Financial Services Bill

Lord Newby Excerpts

Wednesday 5th December 2012 Lords Chamber

Moved by

[Lord Newby]

2: Clause 3, page 3, line 11, leave out “9B(1)(e)” and insert “9B(1)(d) or (e)”

[Lord Newby]

My Lords, this is a group of minor technical amendments which simply remedy some drafting glitches in a number of cross-references in the Bill and address minor drafting inconsistencies. I do not propose to go through each amendment, but will answer any questions that noble Lords might have on them.

Amendment 2 agreed.

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Moved by

[Lord Newby]

8: Clause 4, page 6, line 26, leave out “2 members” and insert “one member”

[Lord Newby]

My Lords, in response to an amendment at Report put forward by my noble friends Lady Noakes, Lady Wheatcroft and Lady Kramer, we committed to come back with amendments to rebalance the FPC’s membership. These amendments are intended to do just that. They will remove the executive director responsible for market analysis from the FPC. This will shift the FPC’s balance so that it includes five Bank executives and five non-Bank executives, including four independent members. Crucially, this will retain the Bank’s majority on the FPC, as the committee’s chair will have a casting vote. As we have said previously, we believe that it is vital that the Bank remains in the majority on the FPC if we are to hold the Bank accountable for its performance. Amendments 23 and 24 reduce the FPC’s quorum from seven to six, to compensate for the smaller membership. Noble Lords will note, however, that we have retained the requirement that at least one of the external members be present in order for the committee to be quorate. These amendments again demonstrate that the Government have listened to the House and responded accordingly. When this change was discussed at Report, it was widely welcomed and in that spirit, I hope the House will support these amendments. I beg to move.

Amendment 8 agreed.

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Moved by

[Lord Newby]

19: Clause 31, page 125, line 26, leave out “desirable” and insert “necessary”

[Lord Newby]

My Lords, last week on Report my noble friend Lord Sassoon signalled that the Government were minded to bring forward amendments at Third Reading to address some of the concerns that have been raised by the industry regarding the proposal to confer on the Bank of England an additional power of direction over clearing houses. This group of amendments reflects those concerns.

First, the amendments will require the Bank to be satisfied that any direction made under the power is necessary, having regard to the specified public interest criteria, rather than simply desirable. Secondly, they will put it beyond doubt that this additional power of direction will not be available in instances where the desired direction could be given under the Bank’s existing power of direction under Section 296 of FiSMA. Thirdly, the Bank, in instances where it gives a direction under this power without giving the recipient prior notice, will be required to explain to the recipient after the direction has been given why the direction was given, and why no prior notice of it was given. I should also make it clear that any justification given pursuant to this requirement will be given to the clearing house directly, will not be published and will not divulge sensitive information that might harm the public interest. Fourthly, these amendments will give effect to the assurance that we have already given the House that the additional power of direction could not be used to compel a clearing house to accept the business of a competitor. The amendments will provide greater certainty to clearing houses regarding the circumstances in which the additional power of direction could be used.

To alleviate any remaining doubts from industry, I repeat the assurance that my noble friend has previously given the House: the power of direction relates only to the recognised clearing house itself. The Bank of England cannot use the power of direction to require shareholders, members or clients to recapitalise or otherwise fund a failing recognised clearing house, with one exception: where the UK clearing house already has recapitalisation arrangements and agreements in place with its shareholders. In this instance the Bank of England could use the power to direct the clearing house to enforce those arrangements, provided that the necessary conditions and safeguards were met. Furthermore, this power cannot be used retrospectively.

The Bank of England also expects to publish a supervisory approach document in the coming weeks. This will give further information on how powers of direction will fit within its wider supervisory powers over recognised clearing houses. I beg to move.

[Baroness Cohen of Pimlico]

I, too, am supporting a government amendment, though one that is not nearly as dramatic as that secured by my noble friend Lord Mitchell, whom I congratulate very much not only on doing it but on the thoroughness of his research. He actually took out a loan with one of these companies, an act of true heroism that I hope will not result in his being deluged with peculiar financial products for the rest of his life.

In welcoming this amendment, I remind the House once again that I am a non-executive director of the London Stock Exchange. I very much welcome the Government’s amendments to the powers of direction and the spirit of engagement that HM Treasury and the Bank have offered in dialogue on these matters, and which I know the industry will look to continue. The amendments provide useful further context for the use of the power. They put it mostly outside the scope of a day-to-day power, and reassure us that it will be used only when it is reasonably necessary to do so.

That said, it would be very helpful if the Minister were able to offer any further thinking on the circumstances in which it is envisaged that this power would be used, and took this opportunity to give us his vision for co-operation between HM Treasury, the FCA and the PRA in advising on the powers. All relevant authorities, particularly the Financial Conduct Authority as the market regulator, will need to consider the wider market impact of any proposed direction by the Bank.

Finally, the announcement that the Bank will be consulting on its supervisory approach before the end of the year is very good news. That will be an excellent opportunity for it to explain the intended circumstances under which the Section 296A power would be used, and more generally, I hope, to give an account of the Bank’s approach to capital requirements for clearing houses.

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[Lord Myners]

Perhaps I may also ask a question following that of the noble Baroness, Lady Kramer. The concept of interoperability is very important in the clearing of derivatives, so that corporates in particular can offset a position with one platform where they have a credit with another platform where they have a deficit. Will the Minister clarify that that involves a degree of mutualisation in the event of a failure of a platform because the failure of that platform will transfer to other platforms?

[Lord Newby]

My Lords, I am extremely grateful for the warm welcome that these amendments have received from across the House. I will deal with some of the specific questions that have been raised. The noble Baroness, Lady Cohen, asked about my vision for the way in which this provision would be used and how I saw the co-operation between the Bank, HM Treasury, the FCA and the PRA.

It may be marginally less than a vision but the situation would be that there is no requirement for the Bank to consult HMT or the other regulators before using the additional power of direction. This is because the additional power of direction is a supervisory tool and, as such, should not require the express permission of HMT before it is used. As I am sure noble Lords would agree, it is not necessary for regulators to consult with HMT before acting on day-to-day supervisory measures. It is also consistent with the similarly broad powers that the FSA currently has to vary permissions in the banking sector.

As for how the Bank intends to use its powers, as I said in my speech, it expects to publish a supervisory approach document in the coming week. Its purpose will be to give further information on how the powers of direction will fit within its wider supervisory powers over recognised clearing houses.

My noble friend Lady Kramer asked a number of questions about where the liabilities would lie and she set out her understanding of where they were. I can confirm that her view of where the powers lie is correct. As a final question, she asked about a backstop power and whether public funds were the backstop. That, of course, is the de facto position today. With this provision, we are seeking to put in place arrangements and resolution arrangements that would greatly reduce the likelihood of public funds being called upon by demonstrating in advance how these issues would be dealt with. I realise that that is a contentious statement because a number of noble Lords will no doubt think that it is extremely difficult to achieve that. Whether it is easy or difficult, that is what we are seeking to achieve by these powers and what the Bank will be trying to achieve.

The noble and learned Lord, Lord Fraser of Carmyllie, asked about going concerns or not-going concerns. The clause refers to a clearing house. It does not matter if the clearing house is no longer a regulated going concern, as I suspect he expected me to say.

The noble Lord, Lord Eatwell, followed up on what the noble Baroness, Lady Kramer, said. Perhaps the only additional comment I should make is that these powers now go beyond any resolution powers of which we are aware elsewhere in the EU, and they are part of our drive to ensure that London is the safest place—in the EU, at least, if not globally—to do financial services business.

The noble Lord, Lord Myners, asked me an extremely interesting question, which was also extremely technical. I hope he will not mind if I write to him about it. I beg to move.

Amendment 19 agreed.

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Moved by

[Lord Newby]

34: Schedule 9, page 287, line 8, leave out from “from” to end of line 10 and insert ““, that the decision” to the end and insert “that—
(a) a decision falling within any of paragraphs (a) to (c) of subsection (1) is taken—(i) by a person not directly involved in establishing the evidence on which the decision is based, or(ii) by 2 or more persons who include a person not directly involved in establishing that evidence,(b) a decision falling within paragraph (d) of subsection (1) is taken— (i) by a person other than the person by whom the decision was first proposed, or(ii) by 2 or more persons not including the person by whom the decision was first proposed, and(c) a decision falling within paragraph (d) of subsection (1) is taken in accordance with a procedure which is, as far as possible, the same as that applicable to a decision which gives rise to an obligation to give a warning notice and which falls within paragraph (b) or (c) of subsection (1).””

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Moved by

[Lord Newby]

35: Schedule 12, page 302, line 21, leave out from “for” to end of line 22 and insert ““the Authority” substitute “a regulator”,”

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Moved by

[Lord Newby]

36: Schedule 13, page 309, line 41, leave out “other than PRA-authorised persons”

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Moved by

[Lord Newby]

37: Schedule 18, page 345, line 10, leave out from “for” to end of line 11 and insert “the words from “competent authority” to the end substitute ““Financial Conduct Authority to exercise its functions under Part 6 of the Financial Services and Markets Act 2000.””