HC Deb 14 November 1986 vol 105 cc8-9W
Sir Peter Hordern

asked the Chancellor of the Exchequer whether he will review matters relating to the law affecting banking services.

Mr. Ian Stewart

The Banking Bill, which is published today, is designed to provide the statutory basis for the important regulatory improvements which were identified in the White paper "Banking Supervision" in December 1985 (Cmnd. 9695). It overhauls and reinforces the system of banking supervision enacted in the Banking Act 1979. The Government have also this year modernised the regulatory framework of building societies (the Building Societies Act 1986) and fundamentally recast the law relating to securities and investments (the Financial Services Act 1986). Together these measures represent a comprehensive reform of the law relating to the protection of depositors and investors.

Banks and their customers are also affected by the body of statute law and precedent which is not concerned with prudential supervision but which governs the mechanics of banking, such as the Bankers' Books Evidence Act 1879, the Bills of Exchange Act 1882 and the Cheques Act 1957. The law should provide the necessary legal framework for the provision of banking services on fair and efficient terms. Generally, United Kingdom banking law has stood up well to the test of time. But the nature of banking has changed beyond recognition since the main statutes were drafted. In its White Paper the Government accepted the case for one amendment to remove a possible constraint on EFT-POS transactions by debit card. However, it would be valuable to have a full and coherent review of the law relating to banking mechanisms and practices, taking into account technological and other developments and drawing on the experience of bankers, their personal and business customers and other interested parties. Moreover my right hon. Friend the Secretary of State for Trade and Industry is in the course of seeking views from organisations representing the credit industry, consumers and enforcement authorities about possible amendments to the Consumer Credit Act. The amendment referred to in the White Paper is therefore not included in the Bill which has been introduced.

The Government have decided to set up, in co-operation with the Bank of England, an independent review for this purpose. Further details of the review, whose proposed terms of reference are as shown, will be announced later. The review is flexibly defined to include banking services in the broadest sense, but it will not include the law protecting depositors and investors to which I have already referred. Nor will it be concerned with questions of taxation, or with market-related matters such as the granting or cost of credit or the competitive pricing of other banking services.

Terms of reference

The purpose of the review is to examine the statute and common law relating to the provision of banking services within the United Kingdom to personal and business customers, including payment and remittance services; but excluding taxation, company law and parts of the law whose relevance is to trading or to the provision of services in general, rather than particularly to banking. The objectives of the review will be: (1) to examine the law and its practical implications from the points of view of banker, customer and the general public interest in the availability, reliability, security and efficient and effective operation of payment, remittance and other banking services; (2) to have regard to:

  1. (a) current and prospective developments in banking and payment systems, including developments in electronic data processing and electronic funds transfer technology;
  2. (b) areas of particular difficulty in or confusion about existing law and practice and the rights and obligations of banks and their customers respectively;
  3. (c) differences in the law and practice of different parts of the United Kindom and, where relevant, other studies and reviews of United Kingdom law;
  4. (d) developments in the law of the European Community and in other relevant international laws and conventions;
  5. (e) developments and trends in international payment systems and reviews by international bodies;
(3) to prepare a final report, and if necessary interim reports also; (4) if appropriate and after consultation to recommend the introduction of codes of good practice (on such matters as model contract terms, information for customers or new banking procedures); (5) if necessary and after consultation to make proposals for legislation.