My Lords, this amendment removes Clause 5 from the Bill. It will leave the regulators, the PRA and the FCA to decide among themselves which one of them designates board members of ring-fenced banks as senior managers and which directors should be designated. Clause 5 requires that the PRA on its own designates all directors of a ring-fenced bank as senior managers under the new senior managers regime. This clause was introduced originally before the senior managers regime was proposed. It now needs to be updated to reflect those changes.
The PRA is considering how to implement the PCBS’s recommendation of focusing the new senior managers regime to strengthen individual responsibility for actions of the firm. The PRA wants to develop the new regime in a way that improves its ability to bring enforcement action against individuals when things go wrong. To achieve this, the PRA thinks that it may be best to limit the number of board members it designates as senior managers, to narrow the scope of accountability. Those directors designated senior managers by the PRA will need to comply with conduct standards that will further the PRA’s safety and soundness objective.
Clause 5 would force the PRA to designate all board members of ring-fenced banks as senior managers. It prejudges the outcome of the regulators’ policy development and could result in the application of the senior managers regime to ring-fenced banks being less focused than for the rest of the sector. A focused regime should improve the ability of the PRA to take enforcement action against individual directors by making clearer which senior managers are responsible for different aspects of the firm’s business. The Government therefore agree with the PRA that Clause 5 should be removed.
Some directors not designated as senior managers by the PRA may be more appropriately designated by the FCA. The precise calibration should be left to the regulators, who will consult on this next year. The removal of the clause also brings the application of the senior managers regime to ring-fenced banks into line with how it will be applied outside the ring-fence. Outside the ring-fence the PRA or the FCA can designate directors as senior managers.
Moving on, the minor and technical amendments to Schedule 2 will help to ensure that the bail-in provisions can be used effectively and as intended. Following the introduction of these provisions in Committee, we have discussed them with various stakeholders and experts. These amendments are the result of those discussions.
First, we have specified that special bail-in provision can be made to release guarantees which are not provided directly by the bank, but by other companies in the banking group, in consequence of the application of the powers to make special bail-in provision in relation to the liabilities of the bank under resolution. This ensures that guarantee arrangements can be adjusted in line with any write-down or cancellation of a liability of a bank covered by that guarantee.
Secondly, the amendments will give the Bank of England the ability to make an agreement with the director or directors of a bank with regard to the preparation of the business reorganisation plan. The existing drafting already allows such an agreement between the Bank of
England and the bail-in administrator when appointed to prepare the plan. This is simply an extension of the arrangement to cover the case in which a director is appointed to perform that task.
Thirdly, we have clarified that where any person is acting under the direction of the Treasury for purposes related to state aid, that person is granted immunity from liability in damages save in relation to action in bad faith or in breach of the European Convention on Human Rights. There is a minor linguistic change to subsection (3) of new Section 48D to be inserted into the Banking Act.
Finally, the exercise of any of the stabilisation powers under Part 1 of the Banking Act 2009 to reduce a bank’s debt may lead to taxable loan relationship profits that would hinder its rescue. Consequently we will bring in measures in the next Finance Bill, with retrospective effect to this date, to relieve any such taxable profits that arise. I beg to move.