Clause 171
Banking Bill
11:30 am
David Gauke (Shadow Minister, Treasury; South West Hertfordshire, Conservative)
These are probing amendments. They are intended to flush out some of the issues that relate to the relationship between the regime in these provisions and the regime that already exists for some payment systems, under the Financial Markets and Insolvency (Settlement Finality) Regulations 1999—the settlement finality regulations, as they are known to their friends. They provide a comprehensive legislative framework for the purpose of protecting systemically important payment systems.
The purpose of the settlement finality directive and regulations—these regulations are based on an EU directive—is to reduce risks associated with participation in payment settlement systems by minimising the disruption caused by insolvency proceedings brought against a participant in such a system. The main provisions of the directive ensure that bilateral and multilateral netting are protected from potentially disruptive provisions of insolvency law and that payment orders are protected from insolvency law provisions from the moment they are entered into a designated system. There is a prohibition of insolvency laws having retroactive effect.
As far as I can see—I suspect the Minister will correct me if I am wrong—under the settlement finality regulations the following payment systems have been designated: CHAPS sterling and CHAPS euro, CLS, CREST and LCH.Clearnet. They are regulated by the FSA because they are recognised investment exchanges or clearing houses. The purpose of the regulations is to grant some certainty to these payment systems and their participants that insolvency law will not intervene and unravel a whole set of transactions.
In distinction to what we have here, the designated systems system is an opt-in system. Systems can choose to be designated and benefit from this protection. Here the Bill is structured so that the Treasury determines whether a system should be recognised. Such recognition does not provide particularly great benefits, other than providing external confidence. It imposes a number of obligations on the systems. The point that I am seeking to examine with these amendments is whether it is right to distinguish between the systemically important designated system and a new recognised system, whether that will overcomplicate the matter and whether there is anything we can do to roll the two together.