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Part of Bank of England and Financial Services Bill [HL] – in the House of Lords at 5:00 pm on 15th December 2015.

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Photo of Lord Bridges of Headley Lord Bridges of Headley The Parliamentary Secretary, Cabinet Office, The Parliamentary Secretary, Cabinet Office 5:00 pm, 15th December 2015

My Lords, I thank all those who have offered me congratulations, which really should be to those in the Bank, the NAO and the Treasury who have been labouring long and hard on this. I have just been trying to oil the wheels as they go along. I am very nervous about the phrase “Peace in our time”, which one of your Lordships used. I get very nervous when that phrase is used, but I am very pleased with where we got to.

My noble friends Lord Higgins and Lord Young, and the noble Lord, Lord Myners, rightly pressed on the publication of the MoU. I can assure the House that the Government will provide an update on progress as the document develops, before the Bill has passed. Once complete, the MoU will be published and laid in the House Library. I do not want to tempt fate regarding the timing of this. However, as I said in my opening remarks, the process of drafting the MoU has only recently begun. I am sorry to say that I am not, therefore, in a position to share more details on this right now.

My noble friends Lord Higgins and Lady Noakes also raised the issue of what happens if the Bank and the NAO disagree. This amendment removes the court veto over what constitutes policy—the main concern of the House in Committee—and, instead, there is a requirement in the MoU for the NAO and the Bank to agree the process for resolving disputes. I will point out a few things here. It is important to note that much of the work which the NAO carries out across the public sector is governed by the National Audit Act 1983, which does not contain a statutory mechanism for resolving disagreements between the NAO and the number of public bodies it oversees about the scope of its reviews. The NAO works constructively with those bodies to define the scope of its work without the need for codified dispute resolution processes. I therefore hope that, in the vast majority of cases, issues arising between the NAO and the Bank will be resolved without needing recourse to a formal process. However, in the unlikely event that a matter cannot be resolved, the amendment goes further than the National Audit Act by requiring that a formal dispute resolution process is set out as part of the memorandum of understanding. As I said, this will set out in more detail how the NAO and the Bank will act to settle disagreements and how those will be recorded and published, where appropriate.

My noble friend Lord Higgins also wisely raised the subject of quantitative easing. In the case of companies of the Bank which are carrying out indemnified activities, such as the asset purchase facility—the Bank’s QE vehicle—new Section 7C, inserted by Clause 10, will apply. In those circumstances, the Treasury has the power to direct the company of the Bank to send its accounts to the Comptroller and Auditor-General, who would then be required to conduct a financial audit of the accounts and issue an accompanying report.

I thank all noble Lords who have contributed to this and to making this process and the agreement possible.

Amendment 6 agreed.

Amendments 7 to 9

Moved by Lord Bridges of Headley

7: Clause 11, page 9, line 28, at end insert—

“(3A) An examination under this section is not to be concerned with the merits of—

(a) policy decisions taken by the Financial Policy Committee, the Monetary Policy Committee or the Prudential Regulation Committee;

(b) policy decisions taken by a committee or other body within the Bank for the time being having responsibilities for the supervision of payment systems, settlement systems or clearing houses, so far as the decisions relate to that supervision.

“(3B) Subject to subsection (3C), an examination under this section is not to be concerned with the merits of policy decisions taken by a committee or other body within the Bank for the time being having responsibilities for the exercise of any of the Bank’s resolution functions, so far as the decisions relate to those functions.

(3C) Where the Bank has exercised relevant resolution functions in relation to a financial institution, subsection (3B) does not prevent an examination under this section being concerned with the merits of policy decisions within that subsection which are relevant to the Bank’s exercise of its resolution functions in relation to that institution (whether or not those policy decisions are also relevant to other financial institutions).

(3D) “Relevant resolution functions” are—

(a) any of the stabilisation powers;

(b) any of the Bank’s functions (other than its functions as the Prudential Regulation Authority) under or by virtue of—

(i) Part 2 or 3, or section 233, of the Banking Act 2009,

(ii) Part 6 of the Financial Services (Banking Reform) Act 2013.”

8: Clause 11, page 9, line 32, at end insert—

“( ) For the purposes of this section—

“resolution functions” means the Bank’s functions (other than its functions as the Prudential Regulation Authority) under or by virtue of—

(a) Parts 1 to 3, and section 233, of the Banking Act 2009,

(b) Part 6 of the Financial Services (Banking Reform) Act 2013,

(c) the Bank Recovery and Resolution (No. 2) Order 2014 (S.I. 2014/3348);

“stabilisation powers” has the same meaning as in the Banking Act 2009 (see section 1(4) of that Act).”

9: Clause 11, page 9, line 36, leave out from beginning to end of line 23 on page 10 and insert—

“7E Memorandum of understanding

(1) The Bank and the Comptroller must prepare and maintain a memorandum of understanding about examinations under section 7D.

(2) The memorandum must in particular include provision—

(a) as to functions of the Bank in respect of which the Comptroller will not usually consider it appropriate to carry out an examination;

(b) identifying the committees or other bodies referred to in section 7D(3A)(b) and (3B);

(c) establishing a procedure for resolving in a timely fashion any dispute between the Bank and the Comptroller as to whether a matter is (under section 7D(3) to (3C)) a matter with which an examination under section 7D is not to be concerned;

(d) for the publication of the views of the Bank and the Comptroller as to whether a matter is such a matter, in cases where a dispute between them cannot be resolved.”

Amendments 7 to 9 agreed.

Schedule 2: Amendments relating to Part 1

Amendments 10 and 11

Moved by Lord Bridges of Headley

10: Schedule 2, page 37, line 6, leave out ““Committee” substitute “court of directors”” and insert ““by the Committee in the discharge of any of its” substitute “in relation to the discharge of any of the court’s””

11: Schedule 2, page 37, line 8, leave out ““Committee” substitute “court of directors”” and insert ““the Committee must have regard” substitute “regard must be had””

Amendments 10 and 11 agreed.

Schedule 3: Saving and transitional provision relating to Part 1

Amendment 12

Moved by Lord Bridges of Headley

12: Schedule 3, page 48, line 28, leave out paragraph 2

Amendment 12 agreed.

Amendment 13

Moved by Lord Ashton of Hyde

13: Before Clause 18, insert the following new Clause—

Financial Conduct Authority

In Chapter 1 of Part 1A of the Financial Services and Markets Act 2000 (the Financial Conduct Authority), after section 1J insert—

“Recommendations

1JA Recommendations by Treasury in connection with general duties

(1) The Treasury may at any time by notice in writing to the FCA make recommendations to the FCA about aspects of the economic policy of Her Majesty’s Government to which the FCA should have regard when considering—

(a) how to act in a way which is compatible with its strategic objective,

(b) how to advance one or more of its operational objectives,

(c) how to discharge the duty in section 1B(4) (duty to promote effective competition in the interests of consumers),

(d) the application of the regulatory principles in section 3B, and

(e) the matter mentioned in section 1B(5)(b) (importance of taking action to minimise the extent to which it is possible for a business to be used for a purpose connected with financial crime).

(2) The Treasury must make recommendations under subsection (1) at least once in each Parliament.

(3) The Treasury must—

(a) publish in such manner as they think fit any notice given under subsection (1), and

(b) lay a copy of it before Parliament.””