Clause 48 - Wholesale cash distribution

Financial Services and Markets Bill – in a Public Bill Committee at 10:30 am on 1 November 2022.

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

Photo of Virendra Sharma Virendra Sharma Labour, Ealing, Southall

With this it will be convenient to discuss that schedule 9 be the Ninth schedule to the Bill.

Photo of Andrew Griffith Andrew Griffith The Economic Secretary to the Treasury

In addition to ensuring reasonable provision of cash access services in the UK, it is vital that we have an effective, resilient and sustainable wholesale cash system to support continued access to cash.

The UK’s wholesale cash infrastructure is a system of cash centres that sort, store and distribute banknotes and coins. A decline in the transactional use of cash has put pressure on the business models of the existing wholesale cash networks. Over time, the industry is expected to transition to a smaller overall network.

Clause 48 and schedule 9 contain provisions to give new powers to the Bank of England to oversee the wholesale cash distribution industry by creating a two-level regime. First, it gives the Bank oversight over, and the ability to regulate, the market activities of the wholesale cash industry. That will ensure the effectiveness, sustainability, and resilience of the system. Secondly, it gives the Bank the ability to prudentially regulate a systemic entity in the market, should one form in the future, to manage risks to financial stability.

Schedule 9 enables the Treasury to make a wholesale cash oversight order, which specifies an entity as a recognised entity. That will set out whether an entity is recognised as having market significance only, or systemic significance. If a firm has market significance, it will be subject to the market oversight regime. If it is systemically significant, it will be subject to both the market oversight regime and the prudential regime.

The Treasury does not currently consider any entity to be systemic, but the provisions will ensure that the Treasury and the Bank can respond effectively to future changes in the market to manage risks to financial stability. It is expected that the industry will transition to a smaller overall network, potentially with fewer operators, in the coming years.

The powers given to the Bank under both parts include the ability to publish principles and codes of practice, gather information, give directions as required, make inspections and enforce the regime. Under the regime, the Bank can also collect fees, which must relate to a scale of fees approved by the Treasury. The Bank will seek to exercise its powers proportionately.

Schedule 9 also requires the Bank of England to prepare and publish a policy statement on its regulatory approach before exercising its powers under the legislation. The Bank will launch a consultation on that policy statement shortly. Once the regime is operational, the Bank is required to provide an annual report on the regime to the Treasury, which must be laid before Parliament.

In summary, clause 48 and schedule 9 are necessary to ensure that the wholesale cash industry remains effective, resilient and sustainable. The measures form part of the Government’s action to support the continued access to cash. I therefore recommend that clause 48 and schedule 9 stand part of the Bill.

Photo of Tulip Siddiq Tulip Siddiq Shadow Minister (Treasury)

We welcome clause 48, but I have two questions for the Minister. First, how will Parliament and industry be consulted on the scale of the fees placed on businesses by the Bank to cover the operation of the scheme, and on the penalties for non-compliance? Clause 48, as drafted, allows the Treasury to designate an entity as being subject to the Bank’s new prudential regimes for the wholesale cash industry, but how will the Government ensure that the Bank is adequately consulted on additions to the regime?

Photo of Andrew Griffith Andrew Griffith The Economic Secretary to the Treasury

The answer is that, in the normal way, the measures will be laid before Parliament. If there is any extra detail with which I can furnish the hon. Lady, I will write to her.

Question put and agreed to.

Clause 48 accordingly ordered to stand part of the Bill.

Schedule 9 agreed to.