Banking Bill

The hon. Member for South-West Hertfordshire (Mr. Gauke) seeks in new clause 3 to impose a requirement on the Treasury to publish an annual assessment of the efficacy of the partial transfer safeguards. As the hon. Gentleman will be aware, we need to get the safeguards right, and I am absolutely committed to that. That is why I decided to establish an expert liaison group. Indeed, the stakeholder feedback that the Government have already received led us to introduce an amendment to the Bill to formalise the status of the group in primary legislation, as set out in clause 10. That move has been widely supported by the industry and, to be fair, by Opposition Members. When we are talking about such legislation at the level of technical detail that we often are, it is right to work with the experts and in effect co-produce the secondary legislation, in addition to keeping such matters under review. In putting the group on a statutory footing, it is implicit that the Government will have regard to its recommendations. Clause 10 therefore provides a mechanism for us to receive regular and expert feedback, to which we will pay due consideration. The Government consider it desirable to retain the flexibility to adjust and refine the safeguards in the light of experience. That is particularly important in the context of the set-off and netting safeguard, for instance, because those arrangements have proven to be a highly innovative field. Changes to the safeguard may be necessary to ensure not only that it continues to protect what it is intended to protect, but that innovations do not undermine the policy aims that the special resolution regime is intended to serve. I agree with spirit of the new clause that the hon. Gentleman has tabled, in the sense that reviewing safeguards is important. However, that is best done through the mechanisms that I have outlined and which we are already putting in place, in particular the expert liaison group, rather than the approach that he suggests in new clause 3. If he reflects on that, I hope that he will decide not to push the new clause to a vote. As right hon. and hon. Members are aware, banks comprise complex, multi-jurisdictional corporate entities. Set against that background, many of the provisions of the special resolution regime interact with and sit alongside financial services, banking, company and insolvency law. It is therefore clear that the legislative environment is both complex and varied—I think that the hon. Member for South-West Hertfordshire can see where I am going with this. There will inevitably be some degree of conflict between the public interest objectives of resolving a bank in severe financial difficulties and the provisions of legislation that are designed to work in relation to a normally functioning business. When hon. Members reflect on that for a moment, I hope that they will see that it is surely right. It is one thing to have legislation that applies to normally functioning businesses, but with a bank or building society failure, quite different and difficult circumstances arise. For that reason, we believe it is crucial to take a power to amend the provisions of primary and secondary legislation and common law, but to do so in a narrow way, which I will go on to explain in more detail. In the absence of such a power as provided for in clause 72, or clause 65 as it was in Committee, there is a real and significant risk that the authorities will not be able fully to effect a transfer, which could impact on the effectiveness of the powers in the Bill. That could lead to serious and adverse implications for the public interest through risks to financial stability, to the protection of depositors and to public funds. It could also impact on the likelihood of achieving a private sector solution. The purpose of the power is to provide the Treasury with the means to modify legislation to enable the powers of the special resolution regime to be used more effectively. This is set out in clause 72(1), which we debated at some length in Committee. I want to make it very clear that this is not a general power to amend legislation; it is targeted and limited. In particular, the power may be used only to facilitate the use of one of the stabilisation options, so the scope is severely constrained to amending legislation that affects the resolution of banks that are under the special resolution regime. I emphasised in Committee that the power would not be used to modify the Bill—a concern expressed by a number of hon. Members who contributed to the debate at the time. I highlighted the fact that the Treasury would not use clause 72 to amend the legislative safeguards either in the Bill or in secondary legislation made under it. It would be inappropriate to use the clause to amend the safeguards that we are putting in place. The Government have no intention to use the power in that way, which I want to make absolutely clear. I committed to discussing issues relating to legal certainty and the expert liaison group. I can inform the House that I will write to the group and undertake specific consultation on this very matter. In light of the ongoing consultation with stakeholders, the Government consider it appropriate to make it clear that the powers in clause 72 cannot be used to amend the Bill's provisions; we want to reflect the concerns expressed in Committee. This extends to primary legislation and any secondary legislation made under it—so, for example, in relation to the netting safeguard, which is one of the key safeguards of particular interest to stakeholders, both the enabling power and the statutory instrument made may not be amended by the power. I hope that that addresses stakeholders' main concern about the power conferred in clause 72. We have directly responded to the concern and remain committed to working with the industry on issues relating to legal certainty. I believe that when it comes to transactions, it is vital for the industry to be able to have clean legal opinions. We will continue to work with the industry, but we believe that the provisions are appropriate, so we can give the industry the assurances it requires. In amendment No. 2, the hon. Member for South-West Hertfordshire proposes that a sunset provision be added to clause 72. This would provide the Treasury with the power to change the law for two years, but it would then lapse. I do not believe that the amendment would be in the public interest, so let me explain why. We cannot be sure that the hindrances and difficulties faced by the authorities in resolving any bank failures in the next two years will be the same as in a future period. It is possible, for example, that the nature of the banks being resolved will be different in subsequent years, with the result that different pieces of legislation need to be modified so that a successful resolution can be effected. In our view, therefore, a sunset provision is not appropriate because of the need to ensure that the legislation is future-proof as banks and financial markets develop over time. We reflected on that issue at some length in Committee. I think it is right that we try to future-proof legislation as much as possible, and we do not consider that a two-year sunset clause would be appropriate in this instance. That does not mean that I would reject the concept of the use of sunset clauses in other contexts. Indeed, as the hon. Gentleman knows, the Banking (Special Provisions) Act 2008 contains a sunset clause, which is not the least of the reasons for our present consideration of the Banking Bill. New clauses 4 and 5 would confer powers on the Treasury in relation to exempting directors and the financial services ombudsman. In Committee, as the hon. Member for South-West Hertfordshire mentioned, I cited specific instances in which the Treasury might use the power to change law. I understand that the hon. Gentleman wishes the Government to prescribe the pieces of legislation that they wish to amend, and to include them in the Bill. I must admit to feeling slightly guilty about selecting a couple of examples in an attempt to be helpful and clarify matters, and then discovering that I had probably not clarified matters to the hon. Gentleman's satisfaction. I accept that both new clauses give the Treasury certain powers that may be useful in resolution and may make the exercise of the stabilisation powers more effective. However, the examples that I gave in Committee were intended to illustrate the wider point that there are pieces of legislation that we can identify as needing to be amended, but others to which, as things stand, that does not apply. We cannot know the specific stabilisation options and the particular circumstances of a failing bank in the future, and what might need to be done. Even if the Government were to introduce measures such as new clauses 4 and 5, the powers in clause 72 would still be necessary. As I said in Committee, it is not possible to provide an exhaustive list of the legislative proposals that the Treasury may need to modify, because it is not possible to foresee each and every circumstance surrounding the failure of each bank and which pieces of legislation may be relevant to the resolution. If that were possible—again, I explained this in Committee—there would be no grounds for taking the power, and we could and would have included the relevant changes in the Bill. The Government also consider it more appropriate to preserve the generality of the power by not introducing examples into the Bill. We do not think that it would be advantageous to give the impression in legislation that these were the only parts of law that the authorities might need to modify in order to effect a successful resolution. I recognise that clauses such as clause 72 are potentially controversial because they include a power to amend primary and secondary legislation by order, but they are not exceptional clauses. It is not the case that such measures have never been allowed through Parliament before. Nevertheless, it is right for them to be subject to rigorous scrutiny. I consider that our action in limiting the nature of the clause is appropriate. I hope I have reassured the House not only about the way in which the clause should be construed and the significant practical limitations of the power to amend law, but about why it is necessary for that power to be taken.