I beg to move, That this House
agrees with Lords amendment 72.
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As Members will know, the Government have amended two elements of parts 5 and 6 of the Bill in response to concerns raised in the other place. The first concern was raised in response to comments received by the Payments Council, a key body representing payment system operators, about exemptions from liability for such operators acting under direction from the Bank of England. Its principal concern centred on a scenario in which an operator could be instructed by the Bank—under its power to give directions—to continue to allow a failing bank to participate in a payment system even when that bank no longer met the criteria for participation. The question raised was whether the operator would be given an exemption by the Bank in respect of any liability arising from acting in accordance with the direction.
The power to give directions is intended to provide a tool for the Bank to use in furtherance of the objectives of this part of the Bill: that is, to ensure that recognised inter-bank payment systems are operated in a manner that minimises deficiencies and disruptions that could threaten the stability of, or confidence in, the UK financial system, or have serious consequences for businesses or other interests throughout the UK. We therefore do not envisage circumstances in which the power would be exercised in the manner suggested. Nevertheless, given the concerns raised, the Government considered it appropriate to address them, which is why Lords amendment 72 gives the Treasury power to grant, by order, an operator exemption from liability in damages in respect of acts or omissions carried out in accordance with a direction if that is appropriate in the circumstances.
The amendment provides that the Bank should notify the Treasury before making a direction, so that the Treasury has an opportunity to consider whether it would be appropriate to make an exemption order. As the Bank may need to give a direction urgently in the interests of financial stability, we believe that the order should be subject to the negative procedure. For obvious reasons, it will be important that any exemption is in place at the time the direction is given. Government amendment 96 is consequential, updating the statutory instrument table in part 8.
The second set of amendments concern the penalty clauses of parts 5 and 6. The Delegated Powers and Regulatory Reform Committee was particularly concerned about their application under part 6. Having considered both the Committee's report and the concerns voiced in Committee both here and in another place, the Government made amendments to assuage any fears about how the financial penalty power could be exercised.
Amendment 73, which was agreed in the other place, provides that the Bank of England must prepare and publish a statement of the principles it will apply in determining both whether to impose a penalty and the amount of the penalty in respect of a compliance failure under part 5 of the Bill. It is intended that these principles will preserve the Bank's discretion in assessing whether to impose a penalty and the quantum of that penalty, but will also enhance the transparency of the enforcement regime.
These principles will, no doubt, reflect the range of factors that will need to be taken into account in the decision process; for example, the scale of the compliance failure and the seriousness of the consequences arising, the resources of the payment system, and the frequency of the offence. However, in the interests of preserving the Bank's discretion in preparing and issuing the statement, the Government do not consider it appropriate to specify in the Bill the factors that the Bank must take into account. The statement of policy must be published on the Bank's website and a copy must be sent to the Treasury. We consider this publication requirement to be adequate to ensure the policy is brought to the attention of operators of recognised inter-bank payment systems and the general public. The Bank must review and revise the policy from time to time, as appropriate.
In the interests of fairness, any penalty imposed by the Bank must, of course, be in accordance with the published policy at the time the compliance failure was committed. This offers guidance to operators of recognised inter-bank payment systems, while maintaining the necessary flexibility for the Bank to impose penalties that are appropriate in all the circumstances in each case. I trust that the hon. Members for South-West Hertfordshire (Mr. Gauke), for Dundee, East (Stewart Hosie), for Southport (Dr. Pugh) and for Gosport (Sir Peter Viggers), who spoke to this clause in Committee, will find that this amendment puts beyond doubt the assurances I offered at the time as to the circumstances in which a financial penalty may be imposed and also the scale of that penalty.
Lords amendment 74 provides that the Treasury must specify in the banknote regulations a method for determining the maximum amount of penalty that may be imposed by the Bank for a breach of regulations or rules. This amendment was designed to address concerns that the Bank could conceivably have been enabled to set unlimited penalties under the banknote rules. As I have said, the Delegated Powers and Regulatory Reform Committee of the House of Lords expressed concerns that penalties were a matter left in banknote rules rather than in regulations. Under the amendment, which addresses that concern, it is intended that the banknote regulations will set out a formula for calculating the maximum penalty to be imposed for under-backing and will make provision in relation to a statement of policy on penalties to which the Bank must have regard in determining the level of the penalty imposed. I would like to reassure hon. Members that provision has already been drafted at paragraph 4 to schedule 1 to the indicative draft banknote regulations, providing that the amount of any penalty must be determined in accordance with a published statement of policy.
All of these amendments address concerns expressed during parliamentary scrutiny of the Bill, and serve to set out in the Bill certain reassurances as to the scope of the powers conferred therein. I therefore commend the amendments to the House.
I have a few questions to ask the Minister on this group of Lords amendments. As he has said, Lords amendment 72 provides that the Bank of England must give notice to the Treasury before making a direction and that the Treasury may confer immunity from liability. I would be grateful if he would elaborate on the relationship between the Bank of England and the Treasury in those circumstances. It would appear that the Bank takes the lead and that this is merely a notification requirement. What would happen if the Treasury objected to a course of action taken by the Bank? What would happen if it objected to a direction that the Bank gave under clause 188?
Lords amendment 72 states that the
"Treasury may by order confer immunity from liability...in respect of action or inaction in accordance with a direction."
Clearly, a degree of discretion is involved in the use of the word "may". During the Bill's progress we have had many discussions on using the term "may" as opposed to "shall" or "will". Could the Minister give an indication as to the factors the Treasury would take into account when deciding whether or not to confer immunity from liability in damages?
Lords amendment 73 relates to the statement of principles to be applied in determining penalties, which, again, is to be sent to the Treasury. Could the Minister elaborate on the relationship between the Treasury and the Bank of England in this context? Will the Treasury have a formal role in giving its views on these principles? Will it be able to recommend or indeed require that the Bank of England changes these principles?
Lords amendment 74 states that
"Banknote regulations must establish a method for determining the maximum amount of a penalty."
I merely note that there seem to be two separate regimes in parts 5 and 6. The one in part 5, which deals with the inter-bank payment systems, provides for a statement of principles with regard to penalties to be produced by the Bank of England, whereas the one in part 6 provides for banknote regulations to specify the maximum penalty. Will the Minister explain why it is appropriate to have two separate regimes, given that we are addressing both those issues in the same Bill, at the same time and in the same group of amendments? There may be good reasons for the slightly different approach being taken, but it might be helpful for the House to hear them. These Lords amendments attempt to address some of the concerns that we raised in Committee, and that is welcome. We are grateful to the Government for, again, listening to some of our concerns.
I welcome the hon. Gentleman's support for the amendments, which were agreed in the other place. He is right to say that the Government have carefully listened to the concerns that have been raised in a number of places, not least by Members of this House. He asks a number of detailed questions and rather than respond to each of them individually now—I am not sure that I would be able to do so—it is probably best if I write to him and place a copy of my reply in the Library of the House.
Lords amendment 72 agreed to.
Lords amendments 73 to 82 agreed to , with Commons privilege waived in respect of Lords amendment 75.
After Clause 227