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Parliament has an interest in what the Executive and public bodies do under the terms of the legislation passed by it, but there is also a big audience in those who are affected by the use of the powers. This clearly covers the financial services industry, but importantly also extends to groups representing consumers and other users of financial services. Here my amendment for Report is less narrow in many ways than the amendment moved in Committee. It is not focused on to whom information should be given and the precise details of that information; rather it sets up a duty on the relevant authorities to,
- “make public full and transparent information on a timely basis about their actions and the consequences or likely consequences of their actions”.
We cannot define in Parliament exactly what it would be appropriate to reveal in any particular instance of the use of the special resolution regime, but I hope that we can agree on some criteria—transparency, making public, and timeliness. That, I hope, is what the amendment conveys.
The Minister may refer, as he did in Committee, to the provision in the code of practice relating to the announcement of actions and an explanation for why the conditions for exercise of the powers were met. There are three points here. First, the code requirement is just that. There is no legal obligation on the authorities to follow it and it can be changed at will by the Government, as we mentioned in an earlier group. Secondly, the code is a backward-looking requirement, while my amendment asks the relevant authorities to address the consequences of their actions and to keep information in the public domain. Thirdly, my amendment does not cease once a decision has been made. It is intended to go beyond the initial action, which is all that the code addresses, and to require ongoing transparency, an aspect on which we would probably not score the existing bank nationalisations highly.
I hope that the Minister will be able to embrace transparency and accept my amendment. I beg to move.
Lord Newby: My Lords, I have a lot of sympathy with the motive behind this amendment because it is in everyone’s interest that the country as a whole gains a full understanding of why action has been taken under the special resolution regime. I am slightly concerned, however, that the amendment may well not achieve what the noble Baroness wishes because it gives too much scope for the relevant authorities themselves to define what constitutes full and transparent information. The Bank may think that what we or the noble Baroness would consider full and transparent information is more detail than would fit its definition. I am also concerned that it could use the second part of the proposed clause to delay making available a lot of information almost indefinitely. As I say, while I have sympathy with what lies behind the amendment, I am sceptical about whether it would achieve what the noble Baroness seeks.
Viscount Eccles: My Lords, the draft code goes a long way to support the points just made by the noble Lord, Lord Newby, because in paragraph 17 it states that,
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- “the Authorities must make public statements explaining how they have acted in regard to the special resolution objectives; and ... how they have balanced the objectives”.
“It should be noted that it will not be possible to divulge certain information, for example information the release of which would threaten financial stability or confidence in the banking system”.
Paragraph 18 could be used to nullify paragraph 17 without any difficulty.
I draw attention to a different point in relation to transparency, which of course is one of the original criteria that led to the Financial Services and Markets Act 2000 and the setting up of the FSA, which has a duty to be transparent. In the Bill and in our discussions, we constantly come across the issue of confidence in the banking system. Indeed, in Davos on Saturday, the Prime Minister repeated the need for the re-creation of confidence in the banking system. But that is putting the cart before the horse because the problem is to re-create confidence within the banking system. Because of the £50,000 deposit guarantee, the public are probably willing to await the outcome of the mountain-of-debt crisis, but the bankers do not know how to deal with it and have almost entirely lost their confidence.
Lord Davies of Oldham: My Lords, I am grateful to all noble Lords who have spoken, particularly as their speeches were united with the noble Baroness in her intent. I, too, share that intent. The Government follow the position which she is seeking to ensure through her amendment, that the authorities should provide relevant information about their actions following the use of a special resolution tool. This is similar to a provision we have already included in the draft code. I know the noble Baroness does not put as much store by that as I would wish, but we have stated before that the use of the Government’s powers under the Banking (Special Provisions) Act certainly followed the concept of being as open as possible.
The Bill already requires the Treasury to lay a transfer order before Parliament. The Bank of England is to publish its transfer instrument in the public domain and, following an amendment brought forward in response to the debate we had in Committee, such transfer instruments are now to be laid before Parliament. Given this and the requirement in the code of practice, I cannot conceive of a situation where the authorities would not publicly disclose information about their activities. I would go so far as to argue that they would not be credible—the noble Viscount, Lord Eccles, touched upon this point—unless there was a public interest consideration related to confidence in the market. There must on occasion be a possibility that full disclosure of how the authorities are acting cannot be followed because of the nature of the case, and we have to make provision in the legislation for that possibility; but we have clearly indicated that we share the intention behind the amendment and the authorities will be obliged to be open in their activities.
The amendment is unnecessary. I do not disagree with the intention behind it, and we are trying to be as constructive as we can be within the framework that I have just identified. The fact that transfer instruments made by the Bank of England must now be laid before Parliament is an earnest of that intent.
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The problem with the amendment is that it would require the authorities to disclose information about the consequences or likely consequences of their actions. The authorities can be expected to do that in the short and, potentially, medium terms with regard to the bank in question. They would be able to give an account of how the action met the special resolution objectives, which is the intention behind the noble Baroness’s amendment. It would, however, be difficult to require the authorities to give a full account of all the likely consequences of their actions. That is surely too open-ended a requirement to place on the authorities while they deal with a situation in which the extent to which they are able to foresee developments will inevitably be limited and they have a relatively short period in which to act.
In general the Government support the principles that the amendment seeks to advance, but I have a specific concern about the drafting and about how realistic it is to place this obligation on the authorities. I hear what the noble Baroness says—the indication in the code is not sufficient, in her terms—but that, coupled with the other statutory obligations in the Bill, means that the amendment is not necessary or even entirely appropriate. I hope she will feel that she has pressed us far and that we have responded constructively, and that she will feel able to withdraw the amendment.
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Baroness Noakes: My Lords, I thank the Minister for that response, and I thank the noble Lord, Lord Newby, and my noble friend Lord Eccles for their contributions to this short debate.
The noble Lord, Lord Newby, said that the amendment gave too much latitude. I always feel that one is damned if one tables a tightly drawn amendment and damned if one tables a principles-based amendment—there is no satisfying some people. I would say that it is better than nothing to require transparency.
The Minister has predictably referred, as did my noble friend Lord Eccles, to the content of the code of practice, but that is a rather narrow requirement. It has the opt-out in paragraph 18 for, in effect, public interest, which I have repeated in my own clause because I recognise that some things should not be put into the public domain, at least initially. The requirement in Clause 17, however, is very static: it is how they have regarded, and how they have balanced. It is not about what they think will happen in the future. I assume that the authorities will think about the future and the consequences of the actions they take, which is why I have asked for that to be given.
The Minister said that the banks are now going to lay their orders before Parliament but there is no parliamentary process for that, so we will have no opportunity to examine the banks or even the Government on any further detail about the actions. The Minister says that he agrees with the intention but cannot quite bring himself to agree with it. I would like to test the opinion of the House.
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7: Clause 5, page 3, line 32, at end insert—
“( ) The code shall provide guidance on the Treasury’s interpretation of Objective 1 of the special resolution objectives set out in section 4.”
Baroness Noakes: My Lords, the amendment would add a subsection to Clause 5 requiring the code to provide guidance on the Treasury’s interpretation of objective 1 within the special resolution objectives. This is the financial stability objective.
We had quite a lot of discussion about definitions of financial stability in relation both to Clause 5 and to the Bank of England’s new financial stability objective in Clause 235. We were concerned that there could be ambiguity around that definition, especially in view of the rather narrow definition that a representative from the Bank of England had given to the committee in another place. We felt that it was important that there was an official definition. We recognised that, as the noble Lord, Lord Eatwell, pointed out, the financial system is characterised by continuous innovation and change and that the definition may well vary over time. That is why the code, rather than the Bill, is the right place for a definition.
I felt strongly about the Treasury having an obligation to give guidance about what it means by financial stability. That is why I have tabled this amendment, which is a gamma version to replace the beta version that I tested in Committee. Since then, the Government have tabled their Amendment 8, which is in this group. I shall leave the Minister to speak to his amendments. I am not sure exactly in what terms he will do so and I shall listen carefully. If what he says is satisfactory, I shall in due course be happy to withdraw my amendment in favour of his. For the time being, I beg to move.
Lord Davies of Oldham: My Lords, I am grateful to the noble Baroness for the way in which she moved her amendment. I appreciate that she wants to see the colour of the Government’s money in terms of their
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In Committee, there were a number of areas where Members requested further clarification, or expressed a desire that the code of practice include further information. While Clause 5, in particular subsection (1), already sets a broad remit for the code of practice, the Government agree that further information should be added to the code and that it is appropriate to signal this through Clause 5.
Amendment 8 seeks to provide reassurances to the noble Baroness on two issues that she raised in Committee. She proposed an amendment to the effect that the code should include information on the meaning of,
that is, the phrase used in the first of the SRR objectives. We agreed that an exhaustive definition could not be provided but that the code could elaborate on this and how it is to be understood.
The first part of the government amendment provides for that and indeed goes further by signalling that the code can provide similar information about all the SRR objectives rather than just focusing on the first. I believe that that is the right approach and I hope that the House will accept this as a useful addition to Clause 5. For that reason, I hope that I am able to persuade the noble Baroness to withdraw her amendment.
The second part of the amendment expressly states that the code can provide further guidance on the choice between the stabilisation options. Questions were raised in Committee as to the factors that will determine the choice of one tool over another. Given that such a decision will be made on a case-by-case basis, the code is indeed the right place to provide significant additional information on this matter. The draft code already lists factors to be taken into account when deciding between different options, and it could include more information on this matter. I hope that this can be seen as a response to the noble Baroness’s request for a requirement that temporary public ownership be seen as an option of last resort. We have continually stated that that is the case. The amendment draws out expressly that the code of practice can provide further guidance on this important point.
The next two government amendments in this group add further to the list of areas about which the code can give guidance. They are a response to two parts of the debate in Committee. First, further information was requested on the working of the continuity obligations under Clauses 63 and 66. Given that they are new obligations, I agree that there should be a vehicle for providing additional information within the Bill on how those obligations will be used. In case noble Lords are concerned that there is no reference to the special continuity obligations in Clauses 64 and 67, let me explain that the code can also make provision about those. Special continuity obligations are exercised by share and property transfer instruments and orders. As a result, they are an aspect of the use of stabilisation powers about which the code may already clearly provide guidance under Clause 5(1)(a).
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The second addition is to signal that the code can include information on compensation arrangements. I make it clear that there will, of course, be certain parts of compensation arrangements that it would not be appropriate to provide information on in the code. For example, it would not be appropriate to provide guidance on the precise activities that an independent valuer should undertake, as this could compromise his independence.
During the debate, questions were raised about the new concept of a bank resolution fund, with its associated management duty, the role of the monitor and the criteria for independence of a valuer. We will come back to these questions in later debates, but we believe that the code of practice can include useful information on some of these areas, so my noble friend has tabled government Amendment 10.
Before concluding, I confirm that information on the Bill’s powers with regard to bank holding companies will be included in the code of practice. The powers in Clause 81 are stabilisation powers and therefore the code of practice must make provision about them, as is made clear in Clause 5(1). I make this point now, in advance of our later debate on the noble Baroness’s amendment intended to have this effect.
In summary, the code provides a useful addition to the architecture of the new special resolution regime. The Government have listened carefully to the points made in debate during Committee and have sought, through our amendments, to provide the necessary reassurances that further information can and should be provided on a number of important elements of the special resolution regime. Accordingly, I hope that the noble Baroness will feel that the Government have responded positively and with sufficient thoroughness that she can withdraw her amendment.
Viscount Eccles: My Lords, before my noble friend replies, let me just say that Amendment 8 refers to,
In relation to objective 1, paragraph 5 of the draft code of practice states:
“The intention of the first objective is to (a) recognise the wider systemic risks posed by the potential or actual failure of any institution, or group of institutions; and (b) to require the Authorities to have regard to the likely systemic impact of their actions (including a decision not to act) when implementing a SRR tool”.
That pushes us hard in the direction that the code of practice must consider possible effects on competition. If the number of major institutions in the banking sector is reduced from the current four, clearly the effect on competition of any one of those, God forfend, getting into a position where the regime is implemented would be far-reaching. That was debated in Committee and I hope that we shall have some assurance that the possible effects on competition will be spelt out in some way and not left unstated.
Lord Davies of Oldham: My Lords, I have said my piece for Report, but the noble Viscount presses me. He caught me just before I sat down, so I shall respond
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Baroness Noakes: My Lords, I thank the Minister for his reply and for dealing with the important point raised by my noble friend Lord Eccles. I am pleased that the Minister explained that Amendment 8 is intended to address the issues raised by my Amendment 7. Provided that the code of practice does that, we will be content. I will come to temporary public ownership later. I queried with the Opposition Whips’ Office whether the Government had asked for that amendment to be grouped and was told that they definitely had not, so I shall speak to it in its place on the list. In addition, I heard the Minister’s comments about Amendment 81, which I shall also deal with in the appropriate place; I think that that will be more convenient. I thank the Minister for Amendment 8 and beg leave to withdraw my amendment.
8: Clause 5, page 3, line 34, leave out paragraph (a) and insert—
“(a) how the special resolution objectives are to be understood and achieved,
(aa) the choice between different options,”
10: Clause 5, page 4, line 3, leave out paragraph (f) and insert—
“(f) sections 63 and 66, and
(g) compensation.”
11: Clause 5, page 4, line 6, at end insert “and if the authorities do not follow the code in any particular instance they must publish as soon as practicable an explanation of why they have not done so”
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