§
Amendment made: No. 278, in page 1, line 6, after 'dealing', insert
'to make provision as to the disclosure of information obtained under enactments relating to fair trading, companies and insurance'.—[Mr. Howard.]
§ 10.11 pm,
§ Mr. HowardI beg to move, That the Bill be now read the Third time.
The House will understand why I am moving the Third Reading and not the Secretary of State for Trade and Industry as planned. I know that my right hon. Friend and his family have the deepest sympathy of the House in their tragic loss.
The Bill is a most important measure. The foundations of the Bill were laid in the White Paper on Financial Services in the United Kingdom published in January 1985. I should like to pay the warmest tributes to my right hon. Friend the Chancellor of the Duchy of Lancaster and my hon. Friend the Member for Edinburgh, Central (Mr. Fletcher) for their work on the White Paper, which was the precursor of the Bill. I also thank my right hon. and learned Friend the Member for Richmond, Yorks (Mr. Brittan) for his work.
The importance of the Bill reflects the importance to the British economy of the financial services sector. In many of the financial services the City of London is the international market leader — for example, in international banking where London handles a quarter of the world total of bank lending, in the Eurobond market, and in insurance.
636 The maintenance of a strong British invisibles sector is an objective of considerable importance to the British Government. But more than in almost any other industry the maintenance of London's position rests upon its reputation for integrity and fait dealing. That is why the Government attach the highest priority to the rooting out of financial malpractice. By establishing a new practitioner-based regulatory system within a statutory framework, the Bill will play a major part in stamping out unfair and dishonest practice.
We have been concerned to create a tough and effective regime which will provide investors with a high level of protection, whilst at the same time avoiding a right bureaucratic structure incapable of adapting with the market. Our system of regulation has to be both effective and flexible. The balance is a fine one. We are convinced that in this Bill we have got it right.
Throughout we have always made it clear that our own views were not rigid and immovable. We have invited and welcomed comments and suggestions. I am most grateful to all those outside and inside the House—especially members of the Standing Committee—for the time and effort they have devoted to helping us get the legislation right. In Committee, we had many long debates. There were moments of humour and drama, and there was the odd defeat here and there. Undoubtedly, the Bill is better for the Committee's consideration.
We have accepted the proposal to give a special recognition in the Bill to the Securities and Investments Board, which hopes to become the designated agency. We have agreed to strengthen the powers of the designated agency over the recognised self-regulating organisations and to transfer more of the Secretary of State's powers to the designated agency. We have deliberately not created a statutory commission but have preserved the vital flexibility of the system. We have strengthened the effective enforcement of the provisions of the Bill by granting immunity to recognised self-regulating organisations. On other points, we are still consulting.
We are now ready to send to the other place a Bill setting out clearly the basic intitutional shape and the powers of our proposed new regulatory structure, with the weight of this House behind it. I commend the Bill to the House.
§ Mr. AshdownThe Government foresaw, as early as 1981, the need for comprehensive legislation to protect the investors when it asked Professor Gower to report. It is not surprising that with all that planning, in June 1986, the Government still propose major amendments to the Bill. making it extremely difficult to farm a balanced judgment as to whether or not the Bill is adequate. Doubtless, we shall be told that it is all part of flexibility and open-mindedness. Frankly, it looks to me much more like muddleheadedness, confusion and retreat in the face of the vested interested groups which must not be offended prior to passing the plate round to replenish the Conservative coffers.
On Second Reading, I welcomed the fact that the Government had brought forward a Bill to reform the City of London but said that it was not possible to welcome the Bill, as it was then constituted, as an istrument of that intention. Since then, we have fought for a balance, which must be struck, between the need to protect investors and the avoidance of regulations that are too onerous and 637 would only force users of the City of London to go elsewhere, thus causing loss of a great source of wealth for this country.
The Standing Committee, of which I was privileged to be a member, worked constructively. I pay tribute to the way in which the Minister and his staff took care to inform us all with the various briefing notes, which were invaluable.
I do not complain about the basic structure which has been proposed. There is flexibility in the arrangement. Had we legislated for similar flexibility when the Lloyd's Bill was before us, much trouble could have been prevented. There is nothing wrong with the SROs and professional bodies supervising the day-to-day activities of authorised or other persons overseen by the Securities and Investments Board. I am not happy, however, with the fact that the SIB will account for its stewardship in an annual report which, as things stand, we shall have no right to debate, certainly in the early years.
My doubts and worries really start when we look at the flesh that covers this structure. Regulation will be by rules laid down by the SIB. The Bill contains certain guidelines for these rules, but such guidelines can mean all things to all men. When we tried in Committee to obtain commitments on specific matters, we were told that that was not for primary legislation but was for the rules. Therefore, we shall have no say on the content of the rules, that being solely a matter for the Secretary of State or the SIB.
At this stage it is difficult to discover what the rules will be, for those that are available appear to be at best in draft, at second best in a consultative stage, and at worst not yet thought of. What I have seen in respect of competence tests, disclosure by insurance companies of commissions and surrender values, and cold calling fills me with a degree of apprehension, because they seem to lean over backwards time and again in favour of the practitioner. That is not good enough as far as I am concerned; nor will it be good enough, for instance, for the hon. Member for Chichester (Mr. Nelson), who delivered a clear exposition on this matter on Second Reading. He stated:
The principle function of both the designated agency and the SROs should not be to provide an easy working machine which is not subjected to criticism. Their principle objective is to protect investors.—[Official Report, 14 January 1986; Vol. 89, c. 991.]I could not agree more. But what guarantee is there that the Secretary of State will take that attitude when he examines the rules? Even if he did, what enforcement powers are there? It is one thing to have rules; it is another to apply them; and it is yet another to ensure their proper application and enforcement. Although I am happy that the SIB now has the power to insist on rules for the SROs, I very much regret that the Secretary of State has not seen fit to give it direct powers of enforcement. Apparently, he is happy for the SIB to rely on an application to the courts —probably a slow and ponderous procedure at best—or to invoke the nuclear deterrent of a revocation of recognition.It is with equal regret that I note, despite a useful debate on clause 20 in Committee, that the Secretary of State has now decided not to give the SIB "intermediate powers" over recognised professional bodies. The quality of the work that the SIB will do, even inside what I regard to be 638 its too limited powers, will in large part depend on the quality and type of persons appointed to it and the quality of the information available to them.
I make two complaints on that score. First, I am extremely unhappy that the Governor of the Bank of England has a veto. It is unnecessary, and it turns out to be present for political purposes.
§ Mr. Nelsonindicated assent.
§ Mr. AshdownI am glad to have the hon. Gentleman's agreement. He made an effective contribution in Standing Committee on that point.
My second complaint concerns user and independent representations on the SIB. In debating schedule 5 we managed — in a process that must be something like drawing a tooth from an elephant—to get the Minister to say that he expected a "significant proportion" of the board members to be independent people. "Significant" and "independent" are words capable of wide interpretation. I shall not be satisfied that my view is the same as the Government's until I have seen what is meant, and I probably shall not do that until after the Bill is enacted. I will not regard two or three names plucked from the list of the retired or the great and the good as meeting that requirement. Much the same comments could be made about the user content of the SROs.
Even if I am dissatisfied with the way in which members are appointed to the SIB and with the information available to them, I appreciate that the board's activities have to be paid for. I can see the force in the argument that if the board might be paid from state funds, it does have, in one sense, greater independence from those it is regulating. I am even more persuaded by the argument that if it is paid for by the City it avoids the clammy hand, or perhaps under this Government I should say dry hand, of the Treasury from falling on its activities. However, there must be a safeguard, and that safeguard should ensure that the city cannot limit funds to reduce the regulator's effectiveness. It was for that reason that I wanted the Secretary of State to have the reserve power to prescribe fees if he thought that insufficient resources had been made available for regulation. That power was denied.
I shall touch briefly on three other points of concern. I shall deal with them briefly not because they lack importance, far from it, but because time is limited and the measure we are considering is very substantial. I cannot be entirely happy with the scope of the immunity granted to SROs, in particular immunity from damage claimed by investors themselves. That seems to significantly diminish the safeguards to investors. I believe that going further than the clear consensus of the Committee, which crossed all parties, in favour of immunity for the regulators but not going so far as immunity for investors, will be a decision which will return to haunt the Minister in years to come when there will be some problems. This Government will be blamed, rightly or wrongly, for taking a decision which went against the consensus, spanning all parties, which they could have enjoyed in response to pressure from the larger vested interest groups. Whether that is correct or not is irrelevant. That will be the charge levelled.
I think that there are serious omissions from the Bill in respect of activities covered. I would have liked to have seen real property—by that I mean office blocks, shops, 639 factories and agricultural land—covered in schedule 1, because such assets are held extensively by pension funds and, therefore, appear indirectly in the savings of millions.
In its present form the Bill will not cope with the growing complexities of the financial services industry, or expecially with the big bang, which is round the corner. I shall make a prediction to the Minister. The Bill will have to be changed in order to strengthen it and that will cause a period of instability in the City precisely when the Government wish to cause a period of stability. That will happen in due course. Whether that will happen sooner or later I do not know, but happen it will. If change is to be left in the hands of some, it may well end, as the hon. Member for Dagenham (Mr. Gould) has predicted, as a state organisation. It may be that if we get into that position it will be so difficult to unravel and resolve that that might be the only way left open to us.
In that sense, I believe that the Bill, as it is currently presented, represents a missed opportunity. The crux of the Bill has always been, and has been properly identified by all as being the balance to be struck between maintaining the efficiency and flexibility necessary for the practitioners and the safeguards necessary for investors to ensure probity. The Bill, in its final form, comes down, as I suppose we might always have suspected with a Conservative Government, far too much on the side of the City and far too little on the side of the small investor.
§ Mr. GouldWe welcomed the introduction of this Bill, we recognised the need for it and we agreed with the principle and broad structure of it. In particular, we thought that it was right to strike a balance between statutory regulations and a statutory framework and a substantial element of self-regulation. That was our starting point. I think that it is fair to say that, as we proceeded with the Bill, especially in Committee, we made substantial improvements to it.
The Minister was generous in his recognition of the work of the Committee, sometimes against opposition from Conservative Members or, at least, his civil servants. The Committee managed to make major improvements to the working of the Bill. It is fair to pay tribute to Conservative Members, as well as to my hon. Friends and the hon. Member for Yeovil (Mr. Ashdown) for managing to construct the sort of all-party consensus which was our objective from the outset and which produced an unusually constructive approach to the matter.
It is a matter for regret that, having agreed in principle with the Bill at the outset and having played our part in making the Bill a better measure, we continue to regard the Bill as a missed opportunity. It is defective, not only in the myriad small ways which the hon. Member for Yeovil enumerated, but in major matters. It does not cover the ground that it should cover. The exclusion of Lloyd's is a blot on the Bill and the Government. The failure to put in place a proper independent statutory commission will be regretted by the Government and is already being regretted by the City. Because we believe that those failings are important, we shall return to them when we return to Government and we shall vote against Third Reading tonight.
§ Question put, That the Bill be now read the Third time:—
§ The House divided: Ayes 142, Noes 24.
641| Division No. 223] | [10.28 pm |
| AYES | |
| Amess, David | Hogg, Hon Douglas (Gr'th'm) |
| Ancram, Michael | Holt, Richard |
| Ashby, David | Howard, Michael |
| Atkinson, David (B'm'th E) | Hunt, David (Wirral W) |
| Baker, Rt Hon K. (Mole Vall'y) | Jenkin, Rt Hon Patrick |
| Baker, Nicholas (Dorset N) | Jessel, Toby |
| Baldry, Tony | Jones, Robert (Herts W) |
| Bellingham, Henry | Key, Robert |
| Benyon, William | Knight, Greg (Derby N) |
| Bevan, David Gilroy | Knowles, Michael |
| Biggs-Davison, Sir John | Lang, Ian |
| Blackburn, John | Lawler, Geoffrey |
| Blaker, Rt Hon Sir Peter | Lennox-Boyd, Hon Mark |
| Boscawen, Hon Robert | Lester, Jim |
| Bottomley, Peter | Lightbown, David |
| Bottomley, Mrs Virginia | Lilley, Peter |
| Bowden, Gerald (Dulwich) | Lloyd, Peter (Fareham) |
| Braine, Rt Hon Sir Bernard | McCrindle, Robert |
| Bright, Graham | MacKay, John (Argyll & Bute) |
| Brinton, Tim | Maclean, David John |
| Brooke, Hon Peter | McNair-Wilson, M. (N'bury) |
| Browne, John | Malone, Gerald |
| Bruinvels, Peter | Mather, Carol |
| Buck, Sir Antony | Maxwell-Hyslop, Robin |
| Burt, Alistair | Meyer, Sir Anthony |
| Butcher, John | Miller, Hal (B'grove) |
| Butler, Rt Hon Sir Adam | Mitchell, David (Hants NW) |
| Butterfill, John | Nelson, Anthony |
| Carlisle, John (Luton N) | Newton, Tony |
| Carttiss, Michael | Ottaway, Richard |
| Cash, William | Page, Sir John (Harrow W) |
| Chapman, Sydney | Parkinson, Rt Hon Cecil |
| Chope, Christopher | Percival, Rt Hon Sir Ian |
| Churchill, W. S. | Powell, William (Corby) |
| Clark, Dr Michael (Rochford) | Proctor, K. Harvey |
| Conway, Derek | Rhodes James, Robert |
| Coombs, Simon | Roe, Mrs Marion |
| Cope, John | Rowe, Andrew |
| Corrie, John | Sainsbury, Hon Timothy |
| Couchman, James | Sayeed, Jonathan |
| Crouch, David | Shelton, William (Streatham) |
| Currie, Mrs Edwina | Shepherd, Colin (Hereford) |
| Dicks, Terry | Sims, Roger |
| Douglas-Hamilton, Lord J. | Smith, Tim (Beaconsfield) |
| Dover, Den | Spencer, Derek |
| Dunn, Robert | Stern, Michael |
| Durant, Tony | Stevens, Lewis (Nuneaton) |
| Evennett, David | Stewart, Allan (Eastwood) |
| Fallon, Michael | Stewart, Andrew (Sherwood) |
| Fletcher, Alexander | Taylor, Teddy (S'end E) |
| Forman, Nigel | Tebbit, Rt Hon Norman |
| Forsyth, Michael (Stirling) | Temple-Morris, Peter |
| Forth, Eric | Thomas, Rt Hon Peter |
| Fox, Marcus | Thompson, Donald (Calder V) |
| Fraser, Peter (Angus East) | Thompson, Patrick (N'ich N) |
| Freeman, Roger | Thorne, Neil (Ilford S) |
| Galley, Roy | Thurnham, Peter |
| Garel-Jones, Tristan | Twinn, Dr Ian |
| Glyn, Dr Alan | van Straubenzee, Sir W. |
| Goodhart, Sir Philip | Viggers, Peter |
| Gorst, John | Waidle, C. (Bexhill) |
| Greenway, Harry | Watts, John |
| Griffiths, Sir Eldon | Wells, Bowen (Hertford) |
| Griffiths, Peter (Portsm'th N) | Wiggin, Jerry |
| Gummer, Rt Hon John S | Wilkinson, John |
| Hargreaves, Kenneth | Winterton, Mrs Ann |
| Harris, David | Wolfson, Mark |
| Harvey, Robert | Wood, Timothy |
| Hawkins, Sir Paul (N'folk SW) | Yeo, Tim |
| Hayward, Robert | |
| Hickmet, Richard | Tellers for the Ayes: |
| Hind, Kenneth | Mr. Archie Hamilton and |
| Hirst, Michael | Mr. Francis Maude. |
| NOES | |
| Ashdown, Paddy | Bennett, A. (Dent'n & Red'sh) |
| Banks, Tony (Newham NW) | Campbell-Savours, Dale |
| Cocks, Rt Hon M. (Bristol S) | Nellist, David |
| Cook, Robin F. (Livingston) | Orme, Rt Hon Stanley |
| Davis, Terry (B'ham, H'ge H'l) | Pike, Peter |
| Dewar, Donald | Raynsford, Nick |
| Field, Frank (Birkenhead) | Sheerman, Barry |
| Gould, Bryan | Shields, Mrs Elizabeth |
| Hogg, N. (C'nauld & Kilsyth) | Smith, Rt Hon J. (M'ds E) |
| Hoyle, Douglas | Wallace, James |
| Hughes, Simon (Southwark) | |
| McDonald, Dr Oonagh | Tellers for the Noes: |
| McWilliam, John | Mr. Frank Haynes and |
| Millan, Rt Hon Bruce | Mr. Allen McKay. |
§ Question accordingly agreed to.
§ Bill accordingly read the Third time, and passed.