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

This clause allows the Bank of England to give directions to an operator of a recognised inter-bank payment system. With regard to the consultation representations from the affected operator, those issues that apply to system rules also apply to directions. Does the Minister see a direction under the clause as being an exceptional route of action taken by the Bank of England or as routine? May I ask specifically what those directions might relate to? The clause states:

“A direction may...require or prohibit the taking of specified action in the operation of the system”.

Would the Minister elaborate on what “specified action” might mean so that we are sure that it does not mean rule change, for example? It could be helpful to throw out even one possibility of what a “specified action” might be. It might be a question, for example, of whether employing an individual would, or would not, be appropriate, or whether that enables the Bank of England to assess if particular individuals are fit and proper to perform a role within a payment system in the way that the FSA, as a matter of course, assesses people performing approved functions under the Financial Services and Markets Act 2000. Is that part of what clause 177 is designed to address?

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

The clause gives the Bank of England power to give directions to the operator of an organised inter-bank payment system. Directions may require, or conversely prohibit, certain actions in the course of the operation of a recognised inter-bank payment system. Directions may also set standards to be met in the operation of the system.

As I understand it, the purpose of the legislation is not that directions should be used routinely. To give a specific example, the Bank might direct the recognised inter-bank payment system to set up a programme of tests on its crisis management arrangements. One would hope that the operator of the inter-bank payment system would wish to do that in any event and that agreement would normally be reached. If the Bank thought that the operator was unwilling to do so and that it was necessary, it is right that it should have the power by direction to require a programme of tests. That is an important part of the Bank’s oversight role for payment systems, as it enables it to ensure that specific steps, such as the one I have just indicated, are taken in relation to a payment system as and when the need arises.

Directions, unlike system rules, will make specific instructions regarding the general conduct of the payment system, rather than its rules of operation. Directions could also be made as emergency measures to take immediate action, or conversely, to stop doing something with immediate effect. Those powers are therefore necessary because they are an important part of the suite of regulatory tools, which I mentioned earlier, that enable the Bank of England to ensure that the payment system is both designed and operated in a manner that does not threaten the stability of the UK’s financial system.

The hon. Member for South-West Hertfordshire asked what would happen in an instance when the Bank might not have confidence in an individual’s ability to operate the system. We will cover that when we come to clause 186, if he thinks it is acceptable to debate the issue then.