| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Can the Minister also say way why the clause is necessary? I searched the Financial Services and Markets Act for an equivalent provision in relation to the FSA. I could find nothing in the FSMA which said that the FSA can have dealings with the bodies it subjects to formal regulation. If the FSA does not need to have statutory cover for informal dealings with its regulatees, why does the Bank? As usual, the Explanatory Notes gave no additional insight, so I was forced to table this clause stand part. I look forward to enlightenment.
Lord Davies of Oldham: I hope to enlighten the noble Baroness on the objectives of the clause. Clause 203 ensures that nothing in Part 5 prevents the Bank of England maintaining its ability to carry out informal, non-statutory oversight in the case of non-recognised payment systems. Secondly, it ensures that in its dealings with recognised interbank payment systems, the Bank is not limited to the provisions in Part 5. The purpose of the clause, therefore, is to ensure that the provision of a statutory role for the Bank of England in oversight of recognised payment systems does not limit its ability to continue to engage with both recognised and non-recognised payment systems on a non-statutory basis, which is the basis on which it works at present. The Bank will need to engage with non-recognised systems—for example, to assist with its assessments of new or potential candidate systems for recognition.
6 pm
Although there are no weaknesses in the existing arrangements, the authorities have been working since early last year on developing a clearer and more robust framework for the oversight of payment systems. This includes the need to take into account the potential for payment systems’ characteristics and importance to change over time, or for wholly new payment systems
26 Jan 2009 : Column 53
The noble Baroness raised the issue of the Financial Services and Markets Act. The FSA does not require a similar provision in that Act because it does not exercise informal or non-statutory oversight in the same way as we envisage, under Part 5, that the Bank of England will operate with regard to payments systems. So there is a difference in the roles between the FSA and the Bank of England in those terms, which is why we have this clause. I hope that the noble Baroness accepts the position.
Baroness Noakes: I thank the Minister for the point on the FSA, but could he tell me what informal oversight actually is? In what sense is it oversight and in what sense is it informal?
Lord Davies of Oldham: It is in circumstances in which the Bank is in action but not necessarily operating under all the formal structures that we have in Part 5. The noble Baroness is all too well aware that the Bank has an oversight position now; within the framework of that oversight circumstance, we want that to continue.
The present position has no statutory backing. The Bank to date has chosen to oversee the main wholesale and retail payment systems in the UK and to participate actively in the co-operative international oversight system. It holds regular, usually quarterly, formal meetings with individual systems and is otherwise in frequent contact with them, monitoring their performance and investigating incidents as they arise. Through that analysis, the Bank proposes appropriate actions to mitigate risks arising in the systems. It publishes its finding and assessments in an annual payment systems oversight report, but it has no powers to ensure that risk-mitigating systems are employed.
We expect the Bank to continue its activity, but the Committee will recognise the importance of the fact that the Bank is doing it on a non-statutory basis, which is why it has no direct statutory powers. Under the framework of this Bill, the Bank’s position is considerably strengthened and given a statutory basis. That is the reason for the clause.
Baroness Noakes: We have now got to Part 6, for which we must rejoice. In moving Amendment 169, I shall speak also to Amendment 170.
26 Jan 2009 : Column 54
I have tabled these amendments in response to the Delegated Powers and Regulatory Reform Committee's first report of the current Session, which we have already debated in part in this Committee. The Delegated Powers Committee pointed out that the power in Clause 212 for the Treasury to make regulations about banknotes is very wide indeed. We could, if we were so inclined, object to it on the basis that the Government should be more specific about what they want rule-making powers for. But I shall not pursue that line and recognise that at least the Government have conceded that regulations should be subject to the affirmative procedure.
The Delegated Powers Committee pointed out that the arrangements for the allocation of provisions between regulations under Clause 212 and rules under Clause 213 are unsatisfactory. Under Clause 213, regulations can allow the Bank of England to make rules about banknotes, also on a very wide basis. In particular, Clause 213(2) says that regulations can provide that rules can do anything that regulations could do, thus neatly circumventing parliamentary control, because rules so issued would not be subject to any parliamentary process.
The Committee recommended at paragraph 11 that,
- “the power in clause 213 to make banknote rules should be narrowed, at the least to remove the power for banknote rules to impose unlimited penalties”.
For today's Committee, I propose the removal of Clause 213(2) in Amendment 169. I invite the Government to accept that the regulations cannot confer that degree of power on the Bank of England's rules or, alternatively, to come up with some other restriction of the power. As an alternative, I have also tabled Amendment 170, which amends the financial penalty in Clause 219 so that rules cannot apply a penalty. There would be other ways in which to deal with this issue.
I hope that the Minister will accept the DPRRC's recommendations and either accept my amendments or undertake that the Government will return with their own amendments.
Lord Higgins: What is the difference between a banknote regulation and a banknote rule?
Lord Davies of Oldham: I am grateful to the noble Baroness and will seek to answer the noble Lord’s question in a moment, but not get into conversation style. This is an important amendment, as it draws attention to the contribution and representation of the Delegated Powers and Regulatory Reform Committee on this matter. As this Committee appreciates, the Government take the report from that committee very seriously indeed.
As the noble Baroness said, the Delegated Powers and Regulatory Reform Committee noted in its report that,
- “the arrangements for the allocation of provisions between regulations and rules seem unsatisfactory”,
- “the scope of the power in clause 213 to make banknote rules should be narrowed, at the least to remove the power for banknote rules to impose unlimited penalties”.
This recommendation is implemented by this group of amendments.
26 Jan 2009 : Column 55
I apologise for the fact that this is a slightly lengthier contribution than we have had for most of this afternoon, but I take this opportunity to explain exactly how it is envisaged that the banknote regulations and rules will fit together. As the noble Baroness said, we have accepted that the draft regulations that we have circulated will be subject to affirmative procedure. Not all parts of the regulations are complete and further work will no doubt be needed before they are in a position to be consulted on formally. But I hope that the sight of even a draft set of regulations informs this debate. The intention is that the appropriate level of parliamentary scrutiny will be observed. That is why we have indicated that we expect that the affirmative resolution will be employed for the regulations. I hope to show that the amendments are therefore unnecessary.
Clause 213 provides that the banknote regulations may require or permit the Bank of England to make banknote rules about any aspect of the treatment, holding or issuing of banknotes by authorised banks. In practice, the regulations will not require or permit the rules to do everything that they themselves may do; there will be a natural division of appropriate responsibilities between the Treasury and the Bank. The regulations may delegate to the banknote rules anything that the regulations are permitted to do under primary legislation, subject to them being approved. This offers the capacity to make detailed provision, as appropriate, in either banknote regulations or the banknote rules. In both circumstances, this offers greater flexibility and scope to make detailed provision than would be appropriate for inclusion in primary legislation. I am sure that the Committee will accept that argument.
It is important for the Bank to have flexibility, within the remit of the regulations approved by Parliament, to make changes to its rules in order to adapt to changing or particular circumstances. It is envisaged that banknote rules will be largely focused on operational aspects of the new framework, rather than the underlying principles of banknote issuance. For example, under regulation 9 of the draft indicative regulations as circulated, banknote rules must set out the procedure that an authorised bank must follow for the purpose of ceasing the issue of banknotes.
As a further example, the banknote rules may set out detailed provision for the note exchange programme, as set out in regulation 13 of the draft regulations, which can be tailored as appropriate to the practicalities of exchanging a particular issuing bank’s notes. We could not think of such detailed provision being set out in primary legislation for cases where the Bank of England is best placed to determine what it needs in particular circumstances, as the procedure will have to be tailored to circumstances such as the number of notes in issue, or the locations at which holders of those banknotes will be able to exchange them, and so on.
I reassure the Committee that the banknote regulations and rules are intended to complement each other, not to provide duality or duplication, and, categorically, that Clause 213(2) is not intended to provide a means by which the need for parliamentary scrutiny can be circumvented. It is important for the Bank of England to have additional freedom—within the remit of the Parliament-approved regulations—to make and modify
26 Jan 2009 : Column 56
On the specific aspect of financial penalty, the Bill provides that the banknote regulations may enable the Bank of England to impose a financial penalty on an authorised bank that has breached the banknote regulations or rules. That is an important enforcement tool for cases where the breach may not be so severe as to warrant withdrawing an authorised bank’s issuing rights, yet does warrant imposing a penalty in order to ensure compliance with regulations and rules that are necessary to offer protection to noteholders. The imposition of a penalty will, of course, be subject to judicial review, ensuring that the Bank imposes such penalty as is fair, reasonable and proportionate.
The Government intend that the imposition of a penalty is to be governed by the parameters of the regulations, which, as the noble Baroness indicated, are to be subject to the draft affirmative procedure and therefore receive parliamentary scrutiny. We recognise the Delegated Powers Committee’s important recommendations and we are looking particularly at this clause, and others on which it has commented, to consider whether further changes are needed. I hope that the broad position that I have outlined in defence of the clause meets with the agreement of the Committee, and that the noble Baroness will feel able to withdraw her amendment.
6.15 pm
Baroness Noakes: The Minister has put up a spirited defence of the clause. We were seeking not to challenge the possibility of the Bank of England making rules in appropriate circumstances, but to ensure that the recommendations of the Delegated Powers Committee were given effect. It is not enough for the Government to say, “Well, our draft regulations don’t give the Bank a power to make penalties by its rules, so that’s an end of it”. I thought the Minister was saying that at one point, but he ended by saying that the Government were considering what to do about the Delegated Powers Committee.
The House expects the Government to follow that committee’s recommendations. There have been very few instances where the Government have ignored those recommendations, which is why we have a Delegated Powers Committee. Unfortunately, one instance involved the Treasury, which probably makes it think it can do what it likes with that committee’s reports. I must, then, signal in the most uncertain terms to the Minister that we would expect the Government to honour the terms of the Delegated Powers Committee—particularly on this, where it is no answer to say, “We currently don’t intend to do what the Bill would allow”, when the plain fact is that the primary legislation is deficient. The Minister said that the Government are considering it. They have very little time to do so, but we will certainly return to this on Report. I beg leave to withdraw.
26 Jan 2009 : Column 57
171: After Clause 224, insert the following new Clause—
“Guarantees for lending by banks“The National Loan Guarantee Board
(1) The Treasury shall establish a National Bank Loan Guarantee Board (referred to in this Part as “the Board”) which is to have the function conferred on it by section (Function of the Board).
(2) The Treasury will appoint to the Board representatives of—
(a) the Treasury;
(b) the Bank of England; and
(c) the FSA.
(3) The Board will be chaired by a representative of the Treasury”
Baroness Noakes: I tabled Amendments 171 to 173 in order to debate my party’s proposals for a national loans guarantee scheme, which my honourable friend George Osborne launched last year to deal with the critical shortage of credit for business. The Government trashed our proposals at the time, then, two weeks ago, announced a pale shadow of them—the Government’s scheme being smaller, less bold and more bureaucratic.
Last week, the Government announced a further package of measures affecting the banks and lending. We do not know whether they will work—the financial markets seem less than clear on that—and we remain concerned about credit in general, and in particular for those businesses that the measures announced do not wholly cover. We believe, then, that a national loans guarantee scheme ought to be introduced by the Government. However, in view of the constraints on the Committee today, I shall not be pursuing this and, accordingly, I shall not be moving Amendment 171.
Amendments 172 and 173 not moved.
Clause 225 : Consolidated Fund
Lord Myners: Before turning to the amendments, I will take a moment to summarise the purpose of Clause 225 and explain the amendments that have already been made to the original clause in another place. The purpose of Clause 225 is to put the use of public money in the proposed bank resolution or
26 Jan 2009 : Column 58
The Treasury and other government departments have powers derived from statute or common law to do various things including, for example, to provide guarantees or indemnities, or to make loans. They have only the ability to spend money to make good on these commitments if Parliament provides the money. This is usually done through estimates approved in the annual appropriation Acts.
As a matter of law, the annual appropriation Acts can give full statutory cover for expenditure in estimates, but it is a long-established convention that there should always be specific enabling legislation to enable the finance for a new service to be provided from public funds. Clause 225 would provide that statutory cover. However, the original clause only provided for financial assistance to be given to UK authorised institutions, which have permission to accept deposits; in other words, UK deposit takers.
It was realised, particularly in the light of the events last year surrounding Icelandic banks, that such a limitation could make it more difficult to protect the interests of UK consumers or safeguard the interests of UK taxpayers when an overseas institution fails. It was also realised that the original clause would not provide cover for assistance to be given to financial institutions, which were not themselves deposit takers—for example, bank holding companies that were not themselves authorised persons. Amendments made in the other place dealt with these issues, and the government amendments I have tabled will address two further issues that have arisen more recently.
Amendments 173A and 173E will provide statutory cover for expenditure incurred in connection with schemes run by government departments other than the Treasury. The amendments will provide statutory cover for schemes where the financial assistance being provided will facilitate the activities of the bank or financial institution and provide a benefit to a third party—such as customers of banks or other financial institutions—or to the wider economy. This will provide statutory cover for any expenditure incurred in connection with schemes such as the Homeowners Mortgage Support Scheme, which was announced by the Prime Minister on 3 December, and the Working Capital Scheme announced by my noble friend Lord Mandelson on 14 January.
Before turning to Amendment 174, let me say that I appreciate the concern that the scope of the powers to grant financial assistance could be too broad. Moreover, I can see why the noble Baroness, Lady Noakes, thinks there should be an explicit link to objectives such as financial stability or market confidence. However, let me assure your Lordships that the powers to provide financial assistance—though they look broad on the face of the Bill—will always be subject to rigorous tests and safeguards. Any Government would want to subject the giving of financial assistance to the most careful scrutiny for value for money and affordability and it will always be necessary to comply with obligations in Community law, which restrict the giving of state aid.
26 Jan 2009 : Column 59
I turn now to the additional safeguards proposed in the noble Baroness’s amendments. I am concerned that Amendment 174, which seeks to link the provision of financial assistance for purposes not connected with the special resolution regime to objectives similar to those of that regime, could prove unduly restrictive in a way that she might not have intended. The amendment would seem to rule out precisely the kind of scheme the Government’s amendments I have just mentioned would allow. For example, we could not operate the Homeowners Mortgage Support Scheme. This scheme will encourage lenders to enable ordinary hard-working households that experience a redundancy or significant loss of income to reduce their monthly payments to a more manageable level, by deferring a proportion of the interest payments on their mortgage for up to two years. I hope the noble Baroness would agree that it is desirable, but I am not sure we could argue that the scheme passed any of the three tests put forward in her amendment. For one thing, homeowners are not, in that capacity, depositors.
Equally, we could not run the Working Capital Scheme announced by my noble friend Lord Mandelson. This scheme would tackle the current constraints on bank credit available for lending to ordinary-risk businesses with a turnover of up to £500 million per annum. The noble Baroness’s friends in this House welcomed the scheme.
I am also not sure that we could say that the scheme was necessary by reference to the stability of financial systems, the maintenance of public confidence in the stability of banking systems or for the protection of depositors. I am sure that we could develop other examples, but the real point is that it may be difficult to justify an individual scheme against the criteria proposed in the amendment. However, the scheme may be highly desirable when seen against the background of other schemes or initiatives. The whole can be greater than the sum of its parts.
Amendment 174 would diminish the flexibility available in devising and implementing schemes. It could constrain our ability to deal with future crises—including crises where the three objectives set out in the amendment were at issue.
| Next Section | Back to Table of Contents | Lords Hansard Home Page |