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Clause 226

Banking Bill – in a Public Bill Committee at 3:00 pm on 30th October 2008.

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Variation of permission

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I beg to move amendment No. 9, in clause 226, page 106, line 39, after ‘person’, insert

‘, in connection with the exercise of functions by any person under the Banking Act 2008,’.

The clause is the first of three clauses relating to the powers of the FSA. It affects the powers that the FSA can use under section 45(1)(c) of the Financial Services and Markets Act 2000. Under that Act the FSA can use powers on its own initiative to vary the permission relating to the regulated activities that an authorised person may have permission to undertake. The own initiative variation of permission—often known as OIVOP—gives the FSA the power to restrict what an authorised person can do.

My concern is that the power in the clause seems rather broad. I assume that the power can be used only in the context of decisions or actions taken under the Bill, but the clause is not written in that way. It is not as narrowly defined as that. Can the Minister reassure the Committee that the OIVOP power will be used by the FSA only when it relates to powers exercised under the Bill?

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

The amendment undermines the effect of clause 226, which is to clarify the provisions of section 45(1)(c) of the Financial Services and Markets Act 2000. The clause is technical in nature and is designed purely to clarify existing legislation. It is expressly drafted to clarify the provisions laid out in the Financial Services and Markets Act. By restricting the provisions of clause 226 to the Banking Bill, the amendment would render the clause meaningless. It may be useful to clarify the intent of the clause as it stands.

Section 45 of the Financial Services and Markets Act gives the FSA power to vary or cancel on its initiative a commission it has granted to allow the carrying out of regulated activities. The power to vary permission, in effect to stop firms carrying out particular activities, is a core power of the FSA and the Government want to ensure that there is clarity about how it is used.

Section 45 allows the FSA to exercise its power in a number of circumstances, such as when the person with permission is failing or is likely to fail to satisfy the threshold conditions or has failed within the last 12 months to carry out the activity to which the permission relates. Section 45 also allows the FSA to exercise that power where desirable in order to protect the interests of consumers or potential consumers. In the Financial Services and Markets Act a reference to consumers usually means consumers generally, not just those of a particular firm, so this is the better interpretation of section 45. Recent events have shown that we need to consider the interests of consumers generally, not only on a firm-by-firm basis, so clause 226 will amend section 45 to make it clear beyond any doubt that the reference to consumers includes consumers generally.

The proposed amendment, by making the clause refer only to duties under the Banking Bill, would effectively disapply it in many circumstances and in a way that leaves the FSA’s decision-making process more complex and cumbersome. I hope that, with that explanation, the Opposition will not press the amendment to a vote.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury) 3:15 pm, 30th October 2008

I am grateful to the Minister for that explanation. One of the general concerns that has been expressed about the Bill is that it is here to address a particular issue in the banking system and the recent problems. We are speeding its passage through the House and the other place on the basis that it is a very focused Bill aimed at tackling problems in the banking system. My concern with clause 226 is that its scope goes beyond the banking system and that it is effectively being used to satisfy a legislative wish list in that respect, and that is not the purpose of the Bill. I am concerned about the Minister’s explanation because I think that the clause’s scope is rather broader than we were initially led to believe, and that is also causing concern outside the House. I do not propose at this stage to press the amendment.

Photo of Angela Eagle Angela Eagle The Exchequer Secretary, Member, Labour Party National Executive Committee

I emphasise again that the clause is designed purely to clarify the existing Financial Services and Markets Act on the basis of the way that it is usually interpreted and to create certainty. That also has a bearing on potential systemic risk and relates to the effectiveness of regulation, which does bear on what  we are talking about. This is not an extension of power, but a clarification that will make it clear beyond doubt that the powers actively used by the FSA and laid out in the Financial Services and Markets Act are being used as they were intended to be. It removes a bit of legal uncertainty, but it does not change current practice.

Photo of Mark Hoban Mark Hoban Shadow Minister (Treasury)

I will have to think about that because I am not sure. I cite the concern that has been voiced over the past couple of weeks that legislation can occasionally be accelerated through the parliamentary process because it is there to tackle a specific threat, but that the powers in it can be used to tackle a broader issue. In the freezing of the assets of Landsbanki, the powers were exercised under the Anti-terrorism, Crime and Security Act 2001. That Bill had been accelerated through the House on the basis that it was tackling terrorism, not to seize the assets of friendly NATO allies. I just want to flag up that concern. We are helping the Bill through and would not want to see our willingness to accelerate the process taken advantage of. Although I will not press the amendment, we might return to that issue at a later stage. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 226 ordered to stand part of the Bill.

Clause 227 ordered to stand part of the Bill.