Banking Bill

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Mr. Hoban: I understand the arguments why we should not disclose the level of covert support as it would not then be covert. However, there are systems such as the special liquidity scheme, which is not a covert mechanism for support and is currently disclosed on the weekly return. That is a legitimate form of liquidity support. If the weekly return is suspended and there is no commitment to regular publication of a similar summary, I am not sure how the Bank and Treasury can be held accountable by Parliament for the amounts that they deploy through the special liquidity scheme. Can the Minister tease out or separate the covert from the overt support that the Bank might offer?
Angela Eagle: It is difficult to be precise. If we were to move from a weekly to a fortnightly report, some of the problems that occurred with Northern Rock might reassert themselves. The Bank has to report, quite rightly, on an annual basis, and there is a bi-annual report on financial stability and monetary policy. Those are standard ONS reporting requirements and include issues of money supply and other areas for national statistics.
The difficulty, which I think the hon. Gentleman appreciated by the way that he asked the question, is that if the Government changed the weekly report to a fortnightly one, it still might not deal with a particular context. Liquidity support that was essential to prop up an institution in trouble might be revealed earlier in a way that did damage.
Mr. Hoban: Is there not an alternative way of looking at the matter? In preparation for the debate, I had a quick look at a weekly report; in effect, it is the balance sheet of two notional departments in the Bank and a consolidation. It would be possible to produce a report that was not a balance sheet and did not require full disclosure, yet set out the normal forms of support that the Bank could offer an entity without having to reveal any covert support. By changing the published information, we could get round the issue of disclosing covert support, while still allowing the Bank to be accountable for the overt support it gives.
Angela Eagle: The hon. Gentleman is right—it is a balance sheet. I, too, had a look at one before attending the Committee. I understand his point. The clause abolishes a requirement to publish a weekly return that dates from 1844, when the consequences for Northern Rock of doing so were probably not in the minds of those who legislated. Everybody agrees that premature revelations about liquidity support are damaging to financial stability and should be avoided. Clause 223 will remove that absolute requirement—dating from 160 years ago—to produce a weekly report. That will no longer apply.
We still expect the Bank to publish such returns as it considers appropriate. It will decide how to shift from the old rigid system of doing so weekly—for no reason other than that it has done so since 1844—to another process that we hope will prevent premature revelations about liquidity support that might damage financial stability. That is the context for the switch that the Government suggest in this clause and clause 230.
Mr. Hoban: The Minister and I are in agreement about the need to move away from where the Bank has been in the past. We are moving from a situation where data are transparent, to one where we do not know what the replacement for that obligation will be. Can the Minister say whether the Bank will have set out its alternative reporting arrangements by the time the Bill gets to the other place? I know that she does not speak for the Bank, but she can see the point I am trying to make.
Angela Eagle: I cannot speak for the Bank directly and make an operational decision, but I have made it clear that it is important that the Bank is transparent about its activities, except in the unusual circumstances when premature revelations about liquidity support would actually damage everyone. I have also made it clear that the usual reporting arrangements and expectations in respect of the annual report, the returns to the ONS for its often monthly statistics and the bi-annual financial stability report are still made public. It is for the Bank to decide how to move from an old rigid system to a new system, and avoid the potential offered in the weekly return for premature revelations about liquidity support that are damaging.
Question put and agreed to.
Clause 223 ordered to stand part of the Bill.

Clause 224

Angela Eagle: I beg to move amendment No. 32, in clause 224, page 106, line 27, at end insert—
‘(c) an authority in a country or territory outside the United Kingdom which exercises functions similar to those of the Treasury, the Bank of England or the Financial Services Authority in relation to financial stability;
(d) the European Central Bank.’.
The amendment strengthens clause 224 by permitting the Bank of England to share information related to financial stability with overseas partners, as well as with other members of the tripartite. It is right and proper that the Bank of England should have expanded powers to share information both across the tripartite and with overseas partners, when appropriate.
The amended clause would enable the Bank to share relevant information that it has received in relation to its financial stability functions. Typically, the Bank of England receives information from the FSA, which it can share among the tripartite. However, it is possible that the Bank might receive information from other sources, such as an institution administered under the special resolution regime or from other institutions that may approach the Bank directly.
At present, when the Bank of England has received confidential information from a third party, it may not be able to share it. In an emergency, under current rules it might face uncertainty about precisely which information it can legally share with other authorities. Clause 224 takes away that difficulty by enabling the Bank of England to share any information that it has received with other authorities. That removes any complexity or uncertainty that might arise in fast-moving situations and will enable the authorities to act more effectively in an emergency.
The amendment builds on the clause by enabling the Bank of England to share such information as it deems fit with overseas agencies that perform functions similar to that of the Bank, the Treasury and the Financial Services Authority. In a globally connected world where the financial marketplace is interconnected, the United Kingdom needs to be able to co-operate and share information effectively with other jurisdictions, particularly in the case of concerns about large cross-border firms. I can assure members of the Committee that there is no intention that the power should be used lightly by the Bank of England, or that it would disclose information unless it was necessary. However, it is appropriate that the Bank of England should have the power to share information on major issues of financial stability with our overseas partners.
Mr. Hoban: I want to ask the Minister two questions. Is there a parallel ability for the FSA to share information with comparable overseas institutions? Given that there is a lot of discussion about colleges of regulators supervising individual institutions, and bearing in mind her reassurance that such information will not be transferred lightly, how will that reassurance work with the prospect of much more information sharing through colleges of regulators?
Angela Eagle: Obviously, it is in the UK’s interest that there is full international co-operation on financial stability, and I suspect that we are just at the beginning of a process that will strengthen arrangements globally to ensure that that happens, particularly when a firm of systemic importance to the UK is internationally interconnected.
It is important for us to be able to inform overseas partners so that regulators can co-operate in managing the difficulties associated with the firm in question. It is desirable that other regulators and central banks reciprocate. The UK authorities maintain excellent relationships with key counterparts overseas. The colleges of regulators, which the hon. Gentleman mentioned, are an evolving example of the strengthening of that reciprocal relationship.
The hon. Gentleman asked whether the FSA can share information. Yes, the Financial Services and Markets Act 2000 includes the power for the FSA to share information with overseas regulators within limits set by the Treasury. That all helps to enable regulators to pick up systemic problems, particularly in firms that are globally present, interconnected and of systemic importance in the UK or elsewhere.
Amendment agreed to.
Clause 224, as amended, ordered to stand part of the Bill.
Clause 225 ordered to stand part of the Bill.

Clause 226

Variation of permission
Mr. Hoban: I beg to move amendment No. 9, in clause 226, page 106, line 39, after ‘person’, insert
‘, in connection with the exercise of functions by any person under the Banking Act 2008,’.
The clause is the first of three clauses relating to the powers of the FSA. It affects the powers that the FSA can use under section 45(1)(c) of the Financial Services and Markets Act 2000. Under that Act the FSA can use powers on its own initiative to vary the permission relating to the regulated activities that an authorised person may have permission to undertake. The own initiative variation of permission—often known as OIVOP—gives the FSA the power to restrict what an authorised person can do.
My concern is that the power in the clause seems rather broad. I assume that the power can be used only in the context of decisions or actions taken under the Bill, but the clause is not written in that way. It is not as narrowly defined as that. Can the Minister reassure the Committee that the OIVOP power will be used by the FSA only when it relates to powers exercised under the Bill?
Angela Eagle: The amendment undermines the effect of clause 226, which is to clarify the provisions of section 45(1)(c) of the Financial Services and Markets Act 2000. The clause is technical in nature and is designed purely to clarify existing legislation. It is expressly drafted to clarify the provisions laid out in the Financial Services and Markets Act. By restricting the provisions of clause 226 to the Banking Bill, the amendment would render the clause meaningless. It may be useful to clarify the intent of the clause as it stands.
Section 45 of the Financial Services and Markets Act gives the FSA power to vary or cancel on its initiative a commission it has granted to allow the carrying out of regulated activities. The power to vary permission, in effect to stop firms carrying out particular activities, is a core power of the FSA and the Government want to ensure that there is clarity about how it is used.
3.15 pm
Section 45 allows the FSA to exercise its power in a number of circumstances, such as when the person with permission is failing or is likely to fail to satisfy the threshold conditions or has failed within the last 12 months to carry out the activity to which the permission relates. Section 45 also allows the FSA to exercise that power where desirable in order to protect the interests of consumers or potential consumers. In the Financial Services and Markets Act a reference to consumers usually means consumers generally, not just those of a particular firm, so this is the better interpretation of section 45. Recent events have shown that we need to consider the interests of consumers generally, not only on a firm-by-firm basis, so clause 226 will amend section 45 to make it clear beyond any doubt that the reference to consumers includes consumers generally.
The proposed amendment, by making the clause refer only to duties under the Banking Bill, would effectively disapply it in many circumstances and in a way that leaves the FSA’s decision-making process more complex and cumbersome. I hope that, with that explanation, the Opposition will not press the amendment to a vote.
Mr. Hoban: I am grateful to the Minister for that explanation. One of the general concerns that has been expressed about the Bill is that it is here to address a particular issue in the banking system and the recent problems. We are speeding its passage through the House and the other place on the basis that it is a very focused Bill aimed at tackling problems in the banking system. My concern with clause 226 is that its scope goes beyond the banking system and that it is effectively being used to satisfy a legislative wish list in that respect, and that is not the purpose of the Bill. I am concerned about the Minister’s explanation because I think that the clause’s scope is rather broader than we were initially led to believe, and that is also causing concern outside the House. I do not propose at this stage to press the amendment.
Angela Eagle: I emphasise again that the clause is designed purely to clarify the existing Financial Services and Markets Act on the basis of the way that it is usually interpreted and to create certainty. That also has a bearing on potential systemic risk and relates to the effectiveness of regulation, which does bear on what we are talking about. This is not an extension of power, but a clarification that will make it clear beyond doubt that the powers actively used by the FSA and laid out in the Financial Services and Markets Act are being used as they were intended to be. It removes a bit of legal uncertainty, but it does not change current practice.
Mr. Hoban: I will have to think about that because I am not sure. I cite the concern that has been voiced over the past couple of weeks that legislation can occasionally be accelerated through the parliamentary process because it is there to tackle a specific threat, but that the powers in it can be used to tackle a broader issue. In the freezing of the assets of Landsbanki, the powers were exercised under the Anti-terrorism, Crime and Security Act 2001. That Bill had been accelerated through the House on the basis that it was tackling terrorism, not to seize the assets of friendly NATO allies. I just want to flag up that concern. We are helping the Bill through and would not want to see our willingness to accelerate the process taken advantage of. Although I will not press the amendment, we might return to that issue at a later stage. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 226 ordered to stand part of the Bill.
Clause 227 ordered to stand part of the Bill.
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