David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

The Minister has already outlined what clause 176 is about, which is the ability of the Bank of England to require an operator of a recognised inter-bank payment system to establish rules or to change the rules. I am simplifying a little. I again ask about time frame and consultation and the opportunity that an operator of a payment system will have to make representations to the Bank of England. I imagine there will be circumstances where the Bank of England will want to move very quickly with regard to system rules, although there may be times when these matters can be done in a co-operative way. I should be grateful for guidance from the Minister as to whether he envisages clause 176 being used in exceptional circumstances, where the Bank of  England felt it necessary to impose rules on a payment system—if you like, forcing it on the operator, as opposed to reaching some agreement by dialogue. I know there have been instances under the non-statutory regime where the Bank of England has been able to reach an agreement by raising an eyebrow—in the manner of Sir Desmond Glazebrook of “Yes Minister” fame, as referred to earlier by my hon. Friend the Member for Wellingborough—and that that will be the way in which the Bank of England will seek to work, through dialogue and co-operation, rather than necessarily using the rules in clause 176 as a routine way of forcing payment systems to change their rules.

Stewart Hosie (Spokesperson (Economy; Home Affairs; Treasury; Women); Dundee East, Scottish National Party)

Subsection (1)(d) states that an operator may be required

“not to change the rules without the approval of the Bank.”

I do not know the internal workings of any inter-bank payment systems, but I have written financial computer systems. I would be astonished if an entire system and the rules under which it operated did not include the creation of financial and transaction reports, which may subsequently be used in company accounts or bank accounts to calculate things such as tax liability.

Should the tax regime change, will the provisions mean that rules cannot be altered to change the reporting from the systems without the approval of the Bank? I suspect that that is not the intention, but it might be an unintended consequence. Perhaps the Minister will think about whether minor changes in the rules of systems should require approval by the Bank if they are made simply to facilitate additional or changed reporting that falls outside the inter-bank payment system.

Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)

May I remark on the importance of system rules before addressing those points? System rules are a fundamental part of how payment systems operate. Among other things, they cover a payment system’s legal structure, how risks are shared or managed and how default arrangements work. For example, the Bank of England may wish to ensure that a system has rules in place to manage the default of a participant effectively. The Bank’s powers on rules in the clause will be an important element of its oversight role for payment systems.

Rules fundamentally underpin the operation of any payment system. They are a crucial determinant of its efficiency and stability. Ensuring that an operator of a recognised inter-bank payment system has the appropriate rules in place on specific aspects of the payment system will ensure that it is not operated in a way that threatens the stability of financial markets or other business interests across the UK. It is important that our inter-banking system has effective rules in place and that the Bank of England has powers regarding those rules.

In response to the questions, we usually expect the Bank to operate in a co-operative way and discuss the system rules for an operator. It might be that in exceptional circumstances the Bank has to act quickly. The legislation therefore ensures that there is flexibility to take account of that. The hon. Member for Dundee, East asked whether the Bank’s approval will be required in all cases of rule change. Again, the word “may” is involved. Let me make myself clear: the Bank of England may require the operator of a payment system to seek approval  before changing its rules, but that will not necessarily happen in all circumstances. System rules are important and it is right that the Bank has a strong oversight responsibility in that area. That is why we are giving these powers a statutory basis.

Stewart Hosie (Spokesperson (Economy; Home Affairs; Treasury; Women); Dundee East, Scottish National Party)

Will it be permissible for a bank that is required to change the reporting in its system because of a tax change to do so without reference to the Bank of England?

Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)

I am sure that that will be the case.

David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)

The wording of the clause is

“not to change the rules without the approval of the Bank.”

Will it be possible in any circumstances for such approval to be retrospective? In other words, there may be times when a payment system needs to change the rules quickly for tax or operational reasons. In such circumstances, the operator might have to go to the Bank and say, “We have done this; is it okay?” Is that permissible under the clause?

Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)

I certainly see a distinction between routine changes to rules to comply with legislative requirements and future tax changes, and more wide-ranging changes to the rules that result from the decisions taken by an operator. Were an operator to consider making some fairly fundamental changes to its rules, I expect that it would want to have a conversation with the Bank as regulator in the first instance, and I think that that would happen in the normal course of events.