Banking Bill

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Mr. Breed: Will the Minister clarify two brief points? The use of the word “share” seems to indicate that information will be provided on a reciprocal basis. Conversely, can the Minister confirm that should it not be reciprocal—in other words, if the other country’s FSA, Treasury or similar organisation were not willing to provide reciprocal information to us—frankly, we would not provide information to them? Sharing means genuinely sharing things, not just our side disclosing to someone else.
Secondly, can the Minister confirm whether disclosure would include the personal details of individual organisations and persons in respect of payments that may or may not have been made to them through the system on which information is being shared?
Mr. Bone: As regards the Government amendment on overriding confidentiality, I would like to reinforce the point that the hon. Member for South-East Cornwall made. I do not think that information that is being shared under subsection (4)(c) with an overseas authority similar to the Bank of England, the FSA or the Treasury should be shared unless there is a similar agreement from that organisation. I would like the Minister to give an assurance that information will be shared only if we have that co-operation from overseas.
Ian Pearson: I am happy to explain that, in normal circumstances, we expect there to be reciprocal arrangements with the international partners with which we co-operate. As I mentioned when introducing the amendment, we are talking about the European Central Bank and the Bank for International Settlements. We think that it is right to have such arrangements with them. If we think that it is appropriate in the interests of financial stability to share information, even if the arrangements are not reciprocal, we should do so, because we all share an interest in financial stability. However, I have absolutely no reason to believe that the European Central Bank or the Bank for International Settlements would not want to share with us information that they believed was important to global financial stability.
Mr. Bone: We accept the point about the European Central Bank and the Bank for International Settlements, but paragraph (c) refers to other Governments and organisations in other countries. It is a blanket thing. Are the Government saying that we will share this information regardless, or will we require the other country to participate as well and share information with us?
Ian Pearson: It is important to be clear that we are talking about a narrow and exceptional set of circumstances. If the Bank of England has information that it believes is of importance to the stability of the financial system, the right and responsible thing to do is to share that information. Likewise, if an authority from another country was in a similar position, we would expect it to want to share that information as a matter of course.
On the question of sharing personal details, I want to repeat that the Bank of England is subject to the Data Protection Act and must abide by data sharing principles which confer particular protections with regard to personal information. It must also act in accordance with its obligations under the Human Rights Act, particularly article 8, and have regard to the right of protection of private and family life. There are a lot of safeguards there and in the very unlikely eventuality that information which threatens the financial stability of the system comes to the attention of the Bank, the responsible thing to do is to share that with our international partners.
Amendment agreed to.
Clause 190, as amended, ordered to stand part of the Bill.

Clause 191

Pretending to be recognised
Question proposed, That the clause stand part of the Bill.
Mr. Gauke: The clause states that it is an offence to pretend to be recognised under these provisions. If I remember correctly, the Financial Services and Markets Act 2000 has similar provisions. I do not know whether the Minister is in a position to tell us how frequently prosecutions have been brought under those provisions. I know that there have been some and in those circumstances they tend to be very much at the retail end. Given that participants in inter-bank payment systems will be banks and sophisticated institutions, does the Minister think it necessary to do this and to have this provision?
Secondly, will a central list of recognised inter-bank payment systems be available on the Bank of England website, in the way that there is a list of authorised entities on the FSA website? There is a legitimate point about wanting to make it clear which entities are recognised and where participants could get some sort of regulatory protection. Does the Minister intend to have such a list? In those circumstances it would not really be necessary to have this provision. I do not see that it does any great harm, but I am not sure that it adds to the efficacy of the provisions we are debating today.
Question put and agreed to.
Clause 191 ordered to stand part of the Bill.
Clause 192 ordered to stand part of the Bill.

Clause 193

Question proposed, That the clause stand part of the Bill.
6 pm
The Exchequer Secretary to the Treasury (Angela Eagle): I wish to spend a little time setting out the broad structure and intent of part 6 of the Bill, and then I will not make a habit of leaping up to speak on clause stand part debates unless I have to.
Clause 193 provides an overview of part 6, which repeals and replaces certain provisions regarding the commercial issuance of banknotes in Scotland and Northern Ireland. Before we discuss the details of clauses in part 6, it might help the Committee if I set out the background. The issuance of national banknotes is usually a function undertaken by the central bank, which in the UK is the Bank of England. With the exception of Hong Kong, the UK is highly unusual in allowing a number of commercial banks to issue their own banknotes. The right to issue is set out in the Bank Notes (Scotland) Act 1845, the Bankers (Ireland) Act 1845 and the Bankers (Northern Ireland) Act 1928—for ease I shall refer to them in future discussions on part 6 as “the current legislation”. Although 1845 might not seem all that current, we are in the process of updating it in part 6 of the Bill.
The provisions in part 6 update, modernise and strengthen the current regime for note issue, which dates back, as I just said, more than 160 years. Clearly, the world today is a very different place from when the legislation was first enacted, so I should like to take the opportunity to discuss some of the history of banknote issuance in the UK, to ensure that our future debates are informed of the context.
The Bank Charter Act 1844 prohibited any new banks in England and Wales from issuing banknotes and barred existing note-issuing banks from expanding their issue. The 1845 legislation in Scotland and Ireland made similar provisions in respect of banks in those nations. At the time, 21 banks applied to become certified to continue issuing banknotes in Scotland and Northern Ireland. That number has decreased over time through mergers, insolvency or by banks choosing to stop issuing, so a total of seven issuing banks remain. Those seven banks are currently authorised to issue banknotes and will continue to be authorised to do so with the commencement of part 6, provided that they abide by the requirements placed on them under the provisions of this part.
Stewart Hosie: It was my understanding that banks would continue to be able to issue, but that there would be a higher bar should a new bank emerge and say, “I want to issue a banknote”, which is highly unlikely. However, a question emerges from that: if the Lloyds TSB-HBOS merger goes ahead, would the Bank of Scotland part of the new organisation continue to be an authorised bank under the new legislation, and therefore entitled to continue to issue notes?
Angela Eagle: The answer is that the issuing rights are vested in the underlying corporate entity. What happens to the issuing rights depends on the individual circumstances of a takeover. I can assure the hon. Gentleman that in the specific case of Lloyds TSB and HBOS, the Bank of Scotland, which is a subsidiary of the latter, is the issuing bank, and the issuing rights attach to that corporate entity alone. The change in ownership—in this instance, of Bank of Scotland—would not mean that a bank would be forced to stop issuing banknotes, so it continues under the current proposals to be eligible to issue banknotes. I hope that that reassures him.
I was discussing the history of the matter—it might seem odd to do so, but it creates a context for subsequent debate. To reassure the hon. Gentleman even more, the Government are committed to maintaining the long-standing tradition of commercial banknote issuance in Scotland and Northern Ireland and we are not seeking to discourage commercial issuers of banknotes from continuing the practice. However, our priority is to ensure that holders of Scottish and Northern Ireland banknotes have a level of protection similar to the holders of Bank of England notes, so that in the event that an issuing bank fails, they can expect to obtain full face value for their notes. This is an important part of the Government’s commitment to protect consumers. There is more detail in part 6 on how that is to be achieved.
With that small history lesson and my reassurance to the hon. Gentleman, I commend the clause to the Committee.
Mr. Gauke: I thank the Minister for her informative introduction to part 6. There are various issues that we want to address, not least the issues of backing assets and the balance between Bank of England notes and other assets. I will address those when we come to the appropriate clauses.
I should be grateful at this stage if the Minister would list the commercial banks that are currently entitled to issue notes. She stated that the Government are keen to continue to allow commercial banks to issue notes. We do not disagree with that. It is an historical curiosity, but there is nothing wrong with historical curiosities. The Minister will not be surprised to hear a Conservative say that. Will she elaborate on why the Government are keen to continue to allow that to happen?
Finally, I thank the Minister for publishing the draft regulations that relate to this matter. They will help our debate as we proceed through the coming clauses.
Mr. Bone: I was not expecting to speak on this matter. However, as I understand it, the Minister said that if I had a Scottish note issued by the Bank of Scotland and the Bank of Scotland failed, I would not get my money back. I did not think that that was the position.
Angela Eagle: It is not.
Mr. Bone: The Minister says that I got that totally wrong. It would not be the first time.
Was this legislation brought about because of the current crisis, or was it planned before that? If something has worked for close on 200 years, it probably works pretty well and there is no reason to change it for the sake of changing it. Is there any difference between legislation in Northern Ireland and Scotland? How many banks in Northern Ireland issue notes?
Stewart Hosie: I thank the Minister for her helpful reassurance on the Bank of Scotland notes. The bulk of my concerns come under the banking assets debate in clause 203. I put it on the record at this point that after numerous consultations over the past 15 months or so, we finally have something that almost works and that the industry by and large is satisfied with.
Angela Eagle: The hon. Member for South-West Hertfordshire asked me to list the seven remaining banks that have rights of issuance. In Scotland, they are the Bank of Scotland, which as has been mentioned is a subsidiary of HBOS; the Clydesdale; and the Royal Bank of Scotland. In Northern Ireland, they are the Bank of Ireland, First Trust Bank, the Northern bank and the Ulster bank.
The hon. Member for Wellingborough asked whether the legislation was brought about because of the financial crisis that we are living through. It was not. As the hon. Member for Dundee, East hinted, this is the end of a process that began in 2005 with consultations that have been ongoing since then between the Bank of England, the Treasury, the authorities and the banks that issue to try to bring more reassurance in the backing assets issue.
The hon. Member for Wellingborough asked whether current banknotes were in danger, or were not worth as much as they are meant to represent. Clearly that is not the case, but some aspects of how the notes are backed are old-fashioned—they date to 1845—and do not fit in with current approaches, so they need tightening up. That is what part 6 will do. There is nothing wrong with the current legislation that cannot be put right by modernising and refocusing bits of it, and part 6 seeks to do so. I hope that, with those reassurances, the Committee will be able to agree that clause 193 should stand part of the Bill.
Question put and agreed to.
Clause 193 ordered to stand part of the Bill.
Clause 194 ordered to stand part of the Bill.

Clause 195

Question proposed, That the clause stand part of the Bill.
Mr. Gauke: I have a brief query for the Minister. The clause relates to the definition of “issue”. The explanatory notes state:
“The definition ensures that a banknote is regarded as issued once it enters circulation, even if it enters circulation in error or as a result of theft.”
I assume that the reason is that a note issued in that way still needs to be treated as issued to protect the position of noteholders. There could be a mismatch for the protection of noteholders. Was equivalent protection provided under the old regime?
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