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These notes refer to the Lords Amendments to the Banking Bill, as brought from the House of Lords on 9 February 2009 [Bill 59]




1.     These explanatory notes relate to the Lords Amendments to the Banking Bill, as brought from the House of Lords on 9 February 2009. The notes have been prepared by the Treasury in order to assist the reader of the Bill and the Lords Amendments, and to help inform debate on the Lords Amendments. They do not form part of the Bill and have not been endorsed by Parliament.

2.     These notes, like the Lords Amendments themselves, refer to HL Bill 13, the Bill as first printed for the Lords.

3.     These notes need to be read in conjunction with the Lords Amendments and the text of the Bill. They are not, and are not meant to be, a comprehensive description of the effect of the Lords Amendments.

4.     With the exception of Lords Amendment 83, all the Lords Amendments were tabled or supported by the Government.


Lords Amendment 1

5.     This amendment would make it explicit that continuity of banking services is included as part of special resolution objective 1 (in clause 4).

Lords Amendments 2, 3 and 4

6.     Amendments 2, 3 and 4 would all make changes to matters on which the code of practice—made under clause 5—may give guidance.

Bill 59-EN     54/4

7.     Amendment 2 would provide that the code of practice may give guidance on how—

  • the special resolution objectives of clause 4 are to be understood;

  • selections are to be made between stabilisation options.

8.     Amendments 3 and 4 would make provision for the code to give guidance on the general continuity obligations and the compensation provisions (clauses 49 to 62).

Lords Amendments 5 and 6

9.     Amendments 5 and 6 would expand the remit of the Banking Liaison Panel, to be established under clause 10. The amendments provide that, in addition to advising the Treasury on the exercise of powers to make statutory instruments under Parts 1 to 3, the Panel will also advise on—

  • the effect of the special resolution regime on banks, their counterparties and the financial markets;

  • the making of the clause 5 code of practice;

  • any matter referred to them by the Treasury.

Lords Amendments 7 to 16 and 21 to 30

10.     These amendments would make changes to the provisions addressing termination rights on the exercise of share transfer and property transfer powers (clauses 22 and 38 respectively).

11.     The first main change is the expansion of the definition of the termination events which fall within the scope of these clauses (Amendments 7 to 10 and 21 to 24).

12.     The amended clauses would provide that the share or property transfer instrument, or share transfer order, may apply or override ‘conditions precedent’ to performance of, for example, contractual obligations. Broadly speaking a condition precedent is a provision which requires A to perform an obligation in favour of B, but only where one of a number of specified events has or has not occurred.

13.     The second main change relates to the power to tailor the application of these provisions (Amendments 12, 13, 26 and 27). The Authority exercising the power will be able to provide in a much wider range of circumstances for the more limited, or different, application of the powers.

14.     Amendments 11 and 25 make technical changes.

15.     Amendments 14 and 28 would clarify the meaning of the phrase “by virtue of” as used in clauses 22 and 38 (termination rights, &c.). The amended clause would provide that, should a transferee breach the obligations it has assumed under a transfer made by exercise of the stabilisation powers, then any resulting events of default cannot be overridden by these provisions.

Lords Amendments 17 and 31

16.     The Bank of England exercises the stabilisation powers conferred on it by making share and property transfer instruments. The procedural provisions are contained in clauses 24 and 41 (for share and property transfer instruments respectively).

17.     These amendments would require the Treasury to lay a copy of a share or property transfer instrument before Parliament.

Lords Amendments 18 and 19

18.     These amendments would make provision in respect of the effect of property transfer instruments in two respects.

19.     First, Amendment 18 would provide that a transfer may be made conditional on events occurring or not occurring, and may provide for the consequences should such a condition be breached.

20.     Second, Amendment 19 would enable the property transfer instrument to specify how property held on trust is to be held following the transfer. It would also enable variations to the terms of the trust to be made.

Lords Amendments 20, 51 to 53 and 95

21.     Lords Amendment 20 concerns clause 36 of the Bill, which deals with property transfer instruments. Subsection (7) of clause 36 of the Bill, as introduced in the House of Lords, provided that a property transfer instrument could, amongst other things, apportion liability to tax between transferor and transferee. The Government considered, particularly in the light of the powers given by clause 74 of the Bill, that this subsection was not required and the amendment would remove that subsection.

22.     Lords Amendments 51 to 53 would amend clause 74 of the Bill. Clause 74 provides that regulations may make provision about the tax consequences of a transfer made under the special resolution regime in Part 1 of the Bill. The regulations would be subject to the draft affirmative procedure. Clause 74 also provides a power to make an order to amend the list of taxes in relation to which regulations may be made. The amendments would change the procedure to be adopted in making such an order from the negative procedure to the draft affirmative procedure. Amendment 95 would make a consequential amendment to clause 258, which sets out a table listing the powers to make statutory instruments under the Bill and the arrangements for Parliamentary scrutiny in each case.

Lords Amendments 32 to 43

23.     Clause 48 provides that the Treasury may make orders to protect certain interests described in subsection (1). These amendments would make technical changes to the descriptions of these interests, including—

  • separating the definition of title transfer collateral arrangements from the definition of security interests;

  • separating the definitions of set-off arrangements and netting arrangements (the concepts are not synonymous);

  • making it clear that set-off can involve the set-off of things other than debts;

  • expressly providing that the definition of arrangements includes arrangements which are formed wholly or partly by trusts, involve any number of parties and operate by reference to other arrangements.

Lords Amendments 46 to 48

24.     Amendments 46 to 48 would make a stylistic change to clause 58(6) and (7) to remove the word “subserviate”.

Lords Amendments 49, 50, 58, 59, 70 and 71

25.     Amendments 49 and 50 would amend clause 71 of the Bill (pensions) so as to permit the Bank of England or the Treasury to make provision in a transfer instrument or order about the property rights and liabilities of a pension scheme in which a group company of the bank is or was an employer. “Group company” is defined by reference to anything that is or was a group company of the bank within the meaning given by section 1161(5) of the Companies Act 2006.

26.     Amendment 58 would provide that the Treasury may take a parent undertaking of a bank into temporary public ownership if three conditions are met. These conditions are that the FSA are satisfied that the general conditions set out in clause 7 are met in relation to the bank; that the Treasury are satisfied that it is necessary to take action in respect of the holding company to resolve or reduce a serious threat to the stability of the financial systems of the United Kingdom or to protect the public interest where financial assistance has been provided in certain circumstances; and that the holding company is an undertaking incorporated in or formed under the law of the United Kingdom.

27.     In determining whether the second condition is met, the Treasury must consult the FSA and the Bank of England.

28.     Amendment 59 would specify how various provisions of Part 1 of the Bill (including the powers to make supplementary, onward and reverse transfers) apply where the Treasury take a bank’s holding company into temporary public ownership.

29.     Amendments 70 and 71 would provide that clause 149, (application of Part 3 of the Bill in relation to banks in temporary public ownership) applies where a share transfer order has been made in respect of securities issued by a holding company and a property transfer is later made from the bank or another bank which was in the same group.

Lords Amendments 54 to 57, 94 and 97

30.     Amendment 57 relates to the alternative procedure for making orders which change the law contained in clause 75(8). Where the Treasury consider it necessary, they may make an order subject to the 28 day procedure (whereby it will lapse unless it is approved by a resolution of both Houses within 28 sitting days from being made). Subsection (8)(d) provides that the lapse of an order does not prevent a new order from being made. The amendment would expressly provide that the new order must be in new terms.

31.     Amendments 94 and 97 would make similar changes elsewhere in the Bill.

32.     Amendments 54 to 56 would make two main changes to clause 75 (power to change law).

33.     First, Amendment 54 would make provision in relation to the power to change the law with retrospective effect. At present the Bill provides that this power may be exercised where, first, the change enables the powers of Part 1 to be used effectively, having regard to the special resolution objectives, and, second, the Treasury consider that the retrospective element satisfies a test of being ‘necessary or desirable’. The amendment would require the Treasury to have regard to the fact that it is in the public interest to avoid retrospective legislation.

34.     Second, Amendments 55 and 56 would provide that the powers of clause 75 can be exercised to amend instruments or orders made in the exercise of the stabilisation powers.

Lords Amendments 60

35.     Amendment 60 would require an annual report to be made by the Treasury to Parliament on the activities of a bank brought into temporary public ownership under clause 13(2).

Lords Amendments 61 to 66

36.     Amendments 61 to 64 would make further modifications in to the application of certain provisions of the Insolvency Act 1986 to a bank insolvency or bank administration under Part 2 of the Banking Bill.

37.     Amendments 61 and 62 would provide for sections 141 and 142 of the 1986 Act to be applied to allow the bank liquidator to call meetings of creditors and contributories. These provisions would, however, be applied subject to the relevant clauses of Part 2 which provide specifically for meetings of creditors and the rules made for that Part which add further detail.

38.     Amendments 63 and 64 would apply section 172 of the Insolvency Act 1986 to allow for the court to remove a provisional bank liquidator and for a provisional bank liquidator to vacate office if they cease to be qualified as an insolvency practitioner.

39.     Amendments 65 and 66 would introduce a modification in the way sections 242 and 243 of the Insolvency Act 1986 are applied in Part 2 of the Banking Bill. Sections 242 (Gratuitous alienations) and 243 (Unfair preferences) only apply to Scotland. The modification would provide that anything done in connection with a stabilisation power under Part 1 is not challengeable as a gratuitous alienation or unfair preference. The provisions have a similar effect as sections 238 (Transactions at an undervalue) and 239 (Preferences) of the Insolvency Act 1986 (applying to England and Wales only), which are also applied to the bank insolvency procedure with this modification.

Lords Amendments 67 to 69

40.     These amendments relate to Part 3 of the Banking Bill - the bank administration procedure. Amendment 67 is consequential on amendments made to Part 1 of the Bill and would provide that acting as a transferor or transferee under a reverse property transfer would be a supply of services and facilities for the purposes of objective 1 of a bank administrator.

41.     Amendment 68 would have the same effect as Amendment 64 to Part 2 of the Bill in that it would allow for the court to be able to remove a provisional bank administrator or for a provisional bank administrator to vacate office if they cease to be qualified as an insolvency practitioner.

42.     Amendment 69 would apply, without modification, four further provisions of the Insolvency Act 1986 to bank administration. Section 178 (Disclaimer of onerous property) was already applied, and these further provisions are necessary to allow section 178 to operate fully.

Lords Amendments 72 and 96

43.     Amendment 72 would provide that the Bank of England must give notice to the Treasury before making a direction under clause 188. The new subsection (4) would provide that the Treasury may confer, by order, immunity from liability in damages in respect of action or inaction taken by a person in accordance with the direction of the Bank. Immunity from liability does not extend to action or inaction taken in bad faith or in contravention of section 6(1) of the Human Rights Act 1998. An order made by the Treasury under subsection (4) would be subject to the negative resolution procedure. Amendment 81 is consequential on Amendment 72 and inserts a new entry into the table listing the powers to make statutory instruments and the arrangements for Parliamentary scrutiny.

Lords Amendments 73 and 74

44.     Amendment 73 would insert two new subsections into clause 195, which would provide that the Bank must prepare and publish on its website a statement of principles which it will apply in determining whether to impose a financial penalty, and the quantum of the penalty, for compliance failures under Part 5 of the Bill. The amended clause would provide that the Bank must send a copy of the statement to the Treasury and review the statement from time to time; and, in considering financial penalties for compliance failures under the Part, the Bank must apply the statement in force when the failure occurred.

45.     Lords Amendment 74 would require the banknote regulations to establish a method for determining the maximum amount of any penalty imposed under clause 219.

Lords Amendments 75 and 81

46.     Amendments 75 to 78 would amend clause 225 to provide that there shall be paid out of money provided by Parliament expenditure incurred by the Secretary of State with the consent of the Treasury (rather than just by the Treasury) in respect of, or in connection with, giving financial assistance to or in respect of a bank or other financial institution.

47.     Amendment 79 would provide that expenditure incurred in respect of an activity, transaction or arrangement (or class thereof) which is expected to facilitate any part of the business of one or more banks or other financial institutions is incurred in respect of financial assistance in respect of banks or other financial institutions for the purposes of clause 225(1)(b). This provision applies notwithstanding that this may not be the sole or principal expected effect of the activity, transaction or arrangement or whether the sole or principal motive for the activity, transaction or arrangement is its effect on other undertakings or certain other matters.

48.     Amendment 80 would provide that an order under clause 247 (“financial assistance”) may restrict or expand the effect made by clause 225(2) (as inserted by amendment 79).

49.     Amendment 81 would provide that expenditure which may be paid out of money provided by Parliament under clause 225(1) shall be charged on and paid out of the Consolidated Fund if the Treasury are satisfied that the need for the expenditure is too urgent to permit arrangements to be made for the provision of money by Parliament. The Treasury must, as soon as is reasonably practicable, lay a report before Parliament specifying the amount paid in reliance on this provision (omitting the identity of the institution to or in respect of which it has been paid). The report may be delayed or dispensed with if necessary on public interest grounds.

Lords Amendment 82

50.     Amendment 82 would provide that where money is paid in reliance on clause 226(1) (National Loans Fund) the Treasury must, as soon as is reasonably practicable, lay a report before Parliament specifying the amount paid (omitting the identity of the institution to or in respect of which it is paid). The report may be delayed or dispensed with if necessary on public interest grounds.

* Lords Amendment 83

51.     Amendment 83 would require the Treasury to prepare and lay before Parliament a report in respect of financial assistance paid out under clause 225; loans made under clause 226; and other arrangements which may result in amounts being paid out under clause 225. The amendment would provide that the report must be made on a quarterly basis. The report must contain sufficient detail to enable Parliament to understand the actual and potential commitment of public money, and the Treasury may summarise the items which fall to be disclosed in order to assist Parliament. The clause would provide that the Treasury may omit from the report information which the Treasury consider should not be disclosed on public interest grounds but only until such time as the Treasury consider that the public interest is no longer affected.

Lords Amendments 84 to 88

52.     Amendments 84 to 87 would introduce a new enabling power to allow the Treasury to be able to make regulations regarding new insolvency provisions for investment banks.

53.     Amendment 84 would provide that an institution is an investment bank if it fulfils three conditions: that it holds one of three specified permissions under Part 4 of the Financial Services and Markets Act 2000, that it holds client assets and that it is a UK incorporated institution. The amended clause would provide that the Treasury may, by order, bring other financial institutions into scope of this definition and may amend what is meant by ‘client assets’ on the face of the Bill.

54.     Amendments 85 to 87 concern the regulation-making power and would allow the Treasury to either modify insolvency law as it applies to investment banks, or alternatively, to set up a new insolvency scheme. The clause would set out specific objectives for the Treasury in making the regulations, including that the Treasury must balance the need to facilitate the return of client assets with the need to protect the rights of other creditors. The other objectives are to aim to provide certainty, to minimise disruption to business and to the markets and to maximise the effectiveness of the UK financial services industry. The new regulations may provide for how an institution is going to placed into a new scheme, the objectives of the new scheme and the role of the courts and the administrator/ liquidator; how the new procedures will sit with other new procedures (such as the bank insolvency procedure) if the institution also has a deposit-taking arm; for the creation of rights over assets and may make other provision to address specific problems under current administration law.

55.     The final new clause would set out the procedure for making regulations and would provide that both the power to make provision about the definition of “investment bank” and the regulation-making power should be subject to the affirmative procedure. The clause would provide that the Treasury should consult before making regulations and the power to make regulations will cease after two years if not used.

56.      Amendment 88 would introduce a requirement for the Treasury to appoint a person or persons to carry out a review of any regulations made under these clauses. The clause would provide that the review must be carried out within two years of the regulations being made. The review will consider the effectiveness of the regulations in achieving the objectives and whether the regulations should continue to have effect (or whether they should be put on statutory footing).

Lords Amendment 89

57.     Amendment 89 would declare that the power under section 9 of the Banking (Special Provisions) Act 2008 to make provision for the appointment of a valuer includes a power to replicate or to make provision of a kind that may be made under clause 55 of the Bill (independent valuer).

Lords Amendments 90 to 93

58.     Clause 228 inserts provisions in the Bank of England Act 1998 concerning financial stability. New section 2A imposes a financial stability objective on the Bank of England, namely to contribute to protecting and enhancing the stability of the financial systems of the United Kingdom. Amendment 90 would add a new subsection to confirm how the Bank must aim to work with other relevant bodies, such as the Treasury and the FSA, in pursuing this objective.

59.     New section 2C includes provision that members of the Financial Stability Committee (established by virtue of new section 2B) must disclose interests to the Committee and are not to vote where there is a conflict of interest. Amendments 91 and 92 would broaden the effect of the requirements and amendment 93 would remove provisions which, in this context, would duplicate the requirements.

60.     Amendment 91 would insert words to confirm that the kind of interest in question includes any reasonably likely future interest. An example of this would be if the Committee was considering a bank in financial difficulty, and a member of the Committee was an executive of a firm which anticipated acquiring a holding in the bank.

61.     Amendment 92 would provide that the member’s interests in question include any dealing or business which falls to be considered by the Committee, not just any such dealings or business with the Bank.

62.     Amendment 93 would leave out new section 2C(3) which provides that members have no vote on matters which touch or concern them and must absent themselves from such proceedings. In relation to voting, this overlaps with the broadened conflict of interest provision. In relation to procedural matters, such as absenting members, the Committee will be able to determine its own procedure under new section 2C(1).

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Prepared: 10 February 2009