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Lord Eatwell: I am grateful to noble Lords who supported the principle of the amendment, although most were somewhat critical of the formulation that I chose. I am particularly grateful, if slightly amazed, at support from the noble Lord, Lord Saatchi. His earlier remarks criticising Clause 60 and preceding clauses had led me to scribble on my notes a series of colourful remarks with which to upbraid what appeared to be an attempt to weaken the regulatory process of authorisation. However, I am delighted that he went through a remarkable sea change. At the end of his speech he declared that he would be happy to see the Bill--I hope that I cite him reasonably accurately--impose continuing education requirements on authorised persons. One says, "Hear, hear". That is far stronger than I put forward from my rather timid position.
I hope that when the Minister thinks again, he will not only take my advice but also the more draconian advice of the noble Lord, Lord Saatchi, which is clearly more in tune with the goals that I sought to achieve. Given my noble friend's commitment to think again, it is only right at this stage that I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Turner of Camden moved Amendment No. 167:
- After Clause 70, insert the following new clause--
(" . The Authority may--
(a) require all authorised persons carrying on a regulated activity of a specified kind to review their conduct of the activity in relation to a specified category of consumers and report the results to the Authority; and
(b) if satisfied as a result of the review that an authorised person has contravened any requirement made by the Authority under this Act, order him to pay compensation to consumers who have suffered loss as a result of such a contravention.").
The noble Baroness said: The Personal Investment Authority ordered a review of the selling of personal pensions when it became clear that they had been sold to many people for whom they were not suitable because their occupational pensions offered a better product. It should be said in passing that, culpable as the industry was, it nevertheless received substantial support and encouragement from government policy at the time.
More recently the FSA has started a similar review into the selling of free-standing additional voluntary contributions as top-ups for occupational pensions. These top-ups are usually more expensive for consumers than additional voluntary contribution schemes run through occupational schemes. Where it has been found that there has been mis-selling the authority has required compensation to be paid to consumers and has established the calculation to be used in deciding the sum to be paid. In most areas where individuals have been sold a product which is not suitable for them, it is up to them to seek compensation through the ombudsman if necessary. But where there is evidence of widespread systematic mis-selling to people who can easily be identified as falling within a category of consumers for whom the product in question is unsuitable, a group approach co-ordinated by the FSA is likely to be more effective to alert individuals early on that there may be problems, and to get them compensation without the duplication of effort.
The Bill allows the FSA to require an authorised person to provide information and to apply to the court for an order of restitution. The purpose of the amendment is to allow the FSA to set up a widescale review covering all authorised persons doing business in a specified area, and to work out a compensation scheme if mis-selling is revealed. I beg to move.
Lord Saatchi: The noble Baroness, Lady Turner, described her aim well and I can see what her amendment aims at. However, when I read it, it suggested something different; that if requested to do so by the FSA, authorised persons would have to prepare a report only up to their regulatory breaches.
The difficulty might be in the drafting. As it stands, the scope of the report which will be prepared under those circumstances is not specified, other than that it covers the conduct of the authorised persons' regulatory activities. The fact is that the FSA has wide
My reading of the amendment could well be wrong, but if the result of preparing a report into a person's own affairs would be the receipt of an order requiring the authorised person to pay compensation, I doubt whether the reports would be forthcoming or have great value. I am sure that that is a function of the drafting, which perhaps I have misunderstood.
Lord McIntosh of Haringey: I am grateful to my noble friend for tabling the amendment and for the way in which she introduced it. It touches on an important issue: reviews by firms of past business and the need for the Bill to ensure that it can require such reviews. The requirement is in the light of the cases of mis-selling--most notably of personal pensions--which have come to light.
The Government have been considering whether to introduce their own amendment to allow such reviews, and we welcome the matter being brought back to the Committee's attention. In Committee in another place on 4th November 1999, the Economic Secretary to the Treasury said:
Baroness Turner of Camden: I am delighted by my noble friend's reply. Of course I am happy to withdraw my amendment. I am pleased that the Government are giving it favourable consideration and I look forward to seeing their amendment next Monday. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
"We broadly intend that, where appropriate, the basic rule-making power should cover reviews of past business, such as pensions mis-selling. We are considering whether further exchanges are needed to put that measure beyond doubt".
Having done so, we intend to bring forward our own amendment on reviews of past business, but we shall do so in Part X relating to rule-making powers. I hope that we shall be able to table those amendments speedily so that they can be debated when we reach Part X next Monday. I hope that in the light of that commitment my noble friend will not press her amendment.
5.15 p.m.
Clause 72 [The competent authority]:
Lord McIntosh moved Amendment No. 168:
- Page 33, line 5, leave out ("Stock Exchange") and insert ("Authority").
The requirement to have a competent authority and the bulk of the requirements which issuers of officially listed securities have to meet are laid down in the various European Community directives on official listing. Of course, they antedate those directives. There is no obligation on issuers of securities to apply for listing on the official list. It is a choice that they make. Admission to the official list acts as a kind of kite-mark. If a security is on the official list, investors and potential investors know that the issuers of the securities admitted to official listing are obliged to meet, and to continue to fulfil, certain requirements, particularly concerning the release of information to the markets.
The London Stock Exchange has been the UK's competent authority since the concept was first introduced into UK law in 1984. It has performed the function well, creating and enforcing the listing rules in a way which gives confidence to investors while meeting the commercial needs of users. That is why the Bill as introduced into Parliament continued to name the Stock Exchange as the competent authority. However, last year the Exchange announced its proposal to seek to demutualise. Indeed, last Wednesday, the Exchange held its Extraordinary General Meeting and voted in favour of demutualisation.
In the light of those developments, the Government have concluded that it is no longer appropriate for them to continue to exercise the competent authority function. Indeed, the London Stock Exchange itself--I cannot over-emphasise this--suggested that that would be inappropriate. A demutualised Stock Exchange will be a for-profit organisation. Quite rightly, its focus will be on the interests of its shareholders. Clearly, if the statutory functions of the competent authority were to be exercised by a commercial for-profit company, there is the possibility of conflicts of interest, or at least the perception of them. That is especially so given the background of increasing competition between existing exchanges and with new entrants coming into the market such as Nasdaq Europe.
Therefore, the Government announced last October that they intended to transfer the competent authority function to the FSA. The Exchange's timetable for demutualisation is rapid. It is expecting that once it has reregistered as a public company, trading in its shares will begin around May. As a result, the Government decided to lay regulations under the European Communities Act to effect the transfer from the Stock Exchange to the Financial Services Authority. The target date for the transfer to become effective is 1st May. Those regulations, which were approved by another place last Thursday, will come before this House soon.
The transfer under the EC Act will, of course, relate to the existing legislation contained in Part IV of the Financial Services Act 1986. The changes we are proposing in the Bill are more far reaching in that they will apply many of the accountability and
transparency arrangements which the Bill is introducing for the FSA to the competent authority and put all its powers on a statutory footing.This group of amendments--Nos. 168, 173 to 178, 195, 196 and 278--is concerned with who the Bill should name as competent authority. We shall come to the powers and accountability arrangements of the competent authority shortly. It makes sense to appoint the FSA as the competent authority. Although the function of competent authority and financial services regulator are different, there are useful synergies. The FSA already has a great deal of expertise in the area, a strong interest in the market in officially listed investments and a strong concern to ensure that such markets are not abused and that investors are protected. Having the financial services regulator perform this role is in line with the practice in a number of other countries including France, Germany, the US and Japan.
Locating the competent authority in the FSA will also ensure that competent authority staff--there are fewer than 100--have the opportunity to develop their careers within a larger organisation. It will also mean that central resources can be shared, keeping costs down. While the provisions of the Bill do mean that the statutory framework will change, with accountability and transparency arrangements improved, the key message for issuers and potential issuers is that it will be business as usual.
The FSA, in consultation paper No. 37 on the transfer of the listing function, stated:
- "The FSA believes that, following the transfer, it will be important to maintain the current level of service provided by the UK listing authority and to ensure as much continuity as possible in order to maintain current standards of investor protection and to provide access to the capital markets for issuers".
The first of the amendments in the group, Amendment No. 168, names the FSA as the competent authority. It provides that the FSA rather than the Stock Exchange will exercise the functions of the competent authority on the coming into force of Clause 72. Amendments Nos. 178, 195 and 278 then make consequential changes, removing references to the "Stock Exchange" in the Bill and replacing them, where appropriate, with references to the "Financial Services Authority".
The other amendments in the group are concerned with the provisions of Schedule 7. That schedule allows the Treasury to transfer some or all of the functions of the competent authority from whoever is exercising it at a particular point in time to another body if certain conditions are met or if it is otherwise in the public interest. We considered whether it was appropriate to keep that power in the Bill following the decision to transfer the function to the FSA. We
concluded that it was. The Delegated Powers and Deregulation Committee has approved our retaining the power.Although, as I said, there are useful synergies with the FSA's role as the financial services regulator, the listing function is distinct. Most importantly, the duties of the competent authority are not so wide ranging. Essentially, it is concerned with ensuring that issuers provide the necessary information for the market, with the bulk of the requirements laid down in the directives. It is not concerned with the conduct of an issuer's business in the way that the FSA is concerned with the manner in which authorised persons deal with their customers and with each other. Therefore, it is not a function which must be carried out by a financial services regulator. There are advantages in this and that is why we are transferring the function.
However, there are plausible alternatives, such as creating a stand-alone competent authority. Therefore, we are retaining the power in Schedule 7 to transfer the functions. However, the grounds for exercising the power set out in paragraphs 3 and 4 of the schedule are no longer appropriate. Those grounds, which concern competition, were necessary when the function was carried out by a stock exchange in a world of competing stock exchanges. However, the FSA is not a commercial body, so the concerns about possible exploitation, or the perception of exploitation, of the role do not apply.
Of course, it is possible that the FSA, as competent authority, might carry out its functions in an anti-competitive way or cause others to engage in anti-competitive practices or agreements. However, at Report stage we intend to introduce competition scrutiny arrangements along the lines of those which apply to the FSA more generally. Under those provisions it will be possible for the competition authorities to investigate the competent authority's regulatory provisions and practices. If necessary, the Treasury will be able to direct them to make changes.
Therefore, Amendments Nos. 173 and 174 delete the competition grounds and make consequential drafting changes. The Treasury will still be able to transfer the function if it is satisfied that someone else can carry out the function better, if it is otherwise in the public interest, or if the competent authority agrees to the transfer. Any order which transfers the function would need to be subject to a debate in both Houses of Parliament.
Finally, Amendments Nos. 175, 176, 177 and 196 make consequential changes to the transfer power resulting from the decision to apply to the competent authority a number of provisions of the Bill which apply to the FSA. That will ensure that if we ever transfer the function, we can continue to apply appropriate accountability and transparency arrangements to the new competent authority. I beg to move.
On Question, amendment agreed to.
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