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Banking Bill

Amendment 20 20: Clause 5, page 4, line 4, leave out subsection (4) and insert— ““(4) The code shall be legally binding.”” As I understand it, it is the policy of Her Majesty’s Government, as expressed by the Prime Minister following the G20 meetings in Washington, to encourage greater simplicity and less complexity in financial securities, especially in derivative instruments, and particularly to encourage the practice of netting. The failure of netting arrangements has been a major element in the spread of financial contagion from the collapse of Lehman Brothers. The regime we are discussing applies not just to a bank that fails but to one that is likely to fail. It therefore applies prior to formal insolvency procedures and the triggering of contractual insolvency conditions, and so we are looking at preconditions. If we are to have netting of obligations, the term ““have regard to the code””, as currently expressed in Clause 5(4), is entirely inadequate because it does not provide sufficient legal certainty for lawyers to provide the required so-called legally clean opinion to allow netting to take place. I have tabled this amendment asking for the code to be legally binding in order to investigate how the Government are dealing with this contradiction, because by providing a degree of legal uncertainty at the point at which the SRR might be introduced, they are negating their own objective of encouraging greater netting in financial services. I would be most grateful if the Minister could address this question in the context of providing legal certainty. Rather than the relevant authorities simply having regard to the code, they should be required to follow its terms. I beg to move.