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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