BANKING COMPANIES (ACCOUNTS) REGULATIONS 1970

HL Deb 24 February 1970 vol 308 cc18-21

3.20 p.m.

THE MINISTER OF STATE, BOARD OF TRADE (LORD BROWN) rose to move, That the Draft Banking Companies (Accounts) Regulations 1970, laid before the House on January 27, be approved. The noble Lord said: My Lords, the Eighth Schedule to the Companies Act 1948 sets out the matters on which companies are required to give information in their accounts. Paragraph 23 of that Schedule exempts from many of the requirements of the Schedule any company which satisfies the Board of Trade that it ought to be treated for the purposes of the Schedule as a banking company. A bank so exempted is entitled to draw up its annual accounts in a way which does not disclose the full amount of its reserves, and does not show its true profit or loss for the year.

The purpose of these Regulations is to repeal paragraph 23 of the Eighth Schedule in relation to two classes of banks; namely, the London clearing banks and those Scottish banks which carry on a business similar to that of the London clearing banks. The Scottish banks are defined in the Regulations as those which are represented on the Committee of Scottish Bank General Managers. The effect of the repeal will be that any bank in one of these two classes will be subject to the provisions of the Eighth Schedule, which applies to companies in general. It will be required to prepare its accounts in a way which gives a true and fair view of the state of its affairs, and of its profit or loss for the year.

Most Members of the House will be aware that in September of last year the London clearing banks and the Scottish banks concerned announced that after discussion with the authorities they had decided that in future they would prepare their annual accounts in accordance with the provisions of the Companies Act 1948 which apply to the generality of companies, and would cease to take any advantage of the exemptions available to them under paragraph 23 of the Eighth Schedule. It is because the banks came to that decision that the accounts to be published in the near future, such as the accounts for 1969 of banks with years ending on December 31, will be full accounts. For the same reason, the preliminary results which the banks published last Friday were results based on full accounts. It seems right in a matter of this importance that the law should require full accounts, and that will be the position in relation to the accounts prepared and published after April 1, if these Regulations are approved. I beg to move.

Moved, That the Draft Banking Companies (Accounts) Regulations 1970, laid before the House on January 27, be approved.—(Lord Brown).

LORD DRUMALBYN

My Lords, I should like to thank the noble Lord for his brief explanation of these Regulations. They confirm, as the noble Lord said, what the banks had already themselves decided to do, and since the Regulations were laid the banks have published their accounts in a way which I understand complies with the Act in all respects but one; namely, that most of them have not disclosed their true profits for 1968 for comparison. If that is so, it was certainly not unreasonable, as the Act itself did not require a comparison of profit between the year of report and the previous year when the first accounts to be issued after the Act came into force were published.

No doubt the banks would have preferred to be allowed to continue to comply voluntarily with the provisions of the Act, from which they were previously exempted, rather than have their exemption removed by statute; but if they can and do comply voluntarily there is no apparent reason why the exemption should continue. Indeed, if having once complied voluntarily a bank decided in a subsequent year not to comply, there might be considerable objection. The formal removal of the exemption is, therefore, quite logical, and the banks themselves have not demurred. The fact that the exemption is no longer necessary is surely in itself a source of strength to the banks. The Jenkins Committee in 1962 were divided on whether the exemption was any longer necessary or desirable. That the banks themselves should have decided that it was not, is a mark of their conviction of their own ability to maintain public confidence just as the introduction of the Order testifies that the Government believe in that ability.

There are not many countries, I under-stand, which require disclosure in the accounts of the banks to the extent that will be required by these Regulations. We can all take pride in the solidity and stability of our leading banking institutions. I, for one, do not complain that an interval of over three years from the passage of the 1967 Act should have elapsed before these Regulations were laid before Parliament. I believe that it was entirely proper that both the banks and the Government should have time to consider carefully the implications of this change. We all know that banks can suffer sudden and severe losses, the disclosure of which might adversely affect their standing—particularly in the eyes of overseas depositors—even although the bank's position was not fundamentally affected and, indeed, remained fundamentally sound. Adjustments have been made in the intervening time, including, I am glad to see, specific provision for the unfunded benefit in pensions funds. Above all, it was much better that the banks should take this step of their own free will rather than have it imposed on them by Government. The Regulations should lead to greater competition between the banks, and to the interest of the community as a whole, and should give added stimulus to efficiency.

I would conclude by asking one question. Circumstances might change and arise—though I hope they never will —in which it might be deemed necessary to restore the exemption. Such circumstances would, obviously, have to be very grave indeed—for instance there might be something of the order of a national emergency; it might come on the nation quite suddenly. If this should happen, would the Board of Trade be able to restore the exemption by regulations? Since the regulations would clearly not be more onerous to the banks, would it be legally necessary to obtain the assent of Parliament to such regulations? If it would not be legally necessary, would the Government give an assurance that the Government would, nevertheless, seek the assent of Parliament?

LORD BROWN

My Lords, I am very grateful to the noble Lord, Lord Drumalbyn, for his extremely wise words, and I entirely concur with him that it is very much to the credit of the banks concerned that they should have moved voluntarily in this manner, and it will stand their status well in the world. I am sorry that I am not able now to answer the noble Lord's question about the position of the Government in relation to the restoration of the exemption, should it become necessary. I hope that if I investigate this matter and write to the noble Lord about it he will be satisfied. I should have known the answer to this question, but I am afraid that it did not occur to me to explore this matter before presenting these Regulations to the House.

On Question, Motion agreed to.