Banking Act 2009 (Restriction of Partial Property Transfers) (Amendment) Order 2009

Partial property transfers are an essential part of the authorities’ toolkit for resolving failing institutions under the Banking Act 2009. The Government recognise that unless effective safeguards are in place, partial property transfers have the potential to affect the contractual interests of counterparties and creditors of UK banks, with the possibility of negative consequences for the market generally. To this end, when the Banking Act was passed in February 2009, the Government put in place safeguards to protect contracts relevant for regulatory capital purposes from disruption that might arise as a result of the possibility of partial property transfers. Noble Lords may recall that during the debate on the safeguard orders I committed that the Government would continue to review the need for amendments to the safeguards order to further enhance legal certainty, given the comments of market stakeholders. Following the constructive input of the Banking Liaison Panel and in particular its subgroup on safeguards, the amendments that we are debating build on the protections already in place and in the Government’s opinion help to ensure legal certainty for the parties involved in a partial transfer. In its advice to the Treasury, the BLP’s safeguard subgroup made five recommendations which the Government have studied carefully. On four of these we have been able to respond positively, and the results are reflected in the amendments in front of the Committee. I should like to explain why we have not taken on board the fifth recommendation. Noble Lords may recall that the Government have exempted FSCS-protected deposits from the protection of set-off and netting arrangements. This particular carve-out from the set-off and netting safeguard allows the authorities to transfer, for example, the retail deposit book of a failing institution to a solvent new institution in a short timeframe, which is important to allow the authorities to provide continuity of service and protect public confidence. Small companies are included in the definition of FSCS-protected deposits and therefore are not afforded the protection for their set-off and netting arrangements. The fifth recommendation was to extend set-off and netting protection to small companies that are part of larger groups. The BLP subgroup on safeguards discussed and proposed a way for this to be done, through providing for protection where banks had placed an identifier on set-off and netting arrangements with small companies that are part of larger groups. If such identifiers existed, the authorities would have to protect these arrangements. However, the authorities were not confident that an amendment to the safeguard order along these lines would be workable and, further, market participants themselves were not completely confident that such identifiers could be delivered. Sitting suspended for a Division in the House.