---

Banking Bill

I am grateful to the noble Baroness and will seek to answer the noble Lord’s question in a moment, but not get into conversation style. This is an important amendment, as it draws attention to the contribution and representation of the Delegated Powers and Regulatory Reform Committee on this matter. As this Committee appreciates, the Government take the report from that committee very seriously indeed. As the noble Baroness said, the Delegated Powers and Regulatory Reform Committee noted in its report that, "““the arrangements for the allocation of provisions between regulations and rules seem unsatisfactory””," and recommended that, "““the scope of the power in clause 213 to make banknote rules should be narrowed, at the least to remove the power for banknote rules to impose unlimited penalties””." This recommendation is implemented by this group of amendments. I apologise for the fact that this is a slightly lengthier contribution than we have had for most of this afternoon, but I take this opportunity to explain exactly how it is envisaged that the banknote regulations and rules will fit together. As the noble Baroness said, we have accepted that the draft regulations that we have circulated will be subject to affirmative procedure. Not all parts of the regulations are complete and further work will no doubt be needed before they are in a position to be consulted on formally. But I hope that the sight of even a draft set of regulations informs this debate. The intention is that the appropriate level of parliamentary scrutiny will be observed. That is why we have indicated that we expect that the affirmative resolution will be employed for the regulations. I hope to show that the amendments are therefore unnecessary. Clause 213 provides that the banknote regulations may require or permit the Bank of England to make banknote rules about any aspect of the treatment, holding or issuing of banknotes by authorised banks. In practice, the regulations will not require or permit the rules to do everything that they themselves may do; there will be a natural division of appropriate responsibilities between the Treasury and the Bank. The regulations may delegate to the banknote rules anything that the regulations are permitted to do under primary legislation, subject to them being approved. This offers the capacity to make detailed provision, as appropriate, in either banknote regulations or the banknote rules. In both circumstances, this offers greater flexibility and scope to make detailed provision than would be appropriate for inclusion in primary legislation. I am sure that the Committee will accept that argument. It is important for the Bank to have flexibility, within the remit of the regulations approved by Parliament, to make changes to its rules in order to adapt to changing or particular circumstances. It is envisaged that banknote rules will be largely focused on operational aspects of the new framework, rather than the underlying principles of banknote issuance. For example, under regulation 9 of the draft indicative regulations as circulated, banknote rules must set out the procedure that an authorised bank must follow for the purpose of ceasing the issue of banknotes. As a further example, the banknote rules may set out detailed provision for the note exchange programme, as set out in regulation 13 of the draft regulations, which can be tailored as appropriate to the practicalities of exchanging a particular issuing bank’s notes. We could not think of such detailed provision being set out in primary legislation for cases where the Bank of England is best placed to determine what it needs in particular circumstances, as the procedure will have to be tailored to circumstances such as the number of notes in issue, or the locations at which holders of those banknotes will be able to exchange them, and so on. I reassure the Committee that the banknote regulations and rules are intended to complement each other, not to provide duality or duplication, and, categorically, that Clause 213(2) is not intended to provide a means by which the need for parliamentary scrutiny can be circumvented. It is important for the Bank of England to have additional freedom—within the remit of the Parliament-approved regulations—to make and modify detailed banknote rules, adapt to changing or particular circumstances and capture operational detail. Not all such detail can be comprehensively pre-empted in primary legislation or statutory instruments. On the specific aspect of financial penalty, the Bill provides that the banknote regulations may enable the Bank of England to impose a financial penalty on an authorised bank that has breached the banknote regulations or rules. That is an important enforcement tool for cases where the breach may not be so severe as to warrant withdrawing an authorised bank’s issuing rights, yet does warrant imposing a penalty in order to ensure compliance with regulations and rules that are necessary to offer protection to noteholders. The imposition of a penalty will, of course, be subject to judicial review, ensuring that the Bank imposes such penalty as is fair, reasonable and proportionate. The Government intend that the imposition of a penalty is to be governed by the parameters of the regulations, which, as the noble Baroness indicated, are to be subject to the draft affirmative procedure and therefore receive parliamentary scrutiny. We recognise the Delegated Powers Committee’s important recommendations and we are looking particularly at this clause, and others on which it has commented, to consider whether further changes are needed. I hope that the broad position that I have outlined in defence of the clause meets with the agreement of the Committee, and that the noble Baroness will feel able to withdraw her amendment.