Draft Banking Act 2009 (Service Providers to Payment Systems) Order 2017

Jonathan Reynolds Excerpts

Tuesday 21st November 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Thank you for calling me to speak on behalf of the Opposition, Mr Robertson.

As we mark the 10th anniversary of the financial crisis, there still remains work to be done on strengthening and reforming our financial market infrastructure, to ensure that we never see a repeat of the events of 2008. One of the issues we faced at that time was that regulation could not keep pace with the speed at which markets were changing. That is vital in an era when financial innovation continues to surprise us all. Many of the recent developments have been exciting and encouraging, and indeed I spend much of my time in the City seeing at first hand how technology is being harnessed to the benefit of service provision.

It is also important, however, that new initiatives are given proper oversight, to ensure that consumers are protected and that the system is robust enough to withstand unforeseen consequences. The advent of the payment systems regulator under the auspices of the Financial Conduct Authority has been an important part of that. The PSR has already done critical work in the growing and changing market segment and is helping efforts towards better protection of consumers.

The Opposition therefore support the spirit of the order in ensuring that the appropriate supervision is in place. However, I ask the Minister for further clarity on the definitions of which service providers will come under the scope of the new rules. The draft legislation states that HM Treasury will have to specify which service providers are systemically important, in consultation with the Bank of England. It seems opaque that there are no draft guidelines on how that process will be undertaken.

In our consultation with stakeholders we have heard concerns that unintended consequences could arise from the legislation. For example, the proposed extension of part 5 oversight to service providers could distort competition in the market if applied unequally in the future. Will the Minister provide some insight into how that will be prevented and how the Government will ensure that application will be fair and proportionate? Further to the information provided by the explanatory memorandum, why do the Government feel that a shortfall needs to be met with further regulation, given that individual contracts already exist between payment service providers and system operators?

Our second concern is that the order gives additional supervisory responsibility to the Bank of England. We want to ensure that sufficient thought is given to how that will be resourced. In the previous 10 years, financial market infrastructure has become significantly more complex and systemically important following the financial crisis. It is important, therefore, that the role of the Bank of England is scrutinised in the wider context as its scope broadens.

The Opposition support any moves to make our financial system more robust. However, we believe that the purpose of this legislation and its scope must be crystal clear, with a strong case for its necessity, to ensure that its potential impact on the market can be fully understood in advance.