Banking Act 2009 (Service Providers to Payment Systems) Order 2017 — House of Lords, 2017-11-07
Topic: Domestic Commerce
Denis Tunnicliffe (Labour, Centre-left): My Lords, I thank the Minister for introducing the orders and regulations this afternoon. Both instruments amend the Banking Act 2009. The first, the Banking Act 2009 (Service Providers to Payment Systems) Order 2017, extends the Bank of England’s formal powers of oversight to service providers to recognised payment systems. The 2009 Act enabled the Bank to supervise interbank payment systems. However, Part 5 was extended to all payment systems by the Digital Economy Act 2017. The second instrument, the Scottish Banknote (Designation of Authorised Bank) Regulations 2017, will ensure that once the Royal Bank of Scotland has separated its core retail banking from its investment banking, the "new" ring-fenced RBS can continue to issue Scottish banknotes. We support both measures but I have a number of questions for the Minister First, on the extension of Bank of England supervision to all service providers, the Explanatory Memorandum states that in this context a service provider, "may be an organisation that designs, builds or operates a payment system’s infrastructure" It goes on to say that, "only service providers that are considered systematically important", to the UK, "would be considered for supervision" In these circumstances it seems entirely appropriate that the Bank of England has oversight and regulatory powers as it relates to financial stability. But who in the Bank of England will have specific responsibility for this? Many of our discussions during the passage of the Bank of England and Financial Services Act 2016 came back to this exact point: what constituted "the Bank" and where did power, responsibility and, ultimately, accountability lie? I will be interested to hear what the Minister has to say on this point As the Minister stated in his opening remarks, this is just an enabling piece of secondary legislation. As the Explanatory Memorandum outlines: "This instrument does not automatically bring any service providers into scope of supervision by the Bank" The Treasury needs to specify the service provider by including it in the "recognition order". How many service providers does the Treasury intend to recommend to the Bank of England for supervision, and will these recommendations be subject to parliamentary scrutiny The order is surprisingly vague about what the process of being included in the recognition order would entail. What criteria are used to determine whether the Treasury recommends that the Bank of England supervises a service provider? What does this oversight entail in practical terms? Given that it will be for the Treasury to initiate the proceedings, I would have expected it to produce guidance regarding this instrument. However, the Explanatory Note suggests that it will be for the Bank itself to provide information to service providers When the Bank of England supervises banks, it has considerable powers of insight into those banks and has rights to alter structures and to constrain their behaviours. Will the Bank have the same powers when it comes to these service providers? I recognise that the Government say that they have consulted with industry. However, this was not a formal process, therefore I would be grateful for some more details. The Explanatory Memorandum states that the industry was "broadly supportive" of the measures that were bought forward. What elements were there disagreements about, and were amendments made to the draft regulations accordingly Finally, on this order, what has spurred the Government to act now? Was it the industry, the Bank of England or the Treasury that requested an extension in scope of the regulations? Closing a gap in supervision is an important step, which we support. However, I remain unclear as to why this change was deemed necessary, how many service providers will be affected and what the supervisory and regulatory framework will look like in practice. I look forward to the Minister’s response On the second instrument, which relates to the issuance of Scottish banknotes, page 2 of the regulations states that, "the Treasury must determine the designation date for the purposes of these Regulations" Can the Noble Lord give the House an idea of when this date could be? How much notice do the Government believe is required before the ring-fencing deadline of 1 January 2019?