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Clause 55
Lords amendment: No. 65, in page 24, line 24, leave out ("or an exempt person")
Miss Melanie Johnson: I beg to move, That this House agrees with the Lords in the said amendment.
Mr. Deputy Speaker: With this we may discuss Lords amendments Nos. 66, 67, 69, 70, 406 to 409, 416 and 417.
Miss Johnson: Following consultation, part XX was introduced on Report. The amendments debated in another place introduced further necessary refinements to ensure that part XX works properly and in a way that is consistent with the rest of the Bill. It has the effect that certain professional firms which, among other things, are subject to regulation by a designated professional body, and offer financial services as an incidental part of their professional practice, will not require authorisation under the Bill.
Amendments Nos. 65 to 67 and 69 and 70 will amend clause 55 on prohibition orders so as to enable such an order to be issued, preventing an individual from performing functions in relation to an exempt regulated activity carried on by a professional firm which benefits from the exemption from the general prohibition under part XX.
As for exempt persons, amendment No. 406 will amend the definition of "exempt regulated activities" in clause 316. The amendment is the first in a package that will enable a professional firm which has the benefit of a part XX exemption also to carry on regulated activities as an exempt person without contravening the general prohibition. Clause 318 sets out the tests which need to be met in order for a professional firm to qualify for the exemption.
Amendment No. 407 is the second amendment in the package. It means that a professional firm carrying on exempt regulated activities under part XX will not be held to be in breach of a prohibition set out in clause 318(5) where he is also carrying on regulated activities in relation to which he is an exempt person. Amendment No. 408--the third amendment in the package--would amend subsection (7) so that where a professional firm carries on exempt regulated activities under part XX, it may also carry on activities as an exempt person--for instance, as an appointed representative.
Clause 323 requires the designated professional bodies to make rules designed to ensure that professional firms that benefit from the part XX exemption do not carry on regulated activities that are not complementary to providing particular services to a particular client. Amendment No. 416 completes the picture in relation to professional firms which are also exempt persons. It means that the clause 323 rule-making requirement will not extend to regulated activities conducted by professional firms as exempt persons under the Bill.
Amendment No. 417 will introduce a new clause into the Bill after clause 323, making it an offence for a person to describe himself as one who has the benefit of the part XX exemption in relation to a particular regulated activity, or
- behaves, or otherwise holds himself out, in a manner which indicates (or which is reasonably likely to be understood as indicating) that he is such a person,
Clause 319 allows the authority to direct that the exemption from the general prohibition is not to apply to certain classes of professional. The authority may exercise this power only where it is satisfied that it is desirable to do so in the interests of clients.
Amendment No. 409 will require that any direction must be published in the way
- "best calculated to bring it to the attention of the public.
Lords amendments Nos. 66 to 78 agreed to.
Clause 72
Lords amendment: No. 79, in page 33, line 5, leave out ("Stock Exchange") and insert ("Authority")
Mr. Timms: I beg to move, That this House agrees with the Lords in the said amendment.
Mr. Deputy Speaker: With this we may discuss Lords amendments Nos. 80, 81, 83, 90 to 96, 99, 104, 105, 107 to 109, 111, 112, 436, 559, 626 to 631 and 633 to 636.
Mr. Timms: This group of amendments relates to the provisions of part VI, which deals with the listing of securities. They are consequential upon the decision to transfer the competent authority for listing function from the London stock exchange to the FSA.
The House will recall that when the Bill was originally drafted, the assumption was that the stock exchange would continue as the UK's competent authority. However, in the light of the stock exchange's decision to demutualise and become a for-profit company, which was announced in July 1999, it was inappropriate for it to continue to exercise the public function of competent authority. The FSA has now taken on that role under the Official Listing of Securities (Change of Competent Authority) Regulations 2000, which came into force on 1 May 2000.
Although the transfer of functions to the FSA has already taken place and is working well, it is clearly necessary that the Bill should also take account of the new arrangements. My hon. Friend the Economic Secretary therefore announced in Committee that we would be bringing forward amendments to that effect in due course. The amendments were made in another place.
The amendments fall into two categories. Some, such as amendment No. 79, which will replace the words "Stock Exchange" with the word "Authority", are simply drafting changes. However, there is a category of amendments which is intended to provide for how the FSA is to carry out its responsibilities as the competent authority. The key amendment in this respect is amendment No. 626, which will introduce a new schedule
after schedule 6. That new schedule applies the provisions of the rest of the Bill to the authority, with modifications, when it is exercising the competent authority function. It does not simply apply the entire Bill en bloc to the competent authority because there are differences between the regulatory and listing functions, which it is helpful to allow for in the arrangements that we make.So the schedule disapplies clause 7, which places a duty on the FSA to make arrangements for consulting practitioners and consumers. That is not necessary in the context of the competent authority because it already has a listing committee which fulfils that function, and which will continue in existence when the Bill comes into force.
The remainder of the amendments are very much along the lines that I have described, and I think that they will be broadly welcomed.
Mr. Flight: The change from the stock exchange to the FSA as the listing authority was debated at considerable length both in Committee and at the time of the relevant order. Many questions were raised. The central issue was how matters would go forward in future. Since then, the proposed merger of the London and Frankfurt stock exchanges has been announced. How are the Government expecting the listing role to work in that context?
In particular, under the new arrangements, it is envisaged that a continuing, traditional exchange in London will deal with established blue chip companies, and that growth and new economy stocks will be listed in Frankfurt. Do the Government intend the FSA to be the listing authority for such stocks, even if traded in Frankfurt, or do they intend to limit the FSA's role as the listing authority to stocks traded only on the continuing blue chip London stock exchange?
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I understand that the intention is that stocks could be listed by the FSA but traded in Frankfurt. That would give rise to major international problems because pension funds, collective investment schemes and other such vehicles frequently have requirements that securities should be listed and traded at the same recognised stock exchange. Therefore, many United Kingdom stocks could be listed not on the exchange but by the FSA as the listing authority, and traded on a different stock exchange--Frankfurt. That could happen quickly. The fact that Frankfurt is involved in a merger does not cease to make it separate from the London stock exchange. If that were the case, large numbers of stocks would be held illegally in various portfolios around the world.
Few of us expected the stock exchange proposals to come forth in their current form. The reaction of the members of the stock exchange suggests that the deal may not go ahead in that form, but the possibility that the London and Frankfurt stock exchanges might merge was contemplated when the FSA became the listing authority, and the Government have become involved in the process. It is fine to say that the stock exchanges can do what they want, but the Government clearly have a responsibility because the listing authority--the FSA--is part of the public sector.
In essence, the mechanism for transferring the team of people and the listing responsibility to the FSA has been provided for under the Bill, the amendments and the exemption order. That mechanism is operating, but a very
different stock exchange scene could come into play, against which it must interact. Therefore the Government should tell the House how they expect those issues to be addressed so that they do not damage the ability of investors throughout the world to invest in British securities.
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