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

I shall make just two points about the clause. First, I am sure the Minister would not want us to have a system in place that discourages good people from being involved in the operation of payment systems,  so if he can provide some comfort to the Committee about how the powers under clause 186 will operate, it will be helpful. The powers are quite widely drawn and there is concern that that might discourage people from operating in that area—although I also note that similar provisions exist with regard to approved persons within FSA-regulated entities as a whole.

Secondly, I said to the Minister this morning that clause 177 is broadly defined and that the Bank of England will be able to give a direction to the operator of a recognised inter-bank payment system to take specified action and that that power could be used against particular individuals. The Minister referred me to clause 186 and was right to do so, but considering clause 177 in isolation, it seems to be broad enough to take into account various elements of clause 186. Therefore, in the context of clause 186, I ask again if the Minister can confirm that clause 177 will not be used as a mechanism for prohibiting individuals and that, as far as the treatment of individuals is concerned, that will be dealt with under clause 186. If he cannot confirm that, perhaps he will elaborate on why that is the case.

Colin Breed (Shadow Minister, Treasury; South East Cornwall, Liberal Democrat)

In the past, we have talked about the operator being an entity and said that therefore the entity can or cannot carry on. This clause specifically refers to a person. Unless the Bank of England has authorised or qualified that person, it is difficult to see how it can disqualify that person. Is it intended that people who are in some sort of management position of responsibility in these payment systems will have to be authorised by the Bank and then that authorisation could be withdrawn, or will the Bank of England effectively be able to override any service agreement that an individual bank has entered into in respect of its personnel? In other words, can it in some way insist that the bank disqualifies the person who is operating in that way? That would be a massive change in the way in which any regulator operates in relation to the institutions under its powers. At the moment, yes, a regulator can regulate a company, a bank, a business and everything else, but unless it is going to specifically authorise individual people and they are going to have to maintain that sort of qualification or authorisation, it is difficult to see how the Bank of England can do that.

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

The hon. Gentleman will be aware that in entities regulated by the Financial Services Authority, there is an approved persons regime. Before one can perform a controlled function with an FSA-regulated entity, it is necessary to have obtained approval from the FSA, and the FSA is entitled to withdraw that approval and so on. In that sense, there is a parallel. Does he agree that the distinction under clause 186 is that there is not an approval regime in the first place? Perhaps there is a point to be made about notification and the Bank of England being aware of who is employed. That matter does not appear to have been specifically addressed.

Colin Breed (Shadow Minister, Treasury; South East Cornwall, Liberal Democrat)

That is the specific point I am making. If we are going to get down to the situation of people being authorised to undertake management functions in this way and therefore carrying some sort of approval by the Bank of England, that is fine, because that approval can be removed. The fact that approval has  been removed will mean that they cannot continue to operate in the management role and so on. What is not clear is to what extent the Bank of England is now involving itself in the approval of management in those instances.

Peter Viggers (Gosport, Conservative)

My point is rather similar. I derive my text from the proverb, “You don’t shoot the pianist, you shoot the person who asked him to play.” Clause 186 says:

“The Bank of England may by order prohibit a specified person from being an operator”.

It goes on to say:

“The Bank may by order prohibit a specified person from holding an office”.

What it does not say is that the Bank may by order prohibit a bank from appointing a certain person. I wonder whether there is a provision in the Bill that enables the Bank of England to move against banks and not just individuals who are operators or who are holding an office or position?

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

Again, I would like to make it clear that we are talking about exceptional circumstances. Provisions in the Bill allow action to be taken against the bank as an entity. It is right to ensure that the inter-bank systems are robust, that there is no risk to those recognised systems that are of systemic and system-wide significance, and that they are being operated by responsible people. We have no reason to doubt that that is the case. It is right to take powers in legislation to disqualify a person from being an operator of a recognised inter-bank payment system, or from holding a position of management responsibility within such a system depending on circumstances, to make it clear that the disqualification could be

“for a specified period, until further notice, or permanently,”

and to make it a criminal offence to breach such a prohibition.

The clause is necessary to prevent a person from being an operator of a recognised inter-bank payment system if there is a potential threat to the stability of the financial system or to business interests in the UK. I am sure that the Committee will support that overall intention.

This power is intended to capture a situation in which the Bank of England feels strongly that a person who has been involved in the operation of a payment system that has been ordered to close should not be in a similar position in an alternative payment system. It also covers cases in which the Bank of England may be aware that a particular person is unsuitable to run a payment system because of inappropriate conduct elsewhere. I stress that there are also checks on the Bank’s power, including a requirement to give a warning, unless the Bank’s emergency power under clause 187(3) is used. There is a right of appeal to the independent financial services and markets tribunal.

The power of direction under clause 177 will not be used by the Bank of England to order an operator to remove or sack a person from its operation. I am happy to give the assurances that the hon. Member for South-West Hertfordshire seeks. This is not within the scope of the power, but I can confirm that clause 186 deals with the disqualification of specific persons from holding office.  Obviously, the meaning of a “person” relates to the Interpretation Act 1978, which refers to natural and legal persons, so it can include banks and other corporate bodies.

John Pugh (Shadow Minister, Treasury; Southport, Liberal Democrat)

I am not sure whether the Minister is making it perfectly clear to all of us, but could he tell me whether there is a presumption in the clause that anybody who holds a senior management position in an inter-bank payment system is necessarily in danger of being referred to as an operator, or is in the class of people who may be operators? Are there some exclusions?

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

What we are trying to do in clause 186 is to be clear that we are talking about a person who is an operator of a recognised inter-bank payment system. If this power were ever to be used—I would expect its use to be extremely rare—it would be clearly targeted at individuals where the Bank felt very strongly that that person was not an appropriate person to be running a payment system, because of the reasons that I have cited elsewhere.

Colin Breed (Shadow Minister, Treasury; South East Cornwall, Liberal Democrat)

We are edging our way there. Can the Minister envisage a circumstance, therefore, wherein such a person would not necessarily have already been dismissed or taken out by the operator—the company—before the Bank of England became involved?

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

As I said, I imagine that this power, if it was going to be exercised, would be exercised extremely rarely, because I would have thought that in normal circumstances the operator would have already taken that decision. So I think that it is a power that would be used only very rarely, because, as I have said, we would expect the operator to have taken action previously.