§ '.—(1) If it appears to the Secretary of State or the Treasury that by reason of—
- (a) the law of any country outside the United Kingdom; or
- (b) any action taken by or the practices of the government or any other authority or body in that country,
§ (2) No notice shall be served under subsection (1) above unless the Secretary of State or, as the case may be. the Treasury consider it in the national interest to serve it; and before doing so the Secretary of State or, as the case may be, the Treasury shall so far as they consider expedient consult such body or bodies as appear to them to represent the interests of persons likely to be affected.
§ (3) A notice under subsection (1) above shall state the grounds on which it is given (identifying the country in relation to which those grounds are considered to exist); and any such notice shall come into force on such date as may be specified in it.
§ (4) For the purposes of this section a person is connected with a country if it appears to the Secretary of State or, as the case may be, the Treasury—
- (a) in the case of an individual, that he is a national of or resident in that country or carries on investment, insurance or banking business from a principal place of business there;
- (b) in the case of a body corporate, that it is incorporated or has a principal place of business in that country or is controlled by a person or persons connected with that country;
- (c) in the case of a partnership, that it has a principal place of business in that country or that any partner is connected with that country;
- (d) in the case of an incorporated association which is not a partnership, that it is formed under the law of that country, has a principal place of business there or is controlled by a person or persons connected with that country.
§ (5) In this section "country" includes any territory or part of a country or territory; and where it appears to the Secretary of State or, as the case may be, the Treasury that there are such grounds as are mentioned in subsection (1) above in the case of any part of a country or territory their powers under that subsection shall also be exercisable in respect of any person who is connected with that country or territory or any other part of it.'. —[Mr. Howard.]
§ Brought up, and read the First time
§ Mr. Deputy Speaker (Mr. Paul Dean)
With this it will be convenient to consider Government new clauses 8, 9 and 10 and Government amendments 251, 254 and 257.
§ Mr. Howard
New clauses 7, 8, 9 and 10 replace clause 151. The changes are designed to make the reciprocity provision more flexible. It was decided to include a reciprocity provision in the Bill to provide the United Kingdom with leverage in seeking access for our financial services firms to foreign markets. At present there are no powers to prevent foreign firms from becoming established as banks or securities dealers, provided they meet the legal requirements. The reciprocity provision empowers the 436 Secretary of State—the power is not to be transferable to the designated agency — to disqualify or restrict a foreign connected firm from carrying out investment or insurance business if British firms do not enjoy access to that foreign market equivalent to that which foreign firms enjoy here. The Treasury has a similar power to disqualify in respect of banking business. The power is applicable to those seeking authorisation as well as to those already authorised to do business.
The power as originally drafted would have meant disqualifying or restricting a firm in respect of all of its investment, insurance or banking business. On reflection, we consider that this total business approach lacks flexibility and risks unnecessary hardship for investors.
We now propose, therefore, to introduce a further category of restriction — a partial restriction notice. It will enable the Secretary of State, or the Treasury, to focus any such restriction on any type of business which a firm is authorised to carry out, or on the way in which such business may be conducted. A firm might be prohibited from dealing in options on securities but not from dealing in the underlying securities themselves. Similarly, a firm might be prohibited from dealing with certain categories or, by contrast, confined to dealing only with certain categories. It will give us much greater flexibility in deciding how to use the reciprocity power, the allow us more easily to take into account the interests of British investors, policyholders or depositors.
The Secretary of State and the Treasury will be subject to the same requirements and will be required to follow the same procedures for partial restriction notices as for other forms of notice served under this provision. The restriction must be considered to be in the national interest, the notice Must state the grounds and it must give a date when it will come into effect.
We were persuaded by discussion in Committee that notices should not automatically come into effect on the date of service to give the firms affected an opportunity to unwind their existing busines with the minimum adverse impact on investors, policyholders, or depositors. We were also persuaded that disqualification notices should not restrict authorisation in respect of contracts entered into before the notice comes into force. This, too, will minimise the adverse effect on investors, policyholders, or depositors.
This is an important provision. Knowledge that it is to he included in the Bill has already helped us in seeking improved access to foreign markets for our financial firms. Nor are we alone. Many other countries already have a variety of reciprocity provisions in respect of financial services, and many of those provisions require strict reciprocity, failing which access is forbidden. Our provision is discretionary. We have the choice whether or when to use it and the ability to be selective about how we use it. Of course, we hope not to have to use it, but we will not hesitate to do so if we have to.
As a consequence of these changes, it is necessary to leave out clause 151. Further consequential changes are needed to clause 158 to ensure that prosecutions in respect of offences under new clause 9 are instituted in the same way as prosecutions for breaches of the Banking Act 1979.
§ Mr. Gould
As the Minister knows, we welcome the reciprocity provisions.
The Minister used the euphemism of increased flexibility. Will he concede that one of the principal 437 changes effected by these four new clauses is to strike out the retrospective nature of the disqualification order, which was understandably objected to by some Conservative members of the Committee?
Will the Minister assure us that the increased flexibility does not imply a derogation of the admirably robust sentiments that were expressed in Committee, which found a welcoming echo from the Opposition, and that the reciprocity provisions will be enforced with all due vigour?
§ Mr. Nelson
I oppose this group of new clauses and amendments. It is somewhat futile for me to say so, and I promise not to be an impediment to their passage. I expressed my objections on Second Reading and in Committee, and had suffered the ignominy of being the only person to vote against the provision. I want to restate my objections because I know that, if they are not shared by any other hon. Members, they are shared by some people outside the House.
I object to these reciprocity provisions for several reasons. One is that they lie uneasily in the Bill. They have nothing whatever to do with investor protection and should not be here. They are wrong because they seek to infringe the practice and obligations of companies that have legitimately engaged in business, been attracted here, provided employment and prosperity and enhanced the productivity and foreign earnings of the City of London. They are also in restraint of the competition principles to which I think that my party and Government should subscribe. I accept that they have helped my hon. and learned Friend the Minister, most recently in Japan, but I regret that more countries must engage in such sword-of-Damocles legislation. It lies uneasily with other principles that we expound, and I like to think that I have been no party to it. But I shall not waste the time of the House other than to restate my objections, for I fear that, in the course of time, the matter will be raised again.
§ Mr. Ashdown
I rise briefly to correct the hon. Member for Chichester (Mr. Nelson), who forgot that I voted with him in Committee on that occasion. However, he is alone now. The Minister has moved, and I am grateful for the flexibility that he has introduced in operation and discretion. Although I share many of the hon. Gentleman's sentiments, for exactly the same reasons, it is important to have such a power available to be used as flexibly as possible. Contrary to the comments of the hon. Member for Dagenham (Mr. Gould), whose first instinct in such matters seems to be the Little Englander idea of trading practices and reciprocal operations, I hope that the Minister will use the provision sparingly, recognising that there is increasing protectionism in the world, which must damage Britain's trading capacity, especially since it is primarily a trading nation.
§ Mr. Howard
I share the regret expressed by my hon. Friend the Member for Chichester (Mr. Nelson) at the need for such swords of Damocles. However, I am no more in favour of unilateral disarmament in this area than I am in others.
I can briefly answer the two questions asked by the hon. Member for Dagenham (Mr. Gould). I see no inconsistency between the flexibility called for by the hon. Member for Yeovil (Mr. Ashdown) and the rigour called 438 for by the hon. Member for Dagenham. I hope that the clause will be applied flexibly and rigorously, and I am happy to answer both his questions in the affirmative.
§ Question put and agreed to.
§ Clause read a Second tune, and added to the Bill.