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it clear that any justification given pursuant to this requirement will be given to the clearing house directly, will not be published and will not divulge sensitive information that might harm the public interest.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.