Banking Bill

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Clause 228

Mr. Breed: I beg to move amendment No. 11, in clause 228, page 107, line 28, leave out ‘or in any other way’.
I suppose that my concerns about the clause are similar to those expressed by the hon. Member for Fareham about the previous clause, in the sense that I seek only to remove the last five words from the clause. The FSA should, quite rightly, have powers to collect and share information. Those functions are clearly set out in section 165 of the Financial Services and Markets Act.
The Government have a tendency to add little bits like
“or in any other way”,
which serve two purposes. The first is to undermine the basis of the original authority of the Financial Services and Markets Act. The clause might just as well say that the FSA can perform its function in any way that it likes without any reference to the Act. The second is to provide legislative cover for any actions that might be considered inappropriate. That justifies the means by the ends. Hence, the assets of Landsbanki were seized under terrorism legislation.
The gathering of information from individuals in their homes or places of work in any way, at any time of the day or night and in any circumstances, such as breaking into premises, can all be justified by this legislation. I can see people shaking their heads. We have had a simple respect for Government, but far too often we have received assurances that legislation will never be used in such ways. Regrettably, that was said in the context of animal welfare and inspectors have totally misused the powers that were granted.
Angela Eagle: Will the hon. Gentleman give way?
Mr. Breed: In a moment. While I will not press the amendment to a vote, I think it right to raise these issues. The Minister thinks she need merely say that of course the FSA will not carry out illegal acts in the future. There is no evidence from the FSA that the current powers for it to perform its function under the Financial Services and Markets Act have been restrictive, have stopped it obtaining the information it requires or have stopped it from sharing information. There is no evidence that it requires any such use of the words
“or in any other way”.
Frankly, unless the Minister explains to the Committee exactly why this power is needed or how the FSA has been restricted by the Financial Services and Markets Act, she will have to justify it to the House if the matter is raised at a later stage.
Angela Eagle: I wanted the hon. Gentleman to give way earlier because he seemed to be suggesting that the FSA is somehow plotting to break into premises to gather information. It has perfectly legal ways of gathering information and does not need to resort to break-ins or illegal acts. I hope that he will realise that these measures are about trying to do things legally, not illegally. The FSA is a regulator. A few weeks ago, people were condemning it for not being effective enough in its regulation. He is now worried that it will resort to illegal break-ins to gather information.
Mr. Breed: Will the Minister give way?
Angela Eagle: The hon. Gentleman would not give way to me, but I will give way to him.
The Chairman: Order. Mr. Breed.
Mr. Breed: Such means of gathering information will not be illegal if we pass this measure. That is the problem. They may well be illegal at present, but in justifying them with the words “in any other way”, such acts will be perfectly legal.
Angela Eagle: The hon. Gentleman must have had rather a long day because there is no way that “in any other way” means a whole load of illegal ways. I can reassure him about that. The standards of behaviour that are legal and are expected of public bodies do not extend to criminal acts. I hope that that reassures him.
The clause will place a duty on the FSA to collect information relating to financial stability. Giving it that duty will be to the benefit of us all. We are not giving it that duty because it likes to collect information, but for a particular point to do with the public good. Subsection (2) confirms that the FSA may perform its function by using its information-gathering power as in section 165 of the Financial Services and Markets Act 2000, or in any other way. By removing the words
“or in any other way”,
the amendment would substantially reduce the range of tools available to the FSA for collecting information on financial stability. As the reference to section 165—“Authority’s power to require information”—illustrates, the FSA has the power to gather information and this clause ensures that formal powers can be used to gather information on financial stability.
The other ways in which the FSA might gather information include general rules, which could be made under section 138 of the 2000 Act, requiring reporting by all firms on particular issues—in this case financial stability—and direct requests to individual firms for specific information. Firms will tend to comply because of their duties of general compliance under principle 11 of the Financial Services and Markets Act handbook. Other tools include section 166 of the 200 Act—“Reports by skilled persons”—and section 167—“Appointment of persons to carry out general investigations”.
The words
“or in any other way”
do not create unfettered powers for the gathering of information by the FSA; they merely indicate that the FSA is not required to use section 165; it could use one of the means that I have just mentioned, or it could rely on its good relations with the companies that it regulates, in that they would provide information voluntarily. I am pleased to reassure the hon. Gentleman that criminal acts will not be involved.
The amendment would have the unfortunate effect of limiting the FSA’s powers to gather information on financial stability to its formal ones. Cutting off all those other avenues would significantly reduce the FSA’s powers in that regard. The authority would be constrained in its ability to collect both general and specific information. It would not be able to make specific requests for individual items, or make rules on general reporting. In drafting clause 228, the Government had in mind that the FSA’s ability to collect information on financial stability should be no less than its ability to collect other information in pursuit of its general functions. The amendment would undermine that intent.
I hope that I have reassured the Committee that the words “in any other way” do not imply unfettered powers. They do not give the FSA total power to gather information. Any information that the FSA might gather under the clause would be collected with due regard to the principles of proportionality under which the authority operates, and under the constraints imposed on all public bodies by criminal law. I would expect the FSA to work constructively with the companies that it regulates in gathering the information. I hope that I have reassured the hon. Gentleman that the amendment is not needed and that it would be detrimental if it were to be in the Bill.
Mr. Breed: I am not in any way persuaded—in fact, just the reverse. No evidence has been given that the FSA has been restricted by its current ability to secure information. I see no reason why it should be given extended powers by the use of those words. I should like to press the amendment to a vote.
Question put, That the amendment be made:—
The Committee divided: Ayes 1, Noes 9.
Division No. 3]
Breed, Mr. Colin
Blizzard, Mr. Bob
Eagle, Angela
Flello, Mr. Robert
Hoban, Mr. Mark
Keeble, Ms Sally
Pearson, Ian
Robertson, John
Todd, Mr. Mark
Wilson, Phil
Question accordingly negatived.
Clause 228 ordered to stand part of the Bill.

Clause 229

Financial assistance to building societies
Question proposed, That the clause stand part of the Bill.
3.30 pm
Mr. Hoban: I have a quick question for the Minister. The matter was covered in the Banking (Special Provisions) Act 2008, but it is covered in this Bill too.
The building societies are limited in the amount of wholesale funding that they can use. It was 50 per cent., although the Bill sponsored by my hon. Friend the Member for Bournemouth, West (Sir John Butterfill) provided for that to be increased to 75 per cent. I think that the Banking (Special Provisions) Act said that financial assistance, where given, should be disregarded for the purposes of calculating the 50 per cent. limit. Is that still the case in this Bill?
Angela Eagle: The clause provides powers for the Treasury to amend the Building Societies Act 1986, as the hon. Gentleman rightly pointed out. The purpose of such an amendment would be for building societies to access financial assistance from central banks or the Treasury on the same basis as banks. The Building Societies Act includes a number of provisions that could restrict the ability of societies to accept emergency lending from central banks or the Treasury.
In particular, building societies are currently prohibited from granting floating charges under section 9B of the Act. When seeking emergency liquidity assistance, financial institutions may have to grant floating charges over their assets, to provide sufficient security to a central bank. The Bank of England would typically want to take and rely on higher-quality collateral, except in urgent or unusual cases, and it is likely to insist on title transfer collateral or fixed charges over defined assets. However, in those urgent or unusual cases, it is important that building societies are also able to offer a floating charge, as a bank can. The fact that building societies cannot grant such floating charges means that they are disadvantaged in comparison with banks when seeking emergency liquidity support. There are two possible implications. The first option could be that the Bank of England could offer liquidity assistance without taking any charge, which would leave the Bank exposed to a lack of security. The alternative is that the Bank of England may not feel able to offer liquidity support if it is unable to gain sufficient collateral. Both outcomes are highly undesirable.
The hon. Gentleman asked about percentage limits. I need to write to him about that, because I do not have the answer to hand. I hope that he will accept that I shall do so as soon as possible.
Question put and agreed to.
Clause 229 ordered to stand part of the Bill.
Clause 230 ordered to stand part of the Bill.

Clause 231

Abolition for cheques
Question proposed, That the clause stand part of the Bill.
Mr. Hoban: When the Paulson plan was going through the US Congress, I read with considerable amusement about the number of things covered by the plan, including excise duties and the importation of wooden bows and arrows. One assumes that that sort of thing would not happen in the UK, but clauses 231 and 232 seem to have little bearing on a Bill that is designed to increase financial stability in the banking sector. I said in connection with clause 226 that we are encouraging the Bill to go through at speed, because it aims to tackle the current financial crisis, but I wonder what role the “Funds attached rule (Scotland)” and “Financial collateral arrangements” play in supporting progress in the banking sector.
The Chairman: Order. The hon. Gentleman referred to clause 232. He has asked the same question of both clauses. I am perfectly happy for the Committee to take both of them together if that is convenient.
Angela Eagle: I have to admit that the hon. Gentleman probably has a point with respect to the clause on Scottish cheques. It was originally unsuccessfully introduced as a private Member’s Bill in 1999. It is a deregulatory clause which modernises the treatment of cheques in Scotland and aligns their treatment with the rest of the UK. The abolition of the “funds attached” rule will mean that if several cheques are presented simultaneously when there are insufficient funds to satisfy all of them, the bank will choose which it can satisfy from the funds available. That could be done in a way that would do the least damage to the interests of the customer of the bank while also ensuring that some creditors receive payment. The current legislation is outdated and can cause problems with the smooth running of financial transactions by causing delay, expense and inconvenience for banks and their customers.
The Committee of Scottish Clearing Bankers estimated in 1999 that the “funds attached” rule causes expense and inconvenience for approximately 100,000 bank customers each year. It was also estimated in 1999 that the retention of the “funds attached” rule causes Scottish clearing banks an administrative expense of £270,000 a year. The hon. Gentleman is right about clause 231. It is a deregulatory clause that accomplishes something that many people have wanted. It is not controversial. It is within the scope of the Bill. That is why it is here, but for me to stand here and say that it has a major bearing on financial stability would probably be pushing it a bit, if I could put it that way. It is something that many people have wanted. It benefits consumers in Scotland. It irons out a little kink in the law. That is why it is here in this part of the Bill. I put my hands up, but it is still a reasonable thing to do.
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