Clause 155
Banking Bill
9:00 am
Mark Hoban (Shadow Minister, Treasury; Fareham, Conservative)
It is a pleasure to serve under your chairmanship this morning, Mr Gale. The purpose of new clauses 1 and 2 is to facilitate a debate in Committee about the wider aspects of the Financial Services Compensation Scheme. The Financial Services and Markets Act 2000 established the compensation scheme and set out a framework for it. Much of its detailed regulation will be formulated in consultation with the industry by the Financial Services Authority. There are important public policy issues that the Committee should have the opportunity to discuss this morning because such matters have received considerable attention in the media during the past 13 months, from the point at which depositors queued around the block to take their money from Northern Rock through to the rescue of the Icelandic banks earlier this month.
It is important to start consideration of part 4 of the Bill by having a broader debate about the compensation scheme and what objectives we want it to deliver when the FSA produces its final rules. New clause 1 sets out four objectives, the first of which would
“maintain customers’ confidence in the UK banking system regardless of whether the bank is incorporated in the UK or another EEA country”,
including members of the European Union and countries such as Iceland. Objective 2 would
“make payments to depositors within seven days and to have eligibility criteria, qualification processes and information requirements which facilitate that.”
Objective 3 would ensure
“that there are compensation arrangements for each bank brand”,
and objective 4 would
“require that the scheme pays customers their gross balance and that any amounts due from customers are collected in the usual way.”
I shall talk about each objective in turn before explaining new clause 2.
One lesson that we can learn from recent events is the need for consumers to feel confident about their money. I mean not only the solvency and security of the bank that they are with, but what happens in the event of the bank’s failure, how they can access their money and how confident they are about how quickly they can get their hands on it. It means that the compensation scheme must be very clear and set out the precise terms for consumers. We want consumers to understand the limits of the scheme so that they can determine in their own minds how they allocate their funds between banks and what precautions are necessary so that they can take responsibility for their financial affairs. That is why objective 1 is to maintain consumers’ confidence in the banking system.