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Lord Elton: My Lords, the noble Lord's reference to another nice Bill of several hundred clauses caused the Minister to close his eyes for a moment. I sympathise with him.

I hope that the Minister will start by confirming or otherwise my noble friend's opening remarks about the degree of consultation on the developing situation. I hope that he will tell noble Lords that the Government have been in touch with the very important bodies which were listed. I also hope he will tell your Lordships (if the Minister can listen with his right ear to what I say) to what extent Her Majesty's Government are in touch with the German Government and their regulator's thinking about how the developing situation is to be dealt with. The noble Lord, Lord Newby, is right to say that at the moment everything is uncertain, but that is the worst possible ground for failing to prepare for whatever may happen.

The weight of my noble friend's second amendment is to give the authority an objective to achieve in the developing situation, however it may develop. The amendment requires it to ensure, as far as practicable, equality of regulation in either part of the market. The British people can expect nothing less than that the Government will do their best to ensure that those who earn their bread and butter in foreign exchange do so as nearly as possible on a level playing field. Perhaps the noble Lord will say that that is clearly expressed elsewhere in the Bill, and that is quite possible. I make no apology for not being certain about it because I have never taken part in legislation in this style before. My perception of the Bill is very much that which a porpoise has of a sailing ship. In the time available and with the resources at one's command one cannot be apprised of the whole subject. We must grasp whatever is put before us. This particular matter is exceedingly important, and I believe that we should grasp it firmly. I hope that the noble Lord, Lord Newby, will see the merit of that before the debate is over and that your Lordships will join my noble friend in pursuing the matter.

My noble friend suggests that it is as well to table an imperfect amendment in order that it can be rectified in another place. We should not proceed in that way. If it is agreed that the amendment is necessary but imperfect the proper procedure is to recommit the clause to Committee. I am aware that that is a matter for the usual channels. However, we have bodged this matter to such an extent and in such haste given its scope--the Minister may say that two years does not represent haste, but the length of time must be proportionate to the work done--that I hope what my noble friend seeks in this amendment will be achieved by one route or another.

4 p.m.

Lord Rees: My Lords, my noble friend Lord Saatchi has very properly taken us back to the question which

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he raised robustly last week on the final day of Report stage. On that occasion the Minister gave an equally robust answer. I am bound to say that his answer did not entirely satisfy me, and perhaps it did not satisfy other noble Lords. I refer to the implications of the proposed merger of the London and Frankfurt Stock Exchanges. One recognises that the merger is not yet complete and that the noble Lord, Lord Newby, has reservations. However, we do not have the luxury of time. This is the last day, at any rate in theory, on which the House is able to consider this particular Bill. We cannot wash our hands of an important question because the precise event which gives rise to this debate has not yet concluded. At least it should focus our minds on the kinds of questions that will arise when trading transactions and markets extend beyond one national area. Therefore, it is incumbent on this House at least to express a view on the general question, even if we are conscious that we cannot deal with all the detailed points that may arise if the merger goes through.

The Minister said last week that no amendments to the Bill were called for and that neither the Government nor himself as the Minister piloting the Bill would be responsible for the consequences of the merger. I am not entirely certain that that is so, but let us debate the matter on those terms. He and the Government are responsible for the Bill and for offering to the country and to us some conclusions about the implications of major operations such as those posed by the proposed merger before we wave goodbye to the Bill and it moves to another place.

I offer my sympathy to the Minister who has had to carry the burden for so long. After many wearisome weeks no doubt he and the whole House want to be certain that this Bill will provide at least some kind of practical regulatory framework. We cannot simply wash our hands and say, "Well, there are certain problems arising on the horizon and let us wait until they arrive". We should indicate to the world outside that we have focused a little on this particular question. It is not entirely an academic one. No doubt German residents are trading at the moment on the Stock Exchange and UK residents are trading on the Frankfurt Exchange. The Mannesman Vodaphone transaction focused our minds on matters that spill over national boundaries.

We have to focus a little more closely. I do not believe that we can take the rather bland view offered by the noble Lord, Lord Newby, and say, "We may have to come back to it at a later stage". At the moment the Stock Exchange is still within the jurisdiction of the FSA. If I understand the German position correctly, the Frankfurt Exchange is within the regulatory regime of Hessen and possibly of some German federal regulatory regime.

Perhaps the Government have considered the matter, but they have not taken us into their confidence. Does the Bill need to be amended in the absence of some European structure? Do not let us get involved in a debate as to how far we want to have some super European structure. But in the absence of some kind of pan-European regime on this matter,

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what do we do? In what area will the FSA need to develop its competence? The Minister might indicate to us the kind of points that he would like included and which he might be putting to the FSA, for all I know.

It has been an unprecedented legislative process. My noble friend Lord Elton suggests that we may have to prolong and enlarge it. I admire the rigour with which he has applied himself to the proper process. Whatever it may be, we have been subjected to cascades of government amendments and very often not long before the Sitting. I do not blame the Minister if he does not want to embark on a further exploration of a major issue and would like to shed the load for a while to his colleagues in another place. It is critically important that we attempt to ensure that the framework of the Bill is right and that it will deal adequately with activities and transactions that spill over two jurisdictions.

I appreciate that my noble friend Lord Lamont is due to mount a debate next week about the merger of the two exchanges. Alas, that is a little too late. It may be criticism of the way in which this Bill has been handled. It is very important that we form a view tonight on this question. I do not believe that it can be just brushed aside. I hope that the Minister will recognise the various difficulties when the amendments have been debated and that he will respond a little more helpfully than he did last week.

Lord McIntosh of Haringey: My Lords, I always like to begin with as much agreement as possible. I say from the outset how much I agree with the opening remarks of the noble Lord, Lord Saatchi, as regards the importance of financial markets not just to themselves but to this country; their importance internationally and the fact, which he emphasises regularly and quite rightly, that the world does not owe us a living in that financial markets can move from one location to another if the climate is not right for them. Having said that, I am not going to go very much further in agreement with him.

I shall deal with the two amendments in turn. Amendment No. 1 is identical to the amendment which the noble Lord moved in Committee and very similar to the one which he moved at Report. There is nothing I can do to persuade myself that they are right now when I believed they were wrong then.

The purpose of the amendment is to ensure that the FSA's regulatory activities do not unnecessarily impair the competitive position of the United Kingdom. I have said it before and I shall say it again. We all agree that that is vitally important. We need checks and balances in place to ensure that the United Kingdom's competitive position is not adversely affected by too much or too little regulation. But the Bill already provides for that and does so in a way that is effective in the requirement on the FSA set out in Clause 2(3)(e), to have regard to,

    "the international character of financial services and the desirability of maintaining the competitive position of the United Kingdom".

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As I understand it, the reason why the noble Lord, Lord Saatchi, has been so persistent in advancing the amendment is that he believes that without it the FSA will not take competition seriously enough. At Report stage he referred to his,

    "concerns that there is no proper balance in the Bill between the pursuit by the FSA of its regulatory objectives and the desirability of encouraging competition and the competitiveness of the UK. We believe that it is essential to seek to achieve that balance, notwithstanding the difficulties to which that may give rise for the FSA in performing its functions".--[Official Report, 13/4/00; col.335].

The Bill strikes this proper balance now, but that balance would be upset by the noble Lord's amendment. As I said at Committee and repeated at Report,

    "Subsection (1) places a positive requirement on the FSA to take action. This is appropriate when we are talking about objectives; that is, the aims of regulation. In contrast, the need to take account of international competitiveness is something which should condition the way it goes about meeting the objectives. That is as true for competitiveness as the other matters dealt with in Clause 2(3)".--[Official Report, 16/3/00; col.1803].

I am sorry to repeat it again, but the argument is being put in comparable terms. It is not just that competitiveness is a matter which is properly dealt with as a principle in subsection (3)(e) but that it is, as I said at Report stage,

    "by placing the same duties on the FSA in relation to this issue as it has in relation to the regulatory objectives themselves, the amendment introduces into the Bill a degree of ambivalence as to the relationship between those objectives and the proposed new duty. Is the proposed new duty inferior to the objectives, superior to them, or something which ranks equally alongside them? I do not know the answer, and I do not think that the FSA will know either".--[Official Report, 13/4/00; col.341].

The competitiveness principle that the Bill already contains does not simply oblige the FSA to turn its mind to competitiveness every now and again. It must have regard to it and give it due weight in taking all of its regulatory decisions. I believe that that is very clear. The amendment would create confusion.

I turn to Amendment No. 2, which has largely been the subject of the debate so far. As the noble Lord, Lord Saatchi, said, the amendment has been prompted by the proposed merger between the London Stock Exchange and the Deutsche Borse. I have listened carefully to the noble Lord's speech, but I have to say that the amendment seems to be based on a misconception of the extent of the proper role and jurisdiction of the Financial Services Authority.

I can hardly claim that we have been considering the possibility of such a merger since the early days of the Bill. I do not believe that anybody had been considering it because the matter had not been mooted. It is certainly true that the full details of the proposed exchanges have yet to be worked out and it is also true--it could hardly be otherwise--that the FSA will need to look carefully at the implications of what emerges. But the Bill provides the right regulatory framework. There are practical issues for the regulator, but they are issues that are within the framework that the Bill provides, and no amendments

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to the Bill are required. The noble Lord, Lord Rees, asked the right questions which I shall attempt to answer.

Let me say what I can about the plans that the exchanges have outlined. I understand that the intention is to create two pan-European equity markets. The first will be a market for blue-chip shares, based in London. It will continue to be a UK recognised investment exchange, overseen by the FSA. The second will be the proposed joint venture with NASDAQ to provide a market for growth company shares, which will operate in Frankfurt under German regulation. We are talking about two separate exchanges and, although there will need to be co-operation between the FSA and its German counterparts, there are separate regulatory jurisdictions.

That is not a unique situation. A similar arrangement already exists. The Swedish OM Group owns both the stock exchange in Stockholm, regulated by the Swedish authorities, and a derivatives exchange in London which is a UK recognised investment exchange overseen by the FSA. The FSA and the Swedish counterpart have their separate roles and the arrangements work satisfactorily.

We have no doubt that the provisions of the Bill relating to the recognition of exchanges are able to cope with structures such as the proposed international exchanges. We are confident that the recognition requirements for exchanges will be robust enough to cope with any issues that may arise by the operations outside the UK of UK-based exchanges; for example, the placing of dealing screens in foreign jurisdictions which enable traders to access the UK exchange.

On the amendment, as Clause 3 of the Bill makes clear, the purview of the FSA is the financial system operating in the UK. The key words here are "operating in the UK". The FSA is not and cannot be responsible for markets and exchanges located abroad which do not have operations in the UK. They are subject to the regulatory authorities of the jurisdiction in which they are located.

Of course, they all co-operate in the International Organisation of Securities Commissions and the Forum of European Securities Commissions, but it would be giving the FSA duties beyond its responsibilities and powers to suggest that it can ensure, even so far as is practicable, that markets and exchanges are regulated to the same standards as those in the UK. When we have debated home state and host state regulations, that has been a matter of debate throughout the consideration of the Bill.

It is not that we do not know what to do. We know that the provisions in this Bill are adequate for the challenges that may be placed on it by this or any comparable merger. We have no doubt that no amendments are required to the Bill. I urge the noble Lord, Lord Saatchi, not to press the amendment.

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