POWER TO TRANSFER FUNCTIONS TO DESIGNATED AGENCY (Hansard, 12 June 1986)

Mr. Deputy Speaker
With this it may be convenient toconsider the following: Government amendment No. 166.

§ Mr. Gould
It may be as well to give you the opportunity to pause for breath, Mr. Deputy Speaker. I should like to speak in support of amendment No. 167.
The Government amendments in this group give effect to the solution at which the Committee arrived on the central issue of the Bill—the status and functions of the SIB. It is fair and proper to recognise that the Committee achieved a great deal in this respect. We named the board which had hitherto hidden coyly behind the description of "designated agency" and we increased its powers in respect of its ability to impose rule changes, to prosecute, to investigate unauthorised persons, to deal with matters such as insider dealing and even in regard to obtaining a warrant for powers of search.
None of that could have been achieved without the support, and often direction, of Conservative members of the Committee. It was an excellent example of a Committee working towards a constructive common purpose. It is perhaps not surprising that the paths of the two sides of the House diverge here as we regret, even now, that, for current ideological reasons, the Government have not been able to bring themselves to give the SIB proper status in the Bill. The Government will not accept that this is the obvious solution and that it has been adopted by virtually every other leading capital market in the Western world. The bulk of City opinion now accepts that it is a solution that is desirable, or at least inevitable. This solution would have enabled the Committee and the House to avoid many of the problems which have preoccupied us throughout our deliberations.
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I agree wholeheartedly with the arguments advanced some months ago by the Financial Times in a leading article, when it expressed the view that if we had begun with a statutory commission we could have spent our time making sure that it operated with proper flexibility and sensitivity, instead of starting at the other end with a body which was not propery constituted and did not have adequate powers. Consequently, we have had to spend our time attempting to increase those powers.
This evening we have had a short debate on the powers of the Securities and Investments Board which direct applicants to go to the appropriate self-regulating organisation. That board may have been more appropriate and commended itself to the Government and their supporters if we had begun with the clear understanding that the SIB, bearing in mind its delicate relationship with the SROs, was to be the dominant partner.
The Government's failure in this respect leaves the Bill inadequate to deal with its purpose. The Bill, and the Government's thinking which underpins it, simply do not grasp the scale of the change which will overcome the City. Many of the old safeguards over institutions are being swept away. Huge new conglomerates with powerful new players, enormous financial power—much more power than anything previously seen — will muscle into the City. Those people will be used to playing to the whistle, and it is vital that they are in no doubt as to who will blow the whistle, in what circumstances and with what effect.
604 The City will become a place of intense competition. The new, immensely powerful institutions will be competing with each other for a limited volume of business. When we have to endure an inevitable bear market, there will be a great deal of blood on the carpet. It will be at that moment that corners will be cut and rules broken. The structure of the Bill will be put to the test and, as it stands at the moment, it is inadequate to meet that test.
At present, we are asked to support a structure in which a private company supervises arrange of self-regulating organisations, most of which have no experience or resources to undertake this [...]ask, and some of the organisations do not even exist. It is a complicated structure—a delicate balance which, in general terms, we have supported. It is asking too much to place all the weight on the self-regulating organisations when, at the apex of the structure, there is nothing more substantial than a private company, limited by guarantees.
The fact that we have a Securities and Investments Board which needs a special dispnesation to drop the word "limited" from its title gives the wrong message to people in the City. It is a wrong psychological simile. It is a typically muddled British compromise. It shows that we have not yet grasped the scale of the task and duty that we face. It signals to those who operate in the City that we have not taken the problem seriously.

§ Mr. Cash
rose——

§ Mr. Gould
No, I will not give way; I am about to finish.
The City, without a proper regulatory authority at the heart of the system, will be at a disadvantage in comparison with other financial markets. That is the prime reason why, when we come to Third Reading, we shall be obliged to vote against the Bill. It is the same reason which will oblige us to legislate again on the matter when we return to government.

§ Mr. Campbell-Savours
I wish to speak briefly to add my support to the comments of my hon. Friend the Member for Dagenham (Mr. Gould). I feel extremely strongly about this matter, and I think that the Minister has totally misread public opinion. The Minister does not understand that the British put lie will never stomach a private policing operation in the City of London. A private company, no different from Securicor, will be responsible for policing City institutions.
We know that the measure of that organisation will come in the crisis in the City. All the signs are that the big bang will provide for excesses that the country will expect the City and its institutions to root out. The problem is that when the British people find out that it is impossible to root out these things, perhaps even with a publicly instituted form of control commission, they will blame whatever private arrangements have been made for City policing.
The Minister has it within his power, even at this late stage, to accept this amendment. As I understand it, it simply provides that he retains the right to substitute the limited company that is provides for in the Bill with some form of statutory body. This is reasonable proposition. It gives the Minister the opportunity, without further legislation, to change the very nature of the structure that is being set up today. If he dons not, he will find that, within a year or two, he will be standing at the Dispatch 605 Box defending, or perhaps even the converse, attacking what has gone on in the City. He will be defending a private policing arrangement that has been set up to monitor the City, but that the public are unable to understand. He has it within his power, and he would be sensible, in his conduct of the debate, to take on board the comments that have been made by me and by my hon. Friend the Member for Dagenham.

§ Mr. Nelson
Unlike Labour Members, I believe that my hon. and learned Friend the Under-Secretary of State has moved in compliance with the wishes expressed by both sides in Committee and has come forward with proposals that will be durable and will enjoy the respect of the investing public. It is important that we seek to make the legislation work so that it can do what is intended. In seeking to achieve that objective, it is important that the SIB should have statutory recognition, the powers to investigate, to bring prosecutions in certain circumstances, to change the rules, if necessary, in the self-regulatory bodies, and to enjoy immunity, all of which have been conferred on it by the Bill.
The amendments moved in Committee were argued against because the SIB will be a private sector body, but they are extensive and important powers in terms of investor protection. As the SIB can enjoy the benefits of being a private sector body, not being subject to the public sector borrowing requirement, the state panoply of regulation, and so on. we may have the best of both worlds. Even if Labour Members suspect that we have not, it is at least worth a serious try.
I pay tribute to my hon. and learned Friend the Minister for the objective and sincere way in which he has sought to understand the objectives of those of us who have moved amendments. Without becoming entrenched, he has responded democratically and pragmatically to the interests of investors and of good and effective legislation. For those reasons, I warmly welcome the Government's amendments.

§ Mr. Howard
I am grateful to my hon. Friend the Member for Chichester (Mr. Nelson) for his observations and I am delighted that I have been able to identify a solution to the problem on which we spent so much time in committee. We recognised the legitimate concerns expressed during our proceedings upstairs by my hon Friends the Members for Chichester and for Beaconsfield (Mr. Smith), and others. We have still managed to retain the flexibility and effectiveness that are so crucial to the concept that we have sought to put in place in the regulatory structure.
It is uncharacteristically intellectually feeble of the hon. Member for Dagenham (Mr. Gould) to have failed to face up to the real difficulties that would flow in terms of restraints on public spending and borrowing, which would have inhibited the creation of an effective regulatory body. He has mouthed from beginning to end of our consideration of this matter the phrase "statutory commission" without ever coming clean and explaining precisely what it is that he had in mind.
At the risk of introducing a note of controversy into our deliberations, I have to say that I utterly reject any accusations of dogma or doctrine by the hon. Member for Dagenham. I accuse him of failing to face the central issues 606 at the heart of this discussion. I am delighted to have arrived at a solution which meets the legitimate concerns of my hon. Friends.

§ Mr. Gould
I am listening with fascination to the Minister's diatribe. Presumably this embraces every other statutory body which this Government and other Governments have created in Britain, and applies to every other statutory body fulfilling precisely these functions in every capital market in the world in which Britain is competing.

§ Mr. Howard
It will not do for the hon. Gentleman to attempt to sidestep the argument in that way. We are considering a specific solution to a specific problem, and we have devised what I think is the most effective solution to that problem. I hope and expect that it will work. On that basis I commend the amendment to the House.