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Clause 179

Banking Bill – in a Public Bill Committee on 28th October 2008.

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Inspection

Question proposed [this day], That the clause stand part of the Bill.

Question again proposed.

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

As I was saying before lunch, the clause is similar in form to a clause we considered on another Bill. That clause gave Her Majesty’s Revenue and Customs officials the right to access and seize documents. I argued that if a document was an electronic document hosted on an overseas computer, it would be wholly unreasonable to expect that the person being asked to provide it could necessarily do so. Such legislation, because it could be seen as extraterritorial, might be unenforceable. The same argument applies in this case.

The clause states that the Bank of England may appoint someone to inspect an inter-bank payment system and that the operator of that system must

“grant an inspector access, on request and at any reasonable time, to premises on or from which any part of the system is operated”.

Clearly, if the data centre is overseas, that might be impossible and legally unenforceable. However, although the extraterritorial argument is a real one that needs to be addressed, the issue of the operator is more important in terms of the Bill. The operator may be a fairly junior member of staff in a bank, certainly not a senior figure, who may not have access or be able to arrange it.

If an overseas data centre forms part of the system that is to be inspected, it would make more sense for the legislation to suggest that failure would be only if all reasonable efforts to gain access or to allow the inspector access were not made, rather than the pretty blunt description in the clause that the operator of a recognised inter-bank payment system must grant an inspector access even when the centre may be overseas or he or she simply cannot organise that access. I should like to hear what the Minister has to say about that. I would not like to see a piece of legislation that could land someone in court, or subject them to an inspection warrant, for something that they physically cannot do, or do not have the status to do. Would not the phrase “make all reasonable efforts” be better than the wording in the clause? I will listen to what the Minister has to say before we look at other amendments to this part of the Bill.

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

Clause 179, as Members have outlined, gives the Bank of England the power to appoint inspectors whose role is to inspect the operation of a recognised inter-bank  system. It is relatively straightforward and is the first of a number of clauses in the enforcement section of part 5. It places the operator of the system under a statutory obligation to grant the inspector access to the premises from which all or part of the system is operated or managed and to co-operate with the inspector.

The power allows the Bank of England to appoint an inspector to check that codes of practice, principles, system rules or directions are being complied with and that the recognised inter-bank payment system is otherwise operating in a satisfactory manner. The power is an important tool of oversight that strengthens the Bank’s ability to ensure that payment systems identified as of systemic or system-wide importance are being operated in a manner that does not pose a threat to business or other interests, or to financial stability in the United Kingdom as a whole.

The hon. Member for South-West Hertfordshire asked whether the power would be routinely used. I am happy to confirm that we do not anticipate that it will be routinely used. We expect that if the Bank of England had any concerns about the operation of an inter-bank system it would discuss them in the first instance with the operator concerned. In most, if not all cases, I imagine that things would be sorted out. However, given the importance of oversight of those critical systems, I think it right that there are powers for inspection, so the later powers that we shall discuss are in reserve.

Photo of Colin Breed Colin Breed Shadow Minister, Treasury

Would that be similar to the non-routine use of the Anti-terrorism, Crime and Security Act 2001 for the inspection of Landsbanki, for instance?

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

I will not be tempted to speculate or to respond to that comment; I discussed the issue at some length yesterday in the statutory instrument Committee dealing with Landsbanki.

The hon. Member for Dundee, East made a number of interesting points relating to the fact that some bank systems are outsourced. I recognise that, and it will have to be taken into account by the Bank of England as part of its supervisory role. The Bank will want to ensure that it has confidence that the systemic and system-wide recognised inter-banking systems are being operated in an appropriate manner. I cannot prejudge all the circumstances in which an inter-bank system might operate and I do not think that it would be right to put them in the Bill; that is not the purpose of primary legislation. However, the hon. Gentleman makes a valid point that will have to be considered as part of how the Bank views its oversight arrangements.

Photo of Peter Viggers Peter Viggers Conservative, Gosport

I last came across the exercise of powers such as this last week in parallel circumstances, when I found myself answering questions on behalf of the Speaker’s Committee on the Electoral Commission about the powers of the Electoral Commission to investigate premises and to call for papers. I am thus looking with some interest at clause 179 and wondering whether the Minister can tell me what the previous powers were in this field. No doubt there were powers for the Bank of England to carry out investigations, and the provision may be a repetition or a strengthening of powers that previously existed. I would be interested to know whether there were such powers.

Secondly, I wonder if the operator of a recognised inter-bank payment system knows that he is an operator of a recognised inter-bank payment system. What process is there for ensuring that when the inspector authorised by the Bank of England arrives to inspect the premises, the operator realises that he must give the inspector access?

My third point is about the phrase

“otherwise co-operate with an inspector,” which seems very broad and seems to mean that the operator must do everything that the inspector requires him to do. However, one would like rather more clarification of exactly what it is that the inspector can require the operator to do. To say that they must “otherwise co-operate” with the inspector is really very broad and might leave the operator, who might not be briefed in banking law, at a loss as to what exactly they are required to do. I would be grateful for some clarification of what appears, on the face of it, to be a very general clause.

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

The hon. Gentleman raises three points. The first is the question of whether the operator understands that he is operating a recognised system. As we explained when considering some of the earlier clauses, there is a process whereby the Treasury will establish that a system is a recognised system because it is of either systemic or system-wide importance. In the consultation exercise, we gave examples of those systems and it would be readily apparent to those who work in such areas that they are operating a systemic or system-wide inter-bank system.

The second issue that the hon. Gentleman raised related to the fact that the Bank of England already has a number of investigatory powers. The Bank has not previously had statutory responsibilities for the oversight of inter-bank systems. Under the clause, we are talking specifically about inter-bank systems and giving the power of inspection, if it is required, to the Bank.

The third point that the hon. Gentleman made was about the words

“otherwise co-operate with an inspector”.

I understand that the power is relatively broad. It will be used in a reasonable way by the Bank of England, just as we expect all our public institutions to operate in a reasonable manner. I do not think it unreasonable to put the power in the Bill.

Question put and agreed to.

Clause 179 ordered to stand part of the Bill.