Mr.
Gauke: This clause allows the Bank of England to give
directions to an operator of a recognised inter-bank payment system.
With regard to the consultation representations from the affected
operator, those issues that apply to system rules also apply to
directions. Does the Minister see a direction under the clause as being
an exceptional route of action taken by the Bank of England or as
routine? May I ask specifically what those directions might relate to?
The clause
states: “A
direction may...require or prohibit the taking of specified action
in the operation of the
system”. Would
the Minister elaborate on what “specified action” might
mean so that we are sure that it does not mean rule change, for
example? It could be helpful to throw out even one possibility of what
a “specified action” might be. It might be a question,
for example, of whether employing an individual would, or would not, be
appropriate, or whether that enables the Bank of England to assess if
particular individuals are fit and proper to perform a role within a
payment system in the way that the FSA, as a matter of course, assesses
people performing approved functions under the Financial Services and
Markets Act 2000. Is that part of what clause 177 is designed to
address?
Ian
Pearson: The clause gives the Bank of England power to
give directions to the operator of an organised inter-bank payment
system. Directions may require, or conversely prohibit, certain actions
in the course of the operation of a recognised inter-bank payment
system. Directions may also set standards to be met in the operation of
the system.
As I
understand it, the purpose of the legislation is not that directions
should be used routinely. To give a specific example, the Bank might
direct the recognised inter-bank payment system to set up a programme
of tests on its crisis management arrangements. One would hope that the
operator of the inter-bank payment system would wish to do that in any
event and that agreement would normally be reached. If the Bank thought
that the operator was unwilling to do so and that it was necessary, it
is right that it should have the power by direction to require a
programme of tests. That is an important part of the Bank’s
oversight role for payment systems, as it enables it to ensure that
specific steps, such as the one I have just indicated, are taken in
relation to a payment system as and when the need arises.
Directions,
unlike system rules, will make specific instructions regarding the
general conduct of the payment system, rather than its rules of
operation. Directions could also be made as emergency measures to take
immediate action, or conversely, to stop doing something with immediate
effect. Those powers are therefore necessary because they are an
important part of the suite of regulatory tools, which I mentioned
earlier, that enable the Bank of England to ensure that the payment
system is both designed and operated in a manner that does not threaten
the stability of the UK’s financial system.
The hon.
Member for South-West Hertfordshire asked what would happen in an
instance when the Bank might not have confidence in an
individual’s ability to operate the system. We will cover that
when we come to clause 186, if he thinks it is acceptable to debate the
issue
then. Question
put and agreed
to. Clause
177 ordered to stand part of the
Bill.
Clause
178Role
of
FSA
Mr.
Gauke: Briefly, the clause states that in exercising
powers under this part of the Bill, the Bank of England shall have
regard to
“any action that
the FSA has taken or could
take”. This
comes back to a theme that has run through the morning of the
relationship between the various regulatory bodies. I can see that the
purpose of the clause is to avoid any duplication. Are there any
similar obligations on the FSA to have regard to any action taken by
the Bank in respect of payment systems? I am also slightly curious
about the
phrase, “any
action that the FSA has taken or could
take”, as
it is somewhat broad. I can see what the clause is trying to get at,
but one could argue that it is vague.
Can the
Minister reassure us that there will be good communication between the
FSA and the Bank in this area? Could he identify structurally how that
will be done? This is particularly an issue for recognised clearing
houses and investment exchanges where the FSA has a major role. Who is
in charge with regard to those institutions? I think it is essentially
the FSA, but will the Minister confirm that that is the case? For those
payment systems that are not either a recognised clearing house or a
recognised investment exchange, does he expect that the Bank be in
charge and what role will the FSA have in those
circumstances? Mr.
Bone: The clause touches on the tripartite arrangements,
which are not unique. There are other areas where there is more than
one agency responsible for a set of affairs, but usually there is a
clear memorandum of working between the organisations, setting out
which organisation is paramount in an area where things overlap. I am
still not clear whether one organisation will come out on top when
there is duplication. The clause deals with the relationship between
the Bank and the FSA. We have been unable to see these memorandums of
working, so will the Minister tell us whether there will be
duplication? If there is, will the Bank, the Treasury or the FSA come
out on
top?
Ian
Pearson: As I explained earlier, the Bank of England
clearly has the lead responsibility when it comes to the regulation of
inter-bank payment systems. In the case of payment systems within
recognised clearing houses and investment exchanges, which are
regulated by the FSA, the Bank will again have responsibility for the
regulation of the inter-bank payment systems. Certainly in all the
consultations in this area, there was overwhelming recognition that
there should be a single regulator when it comes to inter-bank payment
systems. To avoid duplication between the responsibilities of the FSA
in the regulation of recognised clearing houses and recognised
investment exchanges and the role of the Bank in overseeing inter-bank
payment systems, there will be a memorandum of understanding between
the Bank and the FSA. It will ensure that there is effective
co-ordination and minimum duplication of
regulations.
Mr.
Hoban: I dealt with the Investment Exchanges and Clearing
Houses Act 2006 when it went through Parliament. In that Act, the FSA
clearly has the responsibility for approving rule changes put forward
by the clearing houses and investment exchanges. Would it not be better
for that legislation to be modified through this Bill, rather than
relying on a memorandum of understanding?
Ian
Pearson: The Bill is clear—the Bank of England is
responsible for the oversight of inter-bank payment systems. If it
becomes necessary to take enforcement action, the Bank of England and
the FSA will want to agree on which one of them is best placed to do
so. It is important to recognise that we are setting out in different
parts of the Bill the clear responsibilities of the tripartite
authorities. It is right that the Treasury leads on, and has
responsibility for, recognition, and that the Bank of England has lead
responsibility on inter-bank payment
systems.
Mr.
Hoban: I am grateful to the Minister for being explicit
about inter-bank payment systems. We support the Bank of England taking
the lead. Why is there a statutory obligation on the Bank of England to
have
regard to the FSA, but, as far as we can see, no comparable obligation
on the FSA to have regard to the
Bank?
Ian
Pearson: It is my understanding that the clause was
designed to ensure that the role of the FSA was explicitly recognised,
given its responsibilities on recognised clearing houses and investment
exchanges. I am not sure that a reciprocal power is necessary, because
there are other measures within architecture of the Bill to ensure that
the tripartite authorities talk to one another. However, I will reflect
on that point further and, if necessary, return to it at a later
stage.
Question
put and agreed
to. Clause
178 ordered to stand part of the Bill.
Clause
179Inspection Question
proposed, That the clause stand part of the
Bill.
Mr.
Gauke: We enter into the enforcement area of part 5. I
have more comments to make on clause 180, some of which relate to this
clause. Does the Minister
consider the inspection powers in clause 179 to be exceptional? I assume
that the Bank of England will be able to work co-operatively with
operators of payment systems without recourse to the relevant
clauses.
Subsection
(2) says that an operator
must “grant
an inspector access, on request and at any reasonable time, to premises
on or from which any part of the system is operated”.
What will the
notice period for an inspector to access premises be? Her
Majesty’s Revenue and Customs, for example, has various rules
and guidance about how much notice it should give an entity before it
gains access to premises. What does the Minister see the position as
being in those circumstances? It is particularly significant, given the
issues regarding clause 180, but I hope to address those this
afternoon.
Stewart
Hosie: The clause is fairly similar to a clause that we
discussed earlier with regard to the provision for HMRC officers to
have access to ascertain documents. We had a debate in another
Committee Room about what “a document” meant.
It being
One o’clock,
The Chairman
adjourned the Committee without Question put, pursuant to the Standing
Order. Adjourned
till this day at half-past Four
o’clock.
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