Banking Bill

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Mr. Todd: My hon. Friend will be aware that revising a code to transfer risk back to the public and to commercial organisations will be a lot harder than setting out some of those risks at the start of the process, albeit shrouded carefully in this document.
Ian Pearson: I certainly take the points made by my hon. Friend and, as I have said, we will want to reflect on them. I did want to put back to him the point that the code is deliberately designed to refer to times that are not normal because it relates to the operation of the special resolution regime.
Mr. Bone: What happens if the independent Bank of England and the FSA think that the failure of an organisation is a one-off—not systematic—but the Treasury and the Government take a wholly different view?
Ian Pearson: I do not think that it is particularly useful to engage in speculation, but, from my experience and from hearing about recent discussions, there are extensive talks between the three organisations that make up the tripartite authorities in which different options and courses of action are debated. It is not possible to set out general principles in this area. We have to look at how things operate on a case-by-case basis.
The hon. Member for Fareham also asked why a bridge bank should report every year when Northern Rock reports quarterly. He may be misunderstanding what we are trying to achieve through paragraph 72 of the code, which is intended to refer to a report on why the bridge bank exists for more then a year, rather than financial reporting arrangements. We would certainly expect the Bank of England to put in place appropriate arrangements for a bridge bank’s management to report to the Bank in its role as a shareholder.
The hon. Gentleman also asked what “conservative management” is, and I am very tempted to tell him. We are trying to get the point across that we want to take action that will preserve the franchise value of the banking business transferred to the bridge bank, but we do not anticipate the bridge bank competing aggressively for new business, which was one of the concerns that he tabled an amendment on. The code will be subject to public consultation, and I think that all the points raised by Committee members will be taken into account as part of that process.
Amendment No. 81 is designed to ensure that the code includes provisions on determining whether the threshold conditions, set out in the Financial Services and Markets Act 2000, are met. I do not agree with the intention behind the amendment. The threshold conditions are regulatory conditions under the 2000 Act, and therefore provisions about determining whether they are met are included in the FSA handbook, so it is unnecessary to include in the code any provision on that determination. However, as hon. Members will see, the draft code that has been circulated refers to the FSA handbook, so stakeholders can easily find this detail should they wish. The people involved in these areas are well aware of the situation. I therefore believe that amendment No. 81 is unnecessary.
Amendment No. 80 comments on the manner in which the authorities should treat the code of practice. Clause 5(4) requires the authorities to have regard to the code. The hon. Member for Fareham’s amendment however, seeks to require authorities to comply or to explain publicly why they did not comply with the code as soon as possible after any action. I shall set out why I do not agree with that approach.
The provisions of the code are intended to provide guidance. For example, the code may set out provisions that should be taken into account or may provide for the approach that the authorities should normally seek to adopt. The expectation is that the authorities should follow the code, and that if they do not, a public explanation would normally be needed. However, a hard-edged statutory requirement to comply with the code would be inappropriate to its function and would unduly restrict the flexibility of the authorities. There may be a number of reasons why a public explanation is not appropriate; for example, if explaining an action that did not comply exactly with the code meant divulging information that itself would put at risk the SRR objectives of confidence in the banking system or financial stability. I consider that to be the appropriate status for the code, in that it will provide a significant amount of detail about how the authorities will implement the SRR and it can be updated to reflect experience gained from operating the SRR without imposing hard-edged duties or requirements on the authorities. I therefore invite hon. Members not to support the amendment if it is pressed.
Before turning to the next set of amendments, which refer to clause 6 rather than clause 5, I shall speak briefly to Government amendment No. 89, whose purpose is to remove duplication under the Bill, by removing subsection (2)(f). Clause 11(3)(c) already requires the information provided for in that subsection to be included in the code of practice, so it is superfluous to make reference to it. The amendment is simply a technical correction and I commend it to the Committee.
The next set of amendments refers to clause 6, which sets out the procedure for developing and updating the code of practice. It requires the Treasury to consult the FSA, the Bank of England and the FSCS before issuing the code. Further, it requires the Treasury to lay a copy of the code before Parliament as soon as is reasonably practicable after issuing the code. As the code is required to be a flexible document that can respond to the authorities’ experience in operating the SRR and general market conditions, the Treasury can revise and reissue the code.
Amendments Nos. 82 to 85 would introduce extra procedural requirements before the Treasury could agree and issue the code. First, amendments Nos. 82, 83, and 85 would require the Treasury, in addition to consulting the Bank, the FSA and the FSCS, to consult other interested stakeholders. Secondly, amendment No. 84 would require that the code be approved through a resolution by both Houses of Parliament before coming into force. I do not believe that those additions to the procedure are necessary, and I shall explain why.
A number of parts of the Bill, including the powers and areas that affect stakeholders the most, have been and will be subject to full consultation—indeed, that is something that stakeholders have welcomed—yet none of that is set out in the Bill and nor should it be, as it is already covered by the relevant Cabinet Office and better regulation guidelines on the development of secondary legislation. I recognise that there is, of course, substantial interest in the code. That is why, as I explained earlier, I sent a draft to the new banking expert liaison group last week for discussion at its meeting on Friday, as well as providing a draft to the Committee. As I said, the code will be extensively consulted on when the consultation document is issued on Thursday. Throughout the process of producing the Bill and its supporting documents, we have had full engagement with stakeholders, and we fully intend to continue to follow Cabinet Office guidelines in producing, and consulting on, new secondary legislation and other documentation supporting the SRR. That, I can assure the Committee, will also be the case with the code of practice. The amendments are therefore unnecessary.
Amendment No. 84 would ensure that Parliament formally approves the code of practice by resolution. Again, I do not believe that such an amendment is necessary. Under the Bill, the Treasury has a duty to lay the code before Parliament and of course Parliament is at liberty to ask questions or call for debate on the content of the code. However, the code, just like the FSA handbook, is not a statutory instrument, so I see no reason to require it to be formally approved by Parliament, just as the FSA handbook is not formally approved by Parliament. Again, I hope that our actions in producing a draft code of practice for the Committee to consider as part of the debate shows our willingness to involve Parliament and stakeholders in the creation of the document. I hope that the amendment will be withdrawn.
6.45 pm
I conclude on the general issue of the accountability of the authorities to Parliament. The Committee will be aware that the Treasury Committee—some of whose distinguished members serve on this Committee—has been active and scrupulous in holding the authorities to account in their exercise of powers under the Banking (Special Provisions) Act 2008, and also their actions to deal with the wider financial crisis. That is exactly how it should be. The Government expect the Select Committee and Parliament to continue exercising that important responsibility.
I believe that our approach, with full consultation on the secondary legislation and the code, and with the secondary legislation coming to Parliament in the normal way, provides sufficient safeguards. I am sure that the Treasury Committee will continue to hold all the authorities to account.
If hon. Members wish to press the amendments to a vote, I suggest that, with the exception of Government amendment No. 89, they should be opposed.
Debate adjourned.—[Mr. Blizzard.]
Adjourned accordingly at fourteen minutes to Seven o’clock till Thursday 6 November at Nine o’clock.
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