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I do not know what the Delegated Powers Committee or any other committee was doing, but I look at the words on the Bill that we are being asked to approve and that seems to be the meaning. The Minister has just said that it means something else. Can he help me with that?

Lord Davies of Oldham: I cannot help any further, except in saying that the noble Lord with all his applied intelligence is interpreting the measure his way and I, with my limitations, am interpreting it differently. We just have to disagree on that.

Baroness O'Cathain: I suggest that perhaps the Government should look at a redrafting of this provision if it causes such confusion. I am with my noble friend on this; the way in which he read it out indicates that when the decision has been taken on this order, that will be it. If that is not true, redraft it—or something.

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Lord Davies of Oldham: I am grateful to the noble Baroness. She may recognise that we have debated this issue for a considerable period of time. As I have said in previous debates, of course the Government take seriously representations in Committee. We will take this issue seriously.

Lord Lyell of Markyate: I am very grateful to hear what the Minister said. This was the point that I raised when I apologised for speaking, having come late to the debate, in the very first intervention that I made. My reading of Clause 75(8)(c) is perfectly clear. If the order decides something or lays something down before Parliament has had a chance to consider it, which will be in a minimum of 28 days and might be three or four months or more, and if Parliament subsequently declines to approve the order, the Bill says that the order is not invalidated. I can see why for practical reasons it says that—but for practical reasons the Government want to override the long-standing constitutional principle against retrospection.

The Minister seems to be in some doubt about what this subsection means. I do not know how he can possibly be in any doubt of it. I would hope that it would take only about 15 seconds for somebody in the Box to send him a message saying whether, if the House declines—

A noble Lord: Here comes the message!

Lord Lyell of Markyate: Yes, help is coming. The point is, if when the matter eventually gets to be debated by the House, either or both Houses decline to approve the order, do things that have been done under the order remain valid or do they lapse and cease to be valid? I am sure that the Minister is now in a position at least to give a straight answer about his understanding, and that provided by his officials.

Lord Davies of Oldham: I thought that I had already conveyed this point to the Committee, but I shall make it again. The 28 days is for bringing the order before Parliament within that period. Of course, if Parliament votes it down, the powers lapse. But the noble and learned Lord will appreciate that the real problem with the 28 days is that it is 28 days, provided that Parliament is sitting. We do not know when the emergency might occur, but the Government must act. The noble Lord, Lord Forsyth, started the hare running that it would increase financial confidence if Parliament was recalled to debate the order. Certainly, that was contended on the noble Lord’s side of the Committee and I disputed that as an aid to financial confidence. Nevertheless, perhaps that would be the way in which the order would be dealt with. But certainly, if Parliament rejects the order, the powers lapse. The noble and learned Lord, Lord Lyell, must surely be satisfied with that answer.

Lord Lyell of Markyate: I do not think that the Minister is deliberately missing the point, but I am fearful that he does not understand it. The Bill says that,

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That would seem to mean that if something, such as a transfer, is carried out, which is one of the things imagined, of which the House disapproved—and the House disapproved of the order that gave the power to make that transfer—the transfer would nevertheless remain and could not be altered except by some other Act of Parliament. Is that the Minister’s understanding? That is really what we are fighting about. That is the mischief of this retrospective provision.

Viscount Eccles: Before the Minister replies, could I return to Bradford & Bingley? It all happened between 27 and 29 September. The Minister knows that 28 days is a long time in circumstances such as those, not a short time. If that had been handled under one of the 28-day instruments, by the time the business was scheduled perhaps some 21 days later, there would have been no unscrambling of Bradford & Bingley. Therefore, the noble and learned Lord, Lord Lyell, is absolutely right. If you have one of these orders and it does something substantive and substantial, whatever Parliament then decides, what has been done cannot be reversed.

Lord Davies of Oldham: Of course, that is right. I assume that the noble and learned Lord, Lord Lyell, accepted that from my earlier remarks. We are talking about emergency provision and action. When an action has occurred it means that the authorities have taken responsibility for property and made very important decisions. In an emergency, by definition, they have taken a decision because of the threat to the financial system as a whole. Of course, the noble and learned Lord cannot be anticipating that 28 days later there would be an attempt to unscramble the actions taken. The aspect of parliamentary accountability is that the Government have to lay the order to justify and account for their actions and accept the criticisms of Parliament if it thinks that the Government and authorities have not acted properly and wisely, but there is no turning back of the clock.

Lord Lyell of Markyate: Just for myself, I am most grateful to the Minister for his clarification. He is all for retrospective legislation and that is the issue on which he stands.

Lord Howard of Rising: Again, I thank all noble Lords who contributed so much to this debate. I am grateful that the Minister is going to reconsider the clause and I hope that he will listen to the comments made by my noble friends. He might just bear in mind that a 28-day limit is rather like a speed limit: it is something that people go up to but never under.

I would also like the Minister to confirm that the Government will not allow 28-day orders to lapse which then enable them to stick another one in saying, “Parliament didn't object to this so we can just get a new one”. Perhaps when he is considering revising the clause he could look at the drafting to see what can be done to stop this draconian legislation being applied to any other matters. He keeps saying that it will be used only for narrow purposes but, as drafted, the law would allow all sorts of undesirable things to happen.

Clause 75 agreed.

Clauses 76 to 80 agreed.

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Amendments 126 and 127

Moved by Lord Myners

126: After Clause 80, insert the following new Clause—

“Holding companies: temporary public ownership

(1) The Treasury may take a parent undertaking of a bank (the “holding company”) into temporary public ownership, in accordance with section 13(2), if the following conditions are met.

(2) Condition 1 is that the FSA are satisfied that the general conditions for the exercise of a stabilisation power set out in section 7 are met in respect of the bank.

(3) Condition 2 is that the Treasury are satisfied that it is necessary to take action in respect of the holding company for the purpose specified in Condition A or B of section 9.

(4) Condition 3 is that the holding company is an undertaking incorporated in, or formed under the law of any part of, the United Kingdom.

(5) Before determining whether Condition 2 is met the Treasury must consult—

(a) the FSA, and

(b) the Bank of England.

(6) Expressions used in this section have the same meaning as in the Companies Act 2006.”

127: After Clause 80, insert the following new Clause—

“Holding companies: supplemental

(1) In the following provisions references to banks include references to holding companies—

(a) section 13(3),

(b) section 16(1), and

(c) section 75(5)(a).

(2) Where the Treasury take a bank’s holding company into temporary public ownership in reliance on section (Holding companies: temporary public ownership)—

(a) section 20(2) applies to (i) directors of the holding company, (ii) directors of the bank, and (iii) directors of a bank in the same group,

(b) section 25(2) applies as if references to a bank were references to a holding company,

(c) sections 27 to 29 apply as if references to a bank were references to a holding company,

(d) a share transfer may be made in respect of securities which were issued by the bank or by another bank which is or was in the same group; and a transfer—

(i) shall be made by onward share transfer order under section 28 or by reverse share transfer order under section 29 (in addition to any that may be made under those sections as applied by paragraph (c) above),

(ii) may be made under section 28 only in respect of securities held by (or for the benefit of) the holding company or a subsidiary undertaking of the holding company,

(iii) is not subject to section 28(4),

(iv) may be made under section 29 only in respect of securities held by a person of a kind listed in section 29(3)(b), and

(v) is not (otherwise) subject to section 29(3),

(e) section 45 applies as if—

(i) the reference to a bank in subsection (1) were a reference to a holding company, and

(ii) a reference to the bank in subsection (3) were a reference to the holding company, the bank and any other bank which is or was in the same group,

(f) sections 65 to 68 apply, with—

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(i) references to the bank or the transferred bank taken as references to the bank, the holding company and any other bank which is or was in the same group, and

(ii) references to securities of the bank taken as including references to securities of the holding company (so that, in particular, sections 65(1)(a)(ii) and 68(1)(a) include references to the earlier transfer of securities issued by the holding company),

(g) other provisions of this Act about share transfer orders apply with any necessary modifications,

(h) section 214B of the Financial Services and Markets Act 2000 applies (contribution to costs of special resolution regime - inserted by section 168 below), and

(i) the reference in section 214B(1)(b) to the bank, and later references in the section, are treated as including references to any other bank which is also a subsidiary undertaking of the holding company (but not to the holding company itself).

(3) A reference in this Act or another enactment to a share transfer order in respect of securities issued by a bank includes (so far as the context permits) a reference to a share transfer order in respect of securities issued by a holding company.

(4) In so far as sections 47 and 60 apply in relation to orders treated as property transfer instruments by virtue of section 45(5)(b) or 46(5)(b) (including those sections as applied by virtue of subsection (2) above) the reference in section 47(1) to the property of a bank includes a reference to the property of a holding company and of any other bank which is or was in the same group.

(5) Expressions used in this section have the same meaning as in the Companies Act 2006.

(6) A reference to two banks being in the same group is a reference to their being group undertakings in respect of each other.”

Amendments 126 and 127 agreed.

Clauses 81 to 86 agreed.

7.15 pm

Amendment 128

Moved by Baroness Noakes

128: After Clause 86, insert the following new Clause—

“Foreign banks

(1) The Treasury may by order provide for the application of this Part to foreign banks in respect of their activities in the UK.

(2) A foreign bank is an EEA firm qualifying for authorisation to accept deposits under Schedule 3 to the Financial Services and Markets Act 2000 or a Treaty firm qualifying for authorisation to accept deposits under Schedule 4 to that Act.

(3) An order may disapply, modify or apply (with or without modifications) any enactment which relates, or in so far as it relates, to the UK operations of foreign banks.

(4) An order—

(a) shall be made by statutory instrument, and

(b) may not be made unless a draft has been laid before and approved by resolution of each House of Parliament.

(5) Provision made under or by virtue of this Part may make special provision in relation to the application of this Part to the UK activities of foreign banks.”

Baroness Noakes: We are now moving to much less exciting territory. Amendment 128 would insert a new clause after Clause 86 to deal with foreign bank branches.

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We started our Committee consideration on the first day with a group of amendments where I sought to introduce asset-freezing provisions such as were used for the purposes of dealing with Landsbanki and Icesave deposits. Somewhat predictably, though disappointingly, the Government chose not to take the opportunity of accepting those amendments and complying with the report led by my noble friend Lord Newton of Braintree. That still leaves branches of foreign banks operating in the UK untouched by the Bill, which we do not regard as satisfactory. I have tabled a new clause after Clause 86 so that the Government can have the power to deal with the branches of foreign banks if they cause financial stability problems or otherwise need to be dealt with within the objectives set out in Clause 4. The drafting is modelled on the drafting for credit unions in Clause 86.

I appreciate that branches are not as easy to deal with as whole organisations such as credit unions, which is why it would be necessary to take a very broad power to achieve an acceptable result. The exercise of such a power may well raise issues under EU law, but that would apply when a power was used, not when it was placed on the statute book. It would also affect how it was used. I tabled this to ask the Government why they are not dealing with the branches of foreign banks in this legislation given that we know they have caused problems in the past and are likely to do so again. I beg to move.

Lord Myners: The purpose of Amendment 128 is to apply the special resolution regime to foreign banks. As in our earlier debate on foreign banks, for the purposes of this debate, a foreign bank is one incorporated under the law of another jurisdiction but which operates in the UK through branches established here.

I believe that the noble Baroness’s intention is that the amendment should be focused on European Economic Area banks that have set up branches in the UK using “passports” under the EC banking consolidation directive. The Bill applies the SRR to UK deposit-takers only, although I should point out that this includes UK-incorporated subsidiaries of foreign-owned or foreign-headquartered banks. That approach is entirely consistent with European law.

Under Community law, prudential regulation of a bank from one EEA state operating through a branch in another EEA state is for the home state regulator. Therefore, the home state regulator is responsible for taking the lead on resolving any difficulties with such a bank, including any branches that it may have operating in another EEA state.

Indeed, the powers of the host state authorities are limited by Community law, and even if we sought to take powers to apply the SRR to EEA branches, the UK authorities could act on those powers only in highly circumscribed ways. For example, the share transfer powers have been developed for use in relation to shares and securities as defined in UK law and are therefore not directly applicable to foreign banks. Also, as discussed in last week’s debate on foreign property, we are limited in the extent to which foreign courts will enforce any transfer order of foreign property within any foreign bank, even one which has a branch in the UK.

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As I also made clear when speaking about the amendments on asset-freezing powers, the extent to which a foreign branch has property in the UK within the reach of the UK authorities will be a matter of fact rather than law. For these reasons, both legal and practical, it is not beneficial to extend the powers of the SRR to foreign banks. However, we are of course aware that EEA banks operating in the UK through branches can have UK depositors and that this may give rise to a number of specific issues. This was clearly the case with recent events around the Icelandic banks. The UK Government have shown that we are prepared to take decisive action to protect savers, to ensure financial stability and safeguard the interests of the taxpayer.

The UK authorities, of course, continue to work closely with other regulators and authorities within the EEA to resolve difficulties with EEA firms operating in the UK. Members of the Committee should also be aware that the remit of the Financial Services Compensation Scheme extends to branches of banks from other EEA states which have joined the top-up arrangements, as per the provisions of the relevant directive. Of course, UK branches of foreign banks from outside the EEA are authorised by the FSA and participate fully in the Financial Services Compensation Scheme.

Nevertheless, I recognise that there are issues here which require a closer look. The Chancellor has already written to Commissioner McCreevy in Brussels, asking that the Commission work with the UK in reviewing the arrangements for branches and other cross-border banking entities. Of course, we are continuing to conduct our own analysis of supervisory changes that may be needed, not least through the review that the noble Lord, Lord Turner, in his capacity as chairman of the FSA, is undertaking to determine changes needed to UK and international banking supervision.

It is important to remember, however, that any changes that the UK authorities determine to be necessary will need to be made in co-operation with our European partners, and not in a piece of purely domestic legislation such as the Bill. As far as the Bill is concerned, therefore, the approach taken towards its scope, combined with our existing powers, is the right approach to delivering the best results for financial stability and depositors. I therefore urge the noble Baroness to withdraw the amendment.

Baroness Noakes: Before I do so, the Minister said that he assumed that I was talking about EEA banks. The definition in proposed subsection (2) of my amendment refers both to EEA banks and treaty banks, and is therefore not simply confined to the EEA. The Minister’s response was mainly in the context of EEA branches. I am sure that it is good to write to Commissioner McCreevy and wait for the European Commission to propose some action or a directive, but that is not the action that I would have thought that a responsible Government would take. Let us assume, however, that writing to Commissioner McCreevy is a good and constructive thing to do about branches of EEA firms. What, then, about branches of other banks that operate under the FSMA through treaty provisions?

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Lord Myners: Although I referred at some length to EEA branches, which is an area of particular concern given the experience both of the Icelandic banks and of some of the Irish banks, I made it clear that arrangements existed in the Financial Services Compensation Scheme for non-EEA banks operating in the UK under FSA approval. I repeat that it is outwith the scope of the Bill to address issues of branches of foreign banks in the United Kingdom that do not have a legal form, and may not have assets, in this country. We would adopt a similar attitude of concern if a UK bank operating through a branch in another country outside the EEA was somehow brought within the ambit of a regime similar to the SRR.

Baroness Noakes: I never worry much about what other countries might do. The important thing is what the Bill is about: UK financial stability. The Minister answered in respect of the FSCS for foreign branches, but not in relation to the whole range of things. This issue may be less important in the light of what the noble Lord, Lord Eatwell—who is unfortunately not in his place at the moment—said on the first day in Committee: international moves are away from branch banking and towards the use of subsidiaries. If that happens, that issue will go away. I shall contemplate what the Minister has said, unsatisfactory though it is, between now and Report.

Amendment 128 withdrawn.

Clauses 87 to 92 agreed.

House resumed. Committee to begin again not before 8.27 pm.

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