It is worth bearing in mind that the bank described as the residual bank is part of a failed organisation. When we talk about the fairness of the arrangements between the bank that has gone into the special resolution process—the NewCo, as referred to by the noble Viscount, Lord Eccles, and the residual bank or transfer, as referred to by the noble Baroness, Lady Noakes—we are talking about what was, prior to that, a single organisation with a single set of shareholders with interests in the totality of the organisation.
I shall speak first to Amendments 107, 109, 110 and 112. The noble Baroness has tabled a series of amendments which seek to introduce the concept of arm's-length terms into the continuity clauses. The amendments provide that the relevant authority must ensure that consideration be paid as would be expected in arrangements concluded between parties dealing at arm's length.
If a former group company provides a service—for example, IT support, as we mentioned earlier—to a deposit-taker that has been transferred into temporary public ownership, the continuity provision places the former group under obligations to continue to provide the service. However, it is of course appropriate that the group company receives reasonable consideration for the provision of that service.
In normal circumstances, the forces of supply and demand—the usual commercial forces—would work to determine consideration, as would be expected in arrangements concluded between parties dealing at arm's length. If a company purchased a bank from the group, it would seek to negotiate terms for the provision of services to the bank, or put in place other arrangements. For example, an IT company might stipulate that it be allowed to shut down systems for an hour each night to carry out maintenance. If the deposit-taker did not accept this provision, the bank would take its business elsewhere or arrange the service to be provided by another company. However, clearly, the authorities would not have opportunity to enter a process of negotiation, or to seek alternative arrangements at the time of the transfer under the SRR stabilisation powers.
Once the business is transferred, it is essential that the services continue to be provided to ensure that the deposit-taker remains operational from hour one of day one. This is necessary, for example, to ensure that depositors retain access to their accounts. Therefore, the transferee would have but one choice: to continue with the same services as pre-transfer. In addition, bank systems are often highly bespoke to the particular business that they support, so it is highly unlikely that a transferee would be able to find and organise an alternative supplier for essential services at very short notice.
Given that the deposit-taker would not be able to take advantage of substitute service providers, a former group company that supplies services is likely to be in a position of relative power and could seek to charge "ransom" rates. This is because the deposit-taker would have no choice but to accept the terms of the provider, given the absence of alternatives. For this reason, the Government consider that the phrase "reasonable consideration" strikes the right balance between the consideration that a service provider should rightfully receive and mitigating the risk of "ransom" conditions being imposed. Clause 69 provides that the Treasury may by order specify matters which are to be or are not to be considered in determining what amounts to reasonable consideration. I hope that I have suitably justified the Government's position on this issue.
Amendments 108 and 111 seek to remove the phrase "so far as is reasonably practicable" from subsection (3) of the relevant clauses. This subsection relates to specific continuity obligations for share and property transfers. It imposes a duty on the relevant authority to aim to preserve or include provision for reasonable consideration, and other provisions that would be expected in arrangements concluded on an arm's-length basis. The amendment would remove the qualification to that duty; namely, that the duty does not arise where it would not be reasonably practicable. Of course, it is the authorities' intention to provide such things in all situations. However, there may be circumstances which result in it not being practicable. This reflects the fact that the continuity obligations have not been, and cannot be, concluded in the manner of ordinary contractual arrangements. A bank will normally make provision for its servicing arrangements in a deliberate and planned way, anticipating the future needs it will have for required services and facilities.
By contrast, the continuity obligations are designed to ensure that required services and facilities continue to be provided, following a transfer compelled by statute. In such circumstances, it may not be reasonably practicable to provide for the terms of such contracts to be on wholly commercial terms because there may not be any legitimate commercial analogue for the circumstances of the banking business following the transfer. I should also make it clear that the phrase "so far as is reasonably practicable" does not provide the relevant authority with a right to ignore commercial terms.
I shall now turn to Amendments 113 and 114, which seek to change the nature of Clause 69, whose purpose is to provide that the Treasury may by order specify matters which are to be, or are not to be, considered in determining what amounts to "reasonable consideration", or "arm's-length" provisions. The order is intended to be a standing piece of secondary legislation, not bespoke for a particular resolution. The purpose is to set out provisions which would not be suitable for primary legislation but which would aid clarity about how the Treasury may seek to determine what amounts to reasonable consideration or arm's-length provisions.
Amendments 113 and 114 change subsection (1) of the clause so that the Treasury may appoint a person to determine what amounts to reasonable consideration in the event of dispute, instead of providing for the matters that are or are not to be considered in assessing what amounts to reasonable consideration. It is true that other parts of the Bill, most notably in respect to the compensation clauses, provide for independent valuation and for independent valuers to be appointed. However, the Government consider that the circumstances in which compensation takes place are different from the environment of a continuity obligation.
The existing power is an order-making power which allows the Treasury to specify matters which may be taken into account in assessing the consideration to be paid. The purpose is to provide commercial certainty as to the factors that may be taken into account and to ensure that a ransom is not paid. Any determination as to the consideration paid is, of course, subject to judicial review. Therefore, while it is not explicit in the Bill, there is a mechanism that could be put in place for the independent evaluation of the reasonableness of the determination as to consideration. Therefore, I hope that the noble Baroness feels able to withdraw her amendment.