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Clause 175

Banking Bill – in a Public Bill Committee at 12:15 pm on 28th October 2008.

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Codes of practice

Question proposed, That the clause stand part of the Bill.

Photo of David Gauke David Gauke Shadow Minister (Treasury) 12:30 pm, 28th October 2008

The clause relates to codes of practice. I know that the Minister is not keen to have a lengthy debate about “may” and “must”, but I shall raise the  issue briefly. Does the Bank of England intend to publish codes of practice? My second point is about consultation. The clause does not mention consultation with operators, or state whether the Treasury or the Bank of England intend to hold consultation about codes of practice and any changes to them.

Are the codes of practice intended to elaborate on the principles, or will they address new areas? To the layman, the principles look comprehensive but perhaps the Minister will clarify that point. Finally, the Bank for International Settlements produces material that could be described as a code of practice that elaborates on the principles. I looked at it last night—there are about 100 pages of material along those lines. The Minister said that the principles are likely to be similar to existing core principles; will the codes of practice mentioned in clause 175 be similar to that of the Bank for International Settlements?

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I do want to be pedantic about the issue of “may” or “must.” I assume that the Minister will confirm that the Bank of England will publish codes of practice. If the Minister will say that, so should the Bill. The Bill governs the law of the country—it is not about what the Minister says, it is what is on the statute book. If the Government have determined that this will happen, it should be in the Bill and a Government amendment should correct that later in the proceedings. This is an important issue—we must not have sloppy drafting in Bills.

Photo of Brooks Newmark Brooks Newmark Opposition Whip (Commons)

My point follows the questions by my two hon. Friends. The question is not only, “What will the codes of practice be?” That is important and, as my hon. Friend the Member for Wellingborough said, the devil is always in the detail, but equally importantly, how will day-to-day compliance be monitored? I am curious to know how the Minister envisages that taking place.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

It might help the Committee if I briefly explain how the principles, the codes of practice, system rules and directions fit together. We see them as a complementary suite of available powers. Clause 175 differs from clause 174—which is on principles—in that the codes of practice are intended to set out binding requirements in relation to specific areas, such as messaging standards, or levels of resilience, whereas the principles are intended to provide high-level, overarching guidance. The principles will set out the general conduct expected of recognised payment systems and they will be interpreted by the Bank in a manner proportionate to the risks posed by individual systems; whereas the codes of practice will focus on a more specific level of detail. For example, a code of practice may require certain types of system to observe specific minimum standards in relation to business continuity. I can confirm that it is the Bank of England’s intention to issue a code of practice, and it will consult with interested parties before doing so.

Photo of Stewart Hosie Stewart Hosie Shadow Chief Whip (Commons), Shadow Spokesperson (Treasury)

The Minister said that he expects the code of practice to be binding. Will there be a sanction should parts of the code fail to be met? If the code is expected to be binding—effectively legislation—why is there not at least a statement of general intent to that effect in the Bill?

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

The principles and code of practice are two powers found in clauses 174 and 175. They are complemented by the system rules in clause 176, which we will come on to, and the directions in clause 177.

If I can, I shall say something briefly without straying on to those stand part debates—if they are thought to be necessary, Mr. Hood—because it explains the overall architecture. In clause 176 the Bank of England may want to ensure that the operator of a recognised inter-bank payment system makes rules relating to specific aspects of the payment system in question. For example, the Bank may wish to ensure that the system has rules in place to manage the default of a participant effectively. In clause 177, the Bank of England may wish to use its formal power to impose certain directions or instructions pertaining to how a specific recognised inter-bank payment system may operate. This may include requiring or prohibiting certain actions in relation to the system or setting standards to be met in the operation of the system. For example, the Bank might direct a system to set up a programme of tests of its crisis management arrangements, which were referred to earlier. This suite of powers will enable the Bank of England to carry out its function of oversight of payments effectively and efficiently. I think that starts to address the point raised by the hon. Member for Dundee, East but I suspect we shall come on to it at a later date.

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I think the question raised by the hon. Member for Dundee, East is, why is it not in the Bill that clause 175 is binding and subject to sanctions? Clause 182 defines a breach of clause 175 as a compliance failure. The following clauses make it clear that sanctions are there. Far be it from me to always want to be helpful but, in this period of bipartisan co-operation, I think the Bill does make it clear that sanctions are available.

Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury

I was explaining, without going into detail, that there were clauses under which we would have the opportunity to debate those issues later. I think I have covered the points raised by hon. Members.

Question put and agreed to.

Clause 175 ordered to stand part of the Bill.