| Previous Section | Index | Home Page |
Mr. Sheerman: Is the hon. Gentleman volunteering to be a member of the Committee?
Sir Robert Smith: I am not sure that I am; I am wishing others well in that work.
This week's debate on an FSA is linked by a thread to last week's debate on another FSA--the Food Standards Agency. That thread is the problem that there is no such thing as a risk-free investment just as there is no such thing as absolutely risk-free food. An important point has been made about education and public awareness: we cannot gain something for nothing. When people enter the market to make money from an investment, they are putting that investment at risk. The risk is sometimes high and sometimes low, but if someone is offering an awful lot of money for little investment, the risk is probably much higher than that involved in achieving a small return.
It is important to help people to understand risk. Risk pervades an awful lot of decisions with which we have to cope and an awful lot of measures that go through the House. Politicians, the media and our education system need to provide people with a way of grappling with assessing risk and how to cope with it in daily life. I make a plea on behalf of the advice centres run by volunteers up and down the country. I visited an open day at such a centre in Stonehaven in my constituency. People have to pick up the pieces later, having failed to cope with financial management. It helps the industry and the public sector if advice centres are properly funded. If people in difficulty can get early advice, they have a chance to avoid getting into even greater problems that would leave the bank, the electricity board or the local council to which they owe money worse off than they would be if the problem could be sorted out.
As the hon. Member for Ryedale (Mr. Greenway) said, people will be confused by the fact that single regulation does not apply to everything. People will think that the
product that they are buying is completely safe because part of it is regulated, but the other part may fall into another category.
Mr. Ian Taylor (Esher and Walton):
The importance and dangers of a debate on the Financial Services Authority have been highlighted by the previous two speeches. I sympathise with the concern of the hon. Member for Edmonton (Mr. Love) about the disadvantaged consumer. Over the past 10 years, there has been a dramatic change in the population's financial awareness through such instruments as employee share ownership schemes--much in vogue with the Government, but which I did a great deal to encourage after entering the House in the late 1980s. However, there are risks that individual consumers will dabble in sophisticated financial instruments, or, by contrast, that people may not have access to wealth-enhancing instruments, which is wealth-damaging in a bull market.
The hon. Member for West Aberdeenshire and Kincardine (Sir R. Smith) also highlighted one of my key worries about the FSA. Although I am in favour of the FSA overall, the diversity of the nature of the consumer is of concern. I was once regulated by the Financial Intermediaries, Managers and Brokers Regulatory Association, and I know the advantages of having specific regulatory authorities for particular activities. I only hope that the enormity of the FSA's tasks do not prevent its being sensitive to the specific requirements of individual actions.
In an earlier intervention on the Chief Secretary to the Treasury, I asked about the jurisdiction problem in a global trading market, and I seek some reassurance from the Economic Secretary to the Treasury. The Joint Committee, of which I was not a member--nor, incidentally and for the benefit of my Whip, do I look forward to serving on the Standing Committee--doubtless considered the matter. However, as a former Minister for Science and Technology, I know the problems of jurisdiction in framing legislation. We are on the eve of publication of the Government's Bill on electronic communications, and we ought to be clear about what we are talking about. From one's desk one can trade on any stock market around the world. There are problems over whether the jurisdiction within which an organisation falls is at its place of work or registration. If it is a virtual company, it may be difficult to track down.
In a global competitive world, we must understand that the City of London should not be seen to be overburdened with regulation in comparison with other centres. We face difficult conundrums. The Bill must reflect the wider importance of e-commerce, which we shall discuss in more detail when the new Bill is presented to the House. The messages we send will be crucial. There is late trading. Even big houses such as Merrill Lynch are going on to the net. Specialist houses, such as Charles Schwab and Company, are doing so. It is now easy to evade national boundaries and still invest. The question is, is one investing wisely?
Mr. Howard Flight (Arundel and South Downs):
It is a great pleasure to shadow the Economic Secretary to the Treasury. I hate to say that we go back as colleagues more than 30 years--at university. She has changed not at all in that time. I cannot resist recollecting a marvellous party at the joint Oxford and Cambridge Conservative ball at Blenheim in which she participated. Our paths have gone different ways since then.
I declare an interest as in the Register of Member's Interests. I have worked in the financial services industry for the past 25 years in Britain, the United States, Hong Kong, India and Europe. I hope that I may be able to make some modest contribution to the debate from that experience.
It is axiomatic that, for a successful economy, a country needs good law and regulation and honest and open government. In 1986, when regulation started, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) pointed out to me that with the big bang opening up London to the rest of the world it was inconceivable that one could manage without regulation. One could not rely on what had previously been viewed as the high standards of integrity in Britain.
The past 13 years have been successful. Standards have risen enormously in the financial services industry. Some of the weaknesses have stemmed from the fact that inadequate resources have been devoted to tracking down crookery and to educating the retail public and there has been rather too much simple checking of rules. There has been constructive dialogue and an open relationship between participant and regulator, which I hope will continue under the new regime.
This evening has been marked by quality rather than quantity. As many hon. Members have pointed out, financial services are the biggest industry in the United Kingdom--and the biggest exporter. Given that well over 1 million people are employed in that industry, it is crucial that legislation does not damage it. As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) pointed out, that is the reason why Conservative Members oppose the common European withholding tax and the dangers of the thin-end-of-the-wedge effect that it could have on our international business. Britain's success in financial services goes back 400 years and has ultimately been based on integrity. Regulation is not a substitute for integrity.
When the Government came to office, they were a little glib. They thought that they must start again and rewrite regulation, to put in a single regulator. It has proven manifestly more demanding to craft and draft the necessary legislation. We will not end up with a new regime that is any cheaper. In many areas, the so-called one-stop shop is an illusion. Compensation schemes will have to continue much as they were, but under a single name. Many businesses that have different types of activity will have to be regulated by different divisions.
I praise the Government for the lengths that they have gone in consulting. In particular, I pay tribute to all those who took part in the Joint Committee on Financial Services and Markets, which as we all know has virtually rewritten the Bill.
In specific areas, the Bill still needs substantial amendment. I understand that the Government will be tabling many amendments; I can assure them that the Opposition will also do so.
First, we want to deal with the whole complex territory of structure that has already been alluded to. Although everyone in the House would agree that, in Howard Davies, we have an outstanding individual heading the FSA, that is not the long-term answer. The structure must be right if the authority is not to run into trouble in the future.
Another matter that has been well aired is that the Bill must not fall foul of the European convention on human rights. More to my liking, it must not fall foul of our inherited liberties, which go right back to Magna Carta. It is natural justice that people should be able to defend themselves when they are charged with serious offences.
Other aspects of the structure concern me. Hon. Members may not be aware that the FSA is already arguing that it has the power to control salaries in the City--that it is necessary that the salaries in the derivatives industry should not be so constructed as to encourage bad practice. That all sounds like jolly good stuff, but I am uncomfortable with a body that can claim such powers. As my colleagues have pointed out, there must be a powerful counter-balance to the leviathan that we will create.
In relation to maintaining both competition and competitiveness, competition is international and competitiveness is domestic; We believe that there should be objectives and not merely duties. The essential point is that if, for example, US bond dealers suddenly took all their business away from London because the code of conduct was insufficiently clear, or if the number of independent financial advisers shrank by a half, it would be possible for the industry to bring a convincing judicial review that the FSA was in contradiction of such key objectives as maintaining competition and competitiveness.
I am reasonably comfortable as to the fact that the tribunal will be sufficiently independent, but I suggest that, as well as separating investigation and enforcement units within the FSA, there are strong grounds for the enforcement unit to have a 50 per cent. practitioner content. I believe that it would be healthy if there were a built-in statutory duty to continue consultations with the industry. We need to clarify the regulatory position of accountants, lawyers and actuaries. What will require them to participate in the regime, and what will not? Rule interpretations should be available to the regulatory community; that should be a requirement in the Bill.
I also believe that transparency is at the heart of protecting citizens--I am surprised that that matter is not included in the Bill as an objective. If citizens are obliged to be told clearly about charges and the operations of financial products, they have the opportunity to digest that information. However, nowhere in the objectives can I find stated a requirement for transparency of information.
Other hon. Members have made points about the process of parliamentary accountability. The process is not democratic enough. I believe that the system under
which the Securities and Exchange Commission reports to the US Congress is a more appropriate form of democratic accountability than that proposed in the Bill.
Several of my colleagues raised legal exemption. I argue strongly that cases in which negligent action by the FSA could prevent a person or a firm from carrying out their business should not be exempt. We should also accept the Joint Committee's recommendation that the FSA complaints commissioners should be able to award costs against the authority where damage has been done to businesses.
If we are to maintain our competitive position, we must have clear rules. Indeed, prior to the introduction of the current version of the Bill, the Association of US Bond Traders made it known that its members could not live with lack of clarity in respect of market abuse. Let us hope that that has been resolved, as the Government believe. I still believe that clause 95 is drawn too wide. I also believe that intent should be a fundamental requirement for the market abuse regime to apply. There is still a need for greater clarification of the definition of market abuse.
| Next Section
| Index | Home Page |