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Clause 184

Banking Bill – in a Public Bill Committee at 5:00 pm on 28th October 2008.

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Penalty

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

Photo of David Gauke David Gauke Shadow Minister (Treasury)

Will the Minister confirm that there is no limit on the level of fine that may be imposed as a penalty in accordance with the clause?

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

May we have some comfort from the Minister about whether the penalty that may be levied for a compliance failure can be variable and could be zero? Failures in respect of the code of practice and the system rules, a failure to provide a direction, or a failure to report, can mean anything between being late in issuing a report, as specified in clause 181, and a serious breach of the guidelines or rules, as in previous clauses.

In terms of the limit on the fine, clause 187 says that before a sanction is imposed, a warning is to be issued, and so on. Clause 186, which deals with management disqualification, states:

“A person guilty of an offence is liable...to a fine not exceeding the statutory maximum”.

These things apply in specific circumstances. Clause 184 uses the words, “pay a penalty”, as opposed to imposing a sanction. Can the Minister provide some clarity on the nature of the penalties and say whether they are the same as a sanction? Will he clarify whether the penalty or the sanction might be small in the case of a minor breach but larger in the case of a significant systemic failure breach?

Photo of John Pugh John Pugh Shadow Minister (Treasury)

I have a concern, brought about by the comments of other hon. Members, about the excessive use of “may” in the context of other verbs. An initial reading of clauses 183 and 184 might  lead one to assume that the Bank of England will not act, will not publish and will not inflict a penalty for a minor offence that does not really require and necessitate such action. The hon. Member for Wellingborough said that there might be various reasons for that; it might not happen owing to information being highly commercially sensitive and because the payments agency and the Bank of England, and its chief executives, have had a really good lunch somewhere—we simply do not know. However, it is a quasi-judicial system. Some people whose details are published and who have penalties inflicted on them will, presumably, be commercially damaged.

I am wondering—this is a serious anxiety—how one resolves concerns about equity, if, for example, the Bank of England uses its discretion in one way, in favour of one organisation, and in another way, possibly for good reasons, against another organisation. Should the organisation that is commercially damaged or embarrassed, or whatever, feel itself to have any kind of grievance, what precisely may they do about it? I cannot see an appeal mechanism here, nor can I see a mechanism whereby the reasons that the Bank may have for acting in one case and not in another will be made explicit to such organisations. I am worried that rumour may spread to the effect that decisions are made on a partial and less than equitable basis. Obviously, if the system is to work well it has to embody equity.

Photo of Peter Viggers Peter Viggers Conservative, Gosport 5:15 pm, 28th October 2008

I concur with colleagues who feel that we need rather more detail in the clause. It mentions a penalty. Are we talking about a fine or could there be a penalty other than a financial fine? We need to know the basis of the assessment.

We Members of Parliament spend a lot of time talking about penalties in criminal and civil cases. I had to discover from a constituency case that, for example, Customs and Excise operates way outside any statutory scale and it is open to it to impose such a penalty for offences as it thinks fit. There needs to be some sort of calibration of the penalty that can be imposed.

Moving ahead to the appeal procedure under clause 188, which we are not discussing at the moment, I see that there can be an appeal against a warning notice of a requirement to pay a penalty. That wording sounds a little cumbersome to me, but at this point I simply refer to clause 184 and ask for a degree of clarity on the amount of final penalty that the Government have in mind.

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

It is right that hon. Members ask questions about clause 184 and what we have in mind for the penalty. It might be helpful if I explain that the power to impose a financial penalty is intended to act as a further deterrent against the non-compliance of operators of recognised payment systems with their obligations under this part of Bill. It reinforces the need to comply with, for example, the provision of codes of practice or directions, which is intended to ensure that systems are not being operated in a manner that could represent a threat to financial stability, and to ensure the overall robustness of the payment systems. We have no reason to believe that operators will not want to co-operate and operate fully, but it is right that we legislate to have an enforcement regime in place.

The hon. Member for Southport suggested that there was no appeal system, but he clearly has not appreciated what we have proposed in clause 188, or the warning system set out in clause 187. Clause 184(1) gives the bank the bank the power to impose a penalty in the event of a compliance failure, and subsection (2) makes it clear that the penalty is payable to the Bank of England and is enforceable as a debt. The term “sanction” is defined in clause 187(2) and includes penalties or other sanctions contained in this part.

A number of hon. Members rightly asked how much the penalty will be. To answer the hon. Members for South-West Hertfordshire and for the Dundee, East in particular, it is intended that the Bank will impose financial penalties in proportion to the seriousness of the compliance failure and the system operator’s ability to pay. There is no statutory limit, but as the hon. Member for Dundee, East rightly pointed out, compliance failure could occur in a wide variety of circumstances, and it would not be sensible to try to envisage all those circumstances and include them in the Bill. However, I am happy to confirm in Committee that it is our intention that if the Bank was in a situation where it wanted to impose financial penalties, it would do so in a proportionate way, depending on the circumstances.

Question put and agreed to.

Clause 184 ordered to stand part of the Bill.