House of Commons - Explanatory Note

Banking Bill - continued	House of Commons

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SUMMARY OF THE IMPACT ASSESSMENT

569. The Impact Assessment was published with the draft Bill.

570. As described in the Impact Assessment, the Government expects this Bill to benefit the UK economy by preventing costs associated with financial instability and loss of confidence in the financial system. The majority of the policies that are implemented in this Bill impose minimal costs. Others reduce costs by simplifying existing processes. The only policy that could impose significant costs is the power to allow pre-funding of the Financial Services Compensation Scheme. The possible costs of this proposal are examined in the Impact Assessment. However, the Government will not use this power until the market circumstances made it appropriate to do so - in which case, the statutory instrument to implement it will be subject to a full consultation and impact assessment.

EUROPEAN CONVENTION ON HUMAN RIGHTS

571. The measures in Parts 1-3 of the Bill will make important changes to the legal and insolvency arrangements for banks operating in the UK and give rise to a number of significant human rights considerations. In particular, the rights under Article 1 Protocol 1 (“A1P1”) (right to property), Article 6 (right to a fair trial) and, to a much lesser extent, Article 8 (right to respect for private and family life) and Article 14 (right not to be discriminated against) European Convention on Human Rights are engaged.

572. Most significantly, an exercise of the stabilisation powers, for example to transfer compulsorily shares in a distressed bank to a private sector purchaser, will constitute an interference in a person’s A1P1 right, which specifies that every natural or legal person is entitled to the peaceful enjoyment of his possessions.⁵ This right is not absolute. Instead, a State may interfere in that right, particularly when acting for economic and public policy reasons, where that interference is lawful, proportionate and justified in the public interest.

3 Three classes of persons may be considered “victims” of an exercise of the stabilisation powers: (i) In the case of share transfers, the victims will be the former shareholders in the distressed bank whose shares will be transferred compulsorily (“expropriated”) from the shareholders. (ii) In the case of property transfers, the victim will be the distressed bank from whom property etc will be expropriated. (iii) Creditors and other third parties may also be victims, for example, if they have their contractual rights interfered with if they have certain contractual rights interfered with.

573. The Government is of the view that the substantive limitations on the exercise of the stabilisation powers and the procedural steps the Authorities are obliged to take before exercising the stabilisation powers will ensure that the stabilisation powers are only used where there are significant and legitimate public interest justifications for doing so (for example, the public interests in protecting financial stability, and the protection of depositors). The Government therefore considers that any interference with Convention rights will be for a legitimate aim. There are in addition a number of safeguards in the Bill to ensure that any interference with Convention rights is proportionate. In particular, provision is made in the Bill for compensation to be paid for compensatable interferences in property rights arising as a result of an exercise of the stabilisation powers.⁶

574. The exercise of the powers conferred by Parts 1-3 may also engage Article 6 (for example, the determination of compensation constitutes a determination of a “civil right” for Article 6 purposes). The Government is content that the procedural safeguards in place satisfy the “fair trial” requirements of that Article.

575. Parts 4-7 of the Bill also engage A1P1, Article 6, Article 8 and Article 14 ECHR. However, the Government is content that the provisions of the Bill are compatible or can be exercised in a way that is compatible with Convention rights.

ANNEX A: LIST OF ABBREVIATIONS

ATMs - Automated Teller Machines

Bacs - Bankers’ Automated Clearing Services

BAO - Bank Administration Order

BCA - Bank Charter Act 1844

BCD - Banking Consolidation Directive

BERR - Department for Business, Enterprise and Regulatory Reform

BIS - Bank for International Settlements

BSPA/ SPA - Banking (Special Provisions) Act 2008

CHAPS - Clearing House Automated Payment System

CDDA - Company Directors Disqualification Act 1986

CPSS - Committee on Payment and Settlement Systems