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Banking Bill

I am delighted to do my best to resolve the noble Baroness’s anxieties yet again. However, I do not think that her anxieties in this regard are well founded. While the Bank of England will be the sole regulator of recognised inter-bank payment systems, the FSA will continue to be the regulator for recognised clearing houses and investment exchanges. Some of these recognised clearing houses and investment exchanges may themselves run inter-bank payment systems embedded within their operations. These embedded payment systems may be recognised by the Treasury by an order under this part. The danger is that that could lead to dual regulation, which is why this clause makes provision to try to avoid that. That is the objective of the clause. Subsection (1) requires the Bank to have regard to any action the FSA has taken, or could take, with regard to an embedded system. Amendment 166 seeks to add a new constraint in that the FSA must notify the Bank of any action that it has taken or could take. We do not think that that is useful. It presupposes that the Bank and the FSA cannot or do not communicate fully with one another in performing their respective regulatory functions, but that is not the case. The Bank and the FSA already communicate with one another in respect of embedded payment systems, and the formalisation of the Bank’s role will not undermine this communication. In addition to the existing channels of communication, and in order to formalise the arrangements when dealing with such systems, the Financial Services Authority and the Bank will set out a memorandum of understanding on how to deal with regulatory issues connected with embedded payment systems. That will ensure that there is full communication between the two authorities. To facilitate this, they intend to meet on a regular basis to share views on issues concerning embedded payment systems. The Government took the opportunity to table an amendment on Report in the other place to elucidate further the delineation of roles between the FSA and the Bank of England. Subsection (2) now specifies that the Bank of England must consult the FSA before taking action in respect of an embedded payment system. Subsection (3) now specifies that if the FSA gives the Bank of England notice that it is considering taking action on an issue that affects an embedded payment system, the Bank may not take action without the FSA’s consent or unless the notice is withdrawn. This is designed—as I am sure the Committee will agree—to ensure that there is no duplication between the regulatory functions of the Bank. That is the purpose of the clause. The Bank will be fully aware of the FSA’s responsibilities as published in the FSA handbook. It will be working with the FSA and maintaining regular dialogue in the case of embedded payment systems. I share the noble Baroness’s view that this is an area of real concern. This memorandum of understanding will further consolidate their working relationship. I hope the Committee will agree that the Government have done all that they should, both in my response today and in the amendment moved in the other place, to ensure that this position is clear. I hope I have thereby allayed the noble Baroness’s anxieties and that she feels able to withdraw her amendment.