Banking Bill

HL Deb 23 March 1987 vol 486 cc77-105

House again in Committee.

Clause 39 [Power to obtain information and require production (#. documents]:

Lord Strathclyde moved Amendment No. 63:

Page 31, line 39, leave out ("or subsidiary") and insert (', subsidiary of related company").

The noble Lord said: In speaking to this amendment, I should like to speak also to Amendments Nos. 65, 70 to 75 and 110A. Although these are relatively technical amendments, they are no less important for being so. They were first proposed in another place by the honourable Member for Richmond and Barnes but were withdrawn to consider the Government's response. They are supported by the Chartered Institute of Accountants of England and Wales.

The problem lies in the fact that, when the Bank of England or the authorised qualified person is sent to investigate an institution, it is limited to investigating the holding company or subsidiary of the institution as laid out in the current provisions in the Bill—in other words, those companies in which the parent has a 50 per cent. shareholding or more—but subsequent investigations may show up transactions by an associated or a related company. These transactions could not be investigated because they come below the 50 per cent. threshold. Therefore, this is a loophole by which institutions can avoid investigation.

Under the Companies Act 1985, an associated or related company is deemed to have an element of control where a parent has a shareholding of 20 per cent. or more. Since that is the case under existing law, surely those companies should come under the investigating powers of this Bill. These amendments include associated or related companies as defined under the Act—those with shareholdings of 20 per cent. or more—and fit them into the relevant sections of the Bill. Then if or when the time comes that they need investigation, the investigating authorities can follow through. The net effect would be to make investigations more meaningful and ultimately fairer. I beg to move.

Lord Williams of Elvel

I am grateful to the noble Lord, Lord Strathclyde, for moving his amendments and explaining them. When he put down this amendment I was uncertain whether "related company" included an associated company, but he says that it does. I am now uncertain as to whether it moves upwards as well as downwards. I can understand that outside a group in terms of the Companies Act it is sensible to have powers of investigation into a company that is not controlled in the full Companies Act sense of the term. I am wondering whether he means by "related company" a company that is a shareholder which has a relation with the authorised hank into which it is to conduct the investigation. No doubt the Minister will be able to satisfy us all that this is either covered by the Bill or else that it requires the amendment in question.

Lord Beaverbrook

In supporting the amendments of my noble friend Lord Strathclyde, I can confirm that these amendments slightly widen the power under Clause 39 for obtaining information by including "a related company" among the connected companies from which information and documents can be obtained. A related company is defined in the Companies Act. It is, in brief summary, a company in which the authorised institution holds 20 per cent. or more of the nominal value of the shares in the company. The amendments also significantly widen the reach of the powers of investigators appointed under Clause 41 to include companies in which the authorised institution or its shareholder controllers have a 20 per cent. or more stake, rather than just 50 per cent. as is the case with the Bill as it stands.

As a general rule, the information which the Bank needs for supervision will be provided by the authorised institution whether it relates directly to the institution or to a closely connected institution, but there could be circumstances in which the Bank could not obtain adequate information via the parent bank. The Government recognise these risks and accordingly the Bill already provides for powers to obtain information from subsidiaries, holding companies, subsidiaries of holding companies and companies in which shareholder controllers have a 50 per cent. or more stake. Investigators appointed under Clause 41 may also investigate such companies. However, as my noble friend, Lord Strathclyde has pointed out, the scope of the powers is limited and does not extend to other connected companies whose state and activities may be highly relevant to the health of the authorised institution. The Government agree with that and thus support my noble friend's amendments. The choice of 20 per cent. as against the 50 per cent. at present in the Bill is perhaps somewhat arbitrary, but, in the Government's view, it represents a substantial stake and is in line with United Kingdom accounting practice. As I said previously, the Government agree with my noble friend's amendments and support them.

Lord Williams of Elvel

Perhaps I may respond to the Minister and say that I think he is right. On the whole, I believe that these amendments are right. Nevertheless, it would be wrong to allow the amendments to be accepted as they are by the Government without noticing, as the noble Lord has said, that they constitute a wide extension of the powers of the Bank. If an authorised institution has 20.5 per cent. in a company, which brings it into the related company provisions, it is subject to Clauses 39(1) and 39(2). In other words, the Bank may serve notice and make an investigation, and may appoint an accountant or other person to make an investigation. It lays an onus on those companies which, for one reason or another. may be 20.5 per cent. controlled by an authorised institution to conduct their affairs in a way which has to have regard to that particular shareholding rather than the generality of its shareholders.

From the Opposition side, I have no particular objection to that. I just wish it to be formally noted that that is the Government's position and that they are prepared to extend the provisions of Clause 39 with the onus of subsections (1) and (2) on to companies who may, for one reason or another, find themselves 20.5 per cent. owned by an authorised institution. That could happen as a result of an underwriting which is an underwriting stick. It could happen in all sorts of circumstances on which I would elaborate if I had more time. But we have to be aware that this is a widening of the legislation, which I do not oppose but of which I think we should take note.

Lord Beaverbrook

The Government would agree that there is a limit to how far information and investigation powers should go. As I have already said, the Government consider that my noble friend's amendments have that balance about right.

Lord Strathclyde

I should like to thank the noble Lord, Lord Williams, for what he has said. The point is that even though a subsidiary or related company may find itself in the position of being owned 20 per cent. by an authorised institution it should have nothing to fear so long as there have been no transactions worth investigating by the authorised person. Therefore, these amendments will not prove to be as onerous as he may suggest.

Lord Williams of Elvel

May I ask the noble Lord and indeed the Government what will happen if there is an underwriting stick and there is a rights issue by a company which is underwritten by an authorised institution which does not sell in the market, as a result of which the authorised institution finds itself in the position of controlling 20.5 per cent. of a company? This can happen. In the past, it has happened. If the authorised institution is. for one reason or another, under investigation, is it proper and right that the related company which, through no fault of its own, has gone to that authorised institution for the underwriting and finds itself temporarily perhaps a related company should be in that position?

Lord Beaverbrook

I cannot believe that in the real world the authorised institution would not have disclosed to anyone who was underwriting an issue of stock of its shares the material fact that it was under investigation.

Lord Williams of Elvel

All that may be true, but all these things can be said after the event. An authorised institution conducts its affairs in whatever manner it decides. It may decide to underwrite. Then there is an underwriting stick which takes a month or two to work itself out. In the month or two, the authorised institution comes under the provisions of Clause 39. There is a very minuscule technical point here, but it is something to which I should not like companies to be subject unless the Government are doing it with their eyes open.

Lord Beaverbrook

As I have said, any institution doing such underwriting should be aware of the possibility of it ending up with a stake of more than 20 per cent., if indeed it had underwritten an issue of shares to that extent. However, I point out that the Bank can only use the powers under Clause 39(1) in the interests of depositors. If an underwriting unfortunately got left with the underwriters, it is very unlikely in those circumstances that the Bank would need to use its powers.

On Question, amendment agreed to.

Lord Bruce of Donington moved Amendment No. 64:

Page 31. line 44, after ("entitled") insert ("directly or indirectly")

The noble Lord said: This is a very short amendment which is also concerned with the exercise by the Bank of its powers under Clause 39 with particular reference to subsection (6)(d) which states: a body corporate in the case of which a shareholder controller of that institution, either alone or with any associate or associates, is entitled to exercise, or control the exercise of, more than 50 per cent. of the voting power at a general meeting". All that I seek to insert immediately following "entitled" is "directly or indirectly". It would then read: is entitled directly or indirectly to exercise, or control". The noble Lord may say that the existing wording is sufficient. If he tells me so, I shall immediately accept it.

Lord Beaverbrook

I am grateful to the noble Lord for putting down this amendment. I have looked at it very carefully. The Government's view is that Clause 39(6)(d) already covers the two cases where the shareholder controller himself or itself directly controls the voting rights or does so indirectly through a subsidiary of the company of which he has direct control. That is the meaning of "control the exercise or' in subsection (6)(d).

It may be helpful if I gave an example. A person who is a shareholder controller of a bank is also a shareholder owning 70 per cent. of the voting shares in a company. The shareholder, through his power to appoint and dismiss all the directors of the company, would effectively be able and entitled to control how that company exercised the voting rights attaching to any shares which it owned. Thus, where that company owned over 50 per cent. of the voting shares in another company, the shareholder in the first company would have indirect control of the second company and would therefore fall within the terms of Clause 39(6)(d).

I hope that that explanation is helpful to the noble Lord and that he will be able to withdraw his amendment on that basis.

Lord Bruce of Donington

I am glad to accept the explanation offered by the noble Lord and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

8.15 p.m.

Lord Strathclyde moved Amendment No. 65:

Page 32. line 6, leave out ("50") and insert ("20").

The noble Lord said: I have already spoken to this amendment with Amendment No. 63. I beg to move.

On Question, amendment agreed to.

Lord Elton moved Amendment No. 66:

Page 32, line 17, after ("or) insert ("or who is a significant shareholder in relation to").

The noble Lord said: It may be for the Committee's convenience if I speak also to Amendments Nos. 68 and 69. All these proposed new provisions relate to significant shareholders; and we have discussed at some length who they are.

It was in Committee in another place that Her Majesty's Government conceded that shareholdings of this order could be a matter of concern. At Report stage, they introduced into the Bill requirements on those acquiring such holdings to notify the Bank of their acquisition. They also provided in Clause 39 for the Bank to acquire information. That power resides in Clause 39(1) and (3) and is exercised by the service of a notice.

However, it will be noticed from page 30 line 36 that the notice can only be served on an authorised institution—not upon an individual shareholder. It is true that in subsection (9) the power is widened a little. The Bank is there empowered to serve a notice demanding information from, a director, controller or manager". That will bring in the 15 per cent. shareholder, but there is still no power to serve a notice on, and so get information from, the significant shareholder who has a shareholding of 5 to 15 per cent.

My noble friend Lord Young of Graffham laid so much emphasis on the availability of this information when he was resisting my amendment to give the Bank some control over these people that my interest is sharpened as to why the power to get that information from the people themselves is not in the Bill.

The implication of this to directors as such, controllers as such and managers as such, specifically in subsection (9), is that the Bank can only serve notices on classes of person listed in the clause. There is no point in listing them unless the purpose is to say that these are the people from whom the information can be obtained. The list stops short of the significant shareholder.

The Government have already said that they think that the information should be obtained in another place and have said in this place how important it is that it should be obtained. My amendment is to enable them to save their embarrassment by enabling them to obtain the information.

Lord Young of Graffham

I am grateful to my noble friend Lord Elton. I believe that I can at long last give him some comfort on the points about which he is concerned. He is clearly concerned that the supervisors should be able to obtain information and documents from significant shareholders as defined by the Bill. That is already provided for in subsection (10) of Clause 39 which gives full powers to the Bank to acquire such information or documents as it considers necessary. I understand my noble friend's concern that the power to obtain information should be exercised in respect of the significant shareholder directly and not simply that the Bank in which he is a shareholder is required to provide information. I am assured that this is indeed the effect of the drafting of Clause 39. Indeed the Bill goes further. I draw my noble friend's attention to Clause 41(5) where he will see that significant shareholders may also be subject to investigation by investigators appointed under that clause.

Lord Elton

I am grateful to my noble friend especially for his latest reference to Clause 41 (5) which I shall look at in conjunction with his earlier speech. I should like my noble friend to explain a little more fully why it is that significant shareholders are not included in the catalogue of people who may be interrogated under subsection (9). They are presumably for some specific reason shunted into Section 10. The difference between Sections 9 and 10 should presumably give a clue to the reason for putting them there. The difference appears to be that in this case, but not in the other, the Bank considers that the exercise of those powers is desirable in the interests of depositors or potential depositors of that institution. That test does not appear in subsection (9) and I remain interested to know why it is applicable in that case but in no other. It is obviously a carefully thought out piece of drafting.

I am speaking at length on the assumption that my noble friend will need a little support in answering my question. I notice that no such support has yet to come to his hand. I am aware of the difficulties in which one finds oneself in this situation and I am prepared to carry on talking at some length until that support is given.

Lord Williams of Elvel

I am astonished that the noble Lord, Lord Elton, should think that the Secretary of State needs any support on this issue. It seems to me that the Secretary of State is perfectly able to respond to the intervention of the noble Lord without any support whatsoever.

Lord Young of Graffham

I am extremely grateful to my noble friend and I should also like to express my gratitude to the noble Lord, Lord Williams of Elvel.

Inspiration has suddenly struck me from on high that the power to acquire information applied to significant shareholders by Clause 39(10) is dealt with in a different way because that power is wider and more specific. The reason is that controllers are subject to the full prudential requirements of the Bill and full sanctions or removal or revocation. Much flows from that in terms of supervisors' ability to obtain information or co-operation generally in a way that does not apply to significant shareholders. The information requirement for significant shareholders is made more specific. I hope that will satisfy my noble friend Lord Elton, but if not perhaps he will write to me and give notice that he will raise the matter at a later stage.

Lord Elton

I am grateful to my noble friend, who has now advanced both the excuse that the power is there and the reason for its being different. I shall read with great pleasure and interest tomorrow what he said. I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Lord Beaverbrook moved Amendment No. 67:

Page 32, line 19, after ("information") insert ("or documents").

The noble Lord said: This amendment remedies a deficiency in Clause 39(9) by empowering the Bank to require the provision of documents as well as information from a director, controller or manager in order to assist it to determine whether that person is fit and proper. This brings the subsection in line with the other provisions in the Bill relating to the obtaining of information and to investigations, all of which include powers to require the furnishing of documents. I beg to move.

Lord Williams of Elvel

I cannot quite understand why the amendment is necessary but no doubt the noble Lord will explain. Is not information also in documentary form? It can be information in whatever form is appropriate. If the insertion is "or documents", why not "or in recorded telephone conversations, or in tapes", or whatever? I believe that the expression "information" is as broad as one can get without having to qualify it by putting in the expression "or documents". No doubt the draftsman had in mind something which I have missed.

Lord Beaverbrook

I believe that the amendment is necessary to bring the subsection in line with other provisions. I believe that the draftsman wanted to include it after taking legal advice. I think that it should have been included in the Bill at an earlier stage, but by a simple oversight it was omitted.

Lord Williams of Elvel

I am sorry to press the noble Lord on this matter but I cannot understand why it is necessary. If it is necessary to specify documents, should we not specify other forms of information which are required?

Lord Beaverbrook

I am informed that the definition "documents" in Clause 104 refers to this matter, and that may help the noble Lord to understand why the amendment is required.

On Question, amendment agreed to.

[Amendments Nos. 68 and 69 not moved.]

On Question, whether Clause 39, as amended, shall stand part of the Bill?

Lord Williams of Elvel

I raise a small point in relation to Clause 39 in the light of amendments moved by the noble Lord, Lord Strathclyde, which widen the scope of the clause. I refer to Clause 39(3)(b), under which, The Bank may … authorise an officer, servant or agent of the Bank". The noble Lord, Lord Strathclyde, moved an amendment to Clause 39(6) which the Committee accepted. It extended the powers under Clause 39(3) to related companies. On a number of earlier occasions I raised the problem about the position of an agent of the Bank. Now that the amendments of the noble Lord, Lord Strathclyde, have been accepted, under authorisation from the Bank and to specific instruction from the Bank he is able to enter a company of which an authorised institution holds 20.5 per cent. or 20.1 per cent.

Clause 39(3)(b) is a new subsection and is not in the 1979 Act. I have the problem that the position of the agent, who may be a firm of accountants, enters a company of which for one reason or another the authorised institution happens to hold just over 20 per cent. On the instructions of the Bank, and showing his proper authority, he asks for all kinds of information. The related company in question must provide the information under the instruction. However, because the information is provided, or the implication is that it is in some way involved in a nefarious transaction of which the authorised institution may be suspected, it has a grievance against the Bank or its agent.

From earlier clauses in the Bill we know that it will have no case as regards damages against an officer or servant of the Bank. However, it will have a case as regards damages against an agent of the Bank. The problem I have is whether, in these circumstances, the agent of the Bank should not be offered some form of protection.

Lord Beaverbrook

I have listened carefully to what the noble Lord, Lord Williams of Elvel, has said. At the Committee stage last Monday we debated the level of immunity which was appropriate under the Bill. I shall study carefully what the noble Lord has said in respect of Clause 39. I should like to think about the matter in the light of the previous debate, and I shall write to the noble Lord on this subject.

Lord Williams of Elvel

I am most grateful to the noble Lord. My question relates to the case of an unwitting related company. It is a narrow question.

Clause 39, as amended, agreed to.

8.30 p.m.

Clause 40 [Potter of entry to obtain information and documents]:

On Question, Whether Clause 40 shall stand part of the Bill?

Lord Bruce of Donington

Clause 40 says: Any officer, servant or agent of the Bank may, on producing if required evidence of his authority, enter any premises occupied by a person on whom a notice has been served". I should like to refer the noble Lord back to Clause 39(5), to which this clause applies, and draw his attention to subsection (5)(b): if the documents are not produced, to require the person who was required to produce them to state, to the best of his knowledge and belief. where they are". Does the authority under Clause 40 give power to the Bank or its agent, on being notified where the documents are, to enter those premises, as distinct from the authority to enter the premises occupied by the institution concerned?

Lord Williams of Elvel

Perhaps the noble Lord might also consider a point in Clause 40(2). It says: Any officer, servant or agent of the Bank may, on producing if required evidence of his authority, enter any premises", of any authorised institution, because that is what it says in Clause 39. The Bank may by notice in writing served on an authorised institution". Clause 42 says that they may enter any premises occupied by anybody on whom a notice might be served. That is any authorised institution.

We get to the delicate point here of banking secrecy, where an agent, an officer or a servant of the Bank can go into another authorised institution and demand to see documents if the Bank reasonably believes that they may have been removed, tampered with or destroyed.

We all know that computers foul up things, and we all know that at the end of one day foreign exchange transactions are cleared off the computer and it may be that no record is kept. Normally what would happen would be that an investigator would be required to get a specific court order in order to go into another authorised institution—that is, another bank—to get the information it wants. Perhaps the noble Lord can satisfy us on this point.

Lord Beaverbrook

On Clause 40 I shall take the question of the noble Lord, Lord Bruce, first. The short answer to his point is, no. This clause gives power of entry only to premises occupied by those on whom a notice has been, or may be, served. Those are listed in Clause 39(1) and (6). In respect of the point raised by the noble Lord, Lord Williams, the safest route would be for me to look at this question further and write to him.

Lord Bruce of Donington

May I press the noble Lord a little further? Under Clause 39 the Bank is empowered to be told where the documents are. What is the use of being told where documents are if, for example, the documents are not on premises occupied by the institution? What is the use of that knowledge if you cannot get in to get them?

Lord Beaverbrook

In granting these powers of entry we have been careful to ensure that they are of a nature likely to be required. I think that previously it was found, with experience, that this level of power of entry was about what was necessary and therefore what should be given, and no further than that.

Lord Elton

The noble Lord, Lord Williams of Elvel, has ensured a restriction of the use of this power by relating it back to Clause 39(1), which says: The Bank may by notice in writing served on an authorised institution". He has made the understandable assumption that it can only be served on an institution and that we are therefore looking at inspectors from the Bank calling at other banks or offices.

However, subsequent subsections go on to attract the powers of subsection (1) in other instances. If we look at subsection (10) we find them attracted to: any person who is a significant shareholder of an authorised institution". It may or it may not be beyond the bounds of possibility that that would be a private individual. My interest in pursuing this is to ask my noble friend whether the authorisation from the Bank would in that case have exactly the same status in law as a warrant sworn before justices of the peace. That would seem to be an unexpected widening of the powers of the Banking Bill that we ought to consider.

Lord Beaverbrook

I am grateful to my noble friend for his question. If he turns to Clause 41 he will see that there is a much tougher power of investigation which requires the involvement of a magistrate to issue a warrant.

Lord Elton

That is not the point that I am making. The point I am making here is that a similar power appears to be available without the intervention of a magistrate. That is what I wanted to know.

Lord Beaverbrook

I was about to say that I do not believe it to be a similar power. The powers of entry are in fact rather modest. There is no power to force entry. It has not been thought necessary to provide a power to force entry in the case of supervisory inquiries. We believe that the penalty, as stated, of possible imprisonment ought to be sufficient to enable the Bank to gain entry. But, as I said, where entry is refused, these penalties apply. Of course that would have to go through the legal process.

Lord Williams of Elvel

I am sorry to press the noble Lord a little further. This is a new clause which was not in the 1979 Act, and therefore it is worth while spending a little time on it. I am grateful to the noble Lord, Lord Elton, for pointing out that my original objection should have been slightly wider than it was. Nevertheless, I should like to know how the Government see the officer, servant or agent of the Bank with proper authority going into a completely different bank without a court order and saying, "We have reasonable cause to believe that there are certain documents which may be in your possession and which you may have removed, tampered with or destroyed".

This seems to me to be a very wide power indeed. I want the Government to be certain that that is what they are asking for, and that it does not contravene what I have always been brought up to believe is proper banking practice, that you never give away information about a client's business other than on a court order.

Lord Beaverbrook

The power under this clause is not entirely new. Sections 16(1) and (2) of the 1979 Act can be interpreted as giving equivalent power in respect of licensed deposit takers where they require information or documents at such time and at such place as is specified in a written notice. I am sure that Members of the Committee who have spoken on this matter will also note that Clause 40 does not give officials of the Bank the right to force entry, as I said. Therefore, I do not think that it can be described as a very draconian power. It is a modest reserve power for hard cases, and I hope that on reflection Members of the Committee will be able to accept that point.

Lord Williams of Elvel

I am not talking about forced entry or people breaking the door down. I am talking about an agent or a servant of a bank going round with a proper authority to another bank. If someone from the Bank of England arrives at a bank and says, "I should like this, that and the other information", nobody will close the door and say, "You can't have it", because that authority comes from the Bank of England. It is not a question of forced entry or anything like that. It is a question of whether these powers are right to require a third party bank to betray what is normally known as banking secrecy without an order from the court. While the noble Lord, Lord Elton, is making a case for the individual, I am making the case for a bank. That is all.

Lord Beaverbrook

I have gone as far as I can this evening in trying to justify the powers under Clause 40. It would probably be better if I looked at all that has been said and perhaps wrote to the noble Lords who have spoken on this subject.

Clause 40 agreed to.

Clause 41 [Investigations on behalf of the Bank]:

Lord Strathclyde moved Amendments Nos. 70 to 75:

Page 33, line 23, leave out ("or subsidiary") and insert (", subsidiary or related company").

Page 33. line 25, after ("subsidiary") insert ("or related company").

Page 33. line 30, leave out ("50") and insert ("20").

Page 33, line 42, leave out ("50") and insert ("20").

Page 33, line 45, leave out ("50") and insert ("20").

Page 33, line 47, leave out ("or holding company") and insert (", related company or holding company").

The noble Lord said: I spoke to these amendments when I moved Amendment No. 63. I beg to move.

On Question, amendments agreed to.

8.45 p.m.

Lord Young of Graffham moved Amendment No. 76:

Page 34, line 6, after ("above") insert (", any person appointed to make a report in respect of that body under section 8(5) or 39(1)(b) above").

The noble Lord said: The purpose of this amendment it to enable investigators appointed under Clause 41 to question accountants, and other professionals, who provided a report for the Bank in connection with an application for authorisation or pursuant to the use of the information gathering powers under Clause 39. Such persons will, like the auditors and solicitors of an authorised institution, have a considerable amount of information about the institution. It would be unsatisfactory therefore if investigators were not empowered to seek that information and question the persons concerned. The amendment remedies this by putting reporting accountants and the like on a similar footing to the auditors, bankers and solicitors of the institution. I beg to move.

Lord Bruce of Donington

One cannot express any particular dissent from the amendment moved by the noble Lord, but it carries certain implications with it, particularly so far as accountants are concerned—appointed to investigate. Under subsection (5), paragraphs (a), (b) and (c), auditors have to do quite a number of things. They may themselves have performed all their duties completely punctiliously. They may have copious notes, but here they are required to provide documents. There can be little exception to that.

They have: to attend before the persons so appointed at such time and place as they may require; and … otherwise to give those persons all assistance in connection with the investigation which he is reasonably able to give". That is fair enough. I believe that the accountancy profession is at one with me in affirming its dedication to the public interest. If, however, this takes a tremendous amount of time, which in the case of an examination at an auditor's working pace would take a long time, including the questioning of the auditor and so on, who will pay for it? I am aware this is a mercenary question because most of my profession are anxious to discharge their public duty. But I draw the attention of the noble Lord to the fact that this could be quite onerous in circumstances where a firm of auditors is itself completely blameless in all respects. Apparently the more thoroughly the firm has done its job the longer all this will take it.

Can the noble Lord give a little explanation? I am not in general in dissent with the amendment that he has tabled.

Lord Young of Graffham

Yes, the noble Lord will no doubt wish to declare an interest as representing the entire body of auditors and accountants.

Lord Bruce of Donington

I have declared my interest many times.

Lord Young of Graffham

Of course, in those circumstances it would be the Bank which would pay when it asked the various accountants to prepare reports.

Lord Elton

Can my noble friend tell us where that is in the Bill? Is there some well-established convention that we take on trust, is it in some other statute, in a schedule or where?

Lord Young of Graffham

If my noble friend looks at Clause 41, I believe that he will find it there.

Lord Elton

I am prepared to take it on trust, as it happens. I hope my noble friend was not referring to a convention which we did not know about. If there is a difficulty he will write to me. If I do not hear from him I shall assume that there is none.

Lord Bruce of Donington

The noble Lord mentioned that I did not declare my interest. I am most anxious not to be remiss in this. I have declared my interest on so many occasions in this Chamber that I thought it was generally known by now. I am of course a partner in a firm of chartered accountants, Halpern and Woolf. My firm for the moment is unlikely to be affected by the operation of this clause.

Lord Young of Graffham

I am more than happy to take the noble Lord's assurances on that. I was gently teasing him. The cost of attending on the inspectors falls on the auditors. The Bank pays the inspectors' costs, but there is some lack of clarity about this whole matter perhaps. I shall write to the noble Lord to clear this matter up once and for all.

On Question, amendment agreed to.

On Question, Whether Clause 41, as amended, shall stand part of the Bill?

Lord Williams of Elvel

This is a very small point. It concerns Clause 41(5) and 41(11). Clause 41(11) enshrines the well known legal privilege: Nothing in this section shall compel the production by a barrister, advocate or solicitor of a document containing a privileged communication made by him or to him in that capacity". Clause 41(5), on the other hand, says: It shall be the duty of every director, controller, manager, employee, agent, banker, auditor or solicitor of a body", to produce the necessary documents. I quite accept that subsection (5) is qualified by subsection (11). In other words, where the solicitor is the object of a communication which is in confidence, he shall not be obliged to reveal it. Nevertheless, the banker may also be in a position where he has received a communication in confidence. The accountant may be in a position where he has received a communication in confidence, and he will be obliged to reveal it.

I know that the Secretary of State will declare his interest as a former—perhaps a practising—solicitor; I know not. But it seems to me rather odd that the legal privilege should be enshrined specifically in subsection (11) and yet the banker and the poor old auditor again will be caught.

Lord Young of Graffham

I happily disclose an interest. Well over 30 years ago I practised for a few months as a solicitor and that must make all I say subject to that disclosure. There is a clear difference about a privileged communication. A privileged communication is a communication made by a barrister, advocate or solicitor with his client. That puts it in one category, with some other confidential information which may be referred to in subsection (5).

Lord Williams of Elvel

Does the noble Lord regard conversations, or potential conversations, between a customer and a banker as not being privileged in that sense?

Lord Young of Graffham

Privilege is, I believe, a term of art of the legal profession and therefore covers a certain category of disclosure. I am not sure that it is necessarily the same between a banker and a customer or a banker and a client.

Clause 41, as amended, agreed to.

Clauses 42 to 44 agreed to.

Clause 45 [Audited accounts to be open to inspection]:

Lord Bruce of Donington moved Amendment No. 77:

Page 37, line 17, after ("accounts") insert ("including the Auditor's Report thereon").

The noble Lord said: This amendment is a very simple one. Clause 45(1) reads: An authorised institution shall at each of its offices in the United Kingdom at which it holds itself out as accepting deposits—(a) keep a copy of its most recent audited accounts together with other documents. I wish to insert the words "including the Auditor's Report thereon" after the word "accounts".

I sincerely hope the Government will accept this amendment, because under the Companies Act 1985 the auditor's report is quite separate in Section 236 from the accounts that are governed by Section 228. I am most anxious that the auditor's report shall be seen to have a status independent of the accounts themselves. They should have been audited; otherwise there would have been no auditor's report upon them. But I think that the accounts themselves, without the auditor's report, are not sufficiently comprehensive. I am quite sure the noble Lord will agree that the responsibility ought to be laid on the authorised institution to produce the auditor's report as well as the audited accounts. I beg to move.

Lord Young of Graffham

I am sympathetic to the amendment of the noble Lord, Lord Bruce of Donington, but I consider that the way it is drafted may not be exactly appropriate. This is partly because Clause 45 applies not just to United Kingdom-incorporated companies but also to all other authorised institutions, including overseas institutions and United Kingdom partnerships, not all of whose accounts necessarily have by law to include auditors' reports of the type required under the Companies Act. As the noble Lord is aware, Section 239 of the Companies Act provides for the purposes of that Act that a United Kingdom company's accounts must include an auditor's report.

However, I see the force of the noble Lord's point and accordingly we shall table an amendment at Report to put it beyond doubt that for United Kingdom incorporated companies the company's audited accounts should include the auditor's report.

Lord Bruce of Donington

I am grateful to the noble Lord. I am glad to have been of some help to him. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 45 agreed to.

Clause 46 agreed to.

Clause 47 [Communication by auditor etc., with the Bank]:

Lord Bruce of Donington moved Amendment No. 78:

Page 38, line 4, after ("duty") insert ("express or implied").

The noble Lord said: Here, once again, I have to redeclare my interest because auditors and accountants are involved. Subsection (1) of Clause 47 at present reads: No duty to which—

1. (a) an auditor of an authorised institution; or
2. (b) a person appointed to make a report under section 8(5) or 39(1)(b) above,

may be subject shall be regarded as contravened by reason of his communicating in good faith to the Bank, whether or not in response to a request made by it, any information or opinion on a matter to which this section applies and which is relevant to any function of the Bank under this Act". This subsection will, I am afraid, have to be the subject of some further discussion, perhaps at Report stage, because I am not very happy with the responsibilities laid on auditors by this clause.

However, that is not the subject of this amendment. A number of duties are laid upon auditors, the position of whom is not always universally understood by those who think that they really do understand it. It is extremely important that the duty to which an auditor is subject under this clause should be a duty implied as well as express, because on one's reading of the present case law on the subject it appears that there are a number of instances where auditors are popularly supposed to have certain duties which are nowhere laid down by statute. Their responsibility grows and the insurance premiums they have to pay grow as well. One is therefore most anxious that the duty shall be qualified by "express or implied". I beg to move.

Lord Young of Graffham

The noble Lord, Lord Bruce of Donington, does his profession great credit in the way he is concerned for its wellbeing and interests. I understand the noble Lord's concern that auditors should not feel inhibited from disclosing relevant information to the Bank, but I am advised that this amendment is unnecessary. The clause absolves auditors from contravention of any duty to which they are subject whether that duty be express or implied, provided of course that they act in good faith when communicating with the Bank. It is in the same form as Section 109 of the Financial Services Act 1986 and is similar to Section 82(8) of the Building Societies Act 1986, which refers to "obligation" but without the qualifying words "express or implied". I hope the noble Lord, having heard my explanation, will feel that he can withdraw this amendment.

Lord Bruce of Donington

I am glad to accept the noble Lord's assurance on this matter. Whether in all the circumstances the courts will follow the advice that he has tendered here is another matter, because, as the noble Lord is well aware, the courts interpret the statutes very strictly and our proceedings here in this Chamber cannot be quoted or cited in support of any particular interpretation. The law is always interpreted as it stands. I hope that the noble Lord is right and I am grateful for such comfort as he has been able to give me. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Young of Graffham moved Amendment No. 79:

Page 38, line 41, leave out ("shall be subject to annulment in pursuance of a resolution of either") and insert ("no such regulations shall be made unless a draft of them has been laid before and approved by a resolution of each").

The noble Lord said: This amendment fulfils an undertaking given by my honourable friend the Economic Secretary in another place. My honourable friend agreed that if the Government wished to introduce rules specifying the circumstances in which the auditors of authorised institutions should communicate information to the supervisors, that was a matter more appropriately dealt with by an affirmative resolution of both Houses of Parliament. This amendment achieves that effect. I beg to move.

Lord Williams of Elvel

I am grateful to the noble Lord for moving this amendment, which we support. I can only express some surprise that the negative procedure appeared in the first place, because we had this debate on the Building Societies Act in your Lordships' House where we fought it out twice, once in Committee and once on Report, and we achieved in the end the affirmative procedure. We had this debate on the Financial Services Act in your Lordships' House and we fought it out twice to the same end and got the affirmative procedure instead of the negative one.

The Government are trying it on again. As I pointed out to my honourable friend Dr. McDonald in another place when this Bill was introduced there, this provision is inconsistent with the Building Societies Act and the Financial Services Act. Now the Government have finally moved to make it consistent with those two Acts. We are very grateful.

Lord Bruce of Donington

We do not believe in looking a gift horse in the mouth.

On Question, amendment agreed to.

Clause 47, as amended, agreed to.

Clauses 48 to 50 agreed to.

Schedule 4 agreed to.

Clauses 51 to 55 agreed to.

Clause 56 [Maximum and minimum contributions]:

[Amendment No. 80 not moved.]

Clause 56 agreed to.

Clause 57 agreed to.

Clause 58 [Compensation payments to depositors]:

Lord Beaverbrook moved Amendment No. 81:

Page 44, line 7, leave out ("end of the deposit's original term to maturity") and insert ("the deposit is or becomes due and payable under the terms on which it was made").

The noble Lord said: With the leave of the Committee, I shall speak to Amendments Nos. 81 to 90 inclusive. All these amendments are technical. They are amendments to Part II of the Bill and involve no change of substance to the Bill as debated in another place. The amendments to Clauses 58 and 60 and Amendment No. 90 to Clause 62 are all concerned with the way deposit protection compensation payments should be calculated with respect to institutions where administration orders under the Insolvency Act have been made. The other amendments to Clause 62 will remedy an obscurity. The amendment to Clause 59 will remedy a gap in the circumstances in which the deposit protection fund is triggered when a Scottish partnership is wound up. I beg to move.

On Question, amendment agreed to.

Lord Beaverbrook moved Amendments Nos. 82 and 83:

Page 44, line 36, leave out from ("it") to end of line 39 and insert ("the payments to be made by the Board under subsections (1) and (2) above, taken together, in respect of a depositor's protected deposits with the institution shall not exceed an amount equal to three-quarters of those deposits.").

Page 44, line 41, leave out ("and (2)') and insert (", (2) and (6)").

The noble Lord said: I have spoken to these amendments. I beg to move.

On Question, amendments agreed to.

Clause 58, as amended, agreed to.

Clause 59 [Meaning of insolvency]:

Lord Beaverbrook moved Amendment No. 84:

Page 46, line 5, at end insert ("or on the making of a winding-up order against it by virtue of section 90 below").

The noble Lord said: I have spoken to this amendment and I beg to move.

On Question, amendment agreed to.

Clause 59, as amended, agreed to.

9 p.m.

Clause 60 [Protected deposits]:

Lord Beaverbrook moved Amendments Nos. 85 to 87:

Page 46, line 30, leave out ("whose original term to maturity ends") and insert ("which under the terms on which it was made is or becomes due or payable").

Page 46, line 32, leave out ("at the end of that term") and insert ("up to the time when it is or becomes due and payable as aforesaid").

Page 47, line 25, at end insert— ("( ) Where an institution becomes insolvent after an administration order has been in force in relation to it the maximum applying under subsection (1) above to a depositor's protected deposit with the institution shall be reduced by the amount of his protected deposit or deposits with the institution taken into account for the purposes of subsection (2) above.").

The noble Lord said: I have spoken to these amendments and I beg to move.

On Question, amendments agreed to.

Clause 60, as amended, agreed to.

Clause 61 agreed to.

Clause 62 [Liability of institution in respect of compensation payments]:

Lord Beaverbrook moved Amendments Nos. 88 to 90:

Page 49, line 37, leave out ("section") and insert ("paragraph").

Page 50, line 17, leave out ("section") and insert ("paragraph").

Page 50, line 24, leave out ("in respect of which the Board has received a payment") and insert ("to the extent to which the Board has received a payment in respect of it").

The noble Lord said: I have spoken to these amendments and I beg to move them en bloc.

On Question, amendments agreed to.

Clause 62, as amended, agreed to.

Clauses 63 to 65 agreed to.

Clause 66 [Tax treatment of contributions and repayments]:

Lord Bruce of Donington moved Amendment No. 91:

Page 52, line 47, after ("an") insert ("allowable").

The noble Lord said: I beg to move the amendment standing in my name. The object of the insertion of the word "allowable" before the word "expenses" is to put the matter beyond all doubt since the Tax Acts are referred to. It requires no further explanation and I beg to move.

Lord Beaverbrook

I am grateful to the noble Lord, Lord Bruce, for putting the amendment forward. I have to say that I do not see a great deal of merit in the change. However, I do not think that there would be any sense in objecting to it and, as the noble Lord says, it puts the matter beyond doubt. I shall be happy to accept the amendment.

Lord Bruce of Donington

I am grateful to the noble Lord.

On Question, amendment agreed to.

Clause 66, as amended, agreed to.

Clause 67 [Restriction on use of banking names]:

[Amendment No. 92 not moved.]

Clause 67 agreed to.

Clauses 68 to 73 agreed to.

Clause 74 [Meaning of "overseas institution" and "representative office"]:

Lord Beaverbrook moved Amendment No. 93:

Page 59, line 13, at end insert ("and "establishment", in relation to such an office, includes the making of any arrangements by virtue of which such activities are promoted or assisted from it").

The noble Lord said: This amendment is intended to remedy a possible deficiency in Part IV. Clause 75 requires an overseas bank proposing to establish a representative office in the United Kingdom to give not less than two months' notice to the Bank. As the Bill stands, overseas banks would not clearly be required to give such notice if they had entered into an arrangement with an agent who had already established premises here for the purpose of conducting their representative activities through the agent. In such circumstances the agent's premises could constitute a representative office but would the overseas hank have "established" them, for example, by renting or purchasing the premises? It could be argued that it had not, in which case no notification to the Bank would be required and the various powers in Part IV of the Bill would not apply to such overseas banks.

Given that Part IV includes penal provisions, there is a real danger that the court would adopt a narrow interpretation. It would be plainly undesirable for there to be such a gap. The amendment seeks to put beyond doubt that an overseas bank would establish a representative office merely by making an arrangement whereby representative activities would be conducted from the premises constituting the representative office. I beg to move.

On Question, amendment agreed to.

Clause 74, as amended, agreed to.

Clauses 75 to 83 agreed to.

Clause 84 [Disclosure for facilitating discharge of functions by other supervisory authorities]:

Lord Beaverbrook moved Amendment No. 94:

Page 64, line 4, column 2, leave out ("section 431, 432, 442, 446, 447 or 448") and insert ("Part XIV").

The noble Lord said: We now come to a series of minor and technical amendments on disclosure of supervisory information. Amendments Nos. 94, 95, 98 and 99 extend the purposes for which the Bank of England can disclose supervisory information for the purpose of investigations under the Companies Act 1985. Amendment No. 96 adds to the list of supervisory persons to whom information may be disclosed a person appointed by the Secretary of State to obtain a company's books or papers under Section 44 of the Insurance Companies Act 1982. Amendment No. 97 arises as a consequence of the approach adopted by the draftsman in the Building Societies Act 1986. In order to avoid any doubt that the Bank can pass information to the commission to protect the interests of shareholders and depositors, this amendment adds the appropriate words to the table in Clause 84(1). Amendments Nos. 100 to 104 delete provisions which I have been advised duplicate provisions already in Schedule 13 of the Financial Services Act 1986. Finally, Amendments Nos. 102 and 105 provide that the Secretary of State's consent must be sought before the Bank passes on to other supervisors information given to it by the Secretary of State under Section 449 of the Companies Act 1985. I beg to move.

On Question, amendment agreed to.

Lord Beaverbrook moved Amendments Nos. 95 to 99:

Page 64, line 10, column 2, leave out ("the sections of the Companies Act 1985 mentioned above") and insert ("Part XIV of the Companies Act 1985").

Page 64, line 12, at end insert— ("A person authorised by theFunctions under that Secretary of State under section 44 of section.") the Insurance Companies Act 1982.

Page 64, line 22, column 2, at end insert ("and protecting the interests of the shareholders and depositors of building societies"). Page 64, line 42, column 2, leave out ("Article 424, 425, 435, 437, 439, 440 or 441") and insert ("Part XV").

Page 64, line 46, column 2, leave out ("the Articles mentioned above") and insert ("Part XV of that Order").

The noble Lord said: I have spoken to Amendments Nos. 95 to 99. I beg to move.

Lord Elton

I should like to make a small point for the record. I do not want to make any difficulty. I have already had occasion to criticise the print of the Bill. I do not know whether I have an odd copy, but on page 64 I have only one line number. I accept that it is a table but had we needed to refer to any of the amendments it would have been very helpful for the lines to be numbered. If there is a convention that tables are not numbered, I think it ought to be changed. It does not actually matter but it is worth having it right in case we ever have to debate such an amendment.

On Question, amendments agreed to.

Clause 84, as amended, agreed to.

Clauses 85 and 86 agreed to.

Clause 87 [Disclosure of information obtained under other Acts]:

Lord Beaverbrook moved Amendments Nos. 100 to 105:

Page 67, line 1, leave out subsection (2).

Page 67, line 6, leave out ("that Act") and insert ("the Companies Act 1985").

Page 67, line 8, leave out from ("disclosed") to end of line 10 and insert— ("(a) with the consent of the Secretary of State, in any case in which information to which section 82 applies could be disclosed by virtue of section 84(1) or (2) above; and (b) in any case in which information to which section 82 above applies could be disclosed by virtue of any of the other provisions of this Part of this Act.").

Page 67, line 11, leave out subsection (4).

Page 67, line 16, leave out ("that Order") and insert ("the Companies (Northern Ireland) Order 1986").

Page 67, line 18, leave out from ("disclosed") to end of line 20 and insert— ("(a) with the consent of the Secretary of State, in any case in which information to which section 82 above applies could be disclosed by virtue of section 84(1) or (2) above; and (b) in any case in which information to which section 82 above applies could be disclosed by virtue of any of the other provisions of this Part of this Act.").

On Question, amendments agreed to.

Clause 87, as amended, agreed to.

9.15 p.m.

Lord Elton moved Amendment No. 106:

Before Clause 88 insert the following new clause:

("Application of Financial Services Act 1986 to authorised institutions. —(1) The Financial Services Act 1986 shall have effect in relation to an authorised institution within the meaning of this Act with the following modifications. (2) For the purposes of section 27 (grant and refusal of authorisation) and section 28 (withdrawal and suspension of authorisation) of that Act, the Secretary of State may regard himself as satisfied that an authorised institution is a fit and proper person if the Bank informs him that it is so satisfied. (3) The rules and practices of a self-regulating organisation shall not be deemed to be in breach of paragraph 1 of Schedule 2 (requirements for recognition of self-regulatory organisations: members to be fit and proper persons) to that Act by reason only of the fact that they provide that the organisation may regard itself as satisfied that an authorised institution is a fit and proper person if the Bank informs it that it is so satisfied. (4) For the purposes of subsections (2) and (3) above, the Bank may regard itself as satisfied that an authorised institution which is an overseas institution is a fit and proper person if—

1. (a) the relevant supervisory authority in the institution's country of origin informs it that it is so satisfied; and
2. (b) the Bank is satisfied as to the nature and scope of the supervision exercised by that authority.

(5) In so far as they relate to the form and content of financial statements, rules made under section 48 (conduct of business rules) of that Act do not apply to authorised institutions. (6) Rules made under section 49 (financial resources rules) of that Act do not apply to authorised institutions. (7) In so far as they relate to the financial position of the person concerned, regulations made under section 52 (notification regulations) of that Act do not apply to authorised institutions. (8) An authorised institution shall not be regarded as in breach of the rules of a self-regulating organisation by reason only of its failure to comply with rules corresponding to those rules and regulations mentioned in subsections (5), (6) and (7) above.")

The noble Lord said: We have moved at a breakneck pace, which I thoroughly welcome. I regret that now it is necessary to dwell a little longer on an amendment because the matters with which it deals are technical. While I should like to be able merely to say "I beg to move" and rely on my noble friend and his advisers drawing the right inference from the drafting, the danger is that they will draw the wrong inference from the drafting and when I eventually get the letter that replaces the speech in the ideal proceedings in this Chamber it will be addressed to the wrong subject.

The clause is an attempt to deal with the overlap between the present Bill and the Financial Services Act which was passed last year. The main purposes of that Act were to set up a system of prior authorisation and regulation for investment businesses. The present Bill deals with the prior authorisation and supervision of banks. The overlap arises from the fact that many banks will find themselves caught up simultaneously in the requirements both of the Act and of the Bill.

The amendment is addressed only to the area of direct overlap—that is, the fit and proper requirement and the regulation of financial soundness. Sections 27 and 28 of the Financial Services Act require the Securities and Investments Board to ensure that investment businesses regulated by it are fit and proper when they are granted authorisation and that they remain fit and proper thereafter. The Bill actually refers to the Secretary of State but it is generally assumed that delegation will be to the SIB.

The Act does not say precisely what "fit and proper" means, but, in the case of banks, the test needed to establish fitness and propriety is surely very similar to, if not the same as, the criteria set out in Schedule 3 to the present Bill. They must, of course, be met in any case by a bank authorised under the Bill. Paragraph 1 of Schedule 3 to this Bill, for example, requires all the bank's directors, controllers and managers to be fit and proper for the positions they hold. It is made clear that they must possess the competence and soundness of judgment needed to discharge their responsibilities. This applies as much to their responsibilities for the bank's investment business as to any other part of its business.

Paragraph 4 requires the bank to be financially sound and prudently run. Paragraph 5 requires the bank's business to be carried out with integrity and skill. Again, this means all its business including its investment business. It is hard to see what more the SIB would need to satisfy itself that a bank is fit and proper for investment business. If there is anything else—and my noble friend may be able to say what that something else might be—I cannot at this stage see any reason why the Bank of England should not be able to obtain the necessary information and make the necessary judgment. The SIB could then rely on the Bank's judgment for the determination of fitness and propriety. I do not think a bank should have to convince two regulatory bodies of its fitness and propriety if the necessary judgments can be made by one.

I hope my noble friend can assure the Committee that this will not be necessary and that banks will not have to provide enormous amounts of information to two different regulators who then set about duplicating one another's judgments. I know that the stock answer is that the regulators will enter into agreement among themselves for one of their number to act as lead regulator. In the case of a bank the lead regulator will, presumably, be the Bank of England. However, very little information has been made public as to how this will work in practice. If my noble friend can enlarge on that and acquaint the Committee with the plans which are doubtless being formulated, he may be able to allay some of the anxieties felt by those on the receiving end of this multiple regulation.

It has been suggested to me that the Financial Services Act provides for the delegation of monitoring of fitness and propriety by one regulator to another lead regulator, but that it does not provide for the delegation of judging that matter. Subsection (2) of the new clause is designed to make clear that such delegation is lawful. Subsection (3) similarly allows SROs to delegate to the Bank. Many authorised institutions will be members of SROs rather than regulated by the SIB. I apologise for the tortuous drafting of this point but it seemed to be made unavoidable by the drafting of the Financial Services Act.

While we are on the subject of lead regulators, may I also ask my noble friend to clear up a point that may have been in doubt since January of last year? A Written Answer that month links the concept of lead regulator with the problems of financial conglomerates. However, there will be other cases where a single company will be subject to more than one regulator. Can my noble friend confirm that single companies, too, will have recourse to the lead regulator principle? If so, will my noble friend also confirm that this is the effect as well as the intention of the present drafting?

My noble friend may say that financial services regulators can, in fact, delegate to the Bank and that these subsections are unnecessary. However, if there is a problem I hope he will be able to accept at least this part of the new clause. As drafted, it says that the financial services "may" delegate to the Bank. I was tempted to say that they "must" but it occurs to me that, in theory, there could be a deposit-taking institution caught by the Bill, for whom investment business is, in fact, its principal business. Therefore, it might be right to have it the other way round.

Subsection (4) deals with delegation in the case of overseas banks. In their case it will usually be the banking supervisors in their home countries who are best able to judge fitness and propriety. The subsection provides for the financial services regulators to delegate to the Bank of England and for the Bank to sub-delegate to the overseas authorities if it considers it appropriate to do so. I have drafted the new clause in that way because it is the Bank which is in regular touch with the overseas banking authorities.

The purpose of the rest of the new clause is to disapply, in the case of banks, those parts of the regulatory apparatus in the Financial Services Act which deal specifically with financial soundness. Financial soundness is, of course, one aspect of fitness and propriety; and that, I again suggest, is appropriately judged by the Bank of England.

After all, it is Schedule 3 to the Bill which requires the Bank of England to satisfy itself that a bank has adequate capital and adequate liquidity. That being so, I do not quite see why the SIB or any other financial services regulator should need to impose its own capital adequacy or liquidity rules on banks as well. Such rules would only be superfluous.

Indeed, I am advised that the SIB's draft rules not only fail to marry up with the bank's procedures but are actually in a form that makes it impossible for a bank to comply with them. That is because they are based on a concept known as "liquid capital". I understand that the term is widely employed in the regulation of specialist securities dealers but I equally understand that it is entirely unsuitable for banks. I believe that this problem has been drawn to the attention of the SIB and my noble friend may be able to tell us the point to which that discussion has gone. It is for those reasons that subsection (6) disapplies the SIB's financial resources rules entirely. I may have gone too far, because there may exist banks for which the SIB's rules would be appropriate and for which the Bank of England's procedures need to be disapplied. Subsection (7) disapplies the requirements to provide financial information to the SIB since it need only go to the Bank. Subsection (5) disapplies the SIB rules relating to the form and content of accounts. This is appropriate because banks have a different structure of assets and liabilities from other businesses and the form of their accounts is the subject of an EC directive which in due course will be implemented by legislation in this country. Again I am advised that the draft SIB rules in this area are in a form that makes it not just. difficult but impossible for a bank to comply with them.

I should like to make one last point. It is important to be clear that a bank's financial soundness can be judged only by looking at its business as a whole. It cannot be done by pretending that its investment business and other businesses are separate and then applying separate and different liquidity and capital rules to each. To do that would be to lose sight of the interrelationships between the two and the strength that is gained by a bank from a diversified spread of business.

I make no pretence of having brought forward a perfect draft and that is why I have spoken at such length. It is a draft that addresses real problems which need to be resolved before Third Reading. My noble friend may have an equally lengthy reply. If he feels it appropriate merely to skim over it and put his response into writing so that I can read it before the Report stage, and if he feels that it is not controversial—and if Members opposite do not think that that is an underhand way of treating them or the Chamber—I should be perfectly content with that course. I shall want to read in the record what he has to say about this matter. I merely suggest that he, having heaved a sigh or two while I was speaking, may wish to curtail his remarks somewhat. I beg to move.

Lord Williams of Elvel

We do not think that the Opposition are being treated in an underhand way at all. I should have thought that almost all those points are matters which should be resolved at official level rather than in this Chamber. Nevertheless, the noble Lord has a prefect right to raise the points and carry on with them.

Lord O'Brien of Lothbury

In general I support the amendment that has been put forward by the noble Lord, Lord Elton, and I hope that the Government will find it acceptable. I think it is extremely important that the Bank of England, with the responsibilities that it will have under this Bill when it becomes an Act, should not find those responsibilities in any way vitiated, let alone undermined, by the views of other regulators. In matters where they overlap I think that there should be no doubt at all that the Bank of England is the prime regulator.

Lord Young of Graffham

The statutory arrangements for the regulation of financial institutions in the United Kingdom operate according to function. Accordingly, there are separate statutory requirements, for example, for deposit-taking businesses under the Banking Act and for investment businesses under the Financial Services Act. Similarly, there are separate supervisory authorities for the different sectors. This is a good system of regulation which promotes the kind of expertise that is required for adequate supervision.

With the permission of the Committee I wish to take advantage of my noble friend's offer and study his comments. Perhaps I may write to him to see how far we can get, particularly as he is joined in this matter by the noble Lord, Lord O'Brien. In the interim perhaps I may assure my noble friend that the lead regulator concept will be applied to multiple authorisations of a single entity as well as to multiple authorisations of a financial conglomerate. I hope that my noble friend will withdraw his amendment until we have dealt with the matter at a later stage.

Lord Williams of Elvel

I am sure that the noble Lord will recognise that there is another regulator—the Building Societies Commission. If the building societies were represented in this place they might have other points. I am sure that the noble Lord and his officials will wish to look at the single regulator in the light of not only the Banking Bill but the building societies.

Lord Elton

I hope that it is not irregular, but I shall read the detailed response of my noble friend which I hope will be in tune with the amendment's intentions as well as its drafting. I shall make the reservation I should have made had he made a lengthy speech. I shall read what he has not said, but written, with great care. These matters must be cleared up. If they remain unresolved, at a later stage I shall have to bring forward an amendment and may do so in a slightly less friendly but still helpful manner. With that understood, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 88 agreed to.

Lord Elton moved Amendment No. 107:

After Clause 88, insert the following new clause:

("Electronic transfer of funds.

— After section 187(3) of the Consumer Credit Act 1974 (arrangements to be disregarded in determining whether a consumer credit agreement is to be treated as entered into in accordance with prior or in contemplation of future arrangements between creditor and supplier) there shall be inserted— (3A) Arrangements shall also be disregarded for the purposes of subsections (1) and (2) if they are arrangements for the electronic transfer of funds from a current account at a bank within the meaning of the Bankers' Books Evidence Act 1879.").

The noble Lord said: This amendment implements one of the proposals contained in the White Paper on banking supervision which did not emerge in the Bill as introduced in another place. In speaking to it I shall, with the Committee's leave, speak also to Amendment No. 113 which is consequential. The proposal to which I referred was an amendment to the Consumer Credit Act to remove a possible constraint on the development of a nationwide system of electronic funds transfers at the point of sale, known as EFTPOS, by putting an electronic transaction, effected by means of a plastic card operating on a current account, in the same position as a cheque transaction.

I understand that when the Bill was first introduced the Government had reason to believe that that provision could conveniently be postponed to another occasion. Those responsible for the development of national EFTPOS have, however, reviewed the position and their timetable for bringing the system to the point of implementation. As a result, they have concluded that if the development is not to be delayed, and it should not be, it is necessary to clarify the legal position in the way proposed in the White Paper now rather than at some later time.

If I may put the need in plain words, the law on this point needs to be clarified and, if it is not, one certain result is that there will be an enormous amount of unnecessary paperwork once EFTPOS has been introduced. I hope that I have said enough to enable my noble friend to accept one of my amendments for a change. I beg to move.

Lord Young of Graffham

I congratulate my noble friend on bringing forward this amendment. It is not a point central to the supervision of banks but it is, nevertheless, a worthwhile clarification of the existing law as it affects banking transactions carried out with the latest of technologies. It can be difficult for the law to keep pace with such changes. An amendment such as this, designed as it is to remove a possible contraint on the development of an important project in electronic banking, is welcome to the Government. I am pleased to be able to accept it.

On Question, amendment agreed to.

[Amendment No. 108 had been withdrawn from the Marshalled List.]

Clauses 89 to 93 agreed to.

9.30 p.m.

On Question, Whether Clause 94 shall stand part of the Bill?

Lord Bruce of Donington

The noble Lord will agree that the Opposition, both in another place and here, have been generally helpful and constructive, or tried to be, in securing the passage of the Bill through the other place and this place.

As one would expect, there have been numerous discussions on the general purport of the Bill. I recently had the opportunity, as the Committee would expect, to discuss the Bill with those who presented the Opposition's case in another place. We were both agreed on one thing. Apart from the very minor modifications and changes of emphasis which we have sought to incorporate within the Bill—not always successfully—the main question arises as to how well it will be enforced.

Clause 94(5) stipulates: No proceedings for an offence under this Act shall be instituted … in England and Wales, except by or with the consent of the Director of Public Prosecutions or the Bank". It is a question of how determined the authorities and the Director of Public Prosecutions are that this Bill shall be enforced and that any offences that are committed under it shall be vigorously pursued.

One has the impression from time to time that there are some offences, not always uncomplicated, which seem to be pursued with the greatest possible alacrity. The Director of Public Prosecutions, for example, had little difficulty, in spite of the dubiety of the result—a doubt which proved right in the end—with a practically instantaneous prosecution of Clive Ponting under the Official Secrets Act. The same applied to another comparatively junior civil servant even though the result must have been in doubt. There did not seem to be much difficulty in getting speedy prosecution.

When it comes to offences which take place in the City of London—thank goodness they only rarely occur, but when they occur they are serious—one does not find the same promptness or the same drive. There seems to be an attitude in some sections of the City, if I may say so with the greatest possible respect, that these offences are somehow a different kind of offence. I read in the press about three weeks ago that no less a person than the deputy director of the SIB itself referred to the recent Guinness offences—offences they undoubtedly were—as City escapades. There is a tendency when describing offences which take place in the City to talk of them as improprieties or irregularities rather than as criminal offences specified in the Bill.

I use this occasion when speaking on clause stand part to emphasise the fact that a very close watch will be kept on how offences under this Bill are dealt with, and how promptly. We are sensible of the fact that although the Stock Exchange, which is normally protective of its members—and very rightly so—referred no fewer than 87 cases of alleged insider dealings to the DTI, only seven prosecutions have so far resulted. These factors give the impression—it may be entirely erroneous, but I have to say this—that there is one kind of law rigorously pursued against what we shall term for the moment the lesser mortals within our society but another and less prompt method of dealing with those who commit offences of the type that I have mentioned.

I have spoken with some strength and feeling on this matter because I believe that that is an impression, and it is one which I certainly share. I hope that the noble Lord may be able to give the Committee an assurance, without equivocation, that offences under this Bill, as is required under Clause 94, will be rigorously pursued, and that where there is a prima facie infringement there will not be these long, dragged-out delays on the basis that the offences, although they are serious and although we have them in the Bill, have been part of a certain section of the City's habit of mind over the last ten years or so and therefore they can be treated on a rather more leisurely and less rigorous basis.

I hope that the noble Lord will be able to give the Committee and the country that assurance to which the Committee and the country are legitimately entitled.

Lord Beaverbrook

I am grateful to the noble Lord, Lord Bruce, for raising this point. I should like to say that there is more to it than just vigorous enforcement. Indeed, it is most important that there are adequate resources available for the investigation in seeking out contraventions. Without that, there are unlikely to be any prosecutions taking place.

I can reassure the Committee about the resources being made available to the banking supervision division of the Bank of England. Following a Leigh-Pemberton committee's report, the Bank introduced a number of changes in the organisation of its banking supervision side intended to strengthen its supervisory effort. These were set out in the Bank's 1986 annual report under the Banking Act, of which there is a copy in the House of Lords' Library.

I can also assure the Committee that the Government and the Bank of England, the Director of Public Prosecutions in London, his counterpart in Northern Ireland and the authorities in Scotland, are fully aware of the importance of vigorous enforcement of the provisions of the Banking Act. That will continue to be the case under this Bill.

Lord Bruce of Donington

Will the noble Lord give the Committee an additional assurance? The noble Lord speaks on behalf of the Treasury as well as for a number of other departments, and he will be aware of the reply given to me by the noble and learned Lord the Lord Chancellor when he referred to the resources available to the Director of Public Prosecutions and the Fraud Squad. Can we have an unequivocal undertaking from the noble Lord, Lord Young of Graffham, on this matter that adequate staff and adequate funding will be available to the Director of Public Prosecutions and all those who are required to assist him? Those who will the end must will the means. Despite the desire to economise on the Civil Service and all the other economies with which the noble Lord regales us from time to time (in addition to other necessary employment in various parts of the community, to which this Bill is not relevant at all) will the noble Lord give the Committee an undertaking that there will be no Treasury financial restraint on making this part of the Bill totally effective?

Lord Young of Graffham

I hear everything that the noble Lord, Lord Bruce of Donington, has said, although I can neither agree with the conclusions he is drawing from the comparison of different categories of civil action, nor give him the undertaking for which he asks. As he no doubt knows, I could not do that at such short notice. However, there is little purpose in having a Bill of this nature without seeking to enforce it. I will draw his remarks to the attention of the Director of Public Prosecutions and of my right honourable friend the Attorney-General. I have no doubt that he will pay full regard to some of the noble Lord's remarks if not to the inferences that he draws from them.

Clause 94 agreed to.

Clauses 95 to 102 agreed to.

Clause 103 [Meaning of "director", "controller", "manager" and "associate"]

Lord Beaverbrook moved Amendment No. 109:

Page 76, line 45, leave out from ("has") to ("that") in line 48 and insert ("with any other person an agreement or arrangement with respect to the acquisition, holding or disposal of shares or other interests in that body corporate or under which they undertake to act together in exercising their voting power in relation to it").

The noble Lord said: This amendment seeks to tidy up the definition of the word "associate" for the purposes of identifying controllers and significant shareholders. It follows on changes made to the Bill in another place, particularly the introduction of the requirement for notification to the Bank by persons who become significant shareholders—that is, shareholders with 5 per cent. but less than 15 per cent. of the voting power of a UK institution or of another institution of which it is a subsidiary. This addition to the Bill has resulted in the Bank being required to pay more attention to persons who may be acting in concert for the purpose of acquiring shares, even though they may not be seeking to control the institution through the joint exercise of voting power.

The effect of the present amendment is to include within the definition of "associate" for the purposes of grouping persons who are in effect concert parties those who agree or arrange to buy shares together or to dispose of them together. The subsection had already provided that "associates" included those who exercised their voting power together. This is, of course, retained. I beg to move.

On Question, amendment agreed to.

Clause 103, as amended, agreed to.

Clause 104 [Interpretation]:

[Amendment No. 110 had been withdrawn from the Marshalled List.]

Lord Strathclyde moved Amendment No. 110A:

Page 78, line 9, at end insert— (" "related company" has the meaning given in paragraph 92 of Schedule 4 to the Companies Act 1985, taking references to a company as including any body corporate;")

The noble Lord said: I spoke to this amendment when speaking to Amendment No. 63. It also brings to an end what the noble Lord, Lord Williams of Elvel, called "the Strathclyde amendments". I beg to move.

On Question, amendment agreed to.

Clause 104, as amended, agreed to.

Clause 105 agreed to.

Schedule 5 agreed to.

Clause 106 agreed to.

Schedule 6 [Minor and consequential amendments]:

Lord Beaverbrook moved Amendment No. 111:

Page 91, line 27, after ("54(4)") insert ("and (5)")

The noble Lord said: With the leave of the Committee, I shall also speak to Amendment No. 112. These amendments have the effect of deleting subsection (5) of Section 54 of the Building Societies Act 1986, which, together with subsection (4), made provision for disclosure of banking supervisory information to the Building Societies Commission by the Bank pending the coming into force of the relevant provisions of the Bill. By an oversight Schedules 6 and 7 only deleted subsection (4). Amendments No. 111 and 112 put this matter right. I beg to move.

On Question, amendment agreed to.

Schedule 6, as amended, agreed to.

Schedule 7 [Repeals and revocations]:

Lord Beaverbrook moved Amendment No. 112:

Page 93, line 47, column 3, at end insert ("and (5)")

On Question, amendment agreed to.

Schedule 7, as amended, agreed to.

Remaining clauses agreed to.

In the Title:

Lord Elton moved Amendment No. 113:

Line 4, after ("descriptions") insert ("to amend section 187 of the Consumer Credit Act 1974 in relation to arrangements for the electronic transfer of funds;")

The noble Lord said: I spoke to this with Amendment No. 107. I beg to move.

On Question, amendment agreed to.

Title, as amended, agreed to.

House resumed: Bill reported with amendments.

House adjourned at twelve minutes before ten o'clock.