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Clause 187

Banking Bill – in a Public Bill Committee at 5:30 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)

The clause relates to the warning procedure that will exist before a sanction is made under clauses 183 to 186. We welcome subsections (1) and (2). Subsection (3) provides an exception from the warning procedure, where it says:

“if satisfied that it is necessary the Bank may without notice—

(a) give a closure order under section 185, or

(b) make an order under section 186.”

The wording is very vague:

“if satisfied that it is necessary”.

Perhaps this is one of those circumstances where I would be tempted to insert a “reasonably” somewhere along the line and the Minister would have argued against that.

The explanatory notes provide a little more detail. They say:

“Such situations may arise if, for instance, delaying the cessation of the operation of the payment system...were to pose an imminent threat to the stability of the UK financial system.”

Clearly that is a fairly high benchmark but it is not in the Bill, which is probably regrettable. However, may I encourage the Minister to be as emphatic as possible that the exception from the warning mechanism contained in subsection (3) will only be used in the most exceptional circumstances? I do not know whether the wording

“imminent threat to the stability of the UK financial system” is merely illustrative or whether that is, in fact, the test that should apply. However, I think that there is some argument for considering whether subsection (3) should be amended to toughen it up.

Photo of John Pugh John Pugh Shadow Minister (Treasury)

May I ask about subsection (1)(c) and the words “consider any representations made”? I assume that there is a narrow reading and a broad reading of those words. Clearly, we are judging people against a code of conduct and the code of conduct can obviously be broken to a major or minor degree, and when it is broken people can simply judge whether there are extenuating circumstances. However, the words “any representations” seem to go a bit further than that. Again, I am inspired by the hon. Member for Wellingborough and his comment that a representation that might be relevant is that it is an inappropriate thing to do given the state of commercial markets, and so on. I had a very satisfying answer from the Minister about appeals, but the other issue is discretion and how it is used, and I want to know whether the Bank of England, in receiving representations, has to concentrate simply on the narrow business of whether the code of conduct has been breached and the operator is bang to rights on a very narrow reading of it, or whether the Bank can receive from the payments agency broader representations, such that it may be inappropriate, given the state of the market, to act at that particular moment.

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

Two points of substance have been made about the clause, which covers warnings in relation to the previous four clauses, which have all been about sanctions. The hon. Member for Southport made a specific point about considering representations, and the clause potentially covers all four sets of circumstances that we have discussed: publication, penalty, closure and management disqualification. The likely representations will differ, depending on the category to which they are applied. Representations could be made, for instance, by an individual, if they were to do with a management disqualification, or they could be made by a company. Representations can be made in confidence to the Bank, and it will be the Bank’s responsibility to consider all the representations made to it.

The hon. Member for South-West Hertfordshire—

Photo of David Gauke David Gauke Shadow Minister (Treasury)

I am grateful to the Minister for giving way. My point was about the circumstances in which no warning was necessary, and the fact that the explanatory notes illustrate that situation.

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

I thank the hon. Gentleman. That was the second key point of substance to be raised, and I am happy to confirm our intention that a high benchmark be set. We are talking about situations in which a compliance failure would threaten the stability of the financial situation—the threat being so immediate that closure or disqualification should be imposed without  delay. In normal circumstances, subsections (1) and (2) would be the relevant processes, and we would expect the warning process and the 21-day period to be used.

Photo of Peter Bone Peter Bone Conservative, Wellingborough

Will the Minister give a practical example of when the provision would come into practice, and a practical example of the failure that would cause immediate action?

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

No particular practical example comes to mind, but the legal counsel who draft the measures like to consider all potential eventualities, and as I think I explained earlier, we are talking in all these cases about unusual or exceptional circumstances. However, it is right that all theoretical possibilities be considered, because it would not be appropriate for us to come back to the House to pass emergency legislation owing to something that, at this stage, had not been thought of and had therefore not been included. The measure is a backstop, but it is completely exceptional, and in that spirit, I hope that the Committee will accept that the clause should stand part.

Question put and agreed to.

Clause 187 ordered to stand part of the Bill.