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Clause 7

Part of Banking Bill – in a Public Bill Committee at 9:30 am on 6th November 2008.

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Photo of Ian Pearson Ian Pearson Parliamentary Under-Secretary, Department for Business, Enterprise & Regulatory Reform, Economic Secretary, HM Treasury 9:30 am, 6th November 2008

The amendment looks at the FSA’s decision on whether the general conditions are met and proposes that that should be subject to the SRR objectives, and I would like to explain why I do not agree with that. A fundamental distinction needs to be made between whether the SRR should apply and what actions should be taken. Deciding whether the general conditions are met is an exercise in determining whether the SRR should apply, not what actions should be taken in pursuance of it.

The SRR objectives are relevant to what actions should be taken, and they stipulate them clearly, but they should not condition whether it is appropriate for the SRR to apply to a bank in the first place. The general conditions relate specifically to regulatory and voluntary action outside the SRR rather than action under it. That is important in providing confidence to stakeholders and the market that stabilisation powers cannot be exercised before other, non-SRR options are deemed not appropriate. That was the point made by the hon. Member for South-East Cornwall. It is right to consider what steps can be taken before the trigger is pulled and stabilisation options are considered.

The general conditions in clause 7 are linked to the threshold conditions set out in the Financial Services and Markets Act 2000. Therefore, in exercising such decisions, the FSA will be acting according to its objectives and principles under the Act. That is the point referred to by the hon. Member for Fareham, and it is absolutely  right that that should be the case. In deciding whether the general conditions in clause 7 are met, the FSA would have regard to the rules and guidance in the threshold conditions section of the FSA handbook, which has regard to the statutory objectives set out in the FSMA.

The conditions have been designed to give the market confidence that regulatory and voluntary options have been explored before a bank is put into the SRR. Given that, to impose a different set of objectives over and above the principles and objectives that guide the FSA’s decisions under the FSMA would provide confusing and possibly conflicting guidance to the FSA in exercising its discretion. There is clearly a distinction to be made between the actions taken under the SRR and whether the SRR should apply, which will depend on the conditions being met and the FSA’s exercising its decision-making power in accordance with the rules and guidance in the threshold conditions in its handbook.

For those reasons, I hope that the hon. Member for Fareham will feel able to withdraw his amendment. He raised an interesting point about whether the FSA would pull the trigger if the Bank did not want to act. As I have explained on a number of occasions, the decision to pull the trigger is taken by the FSA, but it will be taken after close consultation with the Bank of England and the Treasury. As various consultations have made clear, it is not a linear process. Very few things in real life are; I think that Einstein said that even a straight line was not necessarily linear. Authorities would consult each other on all decisions, as is set out in the Bill. In practice, the intention would be that the decisions would all be taken and announced together.