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Clause 172

Banking Bill – in a Public Bill Committee at 12:00 pm on 28th October 2008.

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

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I have one or two questions about the procedure for making a recognition order. The clause gives us another opportunity to raise questions about the relationships between the Treasury, the Bank of England and the FSA. Subsection (3) states:

“In considering whether to make a recognition order in respect of a payment system the Treasury may rely on information provided by the Bank of England or the FSA.”

Does the Minister envisage circumstances in which the Bank of England or the FSA will initiate the process? Will there be times when the Bank of England goes to the Treasury and says, “We think that this payment system needs to be recognised.”? Is that how the process will work in practice? There is an obligation on the Treasury to consult the Bank of England, but can he imagine circumstances in which the Bank of England may take a different view and say that a payment system should not be recognised? Are there any circumstances when the Treasury will overrule the Bank of England?

Although it is unlikely, will it be possible for the operator of a payment system to make an application to be recognised, in the same way that they can make an application to be designated? Under subsection (1), the Treasury will “consider any representations made”, presumably by the Bank of England or the operator of the system. An operator of a system may not want it to be recognised. What will be the time frame in which the operators of systems that could be recognised can make representations? How long will the Treasury take to consider such representations?

Subsection (2) raises the issue of recognised investment exchanges and clearing houses and the FSA’s role. Where a recognised clearing house or investment exchange will be a recognised payment system, which entity will take the lead in regulation—the FSA or the Bank of England? The Minister will be aware of the concerns about entities slipping between the gaps, which I suspect is one of the driving forces behind the Bill. Can he answer that question?

Photo of Peter Bone Peter Bone Conservative, Wellingborough

I think that clause 172(1) is the “going out to lunch” part of the Bill. In the past, the Bank of England, the Treasury and the operator would get together and talk things over, and this subsection tries to re-create that consultation. If at the end of the consultation the Bank of England and the operator took the same view but the Treasury took a different one, it is not clear whether the Treasury’s view would necessarily go ahead, even if the other two parties were against it.

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

The clause sets out the process by which recognition orders are to be made. Again, I have to tell the hon. Gentleman that this is not the “going out to lunch” clause. It is a clause that makes clear how the procedure should operate.

I shall try to add flesh to the bones of the clause, in response to the largely theoretical questions posed by the hon. Member for South-West Hertfordshire. In practice, there will be a large, if not complete, measure of agreement between the authorities in the tripartite system and in the banking and building societies system, as to which inter-bank systems should be recognised. Important systems may, however, emerge in the future and the hon. Gentleman is right to want to probe the basis on which future systems might wish to be recognised. We have already indicated the sorts of system that will be recognised initially, and once the legislation has been passed we expect that a range of systems will be completely agreed between all parties. In the future, the Bank of England and/or the FSA could bring information to the  Treasury along with a recommendation to recognise a system. In addition, an operator could apply to be recognised. The Treasury can consider any representations, and the decision to recognise is at its discretion. However, we would want to consult the FSA and, importantly, the Bank of England. There needs to be a clear designating authority, and the legislation makes it clear that that is the Treasury.

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

The Minister has just said that recognition would be at the Treasury’s discretion, but he has also said that a new inter-bank system could emerge that might, if it failed, be a systemic failure. Surely, the decision to recognise ought not to be at anyone’s discretion. If an inter-bank payment system has become so big that it is critical and that if it failed it would be a systemic failure, recognition should be automatic and not at the discretion of the Treasury.

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

Perhaps I was being loose with my terminology, but let me make it clear that the Treasury, which is able to exercise that power, will do so at its discretion. It will want to use the power if it believes that clause 171(1)(a) or (b) are engaged. As I said, in the normal course of events I expect there will be a large measure of agreement on the types of inter-bank payment system we are discussing. With regard to the potential for the future, the Treasury will be open to representations from the Bank of England, the FSA and individual organisations on whether there are new systems that are of such systemic or system-wide importance that they should be recognised.

The hon. Member for South-West Hertfordshire raised an issue about the time frame. As he will appreciate, that will depend on the nature of the representations. The Treasury might seek further information from the Bank of England, the FSA or the operator of a system, so it is not possible to give a precise time scale. I return to the overall point that there has to be a recognition procedure, and we believe that it is right that the Treasury leads on that. The Treasury will consult widely on that point with the Bank of England, the FSA and operators. I hope that those reassurances will be supported by the Committee.

Question put and agreed to.

Clause 172 ordered to stand part of the Bill.