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Landsbanki Freezing Order 2008

rose to move, That the order laid before the House on 8 October be approved. The noble Lord said: My Lords, before I turn to the two instruments that we are considering this evening, I should like to say a few words of a personal nature. It is a very great honour for me to stand before your Lordships for the first time in this House. I want to begin by thanking the whole House for the warm welcome that I have received from all sides since my introduction last week and to extend my grateful thanks to the staff of the House, who have been similarly welcoming and supportive. We are truly fortunate to be so well served. I have always—until right now, at a safe distance—held the House in the highest respect both for the quality of its debates and for the depth and breadth of its expertise, which allow it to frame national debate and hold the Government to account so rigorously. I come from a business background, so it will take me time to familiarise myself with being ““the Government””. I beg your Lordships’ indulgence while I find my feet. I think I am right in saying that I am only the second life Peer to be a Treasury Minister, but I tread with caution in the company in which I now find myself. The House has, at the last count, four former Chancellors of the Exchequer, two former Governors of the Bank of England and three former permanent secretaries in the Treasury. There is also a host of other noble Lords with strong backgrounds in banking, accounting, finance and economics. I hope to benefit from all your Lordships’ wisdom in the exchanges ahead. I have taken the title Baron Myners, of Truro in the County of Cornwall. I was fostered, and then adopted, by a Cornish family. I think it would be described as blue-collar. I had the benefit of a fine education, courtesy of Cornwall County Council. I was, to plagiarise the words of Senator Biden, the first in my family for a thousand years to go to university. Cornwall is a very special place to me, and to this day represents one of my two great passions in life; the other is contemporary art. My father was a fisherman and a small shopkeeper, and it was at his side that I learnt the basics of small business. It took me some time before I realised that business was to be my metier. First, I embarked on a career as a schoolteacher in inner London. Then I was a financial journalist: ironically, 30 years ago, writing about the secondary banking crisis for the Daily Telegraph. After that, I entered the world of business and finance. I am fortunate that this career has led me to sitting on the boards of a number of major companies and financial institutions, including being a member of the Court of the Bank of England and a director of a major sovereign wealth fund. I have also, in recent years, developed an increasing interest in wider public policy and institutional matters, and my work in this respect has included chairing the Low Pay Commission and the Personal Accounts Delivery Authority and acting as a trustee of Tate. It is clear that a competitive business environment has a vital role to play in delivering economic efficiency, but that it is also required to act with integrity and responsibility. In my business career, I have actively promoted the benefits of good governance and effective regulation, and I will continue to do so in my ministerial post. My business career has taught me the importance of a strong banking system that inspires confidence and plays a critical role in supporting a strong economy, to the benefit of all. In recent months, the Icelandic economy has experienced increasing difficulties. In July, the IMF’s mission to Iceland concluded that the Icelandic banking sector faced significant risks. On 29 September, the Icelandic Government acquired a 75 per cent stake in Glitnir, nationalising Iceland’s third largest bank. This was immediately followed by further rating agency downgrades for all Icelandic banks and their subsidiaries. On 7 October, the Icelandic Government passed emergency legislation in an attempt to stabilise the financial system in Iceland. The new powers are wide-ranging and had immediate effect. The Icelandic authorities were able to take various steps, including appointing receivers to take control of the bank Landsbanki Islands and to deal with its assets. Despite repeated efforts to seek reassurances at official and ministerial level, the UK Government could not gain satisfactory clarification from Iceland of the position of UK creditors in the administration of Landsbanki. This was of serious concern, as certain statements made by the Icelandic Prime Minister indicated that while Icelandic depositors would be protected, the rights of other creditors, including those in the UK, could be prejudiced—a breach of the EEA treaty. It was also unclear whether the Icelandic Government were prepared to honour the obligations to depositors in Landsbanki’s UK branch—a requirement under the EU deposit guarantee scheme directive. Under the terms of the directive, Iceland’s share of compensation to Icesave depositors was in the region of £2.2 billion. I turn to what brings us here today: the Landsbanki Freezing Order 2008 and the Landsbanki Freezing (Amendment) Order 2008. The first order was made on 8 October 2008, because the Icelandic Government, their authorities and Landsbanki appeared to be on the brink of action that would be to the detriment of the UK economy, including the detrimental treatment of UK depositors and consequential burdens on the banking sector. At a time when saver confidence was fragile, it was necessary to take action to help to safeguard the position of UK customers and depositors and to prevent economic damage to the UK. It was also necessary to take such action to stem the risk of any contagion in the UK financial sector as a result of Landsbanki’s financial difficulties. The order has ensured that assets that belong to Landsbanki and are controlled through its London branch remain in the UK until the freeze is lifted. The second order simply makes a few minor, technical changes to clarify the order. It does not change its substance. The order freezes only funds relating to Landsbanki. Furthermore, as envisaged by the 2001 Act, the order gives the Treasury the power to license exceptions to the freeze. Granting licences is an integral part of the Treasury’s ongoing role in relation to the freezing order, particularly in minimising potential harmful consequences while providing the necessary safeguards. The Treasury’s approach has been to publish general licences and guidance to deal with industry concerns. It granted a general licence the day after the order was made. This dealt with the concern to allow the London branch to continue its commercial finance operations, on which a number of UK businesses depended for their cash flow. This licence also confirmed a broad range of transactions that were permitted, including allowing third parties to set off and net out arrangements where Landsbanki was the counterparty. A further licence was granted on 13 October to reassure a wide range of market participants who might otherwise deal with frozen funds. The Treasury has also published extensive guidance to assist people who may be affected by the order or licences, and it will continue to grant licences and offer guidance as appropriate. The principles behind the licence granted by the Treasury are that the London branch is not to repatriate funds back to its head office in Iceland or elsewhere in its banking group, but the core commercial financing business is allowed to continue. Business customers can continue to deal with the funds in their accounts, and other financial institutions and third parties are given protection under the licence for a wide variety of dealings with frozen funds. Since the order was made, the Government have continued to negotiate with the Icelandic authorities to agree a mechanism whereby the Icelandic Government can honour their obligations to UK depositors and ensure the fair treatment of UK creditors. In particular, the Bank of England has provided a short-term facility of up to £100 million for the London branch of Landsbanki. This was made available on 13 October to help to ensure an orderly wind-down for Landsbanki that will maximise the return to UK creditors. The freezing order was made under a power in the Anti-terrorism, Crime and Security Act 2001. This Act includes a broad range of provisions and is not only about countering terrorism. The power enables the Treasury to make a freezing order where the Treasury reasonably believes that action to the detriment of the UK economy, or part of it, has been or is likely to be taken by a foreign Government or a resident of a foreign country or territory. I emphasise that the UK’s action was not taken on the basis of anti-terrorism provisions in the Act. The action was deemed necessary because the Icelandic Government could not clarify the position of UK creditors in the administration process and there was therefore a threat to UK economic interests. Their actions also appeared to be in breach of Iceland’s obligations under the EEA treaty, so we also alerted the European Commission to our concerns and our decisions. On 9 October 2008, the administrators of Landsbanki transferred its domestic assets to a new entity, New Landsbanki. The London branch of Landsbanki Islands was left in old Landsbanki. This action appeared to support previous concerns about Iceland intending to favour its own creditors. The Government believe the order to be a necessary and proportionate measure to protect the assets of UK customers of Landsbanki and to safeguard vital UK economic interests. The Treasury considers that the freezing order should remain in place until the Government have successfully agreed with the Icelandic authorities a mechanism whereby the Icelandic Government can honour their obligations to UK depositors and ensure the fair treatment of UK creditors. As such, I commend the order to the House. I beg to move. Moved, That the order laid before the House on 8 October be approved. 28th report from the Joint Committee on Statutory Instruments, 29th report from the Merits Committee.—(Lord Myners.)