Clause 174
Banking Bill
12:15 pm
Ian Pearson (Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform; Dudley South, Labour)
I am sure that the whole Committee is relieved that we are not going to have an extensive debate on “may”, “shall” or “must” in the legislation. I confirm that the intention is for the Bank of England to publish principles to which operators of recognised inter-bank payment systems must have regard in operating those systems. As set out, the principles must be approved by the Treasury before publication.
The clause, in essence, formalises an aspect of the existing structure of oversight under which the Bank of England expects payment systems to take account of the Committee on Payment and Settlement Systems and its core principles for systemically important payment systems, which were referred to by the hon. Member for South-West Hertfordshire. “Core Principles for Systemically Important Payment Systems” was published in January 2001. The principles emphasise the importance of those systemically important payment systems within which disruption could trigger or transmit further disruptions among participants, or cause systemic disruptions in the financial markets more widely.
Without wishing to pre-empt the contents of the Bank of England’s principles with regard to the clause, I can inform the Committee that the types of principles covered in the CPSS’s “Core Principles for Systemically Important Payment Systems” include a well-founded legal basis, understanding and management of financial risks and various elements covering matters such as operational resilience, efficiency and effective governance. The core principles are internationally accepted as important for sound, stable and well functioning financial systems. The Bank will work closely with industry in developing the principles, but we do not see the Bank intending to change substantially the positions that it has taken in the past in such matters. The Bank will also, of course, want to take into account other relevant, internationally agreed recommendations and best practice when setting its principles.
The hon. Member for South-West Hertfordshire raised the issue of why failure to comply with the principles was not deemed a compliance failure. Later on in his speech he answered his own question, when talking about not everyone having to comply with each principle. All recognised inter-bank payment systems must have regard to the principles, but it is intended that the Bank of England—as now—will adopt a proportionate approach as to the level of that regard, based on the risk posed to the system and its relative systemic or system-wide importance. It is right, for example, that the Cheque and Credit Clearing Company should not have the same requirements made of it as CHAPS when there is no other alternative. Therefore, it would not be appropriate if failure to comply with principles triggered a compliance failure. Instead, the Bank may use additional information-gathering powers in the form of requiring an independent report under clause 181, for instance. Or, if a recognised inter-bank payment system is not operating with sufficient regard to its principles, based on the Bank’s analysis, the Bank may then choose to use its powers to issue directions or to require rule changes. Such matters will come up.
I hope that that answers the question of the hon. Member for South-West Hertfordshire, although I think that he answered it himself.