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Banking Bill

I am grateful to noble Lords who spoke on this amendment. With respect to the principles behind Clause 185, we do not think that the Bank of England needs to be put under a specific requirement to consult. The Bank intends to adopt the internationally recognised principles developed by the Bank for International Settlements. These principles are set out in the Committee on Payment and Settlement Systems’ Core Principles for Systemically Important Payment Systems. The Bank will follow those international requirements. As the Committee would anticipate, these core principles are already used by the Bank in its current oversight regime. They are internationally accepted as important for sound, stable and well functioning financial systems, and form part of the Financial Stability Forum's Compendium of Standards. The Bank of England will also take account of other relevant internationally agreed recommendations and best practice in setting its principles, and it will work closely with operators of recognised payment systems in the undertaking of its functions under this part. The Bank must also obtain the Treasury’s approval before it publishes any principles, which ensures a degree of parliamentary accountability. It is also worth noting that compliance with the principles is not prescriptive. Recognised systems must have regard to the principles in operating, but not doing so does not constitute a compliance failure. I hope that I have covered the issue with regard to Clause 185. Amendment 165 makes a change with regard to the codes of practice provided for in Clause 186. This was discussed in the other place and, like my honourable friend the Economic Secretary during Committee stage in the other place, I can confirm that the Bank will seek to consult with the operators of payment systems in developing codes of practice. However, the codes of practice are intended to function as a flexible mechanism to set binding standards that can be applied, as appropriate, to one or more recognised interbank payment systems as needed. They will focus on a more specific level of detail than the principles. For example, a code of practice may require certain types of system to observe specific minimum standards in relation to business continuity. However, we do not believe that it is necessary to insist on consultation in primary legislation, given that the Bank will develop relevant codes of practice by working with the payment systems concerned as appropriate, which I think was the noble Baroness’s anxiety. I hope that gives her some reassurance. Amendment 167 extends the definition of compliance failure in Clause 193 to include a failure by an operator of a recognised payment system to ““have regard to”” the principles. We do not think this amendment is necessary. The principles published by the Bank of England will be high-level and over-arching. All recognised interbank payment systems must have regard to those principles. However, they do not set out detailed provisions about the operation of payment systems, but instead provide guidance about good practice in operating the systems. It would not be appropriate for failure to comply with the principles to trigger a compliance failure. In practice, if the Bank thought that a system’s observance of a principle was inadequate, it would engage in dialogue with the system and monitor progress, for example via regular meetings. The Committee would recognise the seriousness of that position, and the necessity for the Bank to engage in discussions. If that proved insufficient, the Bank might use additional information-gathering powers by commissioning an independent report, which we provide for in Clause 192, to assess whether the operator is taking sufficient account of the principles. Based on this analysis, the Bank could then use its powers to issue a code of practice or directions, or to require the payment system operator to make rule changes. Failure to adhere to such measures would constitute a compliance failure, and the Bank could impose a sanction. We specify this in Clauses 194, 195 and 196. I hope that I have illustrated how the principles and code of practice are intended to work. Therefore, I reassure the noble Baroness that she can withdraw her amendments with confidence. The noble Lord, Lord Higgins, asked what danger we are addressing with these clauses. The arrangements in the Bill replicate and formalise the existing role of the Bank, to which I referred earlier, in overseeing payment systems. The noble Lord does not need me to emphasise that payment systems are fundamental to the efficient operation of financial markets, and the Bank needs powers over them. That is what these clauses identify. I hope that I have given sufficient reassurance for the amendment to be withdrawn.