Banking Bill

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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 187

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 188

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 189

Question proposed, That the clause stand part of the Bill.
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 190

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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