Financial Services and Markets Act 2000 (Contribution to Costs of Special Resolution Regime) Regulations 2010

Lord Newby Excerpts

Monday 19th July 2010 Lords Chamber

[Lord Newby]

The noble Lord, Lord Davies, and I have spent many happy hours discussing FSMA, whether we called it that or something else. This is a continuation or conclusion of one aspect of those deliberations and we are content with the statutory instrument before us. However, this is one small part in the overall new regulatory framework under which the banks will operate, of which the new capital adequacy requirements under Basel is another and the establishment of the EU banking supervisory body, which we gather may be located in London, is yet another. Will the Minister take this opportunity to update the House on some of those wider developments? Do the Government feel that, as we are getting our own house in order, the international framework that everybody agrees is necessary to supplement domestic arrangements is also moving forward at a reasonable and acceptable speed?

[Lord Sassoon]

Well, we have gone from Sturm und Drang to something else and, if I can spread a little joy by introducing the term FSMA, I am happy to do so.

I shall be brief. As the last three years have shown, banks and building societies can fail. The Banking Act 2009 provides for a system of bank resolution that is more flexible than simply liquidating the failed institution, using insolvency law and paying, if necessary, compensation to depositors who would have lost money in the process. Bank resolutions can be costly but they can save the Financial Services Compensation Scheme from having to make compensation payments to the depositors from the institution concerned. It is right, therefore, that the FSCS should have to contribute towards resolution costs and it is equally right that contribution to such costs should be capped at the cost of the compensation that it would otherwise have had to pay, taking into account recoveries that it would be expected to make. These regulations do not change those principles but ensure that they can be correctly applied in the real world, where bank resolutions take time and the FSCS would have to borrow heavily to fund compensation payouts. There is, of course, a lot of technical detail in the regulations—that is inevitable—but the basic idea is simple. The reason for the large amount of technical detail, in answer to the point made by the noble Lord, Lord Davies of Oldham, is that checking the accounts is not simple.

I do not know how properly to address the points made by my noble friend Lord Newby, who would like to use this opportunity to hear about wider developments in EU and international financial regulation. The only point that I make now is that, of course, the question of bank resolution and particularly of globally significant systemic institutions is one on which the G20 Ministers are focusing at the moment. In our small way, tidying up the FSCS regulations fits into a wider picture of the direction of travel and the focus of the global regulatory developments.