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Banking Bill

Part 4 makes a number of changes to Part XV of the Financial Services and Markets Act 2000, which provides the legal framework for the Financial Services Compensation Scheme. That framework also allows the Financial Services Authority to deal, in its rules, with most features of the compensation scheme. As described by the noble Baroness, the amendment would put the headline compensation limit into the Financial Services and Markets Act 2000 on a per brand basis and would allow that limit to be changed by the Treasury in an order made under the affirmative procedure. It would also allow the Treasury to define by order what constituted a bank brand. The FSA’s rules can already deal with these matters. Indeed, the FSA has recently published a consultation paper, which discusses, among other matters, paying compensation on a per authorised entity or a per trading-name basis. The effect of the amendment would not be desirable. The FSA rule-making procedures are better suited for making such changes. As was demonstrated in September 2007 and October 2008, FSA rule-making procedures need not be a barrier to making rapid changes to the Financial Services Compensation Scheme rules, which the affirmative procedure clearly would be. It is also worth recalling that the Financial Services Compensation Scheme is also responsible for compensating insurance policyholders and customers of investment firms when these businesses are in default and unable to pay claims. It would be rather inappropriate simply to put matters relating to deposit-taking in the primary legislation. When the FSA announced an increase in the deposit compensation limit last October, it also launched a consultation exercise on the compensation limits in other areas, so there is real merit in allowing the FSA to follow a consistent and co-ordinated approach across a broad range of financial products. That is particularly important, given the essential mutualisation that lies behind the funding of this scheme. Part 4 therefore covers only the matters that cannot be dealt with under the existing provisions in the Financial Services and Markets Act. The changes in this part therefore need to be considered alongside other changes that are proposed for the scheme. As I said, the FSA is consulting on changes that can be made under the FSMA. As well as further discussion about providing protection by trading name or brand, the consultation includes discussion of the proposals for a move to gross compensation payment, proposals for simplifying eligibility criteria proposals for placing information requirements on firms to ensure that there can be a single customer view, and proposals for improving consumer awareness. Last October, as well as raising the headline limit for deposit compensation to £50,000, the FSA announced consultation on dealing with temporary high balances, on changes to the way in which recoveries from a failed firm are calculated, and on the compensation limits for other types of investment. Part 4 should be, and is, limited to making those changes to the overall framework in which the Financial Services Compensation Scheme operates that only primary legislation can do. Members of the Committee should rest assured that there is plenty more going on at the right levels to improve the arrangements for depositor protection in the UK. It would be neither sensible nor desirable to cherry-pick certain items and highlight them in the way proposed. I therefore ask the noble Baroness to withdraw the amendment, and, if it is pushed to a vote, I ask your Lordships to reject it.