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Bank for International Settlements (Immunities and Privileges) Order 2021

Volume 810: debated on Wednesday 10 February 2021

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Bank for International Settlements (Immunities and Privileges) Order 2021.

My Lords, this order was laid on 11 January 2021 under the affirmative procedure. It confers immunities and privileges on the Bank for International Settlements, BIS in short, that have been negotiated as part of a host country agreement to support the establishment of a new BIS innovation hub in London. The order is required so that the UK is able to comply fully with its obligations under the host country agreement. Before I go into further detail about the order, please allow me to provide some policy context.

In June 2020, it was announced that the Bank of England was successful in its bid to host a BIS innovation hub in the United Kingdom. The hub will conduct research on how new technology may change the way financial services operate in the future and help the global central banking community ensure that this innovation does not have a negative impact on consumers and the stability of the financial system. Most importantly, the hub will help develop and share best practices with central banks across the world, including in developing countries.

As we all recognise, the United Kingdom is a global leader in financial innovation and technology, and the UK’s fintech sector is worth nearly £11 billion annually to the economy. This success is largely due to the UK’s policy and regulatory expertise in financial innovation and fintech, and London being selected to host the hub reflects that. To pick just one example, the UK was the first jurisdiction globally to implement a “regulatory sandbox” to support financial firms in the testing of innovative products and services. This initiative has now been replicated by countless regulators around the world.

As countries, particularly developing ones, grapple with the emergence of new financial technologies and the rapid increase in the use of digital payments, it is only right that we support the creation and sharing of best practice in this area with the international community. Let me now turn to the details of the order.

This order confers legal capacity and immunities and privileges on the BIS and persons connected with the bank, such as staff and secondees. These have been negotiated as part of a host country agreement. The International Development Act 2002 allows the Government to give effect to such provisions made in an agreement establishing an international financial institution. The negative order linked to this order, which came into force on 1 February, added the BIS to the list of international financial institutions referenced in the 2002 Act.

The BIS is an international financial institution, headquartered in Switzerland, with a mandate to support global monetary and financial stability. It therefore shares similar policy objectives with other international financial institutions, such as the International Bank for Reconstruction and Development and the International Finance Corporation, which are part of the World Bank Group. I can reassure noble Lords that the proposed legislative changes make no other amendments to the International Development Act and that the immunities and privileges afforded to persons connected with the bank, such as staff and secondees, are strictly limited to those required for them to conduct their official activities and are not for their personal benefit.

It is customary practice to grant immunities and privileges to international financial institutions to enable them to function and they are in line with those offered to officials of other international financial institutions of which the UK is a member. These include immunity from suit and legal process for its staff in respect of their official acts, and tax exemption. They do not include immunity in respect of road traffic accidents.

To conclude, this order confers only those immunities and privileges on the Bank for International Settlements and persons connected with the bank such as staff and secondees that are necessary for the institution to function effectively and conduct its official activities in the UK. The new BIS innovation hub will help to ensure that rapid advances in financial innovation will benefit consumer outcomes and, as I said, support financial stability. This is an area where the United Kingdom already enjoys a competitive advantage and the hub will help to share best practice with the international central banking community, including throughout the developing world. I beg to move.

My Lords, I thank the Minister for introducing the order, which confirms an interesting and potentially very useful innovation. I have just one question. The order confers an extraordinarily widespread immunity on those managing this new hub. I am aware that the Minister has made it clear that these immunities are not for personal gain; nevertheless, employees of the hub are, apart from some civil liability in arbitration, effectively above the law in all their professional work. What steps will the Government take to ensure that individuals do not seek to abuse these privileges?

My Lords, I welcome the establishment of the hub in London, which is renowned for its skills in the financial sector and in regulation. This testimony to that is therefore very welcome. I understand why a degree of what we might call diplomatic immunity may be required, although the total freedom from immigration restrictions is interesting because we have huge pools of labour in this country that could do the work that I guess will be done within the hub. Could the Minister say whether those who will be coming into the UK to work at the hub, and will come in free of any immigration controls, will actually be doing jobs that could perfectly easily be done by the many skilled people we have in the City of London?

More broadly, I welcome the areas in which the innovation hub will be involved. It will play to the strengths of the City and those areas where we are renowned, particularly fintech, which is a growing sector in the UK, and regulation, where we like to think we are ahead of the curve. I am not always so sure of that. However, we are told that one area that the hub will be looking at carefully is that of central bank cryptocurrencies and how these should be regulated. My real question is allied to that because I am deeply concerned about the growth, not in central bank cryptocurrencies, but in cryptocurrencies generally. Noble Lords will have seen that the price of bitcoin, which fluctuated hugely in January, between $34,000 and $47,000, has again leaped into the news because Elon Musk is putting $1.5 trillion into it. While the founder of Tesla can afford to lose $1.5 trillion, although I am convinced he has no wish to do so, my concern is that a lot of people will be persuaded to put hard cash into bitcoin because Elon Musk has done so, and their money will be at risk.

Bitcoin is not regulated; indeed, none of the cryptocurrencies is regulated as such. Derivatives of cryptocurrencies are regulated. I think that the time has come for the UK to lead the way in regulating completely these new and potentially very dangerous currencies. The US is beginning to look at this and the SEC is now considering whether to prosecute XRP, which, far from being a currency, looks like a scam. I fear that there may well be more of these, so I would be grateful if the Minister could tell me whether he has any means of persuading the innovation hub in London to pioneer regulation—[Inaudible.]

My Lords, I am pleased to take part in this short debate and to add my support to the initiative of the Bank of England and the Government in bringing the Bank for International Settlements innovation hub to the UK. As other speakers, including my noble friend Lady Wheatcroft, have said, we are acknowledged as leaders in fintech and the combination of domestic skills and this institution will further consolidate that situation. I hope that the furtherance of the work of the hub will not only benefit the UK and the developed economies but will also directly impact on development of the weaker economies of the world. The bank itself has good intentions but is not yet as representative globally as I would like it to be. Can my noble friend assure me that, by hosting this hub, we will also encourage the bank to institute wider membership from those parts of the world that are currently underrepresented in its counsels?

I turn to the interesting way in which the order is presented, and the measures and entitlements it offers to bank staff and dependants. We are, of course, fully acquainted with the diplomatic immunities offered to ambassadors and others who represent their countries here in the UK, which are confirmed by the various Vienna conventions and the convention on consular relations, followed by the Diplomatic Privileges Act 1964. I will move off my script for a second. Knowing of the incredible diplomatic skills and charm of the Minister, might he have a word with his friends in the Foreign Office and see if we cannot sort out this ongoing problem regarding the diplomatic status of the EU’s ambassador? I would be pleased if he would. Having said that, I will go back to my script. In recent years, from time to time, we have witnessed some of our guests and their staff interpreting the privileges they have here in a wider context than the normal caveat of “relating to acts performed in the course of their duties”.

As we all know, there are also other immunities from prosecution available to our own citizens, where the Crown Prosecution Service believes that this might aid the conviction of a criminal, where co-operation is a key element. However, I would be interested to know how many organisations like the bank under discussion today have currently enjoyed the special immunities that this order confers? For instance, I know that the International Maritime Organization is based in London. Does it and its staff enjoy these privileges? I am assuming that there are many others too, so perhaps my noble friend might elucidate on this. I see that, in this case, the offer of immunity was a condition of securing the bid to have the bank here. Apart from any other cases of a similar kind, is it now a normal expectation that such immunities have to be offered? Is there international precedent, pursued by other states in such bids? Where others have been successful and we have not, is that because they have made better offers of this kind?

This order is also unique in allowing the exercise of Section 12 of the International Development Act 2002 for the very first time. An Order in Council by Her Majesty is an interesting feature of this measure, especially as it relates to immunities and privileges of a non-domestic body. Can my noble friend enlighten the Committee as to whether this is now regarded as a precedent in any way? Regardless of the general immunities which this order will confer, I note, as a former Immigration Minister, that bank officials and staff will, additionally, have the benefit of exemptions from immigration controls for their dependants. Was this extra provision requested as part of the bid process, or offered because of any other precedents? The main immunities are to BIS officials and employees and are wide, but the extension to dependants appears in the negative Order in Council.

The securing of this facility for the UK is, of course, to be welcomed. Only the Government and the Bank of England know the details of the competition to win the bid but it is obviously important and of interest to all noble Lords, as legislators, to be aware of the terms we need to offer in global competitions of this kind.

My Lords, this SI has been prepared by the Foreign, Commonwealth and Development Office. The Bank of England has made a successful bid to host the Bank for International Settlements innovation hub in the UK. In order for it to operate in the UK, it is necessary to grant immunities and privileges which will be effected in the host country agreement between the UK and the BIS when it is signed. These privileges and immunities have been negotiated between the UK and the BIS in the HCA and are the most limited, consistent with the functionality of an international financial institution.

The HCA will come into force once this Order in Council has been approved. The UK has agreed to grant certain privileges and immunities for BIS officials, employees and experts, particularly those who will be located at the BIS innovation hub in the UK. The immunities will include: exemptions from national taxation; immunity from inspection or seizure of official baggage; and inviolability of official papers and documents. BIS employees and their households will also be exempt from immigration control. First, does the Minister agree that these privileges are almost the same as given to diplomats? Secondly, does he agree that these BIS employees and their families will spend considerable sums of money to buy their daily needs from local shops and, possibly, employ local staff for their offices and homes?

My Lords, I welcome this statutory instrument and thank the Minister for introducing it. I realise that this is an administrative matter, so that this hub can be set up here with the relevant immunities and privileges required, although I note some of the concerns that other noble Lords have expressed. I am sure that the noble Lord, Lord Kirkhope, is right: if we can offer all these advantages then we should surely be offering due regard to the EU ambassador. I look forward to the Minister’s update on that.

Like other noble Lords, I welcome the fact that the Bank of England has made this successful bid to host the Bank for International Settlements innovation hub in the United Kingdom. As the Minister said, the BIS is an international financial institution, headquartered in Basel, assisting central banks in the interests of global monetary and financial stability. As the Explanatory Notes say, the main activities are supporting discussion between central banks, producing research, and assisting central banks’ financial operations. I noted that its membership currently includes 62 central banks and monetary authorities from both advanced and developing economies. That is not every central bank of course, as the noble Lord, Lord Kirkhope, noted. I would be very interested in seeing which countries are involved, and which are not. When DfID existed, did we encourage central banks in countries that we supported, for example in Africa, to join this? I would certainly hope so.

We certainly know how important financial co-ordination is, not least from the global effect of the 2008 financial crisis. We face new challenges now, with the economic effects worldwide of coronavirus and the speeding up of the adoption of new technology. New technology has often leap-frogged in Africa, not least with mobile money, from M-Pesa onwards, and it is vital that there are global discussions which help to underpin financial stability.

We now have cryptocurrencies moving fast, particularly in developing countries, and we know the risk here and how they may conceal corrupt payments. The noble Baroness, Lady Wheatcroft, is surely right that they need to be regulated. There are many new challenges.

I note that the hub states that it aims, among other things, to act as a focal point for sharing best practices with regulators in developing countries. Can the Minister say how that information will be disseminated? It was an irony of the Brexit discussions, as many have noted, that fishing played a large part but our financial sector so small a part in the discussions. Given that the Minister has just stated that the fintech sector alone is worth nearly £11 billion a year to the UK economy and that the UK is indeed a world leader in this area, that was astonishing. The DIT has just held a UK-Africa fintech summit, at which the noble Lord, Lord Grimstone, noted that

“the financial services sector is a key primary driver of a nation’s economy. There is a strong correlation between economic development and the depth of their financial and professional services sector.”

Indeed so.

I note that there are two BIS representative offices, one in Hong Kong and one in Mexico. Can the Minister tell us whether the one in Hong Kong looks secure in current circumstances? I also note that, between 2020 and 2022, it is planned that centres will open not only in London but in Toronto, Frankfurt, Paris and Stockholm, and that they will form a strategic partnership with the Federal Reserve in New York. What are the implications for London of those other European centres? How will that work?

The Governor of the Bank of England, Andrew Bailey, said in relation to this hub:

“Now more than ever it is important the central banking community does all it can to build a more effective, resilient and inclusive financial system, and technology is an important part of that effort.”

He argues that the hub will provide

“an important venue to ensure the UK’s deep expertise in innovation can contribute to solving global financial issues.”

We all certainly hope that this expertise will continue to develop for the economic future of the United Kingdom.

I come to the immigration provisions in perhaps an opposite way from the noble Baroness, Lady Wheatcroft. Can the Minister assure me that there will not be restrictions on who might be recruited to work at this hub, and that it will not be affected by the new Immigration Rules, which will have such a damaging effect on being able to attract technical support from EU citizens whose salaries may not be above the requisite level? I hope that the UK will become more responsive to the rest of the City of London and elsewhere in our economy in our being able to attract people in whose salaries may be below the levels we are stipulating.

I certainly hope that this new hub prospers and I look forward to the Minister’s response.

My Lords, I, too, welcome this statutory instrument. The Bank of England said in its press release at the time:

“The decision to establish this centre is a reflection on the UK’s position as a world leader in innovation and technology”.

However, as the noble Baroness, Lady Wheatcroft, said, the BIS is also responsible for promoting stability, so I hope that the Minister will be able to respond to her question about the new bitcoin currencies that are developing and establishing themselves. Certainly the press reports on Elon Musk are pretty worrying.

Like the noble Lord, Lord Kirkhope, and the noble Baroness, Lady Northover, I would be interested to hear about this issue. They referred to the fact that 62 countries were part of the system of BIS, which represents 95% of world GDP. What are we doing to ensure that the membership is expanded and built on?

I have some specific questions in relation to the host country agreement. First, as the noble Lord, Lord Kirkhope, said, the specific powers to create these regulations are contained in Section 12 of the International Development Act 2002, and it is the first time that these powers have been used. Can the Minister advise whether any further regulations are required, for example in the exercise of powers under the International Organisations Act 1968?

Noble Lords have referred to the exemptions, which appear to be in line with international precedent. Nevertheless, there are security implications there. Can the Minister assure us that the Government will work closely with those managing the new hub to ensure that no individuals seek to abuse those exemptions?

The other area that is specifically excluded and where no immunity is conferred relates to road traffic accidents. Can the Minister confirm whether such an exemption has been included in previous immunity agreements or this is a new policy?

Turning again to the host country’s agreement and comparable agreements in the BIS, I wondered whether there were any differences that the Minister would draw to noble Lords’ attention. For example, I note that the 1998 agreement with the Hong Kong Administration does not exempt the hub office from all taxes, which are exempt in the UK agreement. Is this a relevant difference, or is it something that we need to understand better?

The noble Lord, Lord Kirkhope, mentioned that the Explanatory Notes refer to the fact that the new hub is the result of a bid by the Bank of England, and other noble Lords referred to this bidding process. Obviously, that has policy implications. Is there any intention, or has there been an opportunity, to publish the details of the bid so we have a bit of transparency and accountability—particularly if this is an issue where we will be seeking to attract other similar institutions to London?

At the end of the day, we must welcome the fact that we have this hub and that it will promote and include innovation in this field. However, one of the broader issues regards how we finance our contributions. Are there any additional issues with the source of the finance and whether it comes out of our ODA budget? Of course, one thing that all noble Lords are completely focused on at the moment is the size of that cake and how it is being reduced by the decline in the size of the economy, but not least also the policy decision to move from 0.7% to 0.8%. I hope that the Minister can assure us that the Government’s priorities will not be affected by this decision.

My Lords, first, let me say that I am extremely grateful to noble Lords for their contributions and support in welcoming this new initiative and the success that we have achieved with the Bank of England’s successful bid to host the innovation hub of the new Bank for International Settlements in London.

A number of noble Lords, including the noble Lord, Lord Collins, and the noble Baroness, Lady Northover, referred to the bidding process and greater levels of transparency. Obviously, when the Bank of England bids in any confidential process, certain things are very much part and parcel of the bidding process as it is made.

I am sure that noble Lords recognise—indeed, several of them referred to this—that one of the main bases on which this bid was successful was the recognition of the City of London as the leading global international financial capital. Although it was some time ago now, I declare a mild interest related to this as someone who worked in the City for more than 20 years. This decision further recognises the importance of infrastructure and innovation in the context of the City of London. Notwithstanding our departure from the European Union, it is a real boon for the UK economy and our place as a global Britain around the world.

I will now pick up on some of the specific questions. Some technical questions were raised by the noble Lord, Lord Collins, with reference to specific Acts. On the specifics of how this order relates to other Acts, I will write to him to ensure that we are correct in the detail.

Picking up on the point about immunities and privileges made by the noble Baroness, Lady Whitaker, my noble friend Lord Kirkhope, and the noble Lord, Lord Bhatia, it is standard practice for international organisations, including international financial institutions and their staff, to be accorded immunities and privileges by host Governments. The noble Lord, Lord Collins, also raised the issue of the Government’s approach to this. The immunities and privileges granted to international organisations, such as international financial institutions, should be granted primarily on the basis of strict functional need. The host agreement grants legal capacity to the BIS so that it can enter contracts and have a UK bank account, for example. As I stated in my opening remarks, immunity from legal processes is granted because it is necessary to ensure that the BIS and other persons connected to the bank, such as staff and secondees, have the independence necessary for them to carry out their functions. However, the noble Baroness, Lady Whitaker, among others, raised the issue of abuse of this. I assure her that where this is suspected, the privileges and immunities will be revisited and the institution will be asked to waive these specifically.

My noble friend Lady Wheatcroft speaks with great insight and experience of the City of London. She talked about how staffing will work in this new innovation hub. The converse argument was presented by the noble Baroness, Lady Northover. We want to allow the best and the brightest to be recruited. In regard to issues around immigration, yes, we continue, as anyone who has worked in the private sector or elsewhere will recognise, to want to see the best of homegrown talent come forward, but equally to allow for an international hub to benefit from international talent. The BIS is set up, if I may put it this way, to attract the best and the brightest.

The issue of cryptocurrency, interestingly, was raised, and rightly so. There has been a lot of topical discussion on this. The noble Baroness, Lady Northover, the noble Lord, Lord Collins, and my noble friend Lady Wheatcroft talked specifically about regulation. Regulation of financial services over time has demonstrated that, at times, voluntary measures are introduced, but there is a requirement to provide for the security and safety of all investments that might be made. With the growth of bitcoin, I totally recognise the lack of a regulatory environment in which the bitcoin sector operates and the vulnerabilities of people who invest in it without the security of other investments. I assure my noble friend that this will form part of our G7 workstreams. Among others, the FCA has taken steps towards looking at regulation in this respect.

My noble friend Lord Kirkhope also talked specifically about the IMO and other international organisations. Under this order, we have reflected the status of the bank as an international financial institution. My noble friend and others, including the noble Lord, Lord Collins, referred to the powers that we were granted under the International Organisations Act 1968 and asked why we are not using them. As the BIS is considered an international financial institution, the International Development Act 2002 was deemed the most appropriate route to confer immunities and privileges, rather than the International Organisations Act 1968. For example, the Bank for International Settlements does not fall directly within the scope of international organisations covered by Section 1 of the IOA 1968, which is limited to organisations of which the UK or HMG are members. The BIS is a membership organisation of central banks, not Governments themselves. It is the Bank of England, not the UK, that is a member of the BIS.

My noble friend Lord Kirkhope also talked about extending the scope beyond the current membership of the BIS. Of course, that is primarily a matter for the BIS. As the noble Baroness, Lady Northover, also recognised, there are now 63 central banks and monetary authorities which are currently members of the BIS, and which can vote and are represented at meetings. I will share some facts and figures with noble Lords. Of the current membership by income status, 70% are from advanced economies and 30% from developing economies. To give noble Lords a sense of geographical breakdown, 54% are from Europe, 15% from Asia, 10% from Latin America, 8% from MENA and 3% from Africa. Membership is not required for central banks to benefit directly from the BIS’s research. For example, 300 organisations from 160 countries already benefit from access to its Financial Stability Institute’s web-based information tool. However, I fully acknowledge what noble Lords have raised, including my noble friend Lord Kirkhope. As we strengthen the role of the City of London, we will continue the UK’s global role in the world and particularly in financial services, focusing on the importance of widening the scope so that all parts of the globe, including, most importantly, the developing parts, benefit from fintech and the innovations provided by this new hub.

The noble Baroness, Lady Northover, the noble Lord, Lord Collins, and my noble friend Lord Kirkhope—I thank him for his description of my charm and powers of persuasion—referred to the issue of the EU delegation to the UK. The update on this is that we continue to engage with the European Union on the arrangements for the EU delegation. These are ongoing discussions, and I do not want to pre-empt any particular outcomes. However, I have noted noble Lords’ concern and reflections on this important issue.

The noble Lord, Lord Bhatia, also talked about the importance of privileges and immunities. I believe that I covered that in part through the assurances that I provided.

The noble Baroness, Lady Northover, rightly raised concerns over the situation in Hong Kong and how that will be reflected in the work of the office there. As she will appreciate, at the moment the situation is very fluid, and of course we are concerned by developments more broadly in Hong Kong, as the noble Baroness will be fully aware. She also raised the importance of co-ordination across key centres and offices of the institution and named a number of cities in this respect. Again, that underlines the importance of the financial services sector, its connectivity and how innovation and technology will further enhance the manner in which international financial centres further co-ordinate these activities. As all noble Lords will know, the BIS is often referred to as the bankers’ bank—that is, it is the bank which provides settlements for central banks—so its role is even more crucial.

The noble Lord, Lord Collins, also raised a technical point about traffic accidents. As far as I am aware—if this is not correct, I will amend the record—it is very much standard to grant that exemption from privileges and immunities, in the manner in which privileges and immunities work for international agreements.

I believe that I have covered the majority of the questions which were raised specifically on this issue. I conclude my remarks by saying once again that, if there are any additional points that I have not covered, I will write to noble Lords in the appropriate way and place a copy of the letter in the House of Lords Library.

Finally, this is a recognition of the City of London’s continued strength. I believe the innovation hub will lend itself to further innovation and technology advancements within the City of London, not just to retain the strength of the City as a global financial centre but to continue to retain its position as the leading financial centre in the world.

Motion agreed.

Sitting suspended.