Bank for International Settlements (Immunities and Privileges) Order 2021
(Limited Text - Ministerial Extracts only)
Read Full debate
Lord Ahmad of Wimbledon
That the Grand Committee do consider the Bank for International Settlements (Immunities and Privileges) Order 2021.
The Minister of State, Foreign, Commonwealth and Development Office (Lord Ahmad of Wimbledon) (Con)
My Lords, this order was laid on 11 January 2021 under the affirmative procedure. It confers immunities and privileges on the Bank for International Settlements, BIS in short, that have been negotiated as part of a host country agreement to support the establishment of a new BIS innovation hub in London. The order is required so that the UK is able to comply fully with its obligations under the host country agreement. Before I go into further detail about the order, please allow me to provide some policy context.
In June 2020, it was announced that the Bank of England was successful in its bid to host a BIS innovation hub in the United Kingdom. The hub will conduct research on how new technology may change the way financial services operate in the future and help the global central banking community ensure that this innovation does not have a negative impact on consumers and the stability of the financial system. Most importantly, the hub will help develop and share best practices with central banks across the world, including in developing countries.
As we all recognise, the United Kingdom is a global leader in financial innovation and technology, and the UK’s fintech sector is worth nearly £11 billion annually to the economy. This success is largely due to the UK’s policy and regulatory expertise in financial innovation and fintech, and London being selected to host the hub reflects that. To pick just one example, the UK was the first jurisdiction globally to implement a “regulatory sandbox” to support financial firms in the testing of innovative products and services. This initiative has now been replicated by countless regulators around the world.
As countries, particularly developing ones, grapple with the emergence of new financial technologies and the rapid increase in the use of digital payments, it is only right that we support the creation and sharing of best practice in this area with the international community. Let me now turn to the details of the order.
This order confers legal capacity and immunities and privileges on the BIS and persons connected with the bank, such as staff and secondees. These have been negotiated as part of a host country agreement. The International Development Act 2002 allows the Government to give effect to such provisions made in an agreement establishing an international financial institution. The negative order linked to this order, which came into force on 1 February, added the BIS to the list of international financial institutions referenced in the 2002 Act.
The BIS is an international financial institution, headquartered in Switzerland, with a mandate to support global monetary and financial stability. It therefore shares similar policy objectives with other international financial institutions, such as the International Bank for Reconstruction and Development and the International Finance Corporation, which are part of the World Bank Group. I can reassure noble Lords that the proposed legislative changes make no other amendments to the International Development Act and that the immunities and privileges afforded to persons connected with the bank, such as staff and secondees, are strictly limited to those required for them to conduct their official activities and are not for their personal benefit.
It is customary practice to grant immunities and privileges to international financial institutions to enable them to function and they are in line with those offered to officials of other international financial institutions of which the UK is a member. These include immunity from suit and legal process for its staff in respect of their official acts, and tax exemption. They do not include immunity in respect of road traffic accidents.
To conclude, this order confers only those immunities and privileges on the Bank for International Settlements and persons connected with the bank such as staff and secondees that are necessary for the institution to function effectively and conduct its official activities in the UK. The new BIS innovation hub will help to ensure that rapid advances in financial innovation will benefit consumer outcomes and, as I said, support financial stability. This is an area where the United Kingdom already enjoys a competitive advantage and the hub will help to share best practice with the international central banking community, including throughout the developing world. I beg to move.
Lord Ahmad of Wimbledon (Con)
My Lords, first, let me say that I am extremely grateful to noble Lords for their contributions and support in welcoming this new initiative and the success that we have achieved with the Bank of England’s successful bid to host the innovation hub of the new Bank for International Settlements in London.
A number of noble Lords, including the noble Lord, Lord Collins, and the noble Baroness, Lady Northover, referred to the bidding process and greater levels of transparency. Obviously, when the Bank of England bids in any confidential process, certain things are very much part and parcel of the bidding process as it is made.
I am sure that noble Lords recognise—indeed, several of them referred to this—that one of the main bases on which this bid was successful was the recognition of the City of London as the leading global international financial capital. Although it was some time ago now, I declare a mild interest related to this as someone who worked in the City for more than 20 years. This decision further recognises the importance of infrastructure and innovation in the context of the City of London. Notwithstanding our departure from the European Union, it is a real boon for the UK economy and our place as a global Britain around the world.
I will now pick up on some of the specific questions. Some technical questions were raised by the noble Lord, Lord Collins, with reference to specific Acts. On the specifics of how this order relates to other Acts, I will write to him to ensure that we are correct in the detail.
Picking up on the point about immunities and privileges made by the noble Baroness, Lady Whitaker, my noble friend Lord Kirkhope, and the noble Lord, Lord Bhatia, it is standard practice for international organisations, including international financial institutions and their staff, to be accorded immunities and privileges by host Governments. The noble Lord, Lord Collins, also raised the issue of the Government’s approach to this. The immunities and privileges granted to international organisations, such as international financial institutions, should be granted primarily on the basis of strict functional need. The host agreement grants legal capacity to the BIS so that it can enter contracts and have a UK bank account, for example. As I stated in my opening remarks, immunity from legal processes is granted because it is necessary to ensure that the BIS and other persons connected to the bank, such as staff and secondees, have the independence necessary for them to carry out their functions. However, the noble Baroness, Lady Whitaker, among others, raised the issue of abuse of this. I assure her that where this is suspected, the privileges and immunities will be revisited and the institution will be asked to waive these specifically.
My noble friend Lady Wheatcroft speaks with great insight and experience of the City of London. She talked about how staffing will work in this new innovation hub. The converse argument was presented by the noble Baroness, Lady Northover. We want to allow the best and the brightest to be recruited. In regard to issues around immigration, yes, we continue, as anyone who has worked in the private sector or elsewhere will recognise, to want to see the best of homegrown talent come forward, but equally to allow for an international hub to benefit from international talent. The BIS is set up, if I may put it this way, to attract the best and the brightest.
The issue of cryptocurrency, interestingly, was raised, and rightly so. There has been a lot of topical discussion on this. The noble Baroness, Lady Northover, the noble Lord, Lord Collins, and my noble friend Lady Wheatcroft talked specifically about regulation. Regulation of financial services over time has demonstrated that, at times, voluntary measures are introduced, but there is a requirement to provide for the security and safety of all investments that might be made. With the growth of bitcoin, I totally recognise the lack of a regulatory environment in which the bitcoin sector operates and the vulnerabilities of people who invest in it without the security of other investments. I assure my noble friend that this will form part of our G7 workstreams. Among others, the FCA has taken steps towards looking at regulation in this respect.
My noble friend Lord Kirkhope also talked specifically about the IMO and other international organisations. Under this order, we have reflected the status of the bank as an international financial institution. My noble friend and others, including the noble Lord, Lord Collins, referred to the powers that we were granted under the International Organisations Act 1968 and asked why we are not using them. As the BIS is considered an international financial institution, the International Development Act 2002 was deemed the most appropriate route to confer immunities and privileges, rather than the International Organisations Act 1968. For example, the Bank for International Settlements does not fall directly within the scope of international organisations covered by Section 1 of the IOA 1968, which is limited to organisations of which the UK or HMG are members. The BIS is a membership organisation of central banks, not Governments themselves. It is the Bank of England, not the UK, that is a member of the BIS.
My noble friend Lord Kirkhope also talked about extending the scope beyond the current membership of the BIS. Of course, that is primarily a matter for the BIS. As the noble Baroness, Lady Northover, also recognised, there are now 63 central banks and monetary authorities which are currently members of the BIS, and which can vote and are represented at meetings. I will share some facts and figures with noble Lords. Of the current membership by income status, 70% are from advanced economies and 30% from developing economies. To give noble Lords a sense of geographical breakdown, 54% are from Europe, 15% from Asia, 10% from Latin America, 8% from MENA and 3% from Africa. Membership is not required for central banks to benefit directly from the BIS’s research. For example, 300 organisations from 160 countries already benefit from access to its Financial Stability Institute’s web-based information tool. However, I fully acknowledge what noble Lords have raised, including my noble friend Lord Kirkhope. As we strengthen the role of the City of London, we will continue the UK’s global role in the world and particularly in financial services, focusing on the importance of widening the scope so that all parts of the globe, including, most importantly, the developing parts, benefit from fintech and the innovations provided by this new hub.
The noble Baroness, Lady Northover, the noble Lord, Lord Collins, and my noble friend Lord Kirkhope—I thank him for his description of my charm and powers of persuasion—referred to the issue of the EU delegation to the UK. The update on this is that we continue to engage with the European Union on the arrangements for the EU delegation. These are ongoing discussions, and I do not want to pre-empt any particular outcomes. However, I have noted noble Lords’ concern and reflections on this important issue.
The noble Lord, Lord Bhatia, also talked about the importance of privileges and immunities. I believe that I covered that in part through the assurances that I provided.
The noble Baroness, Lady Northover, rightly raised concerns over the situation in Hong Kong and how that will be reflected in the work of the office there. As she will appreciate, at the moment the situation is very fluid, and of course we are concerned by developments more broadly in Hong Kong, as the noble Baroness will be fully aware. She also raised the importance of co-ordination across key centres and offices of the institution and named a number of cities in this respect. Again, that underlines the importance of the financial services sector, its connectivity and how innovation and technology will further enhance the manner in which international financial centres further co-ordinate these activities. As all noble Lords will know, the BIS is often referred to as the bankers’ bank—that is, it is the bank which provides settlements for central banks—so its role is even more crucial.
The noble Lord, Lord Collins, also raised a technical point about traffic accidents. As far as I am aware—if this is not correct, I will amend the record—it is very much standard to grant that exemption from privileges and immunities, in the manner in which privileges and immunities work for international agreements.
I believe that I have covered the majority of the questions which were raised specifically on this issue. I conclude my remarks by saying once again that, if there are any additional points that I have not covered, I will write to noble Lords in the appropriate way and place a copy of the letter in the House of Lords Library.
Finally, this is a recognition of the City of London’s continued strength. I believe the innovation hub will lend itself to further innovation and technology advancements within the City of London, not just to retain the strength of the City as a global financial centre but to continue to retain its position as the leading financial centre in the world.