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Banking Bill

Amendment 19 19: Clause 5, page 3, line 37, at end insert— ““( ) how to determine whether Condition 1 in section 7 is met,”” Amendment 19 places a further provision in the code of practice. It requires the code to set out how to determine whether condition 1 of Clause 7 is met. On the previous amendment, I gave the Government credit for including the material in the draft code, but I asked that they make such inclusion mandatory via the requirements of Clause 5. This amendment is different because the Government have not included any relevant material in the draft code other than to say in the most broad terms what the threshold conditions are. With this amendment, I am seeking a change of practice by the Government. As we alluded to earlier, Clause 7 contains the trigger provisions which activate the stabilisation powers of the Bank or the Treasury. Thus, Clause 7 is a sine qua non for the highly intrusive powers which can be confiscatory in effect. Clarity about the conditions set out in Clause 7 is important. The FSA has to be satisfied that the two conditions in Clause 7 are met. My amendment concerns only condition 1 as set out in Clause 7(2). It states: "““Condition 1 is that the bank is failing, or is likely to fail, to satisfy the threshold conditions (within the meaning of section 41(1) of the Financial Services and Markets Act 2000 (permission to carry on regulated activities))"." We were told that when the Treasury acted in relation to Bradford & Bingley it was because the FSA had determined that it was likely to fail the threshold conditions. Despite several attempts to elicit further information, there has been radio silence in what precise way it was that Bradford & Bingley failed the threshold conditions. The threshold conditions are the minimum conditions that are satisfied for a person to be given permission to carry on regulated activities. The conditions are not set out in the Financial Services and Markets Act but can be found in the FSA handbook. There is a wide variety of threshold conditions, all of which are important to the carrying on of regulated activities but not all of which seem to be sufficiently important to allow the triggering of the stabilisation powers. For example, there are threshold conditions about the adequacy of resources, which clearly would be hugely important in the context of the FSA’s determination under Clause 7. Understanding how the FSA will approach the adequacy of resources for the purposes of Clause 7 is relevant to all banks and those who deal with banks. The threshold conditions also contain issues such as the location of head offices, the appointment of claims officers and matters such as this, which do not appear to be relevant to the issue of the stabilisation powers, however relevant they might be to regulation generally. Without some guidance as to the factors which might, individually or in combination, lead to a judgment under Clause 7 we are all in the dark. My amendment merely requires that the code of practice sets out how the FSA will reach its determination on condition 1. I can quite see that the FSA would need to keep some flexibility on how the threshold conditions will be interpreted in the context of Clause 7 and my amendment does not seek to tie the FSA down in every circumstance. Using a code of practice will not have that effect, unless of course the amendment tabled by the noble Lord, Lord Eatwell, is accepted by the Government; namely, to give the code of practice statutory effect. But assuming that the code does not tie the hands of the FSA entirely, which I understand to be the Government’s intention of the code of practice, I believe that to give no guidance whatever in the code creates an undesirable uncertainty about the scope of the powers and how they would be used. That uncertainty will overhang the financial services industry and ultimately may deter businesses from operating in the UK. I beg to move.