House of Commons - Regulatory Reform

Select Committee on Regulatory Reform Third Report

1 Assessment of the proposal against the Standing Order No. 141(6) criteria

Inappropriate use of delegated legislation [SO No 141(6)(a)]

7. The proposal appears to be appropriate for delegated legislation.

8. As noted above, the proposed Order reduces or removes seven burdens. The analysis below will take each proposal in turn.

AUTHORISATION REQUIREMENTS: PARTNERSHIPS [SECTION 32 OF THE FSMA]

Removal, reduction, authorisation or requirement of a burden [SO No 141(6)(b)]

9. The first proposal relates to the situation where a partnership or unincorporated association, which is authorised by the FSA to carry on regulated activities, is dissolved and another firm succeeds to its business. Under section 32 of the FSMA, the authorisation continues to have effect in relation to the successor firm only where:

i. the members of the successor firm are substantially the same as those of the dissolved firm; and

ii. the succession is to the whole, or substantially the whole, of the business of the predecessor firm.[2]

10. Following the first consultation[3], in which there was no proposal relating to partnerships, the FSA suggested that s32 be amended on the basis that it causes hardship in certain cases. For example, where one partner of a two-partner firm leaves, in order to carry on the business, s32 requires that the remaining partner must temporarily cease trading and reapply for authorisation, either for himself as sole trader or for the firm with newly-appointed partners, on the basis that the membership of the firm does not remain "substantially the same".[4] The Minister states that the current position under s32 of the FSMA constitutes a burden.[5]

11. The second consultation document accordingly set out proposals to amend s32 of the FSMA, effectively returning to the situation which obtained before the FSMA came into force.[6] Five responses to this proposal were received, all of which were positive.[7] Under the proposed Order:

s32(2) would be amended to make clear that an individual, as well as a firm, succeeding to the business of a dissolved firm would benefit from continuing authorisation;
s32(3) would be amended so that the sole criterion for this continuing authorisation is that the individual or firm succeeds to the whole or substantially the whole of the business of the dissolved firm. The requirement that the members of the successor firm be substantially the same as the dissolved firm would be deleted.

12. The Minister summarises the reasons for seeking to remove the burden by stating that "unnecessary costs of securing reauthorisation from the FSA would be avoided, as would the costs associated with disruption to the business in question".[8]

13. We consider that the effect of Article 3 of the proposed Order would be to remove a burden as described.

Maintenance of necessary protection [SO No 141(6)(c)]

14. Whilst the current requirement to seek reauthorisation does provide a trigger to reconsider whether the threshold conditions for authorisation are fulfilled, the Minister does not consider that this is a necessary protection.[9] This is because authorised persons must satisfy the threshold conditions on an ongoing basis and the FSA's rules provide for other triggers for reconsidering whether the conditions are being met. These triggers include notice of a change of partners and a continuing requirement that the firm disclose to the FSA anything of which the FSA would reasonably require notice.[10]

15. In response to a question from us, HM Treasury has clarified that, where it is a Limited Liability Partnership (LLP) which succeeds to the business of a partnership or unincorporated association, the proposed amendment will not apply. The structure of an LLP has wide-ranging implications for the way in which a business is carried on and the LLP will, accordingly, be required to make an application for a change of legal status in order to obtain permission to carry on regulated activities.[11]

16. We consider that the existing reauthorisation requirement does not constitute a necessary protection, given the continuing existence of other triggers with greater relevance to situations which might give rise to causes for concern.

Continuation of reasonable rights and freedoms [SO No 141(6)(j)]

17. No rights or freedoms are affected.

FSA CONSULTATION WITH EEA REGULATORS [SECTION 49(2) OF THE FSMA]

Removal, reduction, authorisation or requirement of a burden [SO No 141(6)(b)]

18. Section 49(2) of the FSMA requires that the FSA consult with the home state regulator of a European Economic Area (EEA) firm before granting, cancelling or varying a permission to carry out a regulated activity to a person connected with that firm. According to the Treasury, this over-implements the requirements of various EC Directives,[12] which require consultation with other European regulators when a permission is granted or extended, but not when it is cancelled or its scope narrowed.[13]

19. The terms of the first consultation proposed that the FSA would be required to consult EEA regulators where a permission was to be granted or extended, but would no longer be required to consult where the permission was to be cancelled or narrowed. Some respondents argued that this still went beyond the minimum obligations required by the various EC Directives and that this was costly to industry.[14]

20. The Treasury therefore amended the proposal for the second consultation, which proposed amending s49(2) so that the FSA would not be required to consult EEA regulators where a permission was either cancelled or varied, which would include variations both narrowing and extending a permission. Notification to EEA regulators in these circumstances would be left to the FSA's discretion.[15] Further reflection led the Treasury to the view that the EC Directives do require the FSA to consult EEA regulators where a permission is varied to extend into an area of business covered by a different EC Directive to that relevant to the original permission. This point was made in the second consultation document.[16]

21. Following a positive response from respondents to the second consultation,[17] the proposed Order amends s49(2) according to the scheme outlined in the second consultation. The FSA would be required to consult EEA regulators only when a permission is being granted or when an existing permission is being varied to extend into an area of business covered by an EC Directive different from that in the existing permission.

22. The Minister considers that over-implementation of the requirements of the various EC Directives is an unnecessary burden. This is particularly so in cases where major financial groups apply for cancellation or variation of permissions which may give rise to consultation with regulators in many different home states in relation to the same permission.[18] Moreover, the Minister claims that the FSA has suffered damage to its reputation through being required by the current s49(2) to consult in circumstances not covered by EC Directives. EEA regulators have complained about such consultations and have confirmed that they themselves are not required to consult home state regulators when cancelling or varying authorisation of a connected person.[19] We agree that section 49(2) of the FSMA constitutes a burden on the FSA as described above and the effect of the proposal would be to remove it.

Maintenance of necessary protection [SO No 141(6)(c)]

23. Although the requirements of s49(2) function as protections, the provisions go beyond what is required by various EC Directives and the Minister considers that these are not necessary protections.[20] Although provisions of EC Directives are not determinative of whether or not a protection is necessary, we agree that Article 4 of the proposed Order removes no necessary protections from consumers of financial services.

Continuation of reasonable rights and freedoms [SO No 141(6)(j)]

24. Since the proposed amendments will bring the consultation requirements under s49(2) in line with the requirements of EC Directives, we consider that HM Treasury is justified in arguing that the proposed amendments do not affect the exercise of any reasonable rights or freedoms.[21]

SIMPLIFYING DE-LISTING PROCEDURES [SECTIONS 77 & 78 OF THE FSMA]

Removal, reduction, authorisation or requirement of a burden [SO No 141(6)(b)]

25. A listing of securities may be discontinued or suspended either on the initiative of the FSA (s77(1) and (2)) or on the application of the issuer of those securities. The current regime does not, however, make specific provision for the latter, so that the safeguarding provisions intended to protect the interests of the issuer apply whether or not the issuer itself is requesting the discontinuance or suspension of the listing. These safeguards provide that:

The FSA must give written notice to the issuer of discontinuance or suspension (s78(2)) and the notice must fulfil certain criteria, including reasons for the decision (s78(3)).

The issuer may make representations to the FSA within a specified period (s78(3)(c) and s78(4)).

Having considered the representations, the FSA must give the issuer written notice either of its decision to maintain the discontinuance or suspension (s78(5)) or of its decision to restore the listing or refrain from de-listing (s78(8)).

The issuer may then refer the matter to the Tribunal (s77(5); s78(5), (6) and (7)).

If the FSA proposes to refuse an application by the issuer for a cancellation or suspension of listing, it must give the issuer a warning notice (s78(10)), following which the issuer has the right to make representations (s78(11)).

Following consideration of the representations, the FSA must give the issuer written notice of its decision either way (s78(11)). If the application is refused, the issuer may refer the matter to the Tribunal (s78(12)).

26. The principle that the de-listing procedures should be simplified where de-listing was at the request of the issuer was accepted by respondents to both the first and second consultations.[22] In cases where the issuer is requesting the discontinuance or suspension of listing, the Minister considers that the current procedures constitute a burden[23] which it is reasonable to reduce by replacing these procedural requirements with less onerous ones tailored to the specific circumstances. We agree.

27. The Minister states that the proposed Order would also remove an anomaly (s1(1)(d) RRA) found in s77(5) of FSMA which gives the issuer the right to refer a discontinuance or suspension of listing of securities to the Tribunal in circumstances where that discontinuance or suspension was made at the request of the issuer itself.[24] We agree that the effect of s77(5) in relation to the situation where the issuer is requesting the discontinuance or suspension of a listing is anomalous and the anomaly might safely be removed.

28. Under the proposed Order, the s78 procedures, outlined in paragraph 25, would remain in cases where a decision to discontinue or suspend listing is made by the FSA on its own initiative. Where, however, the issuer is requesting the discontinuance or suspension of listing, the proposed Order would introduce a separate set of procedures in a new section 78A.

29. This new section would have the effect of removing the following procedural requirements:

the obligation for the FSA to give reasons (s78(3)(b));
the right of the issuer to make representations (s78(3)(c)); and
the right of the issuer to refer the matter to the Tribunal (s78(3)(e)).

We agree that this constitutes the removal of a burden.

30. On the other hand, new procedural requirements would be introduced where an issuer applies to the FSA for a discontinuance or suspension of the listing of securities:

the right of the issuer to apply for a discontinuance or suspension (s78A(1));
the obligation on the FSA to issue a warning notice if it intends to refuse such application (s78A(4));
the right of the issuer to make representations in response to the warning notice (s78A(5));
the obligation on the FSA to issue a decision notice if it decides, following representations, to refuse the application (s78A(5));
the right of the issuer to refer to the Tribunal the FSA's decision to refuse the application for discontinuance or suspension (s78A(6)).

31. There would be further, new procedural requirements where listing has been suspended on the application of the issuer and the issuer then makes a second application to have that suspension cancelled:

the right of the issuer to apply for cancellation of the suspension (s78A(7));
the obligation on the FSA to issue a warning notice if it intends to refuse such application (s78A(7));
the right of the issuer to make representations in response to the warning notice (s78A(8));
the obligation on the FSA to issue a decision notice if it decides, following representations, to refuse the application or, alternatively, a written notice if it decides to grant the application (s78A(8));
the right of the issuer to refer to the Tribunal the FSA's decision to refuse the application for cancellation of the suspension (s78A(9)).

The test of proportionality [SO No 141(6)(k)]

32. The Minister states that these proposed provisions amount to new burdens for the purposes of s6(2)(c) of the RRA.[25] Nevertheless, the Minister is satisfied that these new burdens would satisfy the test of proportionality (s1(1)(c) RRA). We agree.

Maintenance of necessary protection [SO No 141(6)(c)]

33. The Minister states that the proposed new procedural requirements will ensure the maintenance of necessary protections: the FSA will be required to give notice of the details of the discontinuance or suspension; and, where an issuer's request is refused, the FSA must give notice of that refusal, the issuer may make representations and may ultimately refer the matter to the Tribunal.[26] To the extent that it is proposed to withdraw certain procedural requirements, the Minister considers that these cannot be characterised as 'necessary protections' in the context of an issuer requesting discontinuance or suspension of a listing of securities.[27] We agree.

Continuation of reasonable rights and freedoms [SO No 141(6)(j)]

34. There will be no recourse to a tribunal on the part of an issuer of securities in relation to a discontinuance or suspension of a listing in circumstances where the issuer itself has requested such discontinuance or suspension. Since this will have happened by consent of the issuer and the FSA, the Minister does not consider that a reasonable right or freedom will have been withdrawn. Moreover, the issuer will have a new right of recourse to the Tribunal where the FSA refuses its request to discontinue or suspend a listing.[28] We agree that no reasonable right or freedom has been withdrawn.

CANCELLING SPONSOR APPROVAL [SECTION 88 OF THE FSMA]

Removal, reduction, authorisation or requirement of a burden [SO No 141(6)(b)]

35. A sponsor is a person approved by the FSA to perform services on behalf of others for the purposes of the listing rules.[29] Sub-section 88(4) of the FSMA requires the FSA to give the sponsor a warning notice of cancellation of his approval as sponsor. The sponsor then has the right to make representations in response to this warning notice, which the FSA must consider before issuing a decision notice[30] from which the sponsor may appeal to the Tribunal.[31]

36. Where the cancellation of approval is made at the request of the sponsor himself, this procedure performs no useful function. The market is informed via the FSA website and the sponsor has no need for notice of a decision he himself requested. The Minister therefore considers that this constitutes a burden on the FSA which serves no useful purpose.[32] Respondents to the first and second consultations agreed.[33] We also agree.

37. The proposed Order would remove the requirement for the FSA to issue a warning notice in circumstances where the sponsor has requested cancellation of his FSA approval. Since all the other procedural requirements (representations, decision notices, recourse to the Tribunal) are contingent on the warning notice, they do not arise if the FSA is exempt from issuing the warning notice in the first place. We agree that this constitutes removal of a burden which otherwise serves no useful purpose.

38. The Minister characterises the requirement for a warning notice and attendant procedural requirements where cancellation of approval is at the request of the sponsor as inconsistent with analogous procedures in sections 54 and 298, relating to cancellation of a firm's Part IV permission and de-recognition respectively. These procedures do not operate where cancellation of the permission or de-recognition is at the request of the person concerned.[34] The Minister considers, therefore, that the requirement of s88(4) of the FSMA is inconsistent and disproportionate.[35] We agree.

Maintenance of necessary protection [SO No 141(6)(c)]

39. The Minister does not consider that any necessary protections are being removed since the sponsor is himself applying for cancellation of his FSA approval. We agree.

40. We sought assurances from HM Treasury that, in the absence of any specific proposals in the proposed Order about announcements to the market, the market would receive clear and up to date information about approved sponsors. HM Treasury has replied that the FSA currently maintains a list of approved sponsors on its website which is updated to reflect the removal of any sponsors from the list.[36] In addition, HM Treasury states that the FSA is currently considering the best approach to communication to the market of cancellation of sponsor approval and will consult publicly on this issue in due course.[37] We are satisfied that this is not a matter which necessarily needs to be enshrined in primary legislation as long as the FSA's approach is subject to appropriate public consultation by the FSA.

Continuation of reasonable rights and freedoms [SO No 141(6)(j)]

41. The proposed Order will deny access to the Tribunal only in cases where the sponsor is himself requesting cancellation of FSA approval. The Minister therefore considers that no reasonable rights and freedoms will be affected.[38] We agree.

REMOVING RESTRICTIONS ON WAIVERS AND MODIFICATIONS [SECTION 148 OF THE FSMA]

Removal, reduction, authorisation or requirement of a burden [SO No 141(6)(b)]

42. The FSA may only waive or modify the rules listed in s148(1) of the FSMA. Moreover, waiver or modification of rules is only allowed on the application or with the consent of 'authorised persons'.[39] The effect of this is that there are some rules in respect of which the FSA is currently unable to issue a waiver or modification (ie those not on the list in s148(1)) and no waiver or modification is available in relation to unauthorised persons, even though they may be also be subject to FSA rules. The Minister considers it anomalous that the FSA is unable to grant a waiver or modification to all those subject to its rules.[40]

43. We consider it to be a burden that there are persons subject to FSA rules who are not able to benefit from the FSMA's waiver and modification provisions. Equally, we agree that it is anomalous that the FSA is unable to grant a waiver or modification in respect of all its rules and to all those subject to its rules.

44. The proposed Order will amend s148 so that the FSA will be able to waive or modify all of its rules so long as they are satisfied that:

compliance would otherwise be unduly burdensome or would not achieve the purpose for which the rules were made;[41] and
the waiver or modification would not result in undue risk to persons whose interests the rules are intended to protect.[42]

45. The remainder of the section would be amended so that its provisions apply to any person subject to FSA rules, removing the current restriction to authorised persons only.

46. We conclude that this will remove the burden and the anomaly so that the FSA will be able to waive or modify all of its rules; and all those subject to those rules will also be subject to the FSMA's waiver and modification provisions.

Maintenance of necessary protection [SO No 141(6)(c)]

47. No necessary protection will be removed.

Continuation of reasonable rights and freedoms [SO No 141(6)(j)]

48. No person will be prevented from exercising any reasonable rights and freedoms.

LIGHTER CONSULTATION ON GUIDANCE [SECTION 157 OF THE FSMA]

Removal, reduction, authorisation or requirement of a burden [SO No 141(6)(b)]

49. Under s155 of the FSMA, the FSA must consult publicly when issuing guidance. Section 157(3) of the FSMA requires the FSA to do certain things, including producing the following:

a cost benefit analysis (s155(2)(a));

an explanation of the purpose of the proposed guidance on its rules (s155(2)(b));

an explanation of the FSA's reasons for believing that making the proposed guidance is compatible with the FSA's general duties (s155(2)(c));

an account of representations made (s155(5)); and

a note detailing how the final guidance differs from the initial draft (s155(6)).[43]

50. The Minister considers that these requirements are overly burdensome, particularly since they apply equally to unwritten and temporary guidance.[44] There is an exemption available under s155(7) of the FSMA under which the FSA is excused compliance with the consultation requirements where it considers that the delay involved in complying with them would be prejudicial to the interests of consumers. There is no further exemption. The Minister states that this causes two problems: prejudicial delay to others who are not consumers, including firms and others subject to guidance; and consultation for no useful purpose where the scope of the changes to the rules is minor and the level of consultation is accordingly disproportionate.[45]

51. The first consultation proposed two options: one narrow, one broad. The narrow option effectively proposed extending the scope of the current exemption so that the FSA would be excused the consultation requirements where it considers that the delay involved would be prejudicial to the interests of anyone affected by it (not just consumers) and where the FSA considers that the changes would have minor effect.[46] The Treasury also proposed to remove the requirement to consult on temporary and unwritten guidance.[47]

52. The broad option was an additional proposal which would involve removing from the FSA the requirements, when consulting on guidance, to produce a cost benefit analysis (s155(2)(a)); a statement of compatibility with the FSA's statutory duties (s155(2)(c)); an account of representations made during the consultation (s155(5)); and a note detailing how the final guidance differs from the draft circulated for consultation (s155(6)).[48] The Minister characterises this as a "lighter touch" regime.[49]

53. The first consultation received a mixed response, with some concern expressed in relation to the exercise of FSA discretion on what amounts to 'minor effect' under the narrow option and the opportunity for public scrutiny and representations in respect of changes in guidance.[50] Respondents highlighted the fact that firms treat compliance with guidance almost as seriously as compliance with rules, an approach which is likely to continue as rules become more principle-based.[51] The FSA and the Government have countered that guidance is not binding and has no 'evidential' effect in terms of whether or not a person has complied with the rules.[52] Guidance is intended to "throw light on a particular aspect of regulatory requirements".[53]

54. Another view is that, in the modern compliance climate, it might be thought necessary for prudence's sake to take very serious thought before ignoring any guidance issued by a rule-making body on the application of rules which have the force of law, notwithstanding that such guidance is not itself legally binding. Compliance officers may feel obliged to err on the side of caution and consider that they cannot themselves determine with safety which guidance to follow and which to ignore. We put this view to HM Treasury and asked for some illustrative examples to cast more light on this issue.[54] The response was full and helpful, essentially maintaining the position that guidance is indicative, not binding, and that a person may achieve compliance without necessarily following guidance. In addition, HM Treasury states that, although it would expect a tribunal to be made aware of any guidance relating to the relevant rules, the tribunal is at liberty to depart from the FSA's construction of those rules.[55] HM Treasury quotes the FSA's proposed Enforcement Guide which states that "The relevance and appropriate weight to attach to guidance will depend on all the circumstances of the case, including the nature of the firm's defence. It is for the decision maker … to determine this on a case-by-case basis".[56] While we do not take issue with HM Treasury's presentation of the legal position and its practical effects, we observe that, the situation here described, inherent in an environment where guidance of uncertain import is offered by a regulator on rules having the force of law, may lead compliance officers to adhere strictly to guidance which does not itself have binding force, simply to avoid the risks of uncertainty.

55. Following the first consultation, HM Treasury detected what it terms 'a consensus' of industry views and, accordingly, rejected the narrow option in advance of the second consultation. Rejection was on the basis that the FSMA already allows for a 'lighter-touch consultation process', including in relation to minor changes.[57]

56. The broad option, together with the proposal to remove temporary and unwritten guidance from the consultation regime, was taken forward into the second consultation.[58]

57. While most respondents were supportive of a more flexible approach to guidance,[59] there was limited concern over the issue of exempting unwritten guidance from the consultation regime, since this could have the same status as written guidance.[60] Following discussion with the FSA, the Treasury has decided not to exempt temporary and unwritten guidance.[61] Much unwritten guidance would not, in any event, come within the scope of the existing consultation regime.

58. Following the second consultation, the broad option has been adopted and the proposal to remove temporary and unwritten guidance from the consultation regime has been rejected. The proposed Order would amend section 157(3) to remove the requirements set out in paragraph 49 above. It would remain open to the FSA to produce such information should it consider it appropriate, but it would no longer be compelled to do so.[62] The FSA would be required to publish its draft guidance publicly and to receive and take account of representations. The Minister considers that this will remove a burden from the FSA and allow it to issue guidance in a more flexible, speedy and less costly manner. We agree.

Maintenance of necessary protection [SO No 141(6)(c)]

59. The Minister states that no necessary protections are being removed since the FSA is still required to bring proposed guidance to public attention and to take account of any representations received.[63]

60. Notwithstanding our comments about the relative status of rules and guidance, highlighted in paragraph 54 above, we consider that the remaining obligations on the FSA - to publish guidance, to receive and to take account of representations - are sufficient to safeguard the interests of those affected by the guidance.

Continuation of reasonable rights and freedoms [SO No 141(6)(j)]

61. Given the remaining requirements that the FSA publish guidance publicly and that the FSA must receive and take account of representations, we consider that the proposals will not prevent the exercise of any reasonable rights or freedoms.

DELEGATING THE ISSUE OF GUIDANCE [SCH 1, PARA 5 OF THE FSMA]

Removal, reduction, authorisation or requirement of a burden [SO No 141(6)(b)]

62. Schedule 1, paragraph 5(2) currently requires that the FSA must exercise its duty to issue guidance through its governing body. The Minister considers that this requirement is a burden since the governing body spends time and other resources considering routine or technical guidance.[64] We agree.

63. The proposed Order would permit delegation of the task of issuing general guidance to a committee or sub-committee of the board of the FSA. The Minister states that this would reduce the burden on the governing body, enable more timely and responsive issuing of guidance which should, in turn, lead to reduced compliance costs. Although not required in the primary legislation, the FSA may issue a policy statement explaining the operation of the new arrangements and, in particular, how consistency, quality and publication of guidelines is to be assured. The statement may also explain membership of the committee or sub-committee and its accountability to the board.[65] We have asked for, and received, assurances from HM Treasury that such a policy statement will be made by the FSA.[66]

64. We agree that the current requirements constitute a burden which would be reduced by the proposal to allow delegation of guidance by the governing body.

Maintenance of necessary protection [SO No 141(6)(c)]

65. The Minister reasserts the Government's position that "the status and nature of FSA guidance is such that it does not have the force of legislation but simply provides assistance with the mode of implementation of rules" and, accordingly, the Government does not consider that the approval of such guidance by the governing body constitutes a 'necessary protection'. The Government considers that guidance issued by a committee or sub-committee would still be subject to internal checks and balances but would benefit from not being hampered with the more onerous procedures involved in attaining approval from the governing body.[67]

66. Subject to the assurances about a policy statement from the FSA detailed in paragraph 63 above, in particular in relation to statements of policy concerning sufficient checks and balances on the actions of any committee or sub-committee of the FSA board, we consider that no necessary protection will have been removed. We expect the Government to communicate to the FSA the importance we attach to this policy statement and its contents and encourage the Government to monitor closely the progress of the FSA in relation to its formulation.

Fair balance and desirability

67. Where a proposed Order creates a new burden, we are required to assess whether the Order as a whole satisfies the tests of fair balance and desirability (s3(2) RRA). As noted above, the proposed Order would introduce new procedural requirements where an issuer applies to the FSA for a discontinuance or suspension of the listing of securities. We have already commented on the proportionality of this burden. We conclude that, taken as whole, the Order strikes a fair balance between the public interest and the interests of the persons affected by the burden created and is desirable on the basis that it removes or reduces other burdens.

Adequate consultation [SO No 141(6)(d)]

68. A first consultation document on the proposal was published by HM Treasury in December 2005. The consultation period ran from 5 December 2005 until 5 March 2006. The consultation document was made available to the public on the Treasury website and was sent to various organisations connected with the financial services industry.[68]

69. In the light of the 34 responses to the first consultation document, the Treasury amended its proposals and issued a second consultation on 24 May 2006, which closed on 21 June 2006. The Minister states that the shorter deadline was "in line with Cabinet Office advice as the Government had already consulted on the bulk of the proposal".[69] This second consultation covered a new proposal received during the first consultation, together with changes to the initial proposals. It was published on the Treasury website and sent to all those who responded to the first consultation. Twelve responses to the second consultation were received.[70]

70. The consultation was also referred to the Welsh Assembly (pursuant to s5(1) of the Regulatory Reform Act), the Scottish Executive and the Office of the First Minister and Deputy First Minister for Northern Ireland. No comments were received.[71]

71. Paragraphs 110-218 of the Statement set out key points made by respondents to the first and second consultations and gives the Treasury's responses to these points.

72. We consider that the proposal has been the subject of adequate consultation and that the Government has taken appropriate account of the responses received.

Estimates of costs, savings and other benefits [SO No 141(6)(m)]

73. The Treasury has addressed the economic, environmental and social implications of the proposal at pages 11-14 of the Final Regulatory Impact Assessment ("the RIA") and has included a tabulated summary at pages 15-19.

74. This information is also discussed in relation to each separate proposal in the Minister's Statement in the section entitled "Information required by section 6(2) of the Regulatory Reform Act 2001".

75. The Minister states that some of the cost savings and benefits of more flexible FSA rule application are difficult to quantify. Nevertheless, if the proposals are implemented, he estimates total administrative savings for firms at between £7.5 and £9.3 million and the total administrative savings for the FSA at between £54,175 and £118,250 per annum.[72]

76. Some of the proposals would give rise to benefits other than cost savings, such as removing administrative inconvenience and swifter production of more coherent FSA guidance.[73]

77. Having regard to the information contained in the Minister's Statement and the RIA, we consider that the Minister has made reasonable efforts to foresee the costs, savings and other benefits which could arise from the proposal.

Compatibility with obligations arising from membership of the European Union [SO No 141(6)(i)]

78. The Minister has stated in his Statement that the provisions of the proposed Order are compatible with EU obligations and the European Convention on Human Rights.[74] His Statement notes that the major question mark in this area arises in relation to the proposal to withdraw a right to refer a de-listing of securities to the Tribunal (the proposed amendments to ss77 and 78 FSMA). However, this is only proposed in cases where the applicant has himself requested the de-listing, so that there is no sense in him making an application to the Tribunal on this point. He loses nothing valuable as a result of the proposal to withdraw that right. On the other hand, the proposal provides for new rights of recourse to the Tribunal in circumstances where an applicant's request for de-listing is refused by the FSA.

79. The Minister does not consider that the proposals to reduce consultation with EEA regulators contravenes any EU obligation because the consultation requirements are only being reduced to the extent that they over-implement EC Directives.

2 FSMA s32(3) Back

3 A first consultation document on the proposal was published by HM Treasury in December 2005. The consultation period ran from 5 December 2005 until 5 March 2006. In the light of the 34 responses to the first consultation document, the Treasury amended its proposals and issued a second consultation on 24 May 2006, which closed on 21 June 2006. Back

4 Minister's Statement, paragraphs 115-116 Back

5 Minister's Statement, paragraph 24 Back

6 Minister's Statement, paragraph 117 Back

7 Minister's Statement, paragraph 118 Back

8 Minister's Statement, paragraph 27 Back

9 Minister's Statement, paragraph 30 Back

10 Minister's Statement, paragraph 30 Back

11 Annex B, Q2(a) & (b) Back

12 Article 12 Banking Consolidation Directive 2000/12/EC; Article 6 Investment Services Directive 93/22/EC; Article 5b(3) UCITS Directive 85/611/EC; all amended by Conglomerates Directive 2002/87; Article 12a First Non-Life Assurance Directive (73/239/EEC) as inserted by the Conglomerates Directive (2002/87/EC) Back

13 Minister's Statement, paragraph 120 Back