Clause 183
Banking Bill
5:00 pm

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

We were getting carried away, were we not, with the speed of progress? I wish to ask the Minister a couple of questions.

We again have the words, “may publish”. I can see an argument for some discretion for the Bank of England as to whether it publishes details of compliance failure, particularly in respect of minor circumstances, but I wish to flag up a point about major failures.

The Minister may be able to provide some reassurance to the Committee as to the steps that will be taken by the Bank of England and, indeed, the Treasury, if a major compliance failure is identified within a payment system but the information has not necessarily reached the public domain. If some type of failure is identified by the Bank of England, it may cause publication, which may cause some damage to confidence in that payments system. I would be grateful to know whether the Minister has given any thought as to how such issues will be dealt with, because we do not want regulatory authorities to be unprepared when publication of some breach of the code of practice or principles is revealed to the public and there is a sudden decrease in confidence in a particular payment system.

Peter Viggers (Gosport, Conservative)

I am concerned about a lack of specificity in clauses 181 to 183. Clause 183 states:

“The Bank of England may publish details of a compliance failure by the operator of a recognised inter-bank payment system.”

How will it get those details? I assume that it would get them under clause 181, as it

“may require the operator of a recognised inter-bank payment system to appoint an expert to report on the operation of the system.”

If I were starting from scratch, I would prefer to say in clause 181 that the Bank may appoint an expert at the cost of the operator.

Jimmy Hood (Lanark and Hamilton East, Labour)

Order. I have a suspicion that the hon. Gentleman is speaking to clause 181, which has already been decided by stand part. It is okay for him to refer to it but not to go into any great detail. He is speaking to clause 183 stand part.

Peter Viggers (Gosport, Conservative)

Indeed, Mr. Hood, but clause 183, which I have just read, gives the Bank power to publish details of a compliance failure. How is the Bank to get the information which, under clause 183, it will require to carry out those powers? I should have thought that the Bank would prefer, in preparation for the exercise of powers under clause 183, to have its own independent inspection. We have seen that under clause 181—I shall not refer to it again, Mr. Hood—the Bank does not itself have power to authorise an inspection. Instead, it has power only to

“require the operator...to appoint an expert”.

When he discusses clause 183, will the Minister explain how the Bank will pull together all the information it needs to enable it to publish details of a compliance failure? It does not have under its thumb or control the inspector who carries out the inspection into the bank under inquiry. I therefore would have thought that clause 183 would be much more powerful if preceding it there was a description of the detailed manner in which the Bank will pull together all the information it needs. How can the Bank produce details of a compliance failure if it has not had someone working specifically to produce the details for it? I hope that the Minister understands the point that I am making. It is a matter of concern that the Bank will not readily be able to exercise the powers in clause 183 without the all the background information that it needs to be clear and specific.

Peter Bone (Wellingborough, Conservative)

I assume that the word “may” in clause 183 is genuine and that it gives discretion to the Bank. That goes to the heart of one of the problems with the Bill and the banking system. A serious compliance failure by one of the major banks that is published could cause a run against that bank. Not to disclose such a failure might, in the long run, be better, but if the bank got into serious trouble, the Government would be in a great deal of trouble because the bank did not publish details of the failure earlier. Do the Government think that such things should be disclosed, or should they be kept quiet to stop the damage being done to the relevant bank?

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

Clause 182 establishes the meaning of the term “compliance failure”, and clauses 183 to 185 set out sanctions that may be imposed if an operator of a recognised inter-bank payment system commits a compliance failure.

The first sanction is set out in clause 183, which provides that the Bank of England may publish details of a compliance failure. In effect, it is a power of public censure. The disclosure of an operator’s failure to observe or abide by requirements that seek to ensure the UK’s financial stability is intended to act as a deterrent against non-compliance. There are other sanctions, which we will move on to discuss, in case of more serious failures, but we think it right, in the exceptional circumstances that I am happy to confirm we are talking about, that the Bank has a range of measures at its disposal.

The hon. Member for Gosport asked how the Bank might have the powers of information to be able to come to its conclusions. Compliance failure is defined in clause 182 as a failure to observe a requirement under clauses 175, 176, 177 and 181—respectively, the codes of practice, system rules, directions and the independent report. Other sanctions, as I said, are set out in clauses 184 and 185. When it comes to looking at compliance with the code of practice and the system rules, the Bank will routinely gather a lot of information, given its oversight role.

In addition, clause 190(1) gives the Bank power that it

“may by notice in writing require a person to provide information”,

so there are a range of mechanisms to ensure that the Bank has the information that it requires to make the judgments that it wants to make. I should stress that the publication of a report is simply one way in which the Bank can act following a compliance failure, which is why, in response to the hon. Member for Wellingborough, the word should be “may”. It may be better, if there was a serious breach of systems, not to publish a report but to go for other remedies that we will discuss later. That would be a judgment for the bank to make when considering the circumstances of the case.