Banking Act 2009 (Service Providers to Payment Systems) Order 2017 — House of Lords, 2017-11-07
Topic: Domestic Commerce
George Young (Conservative, Centre-right): My Lords, these statutory instruments improve the valuable legislation that has been put in place to bolster the financial stability of the UK. They are both about methods of payment, from the traditional banknotes that are familiar to us to the newer payment systems The Service Providers to Payment Systems order will enable the Bank of England to supervise service providers to payment systems for financial stability purposes. The UK’s payments infrastructure is the plumbing of our financial system. Every year, our payment systems process around 21 billion transactions, worth over £75 trillion, between businesses and consumers. They underpin almost all commercial activity in the UK and are vital to the day-to-day lives of every member of the public. It is therefore extremely important that they are secure, stable and reliable In 2009, through the Banking Act, the Government gave the Bank of England formal powers of oversight of certain interbank payment systems, with the aim of promoting the robustness and resilience of key UK payment systems. The Act also gave the Treasury powers to specify which interbank systems are to be supervised by the Bank. The Bank’s supervisory powers enable it to directly request information from the operators of the relevant payment systems, and to issue directions or impose regulatory requirements on them where necessary and appropriate. Amendments made via the Digital Economy Act in spring this year extended these powers to enable the Government to specify types of payment systems that are not interbank. These steps have gone a long way towards ensuring the security, stability and reliability of payment systems for the UK. This draft legislation is a further step towards achieving this aim. The proposed SI will enable the Bank of England to supervise service providers to the supervised payment systems. Service providers can include companies that provide infrastructure and technology to the payment systems, the firms that provide the hardware and software to payment systems that enable the transfer of these 21 billion transactions every year. In some cases, these services are critical to the smooth running of the payment systems. Enabling the Bank to have oversight of these service providers will support its supervision of systemically important payment systems This legislation will not automatically bring any service providers into the Bank’s oversight. As with payment systems, the Treasury will specify which service providers to recognised payment systems are to be brought into supervision with an order. HM Treasury will weigh up a number of issues when considering a service provider for supervision. The Treasury is required to consult the Bank of England, the PRA, the FCA and the PSR, notify the service provider and the payment systems to which it provides services and consider any representations made before specifying that service provider for Bank supervision. The Government believe that oversight should be proportionate to the level of risk presented by a firm, and the proposed legislation will give government the tools it needs to address any risk and to further shore up the robustness and resilience of the UK’s payments infrastructure The second SI moves the authority to issue banknotes in Scotland from one legal entity within the Royal Bank of Scotland group to another. This change is necessary due to the structural changes RBS is making to implement ring-fencing. The UK is unique in that certain banks in Scotland and Northern Ireland are authorised under the Banking Act 2009 to issue their own commercial banknotes alongside the Bank of England. Currently, four Scottish banks and three Northern Irish banks have this authority. These seven banks are proud of their authority to issue banknotes, and the Government are keen to support them Due to the ring-fencing legislation put in place after the financial crisis, from 1 January 2019 our ring-fencing regime will require structural separation of core retail banking from investment banking for UK banks with retail deposits of more than £25 billion. As a result of this, RBS is separating its retail bank from the rest of its banking group. The legal entity that currently has the responsibility for issuing banknotes will sit outside the retail part of the bank after separation. RBS believes that banknote issuance best sits within the retail bank, the Bank of England agrees—and so, less importantly, do I This change moves the authority to issue banknotes in Scotland from the non-retail legal entity to the legal entity that will shortly become the RBS retail bank. Authority to issue banknotes is inherent to a specific legal entity and cannot be moved from one legal entity to another without making these changes. These changes will not impact RBS’s ability to issue banknotes or the value of the banknotes already issued. It is purely a technical change required to implement ring-fencing legislation. The Bank of England and the Financial Conduct Authority both approve of this action. I beg to move.