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4.31 pm
Mr. David Heathcoat-Amory (Wells): I beg to move, That the clause be read a Second time.
Mr. Deputy Speaker (Mr. Michael Lord): With this it will be convenient to discuss the following: new clause 5--Relationship between guidance and rules issued by Authority--
"(1) If a person behaves in a way which complies with general guidance he shall not be regarded, for the purposes of this Act, as contravening any rule.
(2) The Authority may give guidance (which is not general guidance) to the effect that compliance with the guidance by the person or persons to whom the guidance is expressed to be given shall not be regarded, for the purposes of this Act, as contravening any rule.
(3) 'General guidance' has the same meaning as in section 130.".
Amendment No. 35, in clause 110, page 50, line 20, at end insert--
Amendment No. 50, in clause 110, page 50, line 20, at end insert--
Amendment No. 51, in clause 111, page 50, line 42, at end insert--
Amendment No. 8, in clause 112, page 50, line 43, after "person", insert--
Amendment No. 230, in clause 129, page 59, line 5, after "rules", insert--
Mr. Heathcoat-Amory:
We are still considering the important principles underlying the Bill. Later, we shall discuss amendments that are more technical. However, this group of new clauses and amendments relate to the scope of the Bill and to the rule-making powers of the Financial Services Authority.
The FSA derives its power largely from that ability to make rules. As we are aware from previous debates, those rules will not be approved by Parliament, so we are, in effect, devolving the law-making task to an outside body. That is why it is important that the Bill should limit such power. It is also right that the House should ensure that the rules made by the FSA are, as far as possible, appropriate for the objectives that we set it. The rules must not exceed those objectives and must constantly be tested against them.
New clause 4 would ensure that the authority reviews the rules within three years. Such a review would establish whether the rules were still appropriate. Many of the rules are new and comparatively untested. Indeed, many are still evolving--the authority is consulting on its rule-making task.
Furthermore, the market is always changing, so it is right constantly to test whether rules are still appropriate, or have been rendered obsolete or unworkable by the passage of time. The new clause would require the authority to undertake a cost-benefit analysis for each rule. The authority is already required to do so for new rules, but not for the existing rules that have been grandfathered into the Bill and are continued. We need to subject new and existing rules to a cost benefit analysis, and to do so within three years.
This matter is of great importance to the City and to the financial services industry generally, especially, perhaps, small firms and independent financial advisers, who are often on the receiving end of regulations that they may not always feel to be appropriate or necessary, and which are always expensive to apply. If we are worried about the intrinsic expansionary tendency in the regulatory system, we need to set up countervailing forces wherever we can, to try to restrict the regulatory authority to what is efficient and effective.
Mr. John Bercow (Buckingham):
Is not my right hon. Friend effectively advocating, via the authority, the operation of a form of sunset regulation, which, as we know from the empirical evidence, works very well at both state and federal level in the United States?
Mr. Heathcoat-Amory:
I am extremely attracted to the concept of sunset clauses. My hon. Friend mentioned America, where they are common. The rules that we are considering here are passed not by Parliament, but by the Financial Services Authority, so he may have it in mind to impose that concept on the authority. That concept is not in the Bill at the moment, but it may deserve further consideration by the authority.
For my part, for the purpose of new clause 4, I am focusing perhaps more narrowly on trying to build into the Bill a countervailing pressure to ensure that the phenomenon known as regulatory creep meets its match in a requirement on the authority continually to examine its rules, with a view possibly to repealing them, along the lines suggested by my hon. Friend, or at least amending them, or, if it does not decide to do either of those things, to explain why not. That would achieve many of the desirable objectives of a sunset clause without introducing that concept.
It is not just the health of the domestic industry that we are concerned about in this regard. We are also anxious to ensure the international competitiveness of the financial services industry in the United Kingdom. Higher regulatory burdens and excessive costs could drive a very successful United Kingdom industry overseas.
For all those reasons, we want to subject the rules continually to the cost-benefit analysis procedure. That is not to say that we do not need rules; we certainly do, and they must be clear and must be enforced. We all want a regulatory system that is effective and efficient. A balance must be maintained. That is what a cost-benefit analysis does--it seeks to ensure that the benefit of a rule outweighs the cost.
The Government have accepted that such an analysis should be carried out for new rules, so I believe that they will be attracted to new clause 4, which would extend that requirement to the existing body of rules, and give the FSA some time to carry out a review, because that requirement must be met within three years.
The new clause requires the authority to publish the information as part of a statement of conclusions, having carried out the work. That would be accompanied by a cost-benefit analysis, an explanation of the purpose of the rules under scrutiny and a schedule of any proposed changes. The authority would also have to supply a statement of its reasons for believing that the rules continue to be compatible with its general duties and--very importantly--it would have to provide a statement that representations about the rules in question could be made to the authority by market traders and firms in the industry generally. That would be a reasonable requirement to impose on the authority. As I said, it would be in line with what is already required for new rules.
New clause 5 would make it clear that the general guidance given to the Financial Services Authority could be relied on. That is a separate and most important concept. It is designed to ensure that someone who believes that he has complied with published guidance and rules should be guilty of no offence. That seems perfectly obvious, but there is great nervousness in the industry about someone being caught unawares for breaking an FSA rule or unintentionally breaching a more general principle in the Bill. That is a particular risk that we run with the concept of market abuse, which does not build in sufficiently the concept of intent.
Someone could be guilty of market abusive behaviour without intending to do so. That possibility has created severe misgivings not just within the regulated community, but more generally. The market abuse provisions apply to the public as well, so any member of the public could be guilty of market abuse even if he does not fall to be directly regulated under the Bill. When people and firms seek to protect themselves by seeking guidance from the authority or by complying with published guidance from the authority, they should be entitled to rely on that. In so far as they comply with the guidance, they should be certain that they are guilty of no offence.
The general guidance concerned is defined in clause 130, so there is no difficulty with definitions. I believe that the Government are sympathetic to new clause 5 because it would provide a form of natural justice. It would make it clear that the guidance issued by the authority provided a safe harbour for market operators and the public.
The amendments relate more to the scope of the Bill. Amendment No. 35 would restrict the authority's ability to make rules to regulate non-United Kingdom businesses--businesses that are carried out from an establishment outside the United Kingdom. The restriction would not apply if the business concerned carried out business on behalf of someone in the United Kingdom or if it had a registered office in the United Kingdom and it was necessary to regulate it to protect the financial system. There are limits and restrictions on our proposal.
"(c) make provision prohibiting or restricting or otherwise regulating the carrying on by an authorised person of any regulated activity at or from an establishment maintained by him outside the United Kingdom unless:
(i) he is carrying it on with or for a person in the United Kingdom, or
(ii) both of the conditions set out in subsection (7) apply.
(7) The conditions are that--
(a) his registered office (or if he does not have a registered office, his head office) is in the United Kingdom; and
(b) in the view of the Authority, the provision is desirable in order to--
(i) protect the reputation of the financial system (as defined in section 3(2)) or of authorised persons or a class of authorised persons, or
(ii) prevent authorised persons carrying on the activity in a way which is likely to jeopardise the integrity or the solvency of the firm.".
"(6A) The Authority shall not make rules imposing requirements or restrictions on the conduct of business with, or on the marketing of investments or investment services to, persons outside the United Kingdom unless the scope of those rules has been prescribed in an order made by the Treasury.".
"(6) The Authority may not make rules relating to any non-regulated activity unless the scope of those rules has been prescribed in an order made by the Treasury.".
"who is authorised under this Act to accept deposits".
", statements of principle or codes".
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