Electronic Presentment of Instruments (Evidence of Payment and Compensation for Loss) Regulations 2018

Lord Tunnicliffe Excerpts

Wednesday 13th June 2018 Lords Chamber

[Baroness Kramer (LD)]

My Lords, first, I am delighted to hear the Government reaffirm that there is still a place in our financial lives for cheques. I remember that there was a time when the Treasury was considering their abolition. From looking at countries where cheques have in effect disappeared—talking to relatives in Germany, for example—it became clear that the way in which people compensated for that was to carry a lot more cash and leave a lot more cash at home. Much of that seem to be an invitation to petty thievery and street mugging, by which I do not think that any of us would be terribly charmed, so I am very glad that the Government have restated that today.

I looked through the regulations trying to think of something to say without finding very much. I have bank accounts in the United States, a legacy from my 20 years living there, and many states—I am not sure that it is all of them—already use this system of electronic presentation of instruments, so I have seen it first-hand and have never heard of any particular problems. There is a very good article in the Penn State Journal of Law in December 2015. The one issue it raises is that it is crucial to ensure that the rules minimise any surprises in any conflicting claims between the paper copy and its image. I understand from what the noble Lord, Lord Bates, said, that he feels that that issue is covered. If he can give me that assurance, I am delighted to welcome the regulations.

[Lord Tunnicliffe (Lab)]

My Lords, I, too, have worked my way through the instrument and the accompanying Explanatory Memorandum—I also spoke to James Evans of the Treasury—and feel that I understand it. I have no objection. It would seem a sensible, modern improvement to the system.

In looking around the instrument, I alighted on the fact that it is a further extension of the computer systems which underline modern banking. Reflecting on recent press comment, I started to look at just how many computer problems the banking system had had over recent years. I counted at least four for RBS since 2012, three from HSBC, three in Barclays, three at Lloyds and, of course, the recent TSB event where 1.9 million customers were locked out of their online and mobile services.

As we know, banks have a special role in our society. If they fail, the impact is not a mere difficulty, as it is when any large enterprise fails; it is catastrophic to our society. The Bank of England has put an enormous amount of effort into creating an effective resolution regime which, because I have been in this role since 2010, I have seen all the legislation on. It has a resolution directorate staffed with people ready to move in if there is a problem with a bank to solve it over a weekend. But the problem seems to me to be that, just as a bank cannot be allowed to fail for financial reasons, it is increasingly true that a bank failing because of its technical capability—because of its computer services—would have an equally catastrophic effect on society.

I therefore ask the Minister whether, as we hand further tasks to these ailing computer systems, the regulators have an equivalent regime to ensure that the banks’ computer systems will never fail.

[Lord Bates]

I thank the noble Baroness and the noble Lord for their questions. The noble Baroness is right to stress the importance of cheques continuing to be available. The evidence suggests that many voluntary organisations and charities, and some of the most vulnerable in our society, are the ones who rely on cheques the most, so it is important that their interests be safeguarded.

The noble Baroness asked about conflicting claims, and here we can draw on some historic legislation. The Bills of Exchange Act 1882 is explicit: should the payee’s bank compensate a customer for a loss in accordance with the proposed legislation, this does not preclude the payee’s bank recouping this payment from the party where actual liability lies. In addition, where there are competing claims, there is a process for resolving that issue. As I said, these regulations are very much a backstop to a system that we feel is already working quite well.

The noble Lord, Lord Tunnicliffe, who is always assiduous in going through the detail of such regulations, asked about the IT operations. He is absolutely right that, as we place greater and greater emphasis on IT systems, we should be cognisant that sometimes they can fail. The Cheque and Credit Clearing Company has assured the Government that the new clearing process will be as secure and reliable as the one we use now. The security standards used to design and build the ICS are industry-leading and were agreed by all the participants to the company’s security code of conduct. The ICS infrastructure has been fully tested and has been in live operation, processing digital cheques, since October 2017. It has already processed some 250,000 payments to date. Additionally, the ICS infrastructure operates out of two geographically distinct sites in order to provide resilience, and there is full duplication on both sites. Contingency plans and connectivity alternatives are available, should they be required. The infrastructure is 100% operated from within the UK.

I once again thank the noble Baroness and the noble Lord for their comments, and I commend these regulations to your Lordships’ House.