We have had the prodigal son and elements of faith from the noble Lord, Lord McFall, but we have the Trappist solution here. You live in the same community, but you do not talk; that is how the ring-fence is meant to work. The amendment—and this is why the element of culture is so important—increases vastly the voltage of the ring-fence. If it has to be used, like much of these forms of regulation, it will have failed to some degree. But it says that, if the industry loses its way in ethics and culture, as it did in the early years of this century, there is catastrophe in regulatory terms. Banks will be split up; people will come in and take them apart. The Government have argued that such a drastic step should require further primary legislation, but that argument seems to carry very little weight. The amendment is merely a rational extension to existing provisions and ensures that the banking industry realises that poor culture leads to fatal shocks, not to a little buzz in the fingers, or to lengthy debates in future on primary legislation. It will concentrate minds.

There is no doubt that we are seeing good things happen in the culture of a number of banking institutions. The new leadership in a number of banks is changing the culture very effectively. A professional standards body is being set up. I believe that this is not merely temporary self-interest but, in many cases, a deep sense that there needs to be a change of culture and values. But that is what is happening in this generation, now; it must be reinforced with firm boundaries to the ring fence, with very serious consequences if you walk into it to see what will happen. The amendment will reinforce that change of culture and act as a permanent reminder to the banking industry of the danger of slipping back into the bad old ways. Not to have that reality signalling the boundaries of acceptable ethics and culture is to encourage behaviour that looks first to what is legal, as has happened for a number of years, and never to ask the question, “What is right?”. To have banks ask what is right rather than what is

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merely legal would be good not only for the bank but for the whole society that it exists to serve, as the noble Lord, Lord Lawson, said.

Lord Phillips of Sudbury (LD): My Lords, I entirely agree with what the most reverend Primate has just said. As a lawyer of far more years than I am willing to admit, I wonder whether sometimes the legislation that we pass in this place, with the very best of intentions, has in some strange and horrific way an almost contrary effect, for the reason given by the most reverend Primate—namely, that people look at the law rather than what is behind the law and look at the small print instead of the large issues. In my professional life, I have seen this get worse and worse.

One argument above all others persuades me that this amendment is a good one. By and large, I am persuaded that it will leave us with a simpler, more workable outcome than the ring-fence arrangements, which seem to me, even in my most legalistic frame of mind, to be of barbaric complexity. These will be bad enough, but they are significantly more straightforward, more comprehensible and, in a way, more down to earth than the ring-fencing. So I support the amendment.

5.45 pm

Lord Forsyth of Drumlean: My Lords, I know that noble Lords are looking forward to hearing the Statement, but this is an important point. I certainly would not be able to add anything to what the most reverend Primate has said in a very powerful speech. I am glad that he liked my analogy about wallpaper and walls. I have to say to my noble friend the Minister that the writing is on the wall here, and it is absolutely clear that if we do not have in this Bill a clear provision that gives the Government power to deal with the sector as a whole, most banks will decide to go with the culture and try to make it work. But they are in competition with each other; one will come up with a clever scheme and the others will say, “They’re getting away with this—we ought to do the same, or we will do some variation of the same thing”. You need there to be a threat to the whole sector, if some of them fall by the wayside. That is another argument, in addition to the ones made by my noble friend Lord Lawson and by the most reverend Primate.

I hope that my noble friend the Minister will think about this very carefully and see the writing on the wall. He will find it very difficult to get this Bill through this House without a provision of this kind being incorporated in it.

The Earl of Erroll (CB): My Lords, I make a simple observation from experience. I have seen this attempt at ring-fencing in the past. When you have ring-fenced or non-ring-fenced entities—it does not matter which—reporting up to a group head, at the end of the day that group head can manipulate things at an investment level or at all sorts of other levels to influence the outcome in a way that is unexpected. It does not work, the moment that you have a group, because that is outside the ring-fence. I could give noble Lords instances, but it might cause problems if you did. I would rather say that I totally support the most reverend Primate and this amendment, which is very sensible.

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Lord Higgins: My Lords, what underlies this whole debate is a feeling that the so-called advantages of the universal bank do not outweigh the dangers and disadvantages. My noble friend referred earlier to preserving the advantages of the universal bank, but there is no doubt that such advantages as there might be, regardless of the risks, are significantly reduced if we have an effective system of ring-fencing. Many of us here feel that the ring-fencing proposal is wrong and unlikely to be very successful. We came up with the Vickers report and the Government have gone along very largely with the proposal that was made, but the reality is that we are going to have a situation whereby we should really be going in the direction of full separation. This is bound to take time. Therefore, an amendment of the kind that my noble friend has proposed would effectively give us a means to get out of the present impasse to a situation where we move towards full separation.

I return for a moment to a point that I made earlier. Where does all this leave us in relation both to the United States and with regard to the European Union? This is clearly a global industry. It is no good our legislating for the situation with regard to British banks if quite different rules are being applied in Europe, or applied to us from Europe, or the rules are different in the United States. There is a strong case for trying to get an international consensus on this, but the ring-fencing proposal seems significantly different from what I understand is being proposed in Europe and certainly what is being put forward in the United States. Therefore, I hope that my noble friend will respond to two points. First, where do we stand with this proposal in relation to the international situation? Secondly, is there not a case for the amendment which, as my noble friend has said, will enable us to act if what has rightly been called an experiment as regards ring-fencing turns out not to work?

Lord Blackwell: My Lords, given some of the recent speeches, I again sound a small note of caution. While I understand the need to electrify the ring-fence, the Government and this House should be cautious about legislating on a presumption that universal banking is the wrong commercial or organisational model. I share many of the concerns that have been expressed about the difficulty of having a common culture in an organisation that embraces too many different activities. However, it seems to me that it is primarily a commercial judgment for the management and shareholders to decide whether or not they can make that range of activities succeed. The primary duty of the Government and the regulator is to ensure that whatever is done is not a threat to the financial stability of the system. As I said in my introduction to the first amendment, I support ring-fencing which seems to me to be targeted at that purpose, which is to define the capital and risk exposure of the ring-fenced bank and ensure that it is regulated in such a way that the other activities of the group do not impinge on the capital and solvency of the ring-fenced activity. So long as the Government and the regulator can do that—I understand that people are raising questions about that—it seems to me that the question of other activities in the group is not something on which the Government should rush to legislate.

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There are arguments which have not been put in this House about, for example, the ability to serve customers in a common way across different entities in the group, which would not be prevented by ring-fencing. There are arguments about the use of common resources such as IT resources, infrastructure and a whole range of central resources that can be used in a group structure. There may be good arguments or bad arguments but those are arguments that the management and the shareholders should primarily be in a position to consider. Some will succeed and some will fail but it is not up to this House to decide the commercial logic or otherwise of universal banking. The House should decide primarily whether or not the ring-fencing, the safeguards in the Bill and the electrification that is already built into the government amendments will do the job that is intended.

Lord Eatwell: My Lords, what is particularly striking about the commission’s report, especially its final report, is the way in which it presents a coherent package of measures. This amendment fits together with the review amendment that we considered earlier as those two elements reinforce each other. As Amendment 117 makes clear, the review element is the key trigger for Parliament to consider whether this measure of separation should be introduced. There is coherence here. What is distressing about the Government’s rejection of the nature of independent review and hostility towards this amendment is that by removing that internal coherence of argument they significantly weaken the overall approach to financial regulation which we are attempting to achieve.

In anticipating this discussion on separation, the noble Lord, Lord Deighton, asserted that the arguments for separation had not been considered and that if you wanted an amendment of this sort you ought to have another commission to consider the arguments. That is just not so as the arguments were considered extensively, first by the independent commission and then by the parliamentary commission. The main point that came out of those discussions was that there was a strong case for separation. However, the experiment of ring-fencing was felt to be worth while as, if it worked, the trauma of separation would not be required. The idea that this issue has not been considered is not the case as it has been considered very thoroughly. It has not been rejected but is seen as a backstop, if you like, to the ring-fencing proposal.

The most reverend Primate made the terribly important point, in a way which has not been brought out by other speakers, that this measure strengthens the whole structure of the ring-fence and will incentivise the banks to regulate each other. There will be an enormous incentive for all the banks to keep an eye on what everybody else is up to to ensure that they are not drawn into this final total separation. The people on the inside who really know what is going on will have a strong incentive to make the ring-fence work because if it does not work they know that there is a reserve power in the Bill. If you really want the ring-fence to work, you need this clause. It is a contingent clause and a reserve power but if we really want the ring-fence to work, the Government should wholeheartedly embrace the amendment of the noble Lord, Lord Turnbull.

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Lord Deighton: My Lords, we have already discussed many of these issues as it has been extremely difficult to avoid talking about full separation when discussing the other amendments. However, I pause to review the most reverend Primate’s reminder that the most important thing in these institutions is culture and that we can make as many rules as we like but if we do not force a cultural change bankers will find their way around the rules. Separating banks is absolutely not a recipe for ensuring a better culture. If you look, for example, at the experience at HBOS, which was a pure retail player, there was clearly a massive cultural problem there. Culture is quite independent of some of the structural issues that we are talking about.

I remind noble Lords that we are talking about whether or not there should be a reserve power for industry-wide separation. Inevitably, the discussion seems to be about ring-fencing versus full separation but that is not the debate we are having. It is difficult to avoid confusion around that issue. The high voltage or the extent of the electrification and the incentive to banks is extremely strong in terms of individual bank separation. I outlined in our amendment how quickly and effectively that can be deployed. A bank needs no further incentive than to know that it will be completely restructured if it seeks to game the system. The notion that banks will watch each other is not how the industry operates.

As regards the point made by my noble friend Lord Higgins, the ring-fence rules are internationally consistent and have been designed to make sure that they are compatible with EU and US law, although the way each country deals with the issue structurally is different. I remind noble Lords that we are legislating to ring-fence retail from investment banking. That is what the Independent Commission on Banking recommended. The Government oppose this amendment as a matter of substance and process. The complete separation of retail and investment banking which this amendment would provide is not a sanction or deterrent but a different policy. It would not support or reinforce the ring-fence; it would abandon it in favour of an alternative. We can see this in the terms of the review that the noble Lord proposes which might trigger full separation. That review must decide how far the provisions in the Bill—that is, the ring-fencing regime itself—deliver the policy objective so that even if no bank gamed the ring-fence full separation could be triggered.

Having established this as an alternative policy, let me set out two simple reasons why we do not support the amendment. First, if a future Government did decide to switch to a new policy, it could not be appropriate for that change to be effected simply by commencing a reserve provision. That would entail no more than a single order with a single brief debate in each House of Parliament. There would be no detailed scrutiny, no opportunity to consider amendments and no chance for Parliament to assure itself that the circumstances justified the new policy. There would be no development of an extensive evidence base, no cost-benefit analysis and no opportunity to build an extensive domestic and now European consensus. This proposal may therefore be at odds with the desire expressed in both Houses to enhance the process of scrutiny.

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6 pm

Lord Eatwell: The point that the Minister seems not to have taken on board is that the arguments for review and this power have to be seen as a coherent package. The point is that there would be that review; there would be a continuous independent review providing exactly the information that he says is necessary.

Lord Deighton: Yes, there would be a review, but not a proper parliamentary process. The argument I am making is that this is such a switch from ring-fencing to full separation that it should benefit from that full process. While I obviously bow to the experience of my noble friend Lord Lawson, these things, if the circumstances dictate, can be done extremely rapidly, where the circumstances demand that kind of urgent move.

I think it is instructive to compare the process of developing the ring-fencing policy to that of this proposal for full separation. The ICB went through an extensive process of deliberation and analysis, carefully collected data, prepared a full cost and benefit analysis and compared that to full separation. It found that a robust ring-fence will insulate essential retail banking services from shocks originating elsewhere in the financial system. It will enhance the authorities’ ability to manage the failure of a ring-fenced bank, or its wider corporate group, in an orderly way. It will, therefore, deliver the financial stability benefits of separation. Ring-fencing will also preserve some of the benefits of universal banking. I made the argument of diversification and scale, not simply diversity. Customers will be able to access the full range of services from a single group: that is a marketing advantage as well. The frictional costs to the economy of ring-fencing are therefore lower than those of full separation. That is, of course, the reason we did not go for full separation. Further, in the event that the ring-fenced bank runs into trouble while the rest of the group is doing well, other group members can support it. That, of course, would not be possible under complete separation.

On a comparison of the costs and benefits, the ICB chose ring-fencing as the superior policy. The PCBS did not provide any new evidence to contradict this position. In this respect, the noble Lord’s proposal for an independent review of ring-fencing is an admission that the evidence base for full separation does not yet exist. The amendment asks us to put a policy into law and then establishes an independent review process in the hope that it might justify it. For us, this is lawmaking done backwards.

That brings me to the Government’s second and perhaps more powerful reason for rejecting this amendment. Let us imagine that a future Government decided that not ring-fencing, or full separation, but a third policy was appropriate. Imagine, for example, that it decided that a Volcker rule was the right policy, or a shift to full-reserve banking. In either case, a review that was limited to deciding whether to enact a reserve provision for separating ring-fenced banks from their groups would be no use at all, and the power would need to be repealed, along with much of the rest of the Bill. Coming back to Parliament would be the only way to give a future Government wanting to change policy the full range of options.

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Therefore, on grounds of both substance and of proper legislative process, the Government continue to oppose a reserve provision for a move to full separation and I therefore urge the noble Lord to withdraw his amendment.

Lord Turnbull: I think the Minister has erected a straw man here. The straw man is that there is a quite lightweight review, possibly of the kind that he is recommending, rather than the kind others are recommending, and then there is a day in the Commons and a day in the Lords and, bingo, this huge change takes place. What the commission envisages is a resurrection of the ICB. It is not a coincidence that the number five was chosen, as that was the number that worked on the ICB. The ICB went through all the steps that he claimed, of looking at the options, the cost benefits and so on, and evidence was taken in various Select Committees. Therefore, there would be an enormous amount of public discussion, inside and outside Parliament, before this was enacted. That seems to me to be the process and I cannot see what is wrong with it.

The other point is that the Minister downplays the incentive effect. If you have one bank which has no incentive to test the system and is very happy with its niche in the market and it sees another bank pushing very hard at the limits, what is its incentive? Does it simply turn a blind eye? Under this arrangement it has an incentive to support suggestions that the other bank should be reined in, otherwise it then brings big change on the sector as a whole. So it produces, it seems to me, the right incentive set for all the players in the banking sector.

The Minister has heard a lot of quite strong opinions on this. As I said at the start, the prior condition of all this is a proper review arrangement. If that is in place, this is, in the opinion of many, a sensible power to have. It can be enacted, but if the view is that some alternative to separation is better, there is no problem; the Government can go down a different channel. If they want to extend separation, they have the power to do so. As with the first reserve power, further discussions need to take place. I think the divisions here are more fundamental, but, equally, I think the strength of opinion is also more fundamental. None the less, I beg leave to withdraw the amendment.

Amendment 23 withdrawn.

House resumed. Committee to begin again not before 7.07 pm.

Press Regulation


6.07 pm

Lord Gardiner of Kimble (Con): My Lords, my right honourable friend the Secretary of State for Culture, Media and Sport, Maria Miller, has made the following Statement:

“We all agree that what is needed is a workable and effective system of press self-regulation. Equally, I believe that we must protect our free press while striking the right balance between independence and redress for individuals. There is no question of undermining the press’s ability to criticise or make

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judgments—indeed, that underpins our democracy and holds us to account. However, we are talking today about ensuring that the public has a fair system of redress through which to seek to challenge mistakes and errors when necessary.

I have always echoed Leveson in saying that the success of any new system will be seen in an approach that offers justice and fairness for the public and clearly protects the freedom of the press. This House will be fully aware of the careful deliberations following the publication of Leveson’s report and the weight of responsibility that comes with implementing that system.

Significant progress has been made since I last updated the House, particularly by the press themselves, who are well down the track of setting up their own self-regulatory body. Indeed, all involved in the process now consider a royal charter to oversee this regulatory body to be the correct way forward. Just six months ago this seemed impossible. What we are now talking about are differences of opinion in how a royal charter should be constructed.

The committee of the Privy Council is unable to recommend that the press’s proposal for a royal charter be granted. While there are areas where it is clearly acceptable, it is unable to comply with some important Leveson principles and, indeed, government policy, such as in the areas of independence and access to arbitration. A copy of this recommendation letter has been placed in the Libraries of both Houses so that honourable and right honourable Members have the opportunity to look at this in some detail.

In the light of this, we will be taking forward the cross-party charter, which was debated in this House. The cross-party charter will be on the agenda at a specially convened meeting of the Privy Council on 30 October.

In the interim, I believe that we should finish making our charter workable so it will meaningfully deliver independent and effective self-regulation. We have already improved the drafting in the cross-party charter, and we have worked with the Scottish Government and made sure that the press do not have to worry about complying with different frameworks on either side of the border. Further, we have had discussions with the Commissioner for Public Appointments to clarify how his role will work—all important improvements.

And, having considered the press charter, the committee has identified two substantive areas—access to arbitration and the editors’ code—where we could improve what is in the 18 March draft. The right honourable Member for Peckham opposite agrees—indeed, all three parties agree—that these areas could indeed benefit from further consideration. As such, all three political parties will work together in the forthcoming days and produce a final draft of the cross-party charter to place in the Libraries of both Houses on Friday. This will allow parliamentarians, the public, the press and whoever to see the version we intend to seal. If any specific change cannot be agreed by all three parties, we will revert to the 18 March charter debated by Parliament.

We have an opportunity to take a final look at our charter—an opportunity to bring all parties together and ensure that the final charter is both workable and effective. We have a responsibility to

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make sure that what we do here will be effective and stand the test of time, so we need to make it the best it can be. We have a once-in-a-generation opportunity to get this right. I think we all today want to do that and give individuals access to redress while safeguarding this country’s free press, which forms such a vital part of our democracy”.

6.12 pm

Lord Stevenson of Balmacara (Lab): My Lords, I thank the Minister for repeating the Statement on independent self-regulation of the press, made a short time ago in the other place.

I suppose that we should be grateful to the powers that be for the processes that have allowed us to identify a little more closely what happens in Privy Council matters, and how things are looked at and agreed. I think that we have all been a little astonished at some of the things that have come out, but at least it is beginning to come out, and for that we should be grateful.

We welcome the assurance just given that the Government, and indeed the Conservative Party, remain committed to the introduction of a royal charter that gives redress to victims when the press breach their code of conduct, while in no way interfering with the freedom of the press. As the Statement says, this is about,

“ensuring that the public has a fair system of redress through which to seek to challenge mistakes and errors when necessary”.

This is the position of the Labour Party. Labour supports a free and irreverent press as being essential to democracy. We do not support any state control of the press.

It is almost a year since the Leveson report was published. We accept the central recommendations of the report—namely, the need for a new system of independent self-regulation of the press, guaranteed by law. We strongly believe that there are real benefits if we work on a cross-party basis to implement these recommendations.

Your Lordship’s House will recall that Leveson’s proposal has the press setting up their own independent self-regulatory body, with an independent recognition body, independent of politicians and the press, ensuring that the self-regulator remains independent and effective. I should be grateful if the Minister would confirm, when he responds, that the Government’s intention remains that of ensuring that the interests of the victims are paramount and that the Government will introduce a Leveson-compliant independent complaints system for the press.

We believe that the parliamentary charter, the one put before the House of Commons in March 2013 by the Prime Minister, with the support of the Deputy Prime Minister and the Leader of the Opposition, and which was approved overwhelmingly by both Houses of Parliament, should have been submitted for consideration at the Privy Council meeting tomorrow. We regret that we will not be going to that meeting.

There has been too much delay. However, I accept that, given that we now know that the committee of the Privy Council will be unable to recommend the

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press’s proposal for a royal charter, there is at least a case for using the time available before the special meeting of the Privy Council on 30 October to finalise the original charter. There are, in fact, concerns from the regional press and there is, as has been mentioned, a Scottish dimension. There may, indeed, be merit in looking at the editors’ code.

However, I should be grateful if the Minister could confirm to your Lordship’s House the process that I understand that the representatives of the Conservative, Lib Dem and Labour parties have agreed will be followed to finalise the charter, and if he could also confirm that we will have absolute transparency of the process from herein. Confidence has already been shaken by the time and effort given to the press proposals and we now know that some drafting changes are being proposed to the original wording.

Can he therefore confirm: that following discussions on possible improvements to the March 2013 charter, the Secretary of State will place before the House the final version of the charter, if it has been agreed by all three parties, before the end of this week; that if the three party leaders cannot agree on changes to improve the charter of 18 March by the end of this week, then that original charter, as agreed by both Houses of Parliament, will not be changed; and that only a version of the 18 March charter agreed by all three party leaders will be the one put forward to the Privy Council at its special meeting on 30 October?

Does the Minister agree with me that the most important thing is for us to get an agreed version of the parliamentary charter sealed, to get a recognition panel established, and for a regulator to be set up? We must ensure that there will be a fair and effective complaints system independent of the press and independent of politicians.

We must not miss this historic opportunity for reform. We must ensure that what the press did to the Dowlers, the McCanns, to Abigail Witchalls’ family and to others, who suffered so terribly, can never happen again. As the Prime Minister said to the Leveson inquiry, “that’s the test of all of this. It’s not: do the politicians and press feel happy with what we get? It is: are we protecting people who have been caught up and absolutely thrown to the wolves”. So let us have no further delay. Parliament has decided; let us get on and implement Leveson.

6.17 pm

Lord Gardiner of Kimble: My Lords, first, I thank the noble Lord for his initial comments. I would say that it has been an education for me throughout this entire process, and while I have yet to understand all the processes of the Privy Council, the truth is that this matter clearly has been considered by the committee of the Privy Council with extreme care.

I should like to go through the points that the noble Lord has made and I shall start with the interests of the victims, as I will conclude with them, because this is why your Lordships are sitting here now—to ensure that what happened does not happen again, that we have the right system in place, that there is a change in culture and that certain parts of the press that lost their way recognise that this is not reasonable or

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acceptable to the nation. So I very much endorse the importance of the interests of victims and of ensuring that what people went through does not happen to other people.

The noble Lord mentioned delay. I entirely understand your Lordships’ frustrations, as indeed I have experienced, that this matter has taken quite a long time. However, the point about what we are seeking in these next few days with the right honourable Member for Peckham, my noble and learned friend Lord Wallace of Tankerness and the Secretary of State regarding these points on the work of the committee of the Privy Council is to see whether in these two areas in particular there may be reasonable and responsible adjustments, if the representatives of the three parties agree, which may make more practical sense. I should, however, like first to confirm that, as the Secretary of State said in the other place, the version of the cross-party charter will be placed in the Libraries of both Houses this Friday and that, if the three parties cannot agree to the thoughts of the committee that there may be this area of further consideration, the version of the 18 March will stand. The point is to see whether there can be some reasonable adjustments, particularly on the arbitration element relating to the concerns of local and regional newspapers. Lord Justice Leveson was particularly mindful of the importance of regional and local papers in the nation’s life. Those are the areas that the three parliamentarians will consider.

The noble Lord also mentioned the importance of sealing the cross-party charter, the establishment of the recognition body and the press’s self-regulatory body. I entirely agree. We need to get moving on ensuring that what we have done over these preceding months, timely though they may be—I emphasise that I understand the frustrations of your Lordships—will achieve a lasting settlement and that members of the press will understand that it is a wish not only of Parliament but of the nation that we move on in a responsible and reasonable way. I conclude with the noble Lord’s point about the test. The test of all the work that everyone has tried to achieve is that what happened before does not happen again.

6.21 pm

Lord Fowler (Con): My Lords, I welcome the Government’s commitment to take action but I hope that this is the last act. This play has now been running for almost two years and I think that we are all impatient to make progress. Does the Minister agree that this charter will in no way interfere with the freedom of newspapers to express their views and that the concern is, and always has been, about members of the public having their rights directly infringed and the total failure of the previous Press Complaints Commission to do anything about those abuses?

Surely, what we need now is basically very simple. We need an independent and effective commission which is seen as independent and which is checked periodically to ensure that it remains effective. We need that sooner rather than later.

Lord Gardiner of Kimble: I thank my noble friend. All I can say is that, for the sake of the victims and from the nation’s point of view, I very much hope

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that this is the final stage of important work to ensure that there is a change in attitude and culture. I think that what we have in place for this week is to show that progress really is intended. It always has been intended. From my discussions with the Secretary of State, I know that she is absolutely clear that we need to make progress. The real essence of why the royal charter was first put forward is to see that the freedom and the independence of the press in terms of its self-regulation ensure that there is this freedom for the press to hold us and others to proper account. As my noble friend has said, abuses should not be part of what the press is undertaking. We need to ensure that we get this up and running and that this abuse does not happen again.

Baroness Hollins (CB): My Lords, I welcome the Statement made by the Secretary of State, particularly that the cross-party charter will be signed on 30 October. It is an unfortunate delay. It is time to act and the promise is there. The parliamentary version of the royal charter, which is designed to underpin the new independent self-regulator, was approved by Parliament in March. Even that charter was a substantial departure from the Leveson report, which called for statutory underpinning. It had 10 concessions to the press. Will the Minister confirm that no further concessions to the press will be made this week before the charter’s publication on Friday?

Lord Gardiner of Kimble: I thank the noble Baroness for her comments and I understand what she said about an unfortunate delay. However, I hope that I have explained that it will not be put forward tomorrow because there is to be further work, which I think all three parties agree would be sensible to consider and discuss given the committee of the Privy Council’s view that there are areas that should be looked at again.

In terms of the word “concession”, the intention is to see whether there are practical ways to address these issues about the arbitration situation for local and regional newspapers and the standards code, which are intended to make this a workable proposition. I do not see them as concessions. This is not about concessions but about seeking to ensure that we have a workable solution.

Baroness Bonham-Carter of Yarnbury (LD): My Lords, does the Minister agree that the cross-party charter in no way threatens press freedom? I speak as a journalist. Nothing in it will interfere with or undermine what we all recognise as crucial to our democracy; namely, press freedom. Indeed, Geoffrey Levy will remain free to publish his opinion, as will those who disagree with him. This charter addresses the ability of victims and those who have experienced unacceptable intrusion to achieve redress. Does the Minister agree that we should get on with making sure that this charter comes into being? Will he confirm that that will be on 30 October?

Lord Gardiner of Kimble: I thank my noble friend for re-emphasising that the whole intention of the royal charter is not to undermine press freedom. It is intended to provide a system whereby there is such a

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culture that the situation previously faced by victims no longer happens but that, if it does—and I very much hope that it does not—there is proper redress for people. So I agree with that. I certainly agree that the proposals are to get on with it this week. The date that has been agreed for the Privy Council to meet to seal the cross-party charter is 30 October.

Lord Prescott (Lab): My Lords, the House will not be surprised that the Privy Council has rejected the PressBoF charter simply because it is not supported by all the industry or compliant with Leveson’s requirements. However, is the Minister aware that that caused a further delay? Why was it given preference over Parliament’s agreed charter? That delay was seven months and there is now another month’s delay. Is he aware that the way in which the press have beaten all six recommendations of the inquiry is simply by building in delay after delay after delay. If there are to be further consultations, we will be getting near to the general election when all leaders get pressed by the press and will decide that they have no time or political courage to implement the recommendations. Will he confirm that the Privy Council, at the end of the meeting on 30 October after Parliament has decided what these changes might be, has the possibility of rejecting it? If so, should there not be better representation on the Privy Council other than Tory Cabinet Ministers?

Lord Gardiner of Kimble: I think that I have already explained to your Lordships why there is a week when further work could be undertaken. As I have said, the right honourable Member for Peckham is very much part of those discussions. I hope that noble Lords opposite will be reassured that this is an honest venture to see if there are ways in which the points that the committee made can be incorporated. If not, the 18 March charter will remain.

The noble Lord used the word “beaten”. I want to reassure him that we have reached the point where, on Friday, the cross-party charter will be available to parliamentarians, the public and the press. The Privy Council will meet and the intention is to seal the cross-party charter on that date.

Lord Inglewood (Con): My Lords, will the Minister clarify for me—I am chairman of a regional newspaper company—whether the new charter, if I may call it that, will be discussed by Parliament between the time it is placed in the Libraries and the time that the Privy Council decides to adopt it?

Lord Gardiner of Kimble: My Lords, my understanding is that these are, as I say, points to do with the arbitration system, which are matters of detail. The intention is not to reopen this because all that will do is produce the situation that noble Lords have quite rightly berated me about. This takes us into avenues of reopening matters and, in a way, your Lordships and the nation feel that we have reached a point now where we have to resolve the matter.

Lord Sugar (Lab): My Lords, I would like to narrow my comments today to one particular organisation. All parties successfully applied pressure on News

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International, which resulted in the resignation of editors and the removal of the

News of the



from circulation. I do not wish to dwell on the attack by the

Daily Mail

on the Leader of the Opposition in the other place or to compare it to the phone hacking incidents of the past, but the attack is the final straw. The tyrant Paul Dacre, the editor of the

Daily Mail

, has gone too far this time.

It is about time that all parties again join together and demand of the shareholders and the owners of the Daily Mail the removal of this nasty man. He is not a fit and proper person to be an editor of a national newspaper. The culture that he has created at the Daily Mail has attracted the nastiest bunch of vindictive, arrogant and some would say racist people who call themselves journalists. Over the years, the Daily Mail has harassed members of all parties unfairly and it is about time Parliament showed some unity and flexed its muscles to deal with these nasty people once and for all.

We have to stand up to these bullies. Too many people have held back in the past. Anyone who dares to criticise the Daily Mail will be paid back by being attacked even more. There is no fair system of redress when it comes to them.

Noble Lords: Question!

Lord Sugar: I will give you a question shortly.

My question is in urging the Minister seriously to see what he can do to put pressure on the directors and owners of the Daily Mail. Dacre's refusal to apologise for what he did last week can be likened to the Kelvin MacKenzie/Hillsborough headline, which is something that he will be remembered for. I hope that last week's event will be something that Dacre is remembered for. Last week's events and the actions of the Daily Mail are further evidence that newspapers cannot be trusted to regulate themselves.

Lord Gardiner of Kimble: My Lords, the first thing to say is that we are having a royal charter precisely because state regulation is not an option that the country or indeed parliamentarians generally wish to travel towards. As the noble Lord has raised the point about the Daily Mail, I think that honest exchanges and robust differences of view are all legitimate, but I have always thought that they should be done in a civil manner. I do not think that what happened with the Leader of the Opposition and the Daily Mail and the Mail on Sunday was civil.

Baroness Deech (CB): My Lords, has legal advice been taken about the statutory underpinning of the charter? My recollection is that it says that the charter cannot be changed without a two-thirds majority in Parliament. In the very first lesson that law undergraduates ever have, one learns that one Parliament cannot bind another. No amount of saying that there needs to be a two-thirds majority can stand up if a future Parliament simply decides to change it. Has advice been taken on that?

Secondly, because everything seems to be going one way, is there a note of balance in this? It is, after all, our press that uncovered the so-called MPs’ expenses scandal. Our press investigated ill-doing in hospitals

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and old-age homes for the benefit of those in them even though some may say that they were being victimised by being uncovered. Our press uncovered the thalidomide scandal, perhaps the root of all our acknowledgement of investigative journalism in the past 30 years or so.

Some are fearful that investigative journalism of a very robust nature may become overshadowed if this is not fully taken account of in the royal charter, which one hopes is a cross-party initiative and not one unduly influenced by lobbyists.

Lord Gardiner of Kimble: The first thing to say to the noble Baroness is that yes this is a cross-party charter—very much so. There have been robust exchanges with party leaders and parliamentarians across the parties trying to seek some resolution. I absolutely do not think that the whole process is seeking to stop the press in its legitimate task of holding us to account, holding institutions to account and ensuring that wrongdoing is exposed. That is the very essence of why we should champion a free press. But what has happened and why we are here is that elements of the press have been hugely irresponsible and worse.

Lord Grade of Yarmouth (Con): One of the essences of the Leveson report was that the new regime, which is much needed, will be voluntary as well as statutorily underpinned. What comfort can my noble friend give the House that, whatever charter emerges at the end of this important process, the Government are confident that the newspapers will voluntarily sign up to it?

Lord Gardiner of Kimble: My noble friend makes an important point. Clearly, we need to have a regime in which the newspaper industry, even if reluctantly, concludes in the end that this is the wish of Parliament and, as I said before, the wish of the nation. I encourage the newspaper industry to see this as a reasonable settlement that protects freedom of the press but ensures that decent people have the proper redress that they deserve.

Lord Stoneham of Droxford (LD): My Lords, I welcome the Government’s commitment to look particularly at access to arbitration. Are the Government listening to the concerns of the regional press, which is particularly exercised because none of the problems that we have been talking about over the past couple of years derives from its work? Indeed, the regional press is the one part of the press that has followed the spirit as well as the processes of the regulation process, but now it is to be involved in a very expensive regulatory procedure. It is very worried about free access to arbitration, which could undermine the existing processes for settlement and, when the regional press is already in severe financial difficulty, could draw it into an additional cost burden.

Lord Gardiner of Kimble: My Lords, I admit that I have not had very long to read the letter to the Clerk of the Privy Council from the Chief Secretary to the Treasury and the Secretary of State, but the last page specifically mentions what my noble friend has raised. That is why, over the next few days, this important concern about arbitration, particularly for local and

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regional newspapers, is a reasonable one. I think the point my noble friend has made is precisely why we are spending these final days looking to see if there are ways in which the representatives of the three political parties can come to an agreed view. That will pick up the point which has been made by my noble friend.

Lord Forsyth of Drumlean (Con): My Lords, can my noble friend explain precisely what has been arranged in respect of the First Minister in Scotland? He has talked about the leaders of the three political parties, but given the First Minister’s capacity for mischief, it is obviously very important that he is on board.

Lord Gardiner of Kimble: One of the reasons that we took some time to ensure that the cross-party charter is absolutely correct was in order to have discussions with the Government in Scotland and to ensure that there is scope for the charter to include the press in Scotland. There have been clear discussions, and that is why the cross-party charter will include an ability for the Scottish press to be part of the arrangements.

Lord Empey (UUP): My Lords, we have just had another reference to Scotland. In order to ensure the balance that we all seek, is the Minister aware that the legislative framework is now diversifying within the United Kingdom following the passage of the Defamation Bill here because it has been blocked in Northern Ireland so far? There could be wide variations in the legislative framework around the United Kingdom, so that certain areas could in fact become litigation hubs. That would be most regrettable.

Lord Gardiner of Kimble: My Lords, I hope very much that that is not the case because what we are seeking to do is ensure that there is a situation whereby the press adheres, through the recognition body and its own self-regulatory body, to standards that we all think should be correct. I hope that we do not get into the situation referred to by the noble Lord.

Lord Kilclooney (CB): My Lords, great stress has been laid on the importance—

Lord Ahmad of Wimbledon (Con): My Lords, I regret that we must conclude because we have had 20 minutes on the Statement.

Lord Kilclooney: I thought that we had some extra time because the next business is not yet due to begin.

Lord Ahmad of Wimbledon: There is a set time of 20 minutes for questions following a Statement. However, the noble Lord is right to say that the next business will not start until 7.07 pm, and so I beg to move the House do now adjourn during pleasure.

6.42 pm

Sitting suspended.

8 Oct 2013 : Column 63

Financial Services (Banking Reform) Bill

Committee (1st Day) (Continued)

7.07 pm

Amendment 24

Moved by Lord Deighton

24: Clause 4, page 17, leave out lines 20 to 44 and insert—

“(1A) The Treasury may by regulations require a ring-fenced body to make arrangements for any one or more of the following purposes—

(a) ensuring that, except in prescribed cases, the ring-fenced body cannot become liable to meet, or contribute to the meeting of, pension liabilities which arise in connection with persons’ service on or after a date specified in the regulations (“the specified date”) in any employment, other than service in an employment in respect of which the employer is a ring-fenced body;

(b) ensuring that, except in prescribed cases, the default of a person other than another ring-fenced body would not result in the ring-fenced body becoming liable to meet, or contribute to the meeting of, pension liabilities arising in connection with persons’ service in any employment before the specified date;

(c) to the extent that it is not possible to ensure the result mentioned in paragraph (a) or (b), minimising any potential liability falling within paragraph (a) or (b).

(1B) The regulations may make provision enabling the trustees or managers of a relevant pension scheme in respect of which the employer or one of the employers is a ring-fenced body—

(a) to transfer to another relevant pension scheme part of the pension liabilities arising in connection with persons’ service before the specified date together with part of the assets of the scheme, or

(b) to divide the scheme into two or more sections in relation to which prescribed conditions are met.

(1C) The regulations may make provision—

(a) enabling a ring-fenced body to apply to the court in a case where the ring-fenced body has been unable to reach agreement with another person (“P”) about the making of arrangements with P on commercial terms for one or more of the purposes in subsection (1A), and

(b) enabling the court on such an application to order P to enter into arrangements with the ring-fenced body for those purposes on such terms as the court considers fair and reasonable in the circumstances.

(1D) The regulations must provide that any terms specified by the court by virtue of provision made under subsection (1C)—

(a) must be terms which, in the court’s opinion, represent terms on which the arrangements might be entered into if they were being entered into for commercial reasons between willing parties dealing at arm’s length, and

(b) may involve the payment of any sum by instalments.

(1E) The regulations may make other provision—

(a) about the making by a ring-fenced body of arrangements for one or more of the purposes in subsection (1A);

(b) about any transfer or division falling within subsection (1B).”

The Commercial Secretary to the Treasury (Lord Deighton) (Con): My Lords, I turn to Amendments 24 to 37. A central principle of ring-fencing is that ring-fenced banks must be independent from the rest of their groups, so that the failure of another member of the group cannot spread to—and bring down—the ring-fenced bank. Under existing pensions law, if a ring-fenced bank continues to share a pension scheme with other parts of its group then, if another group member were

8 Oct 2013 : Column 64

to fail, the entire liability for the scheme could fall on the ring-fenced bank as the “last man standing”. If this liability were sufficiently large, it could then threaten the viability of an otherwise healthy ring-fenced bank. Allowing ring-fenced banks to remain liable for a group pension scheme would thus leave open a potential avenue of contagion from the group to the ring-fenced bank.

It is for this reason that the ICB recommended that ring-fenced banks’ liabilities to group pension schemes should be removed or mitigated. Proposed new Section 142W, as currently set out, therefore gives the Treasury the power to require that ring-fenced banks make arrangements to ensure that they cannot become liable for the pension liabilities of any non-ring-fenced entity, or that they minimise such potential liabilities if they cannot entirely prevent them arising. This could involve segregating an existing pension scheme into discrete sections, or splitting it into two separate schemes. Restructuring would largely be executed through the existing means allowed for under pensions legislation.

The amendments to the powers as currently set out do not change the overarching policy objective. They simply ensure that the powers are wide enough to make sure that that objective is met in all scenarios. Under the existing drafting, the Bill allows the Treasury to make regulations requiring ring-fenced banks to make arrangements in relation to potential statutory liabilities they have to multi-employer schemes.

These amendments expand the scope of the power, allowing the Treasury to make regulations requiring that a ring-fenced bank ensure that it cannot become liable for the pension liabilities of non-ring-fenced banks, or at least minimise its potential liabilities to them, whether the liabilities are statutory—such as those which arise under the employer debt legislation—or non-statutory, such as can arise under contractual arrangements such as guarantees. The amendments also allow the Treasury to make regulations including provisions to help the banks to achieve the required separation of pension schemes, such as enabling the trustees to split the scheme or transfer assets and liabilities to a new scheme; and providing that a ring-fenced bank can make an application to the court if it is unable to reach agreement with a third party about the terms on which it should be released from a contractual arrangement or guarantee giving rise to potential pension liabilities.

In addition, the amendments enable the Treasury to make regulations requiring banks to do all they can to obtain clearance from the Pensions Regulator for any restructuring undertaken to comply with ring-fencing, to ensure that pension scheme members are adequately protected. This strengthens the existing provision in the Bill which only allows the Treasury regulations to require that a bank apply for clearance.

Finally, the amendments introduce a power, allowing the Treasury regulations to modify, exclude or apply legislation—including primary legislation—for the purposes of achieving the required separation of pension liabilities. Pension arrangements are inherently long-term in nature, and the Government must be able to respond flexibly to unforeseen developments as banks restructure their pension schemes if they are to ensure that the

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economic independence of ring-fenced banks is preserved. Regulations made under this power, like all regulations made under proposed new Section 142W, will be subject to the draft affirmative resolution procedure, and can be made only for the specific purposes outlined above. These amendments therefore ensure that proposed new Section 142W is effective in making the ring-fence robust.

Lord Eatwell (Lab): My Lords, I am grateful to the noble Lord for introducing this set of amendments about pension schemes. The argument for the amendments raises two significant questions. We are talking here about transitional arrangements: about moving from a group pension scheme to what might in future be deemed to be necessarily separate schemes for the ring-fenced and non-ring-fenced components of a group. There must therefore be other transitional arrangements as well—for example, property leases which are relevant to a group. Are they, too, to be separated and decomposed? What are we going to do about all those group liabilities similar to pension liabilities during the period between the implementation of legislation for ring-fencing and the conclusion when ring-fencing has been in place for some time? Over that period, there have to be transitional arrangements. Clearly, pensions are a very special case because the people will presumably stay where they are, but there must be other elements of liabilities which are also rather difficult to untangle. My first question is therefore: what is the Government’s thinking about such transitional problems?

The second question, which is much more specific to pensions and immediately arises, is whether the separation will be to the detriment of members of the pension scheme. This is precisely an area in which scale can become enormously important in a pension scheme, especially with respect to diversifying risk. The sheer scale of a pension scheme can be a component of the commercial success of that scheme. If the scheme is to be broken up, will it be to the significant detriment of the pensioners? There must surely be some consideration of whether it is to be their detriment and, if so, of what measures are to be taken to remove that detriment.

Lord Higgins (Con): The role of the trustees will be very important in this context. Is it envisaged that the two parts of the bank will have separate trustees?

7.15 pm

Lord Deighton: On the noble Lord’s question about transitional arrangements, the structure with respect to group liabilities will generally be to ensure that liabilities that are particularly relevant to the newly structured organisations that fall out of the ring-fencing arrangements are consistent with the businesses that they are in, so that an operating unit is created which has liabilities which match the business that it is running. If there was a lease at the group level and the ring-fenced bank was the organisation leasing the building, you would expect there to be an inter-company arrangement which would pass the cost down to that level. That is the principle and I think that most banks operate on that basis anyway because one is trying to put the

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costs and revenues where the business is. There is a provision under Part 7 of FiSMA which allows for transfer of business schemes if one is moving other businesses, but that is a separate point.

On the question of banks and trustees, it is for the banks to work out the practicalities. The legislation defines the objectives to make sure that the ring-fenced bank is protected and that the trustees and pension arrangements are protected in each case, which is why the provisions here ensure that the regulator is contacted in each case. Essentially, the cost of making this work, so that the pensioners are, at a minimum, indifferent to the outcome, will sit with the bank. That is the principle behind this. There may be some costs involved for the banks to leave the pensioners no worse than indifferent, and those costs are an intrinsic part of this separation and the advantages that it brings us.

Lord Higgins: Will my noble friend perhaps consider between now and Report whether there is not a strong case for the two schemes to be quite separate? There may well be a conflict of interest between the pensioners of one part of the bank and those of the other part; for example, on whether it should be a final salary scheme or a defined contribution scheme and so on. Will he consider whether one should not leave it to the banks but determine that they shall be separate pension schemes?

Lord Deighton: We will certainly review the question in that light. The principle behind this is that they would be separate pension schemes. They may be very similar schemes which are separated, but the notion here is that the ring-fenced bank would have one scheme and the rest of the group would be under different arrangements, the key objective being that the ring-fenced bank would not have an exposure to the pension liabilities that arise elsewhere in the group. That is the key principle here.

Amendment 24 agreed.

Amendments 25 to 38

Moved by Lord Deighton

25: Clause 4, page 18, line 11, leave out “a ring-fenced body from making” and insert “the making of”

26: Clause 4, page 18, line 18, leave out “a ring-fenced body to make the arrangements” and insert “the arrangements to be made”

27: Clause 4, page 18, line 19, at end insert—

“( ) require the trustees or managers of a relevant pension scheme or any employer in relation to a relevant pension scheme to give notice of prescribed matters to prescribed persons,”

28: Clause 4, page 18, line 25, leave out “the ring-fenced body to make the arrangements” and insert “the arrangements to be made”

29: Clause 4, page 18, leave out lines 27 and 28

30: Clause 4, page 18, line 34, at end insert—

“( ) modify, exclude or apply (with or without modification) any primary or subordinate legislation.”

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31: Clause 4, page 18, line 34, at end insert—

“(3A) The Treasury may by regulations require an authorised person who will or may be a ring-fenced body or an authorised person who will or may be a member of a ring-fenced body’s group to do all it can to obtain from the Pensions Regulator a clearance statement in relation to any arrangements to be made for the purpose of complying with—

(a) regulations under this section, or

(b) any provision made by or under this Part (other than this section) when the provision comes into force.”

32: Clause 4, page 18, line 35, leave out from beginning to “the” and insert “A “clearance statement” is a statement issued by”

33: Clause 4, page 18, line 49, leave out “The regulations” and insert “Regulations under this section”

34: Clause 4, page 19, line 5, at end insert “and this section”

35: Clause 4, page 19, line 5, at end insert—

“(1A) “Relevant pension scheme” means an occupational pension scheme that is not a money purchase scheme.”

36: Clause 4, page 19, line 9, leave out ““employer”,”

37: Clause 4, page 19, line 14, at end insert—

“(3A) “Employer”, in relation to a relevant pension scheme, means—

(a) a person who is for the purposes of Part 1 of the Pensions Act 1995 or Part 2 of the Pensions (Northern Ireland) Order 1995 an employer in relation to the scheme, and

(b) any other person who has or may have any liability under the scheme.

(3B) “Employment” has the meaning given in section 181(1) of the Pension Schemes Act 1993 or section 176(1) of the Pension Schemes (Northern Ireland) Act 1993.

(3C) “Pension liabilities” means liabilities attributable to or associated with the provision under a relevant pension scheme of pensions or other benefits.”

38: Clause 4, page 21, line 15, at end insert—

“( ) In section 391 of FSMA 2000 (publication), in subsection (1ZB), after paragraph (i) insert—

“(ia) section 142N;”.”

Amendments 25 to 38 agreed.

Clause 4, as amended, agreed.

Clause 5: Directors of ring-fenced bodies to be approved persons

Amendment 39

Moved by Lord Deighton

39: Clause 5, page 21, line 36, leave out “In”

Lord Deighton: Amendments 39 to 41 bring Clause 5 into line with the new senior managers regime recommended by the PCBS. The intention behind Clause 5 is to make sure that directors of ring-fenced banks always have regulatory approval to perform their functions. The clause was introduced before the PCBS made its recommendations about the new senior managers regime. It required directors of ring-fenced banks to be approved persons when they carried out designated significant influence functions, in the terminology of the old regime. The Bill now introduces the senior managers regime, in which the concept of a significant influence function has been replaced.

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A technical amendment to the clause is therefore necessary to require that the regulator, which can be the PRA or the FCA, always has to designate directors of ring-fenced banks as senior managers, which removes the references to the old terminology.

Amendment 39 agreed.

Amendments 40 and 41

Moved by Lord Deighton

40: Clause 5, page 21, line 36, leave out “after” and insert “is amended as follows”

41: Clause 5, page 21, line 37, leave out from beginning to end of line 3 on page 22 and insert—

“( ) After subsection (6) insert—

“(6A) In relation to the carrying on of a regulated activity by an authorised person which is a ring-fenced body, the function of acting as a director of the body must be specified as a controlled function in rules made—

(a) in a case where the body is a PRA-authorised person, by the PRA, or

(b) in any other case, by the FCA.”

( ) After subsection (10) insert—

“(10A) In relation to a body which does not have a board of directors, “director” means a member of its equivalent management body.””

Amendments 40 and 41 agreed.

Clause 5, as amended, agreed.

Clause 6: PRA annual report

Amendment 42

Moved by Lord Deighton

42: Clause 6, page 22, line 13, after “provisions,” insert—

“( ) the extent to which ring-fenced bodies are carrying on the regulated activity of dealing in investments as principal (whether in the United Kingdom or elsewhere) in circumstances where as a result of an order under section 142D(2) that activity is not an excluded activity,

( ) the extent to which ring-fenced bodies are carrying on activities that would be excluded activities by virtue of an order under section 142D(4) but for an exemption or exclusion made by such an order,

( ) the extent to which ring-fenced bodies are doing things that they would be prohibited from doing by an order under section 142E but for an exemption made by such an order,”

Amendment 42 agreed.

Clause 6, as amended, agreed.

Clause 7 agreed.

Schedule 1 agreed.

Clause 8 agreed.

House resumed.

House adjourned at 7.22 pm.