Decisions causing a financial institution to fail: meaning of insolvency

Bank of England and Financial Services Bill [Lords] – in a Public Bill Committee at 2:00 pm on 11 February 2016.

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Question proposed, That the clause stand part of the Bill.

Photo of Harriett Baldwin Harriett Baldwin The Economic Secretary to the Treasury

The clause makes some technical corrections to the criminal offence in section 36 of the Financial Services (Banking Reform) Act 2013. The offence is intended to punish, and therefore deter, reckless misconduct that causes a bank to fail. It does not form part of the senior managers and certification regime, although it was included in the same legislation and was also recommended by the Parliamentary Commission on Banking Standards.

For the avoidance of any doubt, I want first to make it clear that the Government are not proposing to extend the offence to the rest of the financial services industry, which would not be appropriate. The offence was designed to deter reckless decision making that causes systemically important financial institutions to fail. The collapse of such institutions could do serious harm to financial stability or impose huge costs on the financial services compensation scheme to protect depositors. The offence was therefore limited to UK banks, building societies, Prudential Regulation Authority-regulated investment firms and large investment banks that happen not to be deposit takers. The offence will not apply to credit unions, and it would clearly make no sense to apply it to the firms that the Government now propose to bring into the senior managers and certification regime.

The clause simply fills some gaps in the coverage of the offence. It makes it clear that the offence could be committed if a building society or an investment bank were to fail by being put into the special insolvency and administration regimes created for them in secondary legislation made under the Banking Act 2009. That was always the intention behind the 2013 Act, and we are taking the opportunity now to make the position clear.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Sarah Newton.)

Adjourned till Tuesday 23 February at twenty-five minutes past Nine o’clock.