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"may, if he thinks fit"
and insert "shall'"
Government amendment No. 447.
Amendment No. 232, in clause 133, page 61, line 23, after "information", insert "relevant to the investigation".
Government amendments Nos. 318 and 319.
Government new schedule 2.
Miss Johnson:
These new clauses and amendments are part of the package of changes that we are making in response to Don Cruickshank's interim report on banking services, which helped us to identify a number of useful amendments that we could make to improve the FSA's internal processes in taking account of competition and to strengthen the external scrutiny arrangements. I set out what we intended to do in Standing Committee A on 9 November. We shall also table similar amendments to the analogous regime for recognised bodies and that proposed for the competent authority for listing. I could run through, at great length, how the process will work, but it might be helpful if I focus on particular aspects. If Conservative Members have queries that are not resolved, perhaps they will raise them.
I begin with the role of the Treasury in respect of new clause 29. The Competition Commission, when it has considered a report from the director general, will produce its own report, except where it feels that that is not necessary. If the commission concludes that there is no significant anti-competitive effect, that will be the end of the matter. If it concludes that there is significant anti-competitive effect and that is justified, it will state that in its report. Where the commission concludes that the anti-competitive effect is not justified, it will recommend changes to the FSA's regulating provisions or practices in its report.
The Competition Commission's conclusion will not be subject to routine second guessing by Ministers. It will stand, except where the Treasury considers that exceptional circumstances cause it to reach a different view. We can envisage a Treasury override being triggered when it is necessary to meet our international obligations--for example, to give effect to European Community legislation--or when the Treasury thinks that there would be significant implications for the operation of the financial system as a whole if the changes were to be made. In the unlikely event of its exercising that override, the Treasury will have to publish a statement of its reasons and lay that before Parliament.
Mr. Tyrie:
Those remarks are close to those the Minister made in Committee when we did not have time to absorb them, although we have subsequently done so. New clause 29(3)(a) says that the Treasury may set a direction aside if it considers it
Miss Johnson:
I am looking for the new clause in my amendment paper; perhaps I can return to that matter.
When the commission finds that an anti-competitive effect is not justified and there are no grounds for an override, the Treasury will do whatever it thinks necessary in the light of the Competition Commission report.
In taking action, the Treasury must have regard to the Competition Commission's opinion when deciding what to direct the FSA to do. The Treasury must also have regard to the views of the FSA and other interested persons when considering whether to give a direction.
Those new arrangements will ensure that, other than in exceptional circumstances, it will be the Competition Commission, not Ministers, who will come to the decisive view on whether anti-competitive effects are justified.
Sir Nicholas Lyell:
Can the Minister clarify what seems to be a fundamental question? When we talk about competition and anti-competitive effects, are we talking about the competitiveness of the United Kingdom financial services market as against the French, New York or Frankfurt markets, or are we talking about distortions of competition within the UK market?
Miss Johnson:
Basically, we are talking about distortions of competition within the UK market. I shall come to the issue of international competitiveness, which the right hon. and learned Gentleman raised earlier, when I reach Opposition and other amendments that relate more closely to that issue.
As I said, generally, it is not Ministers who will reach the decisive view on whether claims of anti-competitive effects are justified. Where exceptional circumstances cause Ministers to override the Commission, the Bill provides for a high degree of transparency. Of course, we expect that the relevant Select Committee would wish to question Ministers in more detail about use of the override, but who in this House would wish to suggest that a Select Committee did anything in particular?
The other part of this package of amendments is a change to the competition principles in clause 2. These principles are at the heart of the processes that the FSA goes through when making regulatory provisions and otherwise discharging its general functions. If the processes work as they should, the external scrutiny arrangements should be academic.
Perhaps I can come on to the "have regard to" phrase in the chapeau to clause 2(3). We undertook in Committee to look at whether this is the right formulation and carries sufficient weight to ensure that the FSA takes full account of the principles in discharging its general functions. As I explained in Committee, the objectives and principles must be considered together. The objectives are about the aims and purpose of regulation. The principles are about the manner of regulation. They are, in effect, statements about good regulatory practice and act as constraints on over-regulation.
In determining how to discharge its general functions, the FSA will go through a single process in order to come up with the right result. It will consider the clause 2(1) objectives together with the clause 2(3) principles in discharging its general functions--that is, in making rules and guidance and in coming up with its general policies.
We have explored with the draftsmen whether the "have regard to" formula is the right one to describe what we want the FSA to do in respect of the principles in this process. We want something that requires the FSA to give proper weight to the principles and to ensure that it takes them properly into account but, at the same time, does not expose the regulators to tactical litigation on individual regulatory decisions. Exploration of these issues has led
us to the conclusion that the current formulation strikes the right balance and that it is clear that the FSA must give proper weight to the principles. To pay lip service to them will not be enough.
Clearly, however, it would be nonsense if the FSA were under an obligation to go through the objectives-principles balancing process every time it takes a decision on an individual case. As well as being pretty much an impossible task, it would open up the scope for judicial review of individual decisions. For example, the FSA could be challenged on whether it is right to engage in an advertising campaign to improve consumer awareness or whether it is employing too many people on the pensions review.
If there were a significant risk that the FSA would have to contest actions for review at every turn, it would be a serious impediment to good regulation. The Joint Committee agreed with this when it concluded that the objectives and principles should apply at the level of general policy and principles, rather than directly to every single act and decision of the FSA. Naturally, it is important that the FSA is accountable for its decisions. Judicial review of whether it is carrying out its legislative and general functions in accordance with the requirements of clause 2 will be possible.
Our carefully considered view is that the current formulation and structure is the right one. It will not be enough, as some have suggested, for the FSA to pay lip service to these principles. The FSA must give the best effect it can to them. That is the nature of the duty.
The "have regard to" formulation is not new. It applies in other legislation in similar contexts, for example, in the Coal Industry Act 1994 and the Civil Aviation Act 1982. It is fair to say that the statute book is peppered with requirements for people to "have regard to" X or Y when carrying out their duties, and have regard to these things they must. It is a strong requirement.
We also undertook to look again at the competition principle in clause 2(3)(f). We agree with Don Cruickshank that it is vital that competition concerns are given proper weight by the FSA. Amendment No. 240 introduces changes and does three things. First, it introduces a more positive principle as regards the adverse effects of competition. Rather than the principle being that the competition should not be impeded or distorted unnecessarily, it now makes it clear that the FSA must consider how to take active steps to minimise the adverse effects on competition.
Secondly, the amendment removes the reference to authorised persons. In exercising its general functions, the FSA can do things that impact on other groups. For example, it could make a rule requiring authorised persons to use the services of a particular software provider or telecommunications firm. Where things do impact on other groups, the FSA should take care to minimise the adverse effects on competition.
Thirdly, the amendment requires the FSA to have regard to the desirability of facilitating competition between those subject to regulation. That recognises that there are things that the FSA can do in regulating which are sensible for a financial services regulator to do and which will make it easier for firms to compete.
The new principle is designed to make the FSA think hard about what it can do to facilitate competition between those it regulates. It makes it clear that it will
have to address the question of how, through different ways of regulating, it could remove unnecessary barriers as well as not erecting them in the first place.
On amendment No. 30, there is no doubt about the importance to the economy of the financial services sector. I share the concern that it should continue to be vigorous and effective. I understand and fully agree with the aim, but the amendment is not the way to achieve it. It would not be appropriate to give the FSA such an objective.
Although the FSA is responsible for creating and maintaining a regulatory framework in which a vigorous and effective market can exist, it is up to the market itself, through competition and innovation, to maintain its vigour and effectiveness.
The FSA must not, of course, put up unnecessary barriers in the way of that, or rip down necessary barriers. Under-regulation and over-regulation both have adverse effects, but the regulatory objectives and principles that the Bill gives the FSA are aimed at ensuring that it arrives at the right level of regulation, which keeps costs down while maintaining the confidence of consumers and the integrity of the markets. That is what the FSA can do to help to maintain the vigour and effectiveness of the UK financial services industry. The rest is up to the industry itself.
On amendment No. 192, as I said in Standing Committee a number of times and as I am sure everyone accepts, competition and competitiveness are different. The amendment seeks to combine them. The bodies responsible for competition regulation in the UK are the Office of Fair Trading and the Competition Commission. Their responsibilities extend throughout the economy. It would be their responsibility to investigate and to deal with, for example, a suspected cartel of insurance companies in the same way as a suspected cartel of supermarkets.
"unnecessary for them to give a direction"
as a result of action taken by the authority. Can she explain the purpose of new clause 29? No reference was made to it in Committee.
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