Clause 20 is still in part 2, but we are now discussing the control of business transfers. From time to time companies will undertake certain sets of financial activities, but may wind those down or have those provisions transferred by acquisition or by merger with other organisations. The regulator therefore needs to ensure that, if a certain type of business activity is being transferred from one company to another, it has the capability of checking the wherewithal of the new provider to oversee an appropriate regulated set of activities under the new controlling arrangements of that particular company.
Section 104 of the Financial Services and Markets Act 2000 has a set of arrangements that apply to both insurance business transfers and banking transfers. That is where, as the Minister will know, things get slightly complicated, because, as I understand it, the arrangements on banking transfers never came into effect. Will the Minister explain the particular history of why the banking transfer arrangements under section 104 of FSMA have never been triggered, while the arrangements for insurance business transfers have? That is a strange anomaly. On the statute book there is the capability for the business transfers of both banking and insurance to be regulated, but currently only the insurance provisions are extant. Why is that? Why has the part of FSMA relating to banking business transfer arrangements not been commenced?
As a corollary of that, why does the Treasury think that this partial commencement for insurance business transfers is not safe enough to leave alone? Why do we need to replace it? In what circumstances might banking business transfer order-making powers be required? I do not understand why the arrangements will not all be written into the new legislation. As a layman, I think that there might be circumstances in which banking business transfer schemes need to come under the ambit of the new regulators. There must be a reason why such an arrangement has not been made, but why fetter the Treasury’s ability to trigger it in future?
Although that may be covered in another part of the Bill, I would be grateful if the Minister explained it because, from time to time—recently, it has happened a lot—aspects of banking businesses move from one company to another. For example, international banking organisations purchase British banking activities, and we might want the regulators to ask questions about that. That must be covered by other provisions, but I want an explanation from the Minister.
Part 7 of FSMA provides for the transfer of insurance or banking businesses through a process of court approval. The process is used extensively for insurance companies, so much so that the tax rules dealing with it are complex, but it has not been used for the transfer of banking businesses. I understand that the courts are normally used for the internal reorganisation of insurance companies, while banking businesses are normally transferred through a takeover—for example, Lloyds Banking Group’s acquisition of Halifax Bank of Scotland.
I am at a loss as to what to say, but I am sure that, fortified by his porridge, the hon. Gentleman will rejoin our proceedings with great vigour and enthusiasm. As I was saying, Mr Leigh—
Yes. Let me get my speech back on track.
Court-based processes are used extensively to transfer businesses in the insurance sector and as part of internal reorganisations of such businesses. Similar provisions tend not to be used in the banking system, because transfers are done in other ways, including by acquisitions—I have mentioned Lloyds Banking Group—and through the rules in the Banking Act 2009 about arrangements for failing banks. I have received an interesting note; it is always helpful to have illumination. Court processes are widely-used for insurance companies, and therefore the risk arises that they are seen to be compulsory for bank transfers. It is not compulsory for banks to use them, and the provision gives banks other options for making transfers.
I am sorry to trouble the Minister, but I am still confused about why court processes apply to transfers of insurance businesses but not to banks, and I do not understand the rationale for the different threshold. We might have assumed that a more thorough process for banking transfers was necessary, given the experience of recent years, but possibly I have missed something. It seems an unusually disproportionate arrangement, given that it was originally envisaged in FSMA that both would be subject to a court process. I accept that under the previous Administration the arrangements on banking transfers were not commenced; but there must be a logic for the applicability of court process to insurance as opposed to banking.
I worry that if we do not give the new measures the backstop capability of allowing the court process to apply to banking transfers, should that situation be needed—should the Treasury want to trigger it at a future date—we may be tying the hands of public policy. It might be sensible to keep the arrangement in reserve.
Let me have another crack at this one. There are situations in which policy holders might have to give consent to a transfer of insurance business. The court process can be used in that situation, so the court approves the transfer without an insurance company having to seek the consent of every policy holder. That process is more economical for some. For smaller firms it may be the other way round, so that they feel it may be cheaper to get individual consent than to go through the court process; but it is in a situation where consent must be obtained that the court process can be used to achieve the outcome more effectively.
Banks still have the option to use the court process. We are trying to be clear about the fact that there is some optionality around banks. We are not taking the power out completely; it is an option for banks, not something that is required. I hope that that clarifies the point.
I wonder whether, in the context of the Minister’s remarks, he will shed some light on how what he has said might be relevant to the banking market in Northern Ireland? For instance, there may be issues to do with businesses transferring, and people might say it was disproportionate in the context of that market to insist on court referral, whether it was parts of Irish-owned banks that were up for sale, or, indeed, wholly-owned subsidiaries of RBS.
The provisions apply across the United Kingdom, and it would be a matter, then, for individual banks to make the judgment about the appropriate route. There will always be protections for current account holders in those situations.
I am grateful to the Minister for clarifying that. I think that he was saying that there will continue to be residual possibilities for bank transfer arrangements to be scrutinised in a court process, should those circumstances arise. I am not quite sure where else in the Bill it crops up, but I accept the Minister’s assurance that the provision is there and, with that, the Minister’s logic, on the face of it, about clause 20.