The power to require the FSCS manager to act in respect of other schemes has been widely welcomed by respondents to the Reforming financial markets consultation. They agreed that the measure will be of real and practical assistance to depositors. Respondents to the consultation were keen to stress that the authorities must ensure that there is no additional cost to FSCS levy payers. That is the point that the hon. Gentleman raised. I confirm that that has always been the Governments intention, and that the Bill includes suitable safeguards to ensure that in carrying out the new function, the FSCS will take on minimal financial risk. When it is acting on behalf of another scheme or authority, that scheme or authority will be expected to meet all the compensational costs and additional management expenses incurred by the FSCS in making the payout. The FSCS will be able to decline to act if it is not satisfied that funding is being, or will be, provided to meet the expenditure and expenses it will incur. A number of other grounds on which it may decline to act are set out in detail under the clause.
On the wider point made by the hon. Member for Fareham about the European Commissions consultation on co-ordinating deposit guarantee schemes, it has always been the Governments view that effective cross-border arrangements for deposit compensation are crucial to ensure the protection of depositors and confidence in the banking system. It is well known that the FSCS has already had to act as a paying agent for a foreign scheme, so the provision is a basic measure to ensure that it has the legal basis for that co-operation so that United Kingdom depositors can be paid out quickly and effectively, which is in customers best interests.
Our approach is fully compatible with the existing provisions of the deposit guarantee scheme directive. If the directive is revised in the light of the Commissions report, we consider that the measures are likely to be compatible with any such revisions. Of course, there is always the unlikely event of some incompatibility and, in those circumstances, the Government will take the usual approach and use the powers under section 2(2) of the European Communities Act 1972 to make any necessary amendments. However, we believe that what we are doing is consistent with what seems to be an emerging approach that will be operated on a pan-European basis.