Mr.
Gauke: That is not what the clause
says.
Ian
Pearson: If I may move on, hon. Members may be
aware that it is not unprecedented for such powers to be taken to
ensure that Bills are fully effective, especially where an entirely new
regime is introduced in an area already populated by a complex and
interrelated body of primary and secondary legislation and common
law.
For
example, the Safeguarding Vulnerable Groups Act 2006 provides the
Secretary of State with a power to make further provision to give full
effect to the Act. That power may be used to amend, revoke or otherwise
modify enactments. Another example is section 148 of the Criminal
Justice and Immigration Act 2008, which includes a power to make
consequential amendments to legislation, including primary legislation,
to ensure that the Act is fully
effective. I
have informed the Committee of the general circumstances in which the
power might be used, but it might help if I provided some specific
examples. Of course, it is not possible to provide an exhaustive list,
because it is not possible to foresee every circumstance surrounding
the failure of any particular bank or which pieces of legislation might
be relevant to the resolution. If that were possible, there would be no
grounds for taking the power, as we could just put all the relevant
changes into the Bill. The following examples are intended to give a
flavour of how the Treasury might use the
power. Suppose
the business of a failing deposit taker is transferred to a private
sector purchaser. In some circumstances, it would be appropriate to
modify the provisions of part 16 of the Financial Services and Markets
Act 2000, which deals with the financial ombudsman scheme, to ensure
that consumers could make complaints to the scheme relating to the
failing bank and obtain a remedy from the private sector
purchaser. Another
example is that it might be necessary to disapply section 169 of the
Companies Act 2006, which provides company directors with the right to
protest against their removal, with respect to a bank entering the
special resolution regime. Although clause 19 provides a power to
remove directors, the power under clause 65 could be used to remove a
director’s right to protest against that
removal. Mr.
Peter Bone (Wellingborough) (Con): That is an
extraordinary change in the law that is not mentioned anywhere in the
Bill. If that is the Government’s intention, why on earth is it
not in the
Bill?
Ian
Pearson: The power to remove directors is certainly in the
Bill. In such extreme circumstances, we believe that that is absolutely
right and appropriate, and we have debated
it. Mr.
Mark Hoban (Fareham) (Con): The Minister said in his
remarks that the Government were looking for the power to remove
directors’ right to protest their removal. If he believes that
it is important for the Government to deny directors that right, why is
it not in clause 19? When we debated the removal of directors under
clause 19 in the context of renegotiating their remuneration, he made
it clear that directors would retain their normal legal rights in those
circumstances.
Ian
Pearson: I remember talking about directors maintaining
their legal rights, and I will undertake to discuss with officials
whether that should be put in
legislation. A
further example relates to shadow directorship. It may be necessary in
certain circumstances for the Bank of England or the Treasury to give
directions to the
board to ensure that the public interest objectives of the resolution
are met. That applies in particular to the initial stages of the
resolution, when stabilising banking business is paramount and public
funds might be at greatest risk. In some circumstances, therefore, it
might be appropriate to disapply various provisions of the Companies
Acts in relation to the authorities’ conduct during the
resolution, such as shadow
directorship. 9.45
am
Mr.
Hoban: Will the Minister give
way?
Ian
Pearson: I want to make a little progress. I shall give
some real-life examples of shadow
directorships.
Mr.
Hoban: Will the Minister give way on that
point?
Ian
Pearson indicated
assent.
Mr.
Hoban: My recollection is that provisions are in place
already, in the Banking (Special Provisions) Act 2008, to
ensure that the Treasury and the Bank of England do not act as shadow
directors. If the Minister’s concern is genuine, why not
replicate that Act’s provisions in the
Bill?
Ian
Pearson: That is probably why I should not have given
way—I was going to explain some of that. Hon. Members might be
interested to hear that powers to modify legislation were used in many
of the recent resolutions under powers provided by the Banking (Special
Provisions) Act. For the transfers of Northern Rock and Bradford &
Bingley to the Treasury, the shadow directorship provisions of the
Companies Acts were disapplied. For the Bradford & Bingley onward
transfer, merger law was disapplied, and for the transfer of the
Kaupthing accounts, the powers were used to modify insolvency law to
create a simplified version of the bank administration
procedure. Stakeholders
have made representations arguing that the power undermines the
safeguards that we are putting in place for partial
transfers.
Mr.
Todd: Will my hon. Friend give
way?
Ian
Pearson: Let me make this crucial point
first. The
power will not be used by the Treasury or others to modify provisions
or safeguards in the Bill. That would not be appropriate, and the
Government have no intention of using the power in that
way.
Mr.
Todd: I can see why my hon. Friend hesitated to give way.
He makes a persuasive case for the principle of providing for
substantial flexibility in the Bill in order to respond to unforeseen
events. However, he was not so persuasive on the wording of the clause.
Although I shall vote for the clause, if necessary, because I agree
with it in principle, we have an opportunity, based on the important
qualifications he made in his speech, to sharpen the wording to
reassure those concerned about parliamentary accountability and those
in the industry about the security of some of the decisions that they
might
make.
Ian
Pearson: As always, my hon. Friend makes a very helpful
contribution.
On the point
about the position of directors, Members will be aware that clause 19
provides powers to vary service contracts or to remove directors.
Clause 65 enables consequential changes to be made to facilitate the
resolution. I hope that makes the matter clear but, as I have said, I
shall talk further with officials about that matter.
On the point
about 28 sitting days, nothing prevents Parliament from holding a
debate on an affirmative resolution earlier in the 28-day period
following a recess. Legally, and if desired, there could be a period of
up to 28 days, but I cannot believe that business managers,
if something was controversial, would not want
to—[Laughter.]
Ian
Pearson: I shall now address the amendments, on which I
hope that I can reassure the Committee. The issues raised have been
dealt with appropriately already in the Bill, but I want to make clear
why I do not believe that we should amend the provisions in the manner
proposed.
The hon.
Member for South-West Hertfordshire proposes, through amendments Nos.
119 and 120, that an additional test be required before the power may
be exercised—that there must be a threat to the
“stability of,
or confidence in, the UK financial
system”. I
remind the Committee that the initial transfer will have met the
general and specific conditions for action as provided by clauses 7, 8
and 9. Those are high hurdles. As my hon. Friend the Member for
Northampton, North pointed out they have to be within the terms of the
objectives in clause 4. The fact that the conditions are met for the
initial intervention gives the authorities warrant to take the
necessary steps to resolve the bank. Given those points, I believe the
amendments are unnecessary and, indeed, otiose, as the matter is
already covered as part of the
Bill. Amendments
Nos. 121, 156 and 157 relate to the procedural provisions of the
clause. Amendment No. 157 proposes that the powers provided
by the clause may not be used to amend the procedure for making an
order under the clause. As I have already said, it is not the
Government’s intention to amend the provisions of the Banking
Bill using that power. It would not be appropriate, nor would the power
be construed to have that effect. In particular, secondary legislation
cannot be exercised to expand the scope of its enabling powers, and so
lift itself up by its bootstraps. I hope I have provided reassurance to
Members that this amendment is unnecessary too, as the power cannot be
used in the manner about which they are
concerned. Amendment
No. 156 suggests that if an order should lapse, the provisions of the
order should be invalidated. The amendment removes a standard provision
that provides that things done under orders not later affirmed by
parliamentary resolution remain valid. The amendment would introduce a
high element of risk to using the power. That particularly applies if
an order was made under the clause in relation to a transfer of
property or securities to a private sector purchaser. In such a
situation, a potential acquirer would in all likelihood not be willing
to take part in the transaction, given the risk that provisions of the
order—which could, for example,
grant them certain protections—might not stand. Therefore, I
cannot accept the amendment. The hon. Member for South-West
Hertfordshire has been stressing the importance of legal certainty but
the amendment would introduce a lot of uncertainty in the process, so I
hope he will consider withdrawing
it. Amendment
No. 121 makes a technical change to the nature of the 28-day procedure.
We have already discussed that and I do not consider it appropriate.
Parliament must be given adequate opportunity to approve the
resolution. Amendment
No. 155 proposes that the order made under clause 65 may not take
retrospective effect. Although the Government recognise that this is a
broad power, we consider it an important part of the clause.
Retrospective provision may be required in circumstances where a
transfer has occurred with particular swiftness, which, as recent
events have shown, is perfectly possible. Given the incredibly complex
affairs of banks, it may not be possible to identify each and every
precise statutory barrier in any given circumstance before making a
transfer. For example, if it were necessary to amend a statutory
provision that threatened to impede a property transfer, an
unacceptable level of legal uncertainty would be likely to arise if the
change did not have effect simultaneously with the property transfer.
In a fast-burn situation, the due diligence to identify the impediment
may not be completed until after the transfer has taken place. For
those reasons, it is considered necessary to make retrospective
provision from the date of the transfer. I hope my explanations have
provided Members with sufficient assurances as to why clause 65 is
necessary and should not be amended in the ways they propose.
There are two
other points I should like to make. The first is to stress that the
Treasury can only amend the law through a statutory instrument that can
be struck down by Parliament. Therefore, it is only with
Parliament’s agreement that we can exercise this power. The
Treasury may only amend the law in circumstances when the special
resolution regime powers need to be used more effectively—to
stress again the limited nature of the use of the
power. Having
reflected on the debate, I want there to be certainty, and for banks to
obtain unqualified legal opinions from advisers on their legal rights
under contracts across the piece, as the British Bankers Association
said in its submission. We are consulting on the partial transfer
safeguards, and I hope that my explanations today on the limited nature
of clause 65 will be helpful in making clear to the Committee how the
clause might be applied. I will, however, ask the expert liaison group
whether any changes could be made to this needed clause, to strengthen
legal certainty, and if judged necessary I will bring forward
amendments on
Report.
Mr.
Gauke: First, I address the comments made by the hon.
Member for Northampton, North on the test in subsection (1). The
Minister also touched on the matter. Both he and the hon. Lady referred
to clause 4—the special resolution objectives. My
concern has not been assuaged; the current wording does not address it
and therefore my amendment is not otiose. The test for a change to the
law is merely that there is regard to the special resolution
objectives. I accept that the various tests in clause 4 and elsewhere
need to apply to the use
of the stabilisation powers, but those tests are not the same as that
which applies to whether there is a change in the law under clause 65.
The test there is much weaker:
“having regard
to the special resolution objectives”.
I accept that narrows
the scope of the test if it has to apply to the use of stabilisation
powers, and that the safeguard is also in subsection (2). The Minister
elaborated on that, and I accept that it is somewhat helpful. However,
it is nothing like as strong a test as that which we propose in
amendment No. 119, or for that matter amendment No. 120. That test is
specifically to focus on systemic risk, which is the most important
objective. The change in the law has to meet that test. I am therefore
not persuaded by the Government’s
arguments. The
hon. Member for Northampton, North pointed out that primary legislation
is cumbersome. It is, up to a point, but let us not forget that we put
the Banking (Special Provisions) Act through both Houses in two days.
Primary legislation can move more rapidly when it needs
to. I
now turn to the Minister’s comments. His examples were not
persuasive for two reasons. First, as my hon. Friend the Member for
Fareham pointed out, if the Minister has specific examples in mind, why
are they not in the Bill? The Minister may say that they are not
exhaustive, but even if they are not, and even if the Minister is
convinced that clause 65 has to remain in the Bill—although we
are not persuaded that it should—if there are areas where the
Government think they will need flexibility, let us debate them now,
and make provision in the Bill. The Minister’s examples were not
particularly helpful to his
case. The
second reason why the Minister’s examples were not helpful is
that they highlighted the significant matters that we could be talking
about. If we are talking about the withdrawal of the usual protections
available to directors’ employment rights, that matter, or at
least the framework for it, is sufficiently serious to be dealt with in
primary legislation. I do not think that I was present for the
Committee’s debate on directors’ employment, but if the
Minister was arguing that those protections will still exist—the
point alluded to by my hon. Friend the Member for Fareham—yet at
a subsequent stage of proceedings he was arguing that the Government
are retaining the flexibility to remove those protections by order, it
seems quite a serious
point. 10
am
| 
