, disclose
confidential information without seeking the consent of the person from
whom the information was
obtained. It
is important to note that the provision means that the common law of
confidentiality can be overridden. However, the power will, of course,
be exercised by the Bank of England in a way that is compatible with
the safeguards set out in the Data Protection Act 1998 and the Human
Rights Act 1998. The amendment is equivalent to the provision in clause
224(3), which relates to information that is relevant to the financial
stability of an individual financial institution, or one or more
aspects of the individual systems of the UK, which may be shared with
the FSA or the Treasury. I commend the amendment to the
Committee.
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