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. I
understand what the hon. Gentleman is trying to get at. The Bill will
make clear how it is intended to proceed in due course, but I cannot
promise—since it is not in my gift—that the Bank will
have made that
decision by the time the House of Lords considers the Bill. I hope that
he will accept that no attempt is being made to take away transparency
or to hide things for any longer than is necessary to protect financial
stability in a particular instance. He raised the issue that brought
the problem to the attention of all the
parties. Question
put and agreed
to. Clause
223 ordered to stand part of the
Bill.
Clause
224Information
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
226Variation
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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