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Banking Act 2009 (Exclusion of Insurers) Order 2009

My Lords, I thank the Minister for introducing this order. I was initially inclined just to nod it through as another example of the perils of legislating in haste, as we did with the Banking Act when it was considered in your Lordships’ House earlier this year, but I will explore the reasons for the order a little further. I accept what the Minister has said about the Banking Act being written primarily with banks in mind, but the situation is not quite as simple as that. As has been pointed out, credit unions and building societies, which are not banks, are specifically excluded from the definition of a bank but are given their own special enabling powers later in the Banking Act to ensure that provisions that are analogous to those for banks can be made—and, indeed, have been made for building societies—so that the equivalent of the special resolution regime can be created for them. I am slightly concerned that we have excluded some elements of deposit-takers but have then provided especially for them when we have not necessarily done so for insurers. My initial thought was that, if the problem arose from the insurance companies being given multiple commissions, the simple answer would be that the FSA should withdraw one element of the multiple commissions, but the Minister has explained that the insurers need to accept deposits in the context of their insurance business and are not allowed to conduct a banking business. However, my question is still: why are the Government excluding them completely from the ambit of the Banking Act? Are the Government making an a priori judgment that an authorised insurer could never pose a systemic risk by virtue of its deposit-taking business? If so, will the Minister explain the Government’s thinking? It is not enough to say that today’s business model for insurers would mean that they could never use a deposit-taking authorisation in a way that threatened financial stability. The Minister, as I have said, made the point that the powers in the Act are written with banks in mind. I have accepted that, but I am less persuaded that the consultation and the codes of practice are written only with banks in mind, because those are relatively easy to change if the powers exist under the Banking Act. However, I remind the Minister that the holding company provisions in Sections 82 and 83 of the Banking Act, which were introduced at a late stage in the Bill’s progress, allow any holding company of banks to be grabbed without any detailed sector-specific legislation. Therefore, the legislation in the Banking Act is already mixed in scope. This provision could, for example, allow Tesco to be caught up in the legislation if the conditions were met, because Tesco is the holding company of a bank. If an insurer met the definition of a holding company of a bank because it owned a bank deposit-taker, it could be swept into the special resolution regime under the holding company rules. Why, then, would we want to keep out of the special resolution regime an insurer that was a deposit-taker? At the heart of my questions is this: what are the Government doing to protect the UK’s financial stability from systemically important insurers? What legislation do they have in place that allows action similar to that contained in the Banking Act and which could operate for insurers? AIG showed us that insurers, too, could be a source of systemic risk and could threaten financial stability. If there is no sector-specific legislation to deal with the problems posed by systemically important insurers, why would the Government want to junk the powers in the Banking Act, even if they are imperfectly described in that Act?