Scottish and Northern Ireland Banknote Regulations 2009

My Lords, I am grateful to all noble Lords who have participated in this short but interesting debate on what we all recognise is an important issue. One or two important questions were asked, as were some relatively complex ones. I am relieved that the noble Lord, Lord Newby, asked me one or two questions which I ought to be able to answer with one- or two-syllable words rather than in a long discussion of the issues. The noble Baroness, Lady Noakes, began the discussion by making important points about this work in two areas, to which I shall refer first. Penalty notices are a small part of authorised banks’ overall operations, but ensuring that banks comply with the regulatory framework is of the greatest importance for consumer confidence and for ensuring that commercial banknotes continue to play an effective role in the economy. It is therefore important for a financial penalty to carry enough weight to act as a deterrent against non-compliance while balanced against the need for a proportionate and reasonable response to breaches. The maximum penalty of 10 per cent of a bank’s notes in circulation is cumulative over the course of the year. However, I am sure the Committee does not have the slightest doubt about the importance of the strength of the penalty for a breach in this area, given the whole issue of confidence, as the noble Lord, Lord Kilclooney, indicated when he went on to discuss Irish banks at present. The noble Baroness asked why we had arrived at 10 per cent and whether to incur any penalty could do more harm than good, such as tipping a bank into insolvency. The Bank must be able to impose a penalty that fits the nature of the breach and acts as an effective deterrent to prevent further such breaches. The penalty will be in line with the Bank of England’s published penalty policy. The maximum value of 10 per cent of an authorised bank’s notes in circulation is, as I have indicated, a small part of its overall operation. It is therefore considered an appropriate cumulative annual cap on the penalties that the Bank of England may impose. What will the statement on the Bank of England’s policy on penalties look like? This is the Bank of England’s responsibility. The Bank is currently consulting the issuing banks on the banknote rules and the penalty policy. I am not in a position to describe those in greater detail at present, but the Committee will draw solace from the fact that the Bank is consulting on these issues, which are part of the rules for which it is responsible. The impact assessment contains full details of the costs. None of the consultation responses queried the assumptions for costs, or the difference between the Bank of England’s and the issuing banks’ estimated costs. The noble Baroness referred to a disparity between the two.