Clause
30Information
relating to financial
stability
Mr.
Hoban: I beg to move amendment 12, in clause 30,
page 46, line 8, at end
insert— ‘( ) The powers in
section (1) can only be exercised where the overseas regulator is also
able to provide the Authority with corresponding
information. ( )
“Corresponding information” means information the
overseas regulator can obtain in respect of financial stability from a
person operating in the country or territory of the overseas
regulator.’.
The
Chairman: With this it will be convenient to discuss
amendment 11, in
clause 30, page 46, line 20, at
end add— ‘( ) In pursuit of
these powers, the Authority will have regard to section
348.’.
Mr.
Hoban: It may be helpful if I give a little background to
amendments 11 and 12. Clause 30 introduces a new power for the FSA to
require information in pursuit of its objective in connection with
financial stability. It is a broad power, which is helpful because it
will enable the authority to collect the necessary information to
ensure that it can exercise its financial stability objective. The
information will also help the Bank of England to exercise its
obligations and have regard to the financial stability objective that
was introduced under the Banking Act 2009. Of course, we are still left
with the problem of what financial stability means and what information
the authority will be required to collect if we do not know what
financial stability is in practice, but it is difficult to argue
against the need for collecting such information.
We need to
make sure that there are some safeguards because potentially the powers
are broad. Our safeguards under proposed new section 165B cover the
right to make representations against the requirement to provide
information and a duty on the FSA to publish a statement of its policy
with respect to the exercise of the new powers. However, there is no
right of appeal, and the right to make representations may be excluded
by the FSA in the case of an emergency. In the FSA’s
consultation on these new rule-making powers, it will be important for
it to be explicit about the circumstances in which the powers would be
used and in which the emergency override would be used.
I want to
focus on new section 169A, which will be inserted in FSMA. That new
section deals with when an overseas regulator has asked the authority
to exercise its powers under section 165A, so that the overseas
regulator can obtain information through the FSA in connection with
financial stability. As a consequence of the current crisis, we know
that there needs to be greater global
harmonisation and co-operation on the supervision of individual
institutions and supervision on a macro-prudential level. The
discussions taking place in the European Commission, the Council and,
indeed, the Parliament about the new authorities in Brussels
demonstrate that there will be much more co-operation. Of course, one
of the important tasks of the European systemic risk board is to gather
information about financial stability across Europe. Clearly, the board
will need to have access to information from member states to enable it
to fulfil its responsibilities in analysing emerging
trends. I
am wary about whether there will be two-way traffic between the UK and
overseas regulators, and I am concerned that there could be a situation
where an institution is based in a number of different jurisdictions.
It may be the case that the lead regulator is in South Africa, Germany,
Australia or wherever it may be and it requests as part of its
financial stability remit that the FSA provides information on a firm
that it regulates in the UK. As a nation, we are very compliant when it
comes to requests and following instructions, and doubtless the FSA
will want to meet such a request. However, it is important that the FSA
does not just supply information to, for example, the home estate
regulator or the regulator that takes lead responsibility globally for
that company without being able to get information itself from the
overseas regulator about some of the firms that it supervises, if the
FSA is pursuing such a line of inquiry as part of its role to help to
maintain financial stability in the UK.
There are
some very big businesses operating in the UK who are headquartered
overseas and whose activities could have an impact on financial
stability. If we were not able to get information from their lead
regulator country about its view of something—for example, the
amount of capital the institution has back home or the practices that
the board of directors has introduced in relation to capital, risk
management and a whole host of such things—there might be a
direct impact on financial stability in the UK. My amendment would
ensure that there is some reciprocity between the UK and other
regulators.
Mr.
Todd: The hon. Gentleman will recall that I raised that
matter last Thursday in the evidence session, when he slightly implied
I was not present. I wonder whether he shares an additional concern
about the inclusion of the word “territory.” I am
unfamiliar with the concept of the financial stability of a territory
rather than a nation state, yet that is one of the tests that may be
employed. I understand why that word is used; I suspect it enables us
to deal directly with some regulators in US states, where many
financial institutions are regulated, but I wonder how the test of
financial stability implied in the clause would be applied in that
instance. 5.30
pm
Mr.
Hoban: The hon. Gentleman asks a very good question and it
is not something I had pondered. I recollect the exchanges about
reciprocity that we had on Thursday afternoon. I do not know how one
assesses a territory, or financial stability issues around the state of
Delaware—where a large number of companies are
headquartered—or the fact that some insurance companies are based
in the USA. I suspect the Minister might say that some Crown
Dependencies may be described as territories rather than countries in
the legal sense. I do not know whether that is what the Minister is
aiming at. I think there may be territories linked to the United States
that are not states. It may be around that area, and I am sure the
Minister will have an answer.
In terms of
my amendment, imposing the duty of reciprocity gives the FSA some
leverage in its relationship with other supervisors to say, “You
must have these powers. Supply us with information, if we are to supply
you with information.” It is not a very friendly approach to
take, perhaps, but it ensures that the FSA can exercise some leverage
to help ensure better information flows between states, rather than
simply expecting the UK to be the one that gives but never
receives.
The debate we
had this morning on the inclusion of section 348, in the discussion of
disciplinary powers, crops up again in the second amendment I
have tabled in this area. It concerns the sort of information
about a company that the FSA could give; what duty of confidentiality
would bind it; how much granularity of information a regulator
could ask for and the use to which it is put. I suspect that
might be addressed by the representations a firm could make,
but it would be helpful to know the boundaries that the
FSA and the Government think are in place to protect
confidential
data.
Mr.
Todd: It is a pleasure to serve under your chairmanship,
Mr. Gale. I have already made a point about the definition
of one of the terms in the clause and would welcome an explanation of
that.
I have quite
a lot of sympathy with the amendment, with one exception. If the FSA
were prevented from providing information to a regulator unless a
reciprocal arrangement were in place, one can think of certain
emergencies when that would be an extraordinarily unfriendly act. For
the Government of this country simply to impose an obligation to say,
“I am sorry. We do not have a reciprocal arrangement in place.
Obviously we need to negotiate that, but some information is needed
desperately,” would be almost an aggressive act of assisting in
the collapse of a country’s financial system.
There are
circumstances in which I could imagine the clause being used
appropriately to assist a state in distress. However, the generality of
the argument presented by the hon. Gentleman, which is that this ought
to be balanced by an appropriate arrangement with another state, ought
to be the negotiating position generally adopted, with one further
qualification which is implicit in it. That is, that we should have a
clear understanding of the regulatory frameworks of other states that
we are dealing with, and there should be some degree of quality test
and peer exchange of information, to ensure that we provide additional
support and advice in those circumstances.
One thing we
have learnt thoroughly from the past couple of years is the
interdependence of different regulatory functions in different states
and the impact of large corporate entities across borders.
Therefore, the goal of the clause is entirely sound and I have sympathy
with the argument presented, with the exception I have
given.
Ian
Pearson: I will deal with amendment 11 first, before
moving on to amendment 12 and the points my hon. Friend the Member for
South Derbyshire raised. Amendment 11 provides that, in exercising its
powers to gather information, which are already substantial under FSMA,
the FSA would have to have regard to section 348 of FSMA.
That section generally restricts the disclosure of confidential
information, subject to the exceptions set out in section 349, which
permits disclosure for the purposes of facilitating the exercise of a
public function where disclosure is in accordance with regulations made
by the Treasury.
The
requirements set out in sections 348 and 349 of FSMA apply to all
confidential information gathered by the FSA under that Act. The
ability to disclose confidential information obtained under new section
169A, inserted by clause 30 of the Bill, to an overseas regulator is
already subject to section 348. The amendment is therefore unnecessary,
and I hope that that clarifies matters for the hon. Member for Fareham.
The amendment is not only unnecessary, but undesirable, as it would
introduce uncertainty as to whether disclosure by the FSA of
information it has obtained under other powers is subject to section
348. An explicit reference to section 348 in that regard
might be taken to imply that the section does not apply to other
information-gathering powers contains in FSMA that do not have an
equivalent explicit reference. I hope, therefore, that the hon.
Gentleman will not press amendment
11. I
will move on to amendment 12 and address the wider point about
reciprocal co-operation. My hon. Friend the Member for South Derbyshire
and the hon. Member for Fareham made valid points, as we do need to see
extensive international co-operation on the whole issue of regulation.
Indeed, one of the key focuses of the Government’s activity has
been through the IMF, through international regulators and through
regulation at a European level, all of which are necessary.
Amendment 12
would mean that the FSA could not use the new powers to assist an
overseas regulator unless that regulator was able to provide it with
corresponding information. I do not think that is necessary or
desirable. The FSA is not obliged to respond to information requests
from overseas regulators, but it will naturally want to consider them
closely and co-operate when those requests are reasonable. Section
169(4)(a) of FSMA, which applies to that provision, states that in
deciding whether to exercise its powers in support of an overseas
regulator, the FSA may take into account, in particular, whether
corresponding assistance would be given to a UK regulatory authority in
the country or territory of the overseas regulator concerned.
We would not
expect the FSA to co-operate with an overseas regulator unless it was
in its long-term interests to do so, but I do not agree that it would
be sensible to remove entirely the FSA’s discretion to decide
whether to respond to information requests where the overseas
regulator, for whatever reason, was unable to provide it with
corresponding information. We can certainly envisage
situations in which that might be the case and would not want to
prevent the FSA using the new powers, where appropriate, to build
co-operation and encourage change. Again, I think that it is vital that
we promote best international standards and engage with other
international regulators, and we want the FSA to do that.
My hon. Friend
the Member for South Derbyshire raised a point about the use of the
word “territory”. It is to allow us to capture illegal
jurisdictions below the level of the nation state; for example, states
in the US. We believe that it is necessary to capture
that.
Mr.
Todd: Will my hon. Friend clarify that a little? The test
that I think is imposed in the clause as it stands is that the
financial stability of that territory should be the basis on which the
request might be considered and made. I am not reasonably familiar with
the financial affairs of the US, but I imagine that the state of
Delaware—not the government of Delaware, but its financial
stability as a place where people might live—is guaranteed by
the US Government. It is hard to see how one could imagine the
financial stability of an individual American state, which is the
example he gave, being placed in jeopardy by the actions of particular
institutions based here.
Ian
Pearson: I will reflect on that point further. My hon.
Friend makes an interesting point. He mentioned Delaware; one could
equally mention California, which, if it was a country, would be one of
the top 10 countries in the world, economically. In designing the
legislation, we have tried to get appropriate coverage and we believe
that we have done that.
I do not
believe that amendments 11 and 12 are necessary or desirable for the
reasons that I have given. I hope that the hon. Member for Fareham will
seek leave to withdraw
them.
Mr.
Hoban: I have a vision of California seeking that
information and the Governor perhaps changing his name from the
Terminator to the Regulator on that basis. I appreciate the comments
made by both the Minister and the hon. Member for South Derbyshire.
Perhaps my amendments have gone a little too far in their wording, but
I am anxious to avoid ending up in a situation where we have no levers
over other regulators to provide information in a reciprocal situation.
In many ways, we lead the field in reforms to financial regulation. We
need to encourage other nations to step up to the plate when it comes
to information exchange and disclosure. This might not be the right way
to do it, but it must link through the G20 and the EU to other
mechanisms that people use. There was a phrase I saw earlier today
about financial regulation. It referred, I think, to the US and whether
it will embrace everything but act on nothing. It is very easy to pay
lip service to the intentions behind information exchange. It is a
different matter to get them to introduce the legislative change that
is required to facilitate information exchange. There needs to be a lot
of work done at international level to get comparable powers accepted
as part of the regulatory regime of other member states and other
jurisdictions. I am sure that we will be very good at sharing
information, but the FSA should be encouraged to think very carefully
about the terms by which it provides information, and the opportunities
provided by its membership of international forums to push the message
that there must be effective information exchange.
Mr.
Breed: I share some of those concerns. A scenario could
occur where it is asked to provide information that could implicate
people here, who would then
immediately be the subject of an extradition order. The information that
we supplied to other countries could allow them to do that. We do not
have reciprocation in extradition at present with the US. There are
some concerns. To get co-operation and everything else, we want to
ensure that co-operation is accepted elsewhere. The only safeguard is
the wording that says “may”: we do not have to, but we
may—or we may
not.
Mr.
Hoban: The hon. Gentleman makes an important point about
the language, but we need to ensure that, if we are to recognise the
reality of global financial institutions and global co-operation over
their regulation and supervision, there is acceptance of that and it
has to be underpinned by information exchange. We need to do all that
we can through a range of different forums to ensure that that happens.
But there must always be that opportunity for the FSA to apply a bit of
muscle or leverage here to encourage others to be as open as it is
prepared to be. With that in mind, I beg to ask leave to withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
30 ordered to stand part of the
Bill.
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