| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
26 Jan 2009 : Column 45
Does that mean that the Bank will have to make itself omniscient about what the FSA does and, even harder, what the FSA might do? I am sure that the Bank should have regard to anything that the FSA tells it, and my amendment allows for that. It might also be reasonable for the Bank to have regard to anything that it happened to know about the FSA’s actions. But I do not think that it is reasonable to impose on the Bank some kind of all-knowingness about what has happened or might happen in the FSA. I beg to move.
Lord Davies of Oldham: I am delighted to do my best to resolve the noble Baroness’s anxieties yet again. However, I do not think that her anxieties in this regard are well founded. While the Bank of England will be the sole regulator of recognised inter-bank payment systems, the FSA will continue to be the regulator for recognised clearing houses and investment exchanges. Some of these recognised clearing houses and investment exchanges may themselves run inter-bank payment systems embedded within their operations. These embedded payment systems may be recognised by the Treasury by an order under this part.
The danger is that that could lead to dual regulation, which is why this clause makes provision to try to avoid that. That is the objective of the clause. Subsection (1) requires the Bank to have regard to any action the FSA has taken, or could take, with regard to an embedded system. Amendment 166 seeks to add a new constraint in that the FSA must notify the Bank of any action that it has taken or could take. We do not think that that is useful. It presupposes that the Bank and the FSA cannot or do not communicate fully with one another in performing their respective regulatory functions, but that is not the case. The Bank and the FSA already communicate with one another in respect of embedded payment systems, and the formalisation of the Bank’s role will not undermine this communication.
In addition to the existing channels of communication, and in order to formalise the arrangements when dealing with such systems, the Financial Services Authority and the Bank will set out a memorandum of understanding on how to deal with regulatory issues connected with embedded payment systems. That will ensure that there is full communication between the two authorities. To facilitate this, they intend to meet on a regular basis to share views on issues concerning embedded payment systems.
The Government took the opportunity to table an amendment on Report in the other place to elucidate further the delineation of roles between the FSA and the Bank of England. Subsection (2) now specifies that the Bank of England must consult the FSA before taking action in respect of an embedded payment system. Subsection (3) now specifies that if the FSA gives the Bank of England notice that it is considering taking action on an issue that affects an embedded payment system, the Bank may not take action without the FSA’s consent or unless the notice is withdrawn.
This is designed—as I am sure the Committee will agree—to ensure that there is no duplication between the regulatory functions of the Bank. That is the purpose of the clause. The Bank will be fully aware of
26 Jan 2009 : Column 46
5.30 pm
Baroness Noakes: I thank the Minister for that response. Those who believe that banking supervision should be returned to the Bank of England would find much in what the Minister has said to support that position. He has described the most convoluted arrangements around a relatively minor part of the activities of each organisation, just to overcome both organisations dealing with it. The Minister has dealt with the points that I raised, but he has also highlighted some of the absurdities of the position that we now find ourselves in. I beg leave to withdraw the amendment.
Clause 193: Compliance failure
Debate on whether Clause 195 should stand part of the Bill.
Baroness Noakes: I have given notice that we oppose Clause 195 standing part of the Bill because it gives the Bank a completely untrammelled power to levy penalties for a compliance failure. Furthermore, it creates an incentive for the Bank to levy penalties because the penalty is paid to the Bank. For the convenience of the Committee, I have grouped this with Clause 219 stand part, as that clause concerns an identical provision in Part 6, which deals with banknotes.
I have no problem with penalties for compliance failure, as that is an accepted part of regulation, but I do not believe that it is proper for the Bank to be given an unlimited power of penalty-raising. In other parts of the legislative sphere we can find multiple turnover limits which apply to penalties under competition law. The FSA is required under its statute to set out and publish a scheme of how it will apply penalties. There is absolutely no guidance in this clause, and no requirement
26 Jan 2009 : Column 47
As I mentioned earlier, I also have a problem with any penalty being paid to the Bank. Why should the Bank be enriched by a large penalty? I can see that it would want to recover its costs from dealing with a recalcitrant system operator, but what public policy is served by the Bank profiting from its activities?
Lord Higgins: There is a general sense that if there is a compliance failure, it is compliance failure as much by the regulator as by the bank committing what is deemed to be an offence. I share my noble friend’s surprise that the penalty is in no way specified. It simply says that the Bank may require payment of a penalty in respect of a compliance failure. However, we have no idea at all, as far as I can see, what the scale of that penalty might be. In almost any penalty imposed by legislation, some limit is set on it. Why have the Government simply given the Bank of England an open cheque to impose penalties on banks or transfer systems, and then have it enforced as a debt payable to the Bank?
Lord Davies of Oldham: I am grateful to both noble Lords who have spoken to this amendment. The Government regard Clause 195 as playing a crucial role in the new regulatory regimes for both inter-bank payment systems and the issuance of Scottish and Northern Irish banknotes as set out in Parts 5 and 6 of the Bill. In Part 5, Clause 195 gives the Bank of England the power to impose—as the noble Lord, Lord Higgins, has drawn attention to—a financial penalty on the operator of a recognised inter-bank payment system that has committed a compliance failure, as defined in Clause 193. This power to impose a financial penalty is intended to act as a deterrent against the non-compliance of operators of recognised payment systems with the obligations under Part 5. It reinforces the need to comply with, for example, provisions of codes of practice or directions intended to ensure that systems are not being operated in a manner that could present a threat to financial stability, and to ensure the robustness of payment systems of systemic or system-wide importance. I am sure the Committee recognises the public interest in both those objectives.
In Part 6, Clause 219 provides that banknote regulations may enable the Bank of England to impose a financial penalty on an authorised issuing bank that has breached the banknote regulations. This is an important enforcement tool for cases where the breach is not so severe that it warrants withdrawal of an authorised bank’s issuing rights, which is a power that could be used in the most extreme case, yet warrants the imposition of a penalty to ensure compliance with regulation rules that are necessary to offer note-holders protection.
Clauses 195 and 219 share an underlying purpose. Although the specific details may vary, I would like to discuss the imposition—which the noble Lord, Lord Higgins, was particularly concerned about—of a penalty
26 Jan 2009 : Column 48
Baroness Noakes: The Minister is being very interesting, but it might speed up the Committee stage if he answered the single point that I raised, which was about unlimited penalties and whether the Bank should raise them. I do not think that either I or my noble friend Lord Higgins has queried whether penalties are an appropriate part of the system of regulation. Indeed, I specifically said that I accepted that.
Lord Davies of Oldham: I am grateful to the noble Baroness because she has sharpened my argument and, I hope, shortened my contribution. The Financial Services Authority has the right to impose these penalties, but both it and the Bank of England, as in this case, have to be proportionate in dealing with the compliance failure. We want the clause to be in this form so that it offers the regulator flexibility in determining the appropriate penalty, having regard to the circumstances in each case. There will be different potential breaches, so it is difficult to be specific in primary legislation, as I am being pressed to be at this stage.
The Bank would impose financial penalties in proportion to the seriousness of the compliance failure or regulation rule breach and to the ability of the system operator or authorised bank to pay. Any public authority would need to act reasonably in setting the penalty. I indicated earlier the constraints on the Bank, which apply also to the FSA in different circumstances. The purpose of the penalty clause is to give the power to impose a financial penalty, but the authorities must act reasonably and in proportion to the compliance failure. Failure to do so would be subject to challenge.
Noble Lords are pressing for a tariff of penalties in primary legislation whereas we are dealing with a range of potential difficulties that give rise to the need for compliance. I am not able to give a range in those terms, nor would it be reasonable for the Government to attempt to do so in primary legislation. The clause gives the power—the necessity of which I hope is not being denied—in the understanding that the authorities have to act reasonably when they invoke the penalties. That is the best that I can do for the noble Baroness on this amendment.
Lord Higgins: I am puzzled by the Minister’s reply. Some of his remarks seemed not to be related to Clause 195 at all; it is, after all, a very simple clause of only a few lines. Can he tell us of any other provision in primary legislation where there is no limit whatever on the penalty which the Bank of England or any other body can impose? I have difficulty in thinking of any other part of the law where the penalty is totally unspecified. He spoke about it being done in primary legislation but, unless I am mistaken, that is the only place where this matter is dealt with. The clause is not subject to any further specification by way of statutory instrument or anything else. The whole thing is set out
26 Jan 2009 : Column 49
5.45 pm
Lord Davies of Oldham: I hope that I can be a little more helpful to the noble Lord, because he is on to an important point. I tried to emphasise that the FSA publishes guidance on the level of penalties, but the FSA’s powers are unlimited in the primary legislation governing it, the FSMA.
Baroness Noakes: I accept what the Minister said about what is in the FSMA, but the FSA has a statutory obligation to set out a scheme for penalties, as it has. However, there is no equivalent in this Bill, which is one of the reasons why we object to it.
Lord Davies of Oldham: I was coming to that. In view of the strength of the representations made, we will consider whether the Bank of England should publish a policy on a payments system and compliance failure penalties. We will return to the issue on Report to clarify the matter further. I seek merely to identify that it is entirely right that we should seek to resist the concept outlined by the noble Lord, Lord Higgins, that an order of offences and their respective penalties should be in the Bill. We have difficulties with the concept. However, we will certainly return to it because I understand the dissatisfaction expressed both by him and by the noble Baroness, Lady Noakes.
Viscount Eccles: Will the Minister consider giving some notice about non-compliance and an opportunity to put it right? One of the Committee’s difficulties is that we do not know, because we have not been given any examples, what non-compliance might be, how quickly it might occur and how difficult it would be to put it right, all of which are matters that the Government are in a much better position than I am to consider. The Minister mentioned a remedy. Is it judicial review?
Lord Davies of Oldham: If the authorities acted unreasonably that would be the ultimate position. However, the noble Viscount’s friends on the Back Benches and the Front Benches are pressing us to indicate our thinking about the range. I maintain that the Bill as drafted is right and justified and gives powers that are not different from those that the FSA already enjoys in similar circumstances. I have conceded that at Report stage we will need to flesh out a little
26 Jan 2009 : Column 50
Lord Higgins: We are in danger of becoming a conversation—one Member stands up, then the Minister stands up, then another Member stands up and so on—which is not the normal way of going about it. We greatly appreciate the Minister’s enthusiasm but our progress would be a little more orderly if he perhaps waited until everyone had had their say.
The idea that the Bank of England will decide what the penalties ought to be seems the wrong way of going about it. We ought to be given an explanation of what the offences are likely to be and the consequences of non-compliance, and then fit some sort of limit. As the provision stands—I welcome the fact that we will come back to it on Report; the House will certainly need to do that—we have no idea whether the Government envisage penalties of £1 million, £1 billion or £1 trillion. We have not the remotest idea of what size they think the penalty might need to be to ensure compliance in an important matter.
Lord Davies of Oldham: It is, however, possible that the noble Lord would be stretched in identifying what the misdemeanour might amount to—whether it was something of catastrophic significance for the financial system or something more marginal. We are providing for penalties that deter. I am sure that the noble Lord will accept that.
I accept the noble Lord’s upbraiding about this becoming a conversation. That is not my wish. It is merely a reflection of the fact that when I have given what seems to me a conclusive and accurate answer, a little dispute crops up, generally from two sources, namely the noble Lord, Lord Higgins, and the noble Baroness, Lady Noakes. I am not complaining about that. I had not anticipated that the noble Viscount, Lord Eccles, was coming into the debate. I owe him a sincere apology. He asked me two questions. It is true, as the noble Lord, Lord Higgins, suggests, that I was almost involved in a conversation, although Committee stages do have the benefit of some flexibility. I agree with him entirely: I should seek to be more comprehensive and more conclusive and I will do my best.
The noble Viscount, Lord Eccles, asked me about appeals. Part 5 can be appealed to the Financial Services and Market Tribunal but Part 6 would have to be the subject of judicial review. He also asked me about a warning notice. Clause 198 says that before imposing a sanction it must issue a warning notice and consider representations before publishing the decision notice and imposing a penalty. There is therefore some notice—I am referring to Clause 198—and I hope I have succeeded in ending the conversation.
Baroness Noakes: We must draw this debate to a close. However, we will raise the issue again on Report even if the Minister does not. I shall merely remark that to hear a Minister express shock and horror at the possibility that a statute might actually specify a penalty leaves me aghast. I will, however, leave that for Report.
26 Jan 2009 : Column 51
168: Clause 200, page 102, line 4, at end insert “which reflect the costs incurred by the Bank in carrying out its functions under this Part”
Baroness Noakes: I hope that we will not be detained as long with this amendment, which amends subsection (1) of Clause 200. This clause allows the Bank of England to raise fees for its regulatory activities, although I understand that it has no plans to change its current practice, which is not to charge for informal oversight. If Clause 200 is brought into effect, my amendment would ensure that the Bank would recover only its costs of operating the oversight of interbank payment systems and could not enforce some form of pricing which would leave it with a profit which could cross-subsidise its other activities.
I am aware that the Treasury has to approve fees under subsection (2) but, if a move to charging fees were in the context of some broader changed financial system for the Bank, the Treasury might end up having to pay for some of the things that the Bank does and it may end up with costs on the Treasury’s vote. These things are conveniently bypassed at the moment with the Bank’s financing system by way of cash ratio deposits. If there were a change with the Treasury having to pay for some things on its own vote, it would have an incentive to ensure that the Bank made as much profit as possible to achieve cross-subsidy.
I hope the Minister will therefore see this as a reasonable amendment to protect the financial interest of the interbank payment systems operators. I beg to move.
Lord Davies of Oldham: I am grateful that the noble Baroness recognises that the Bank does not currently intend to charge fees for its routine oversight of payment systems. That practice will continue. This clause future-proofs the legislation against the potential eventuality that the Bank’s overall funding model might change. It shows that the Bank could continue to resource its oversight activity in such an event. Where the Bank incurs exceptional expenses in relation to its oversight activities—for example, due to the engagement of an expert to carry out an inspection, which we provide for in Clause 179—the Bank would aim to recover those costs from the system concerned rather than through imposing a general levy on all operators. That is a proper and just way of going about it. The scale of fees would be set by the Treasury by regulations to ensure fees are proportionate and can be challenged under judicial review if considered disproportionate or unreasonable. The clause is there to future-proof the position against a changing situation, and I hope that the noble Baroness will consider that the Government have been judicious in thinking ahead in these terms and that the clause is indeed necessary as it stands.
Baroness Noakes: The Minister has not replied to the point I raised, which is whether or not the fees, when set, should be cost-based. He gave one example of a high cost where someone was appointed and the
26 Jan 2009 : Column 52
Lord Davies of Oldham: To answer straightforwardly, yes, they will be cost-related.
Baroness Noakes: I say straightforwardly therefore that I withdraw the amendment.
Clause 203: Saving for informal oversight
Debate on whether Clause 203 should stand part of the Bill.
Baroness Noakes: We oppose Clause 203 standing part of the Bill, in order to understand what is intended by it. It is headed “Saving for informal oversight”, though it refers not to informal oversight but to “having dealings”. That is not the most elegant of terms but it implies contractual or other relationships rather than oversight. Will the Minister say what sort of “dealings” the Government are seeking to legitimise with this clause?
| Next Section | Back to Table of Contents | Lords Hansard Home Page |