HC Deb 30 October 1986 vol 103 cc520-4

Lords amendment: No. 40, after clause 38, insert the following new clause— (1) Any application under section 36(1) or 38(1) above by a body or association whose head office is situated in a country outside the United Kingdom shall contain the address of a place in the United Kingdom for the service on that body or association of notices or other documents required or authorised to be served on it under this Act. (2) In relation to any such body or association sections 36(4) and 38(4) above shall have effect with the substitution for the requirements there mentioned of the following requirements, that is to say—

  1. (a) that the body or associations is, in the country in which its head office is situated, subject to supervision which, together with the rules and practices of that body or association, is such that investors in the United Kingdom are afforded protection in relation to the body or association at least equivalent to that provided by the provisions of this Act in relation to investment exchanges and clearing houses in respect of which recognition orders are made otherwise than by virtue of this subjection; and
  2. (b) that the body or association is able and willing to co-operate, by the sharing of information and otherwise, with the authorities, bodies and persons 521 responsible in the United Kingdom for the supervision and regulation of investment business or other financial services; and
  3. (c) that adequate arrangements exist for such co-operation between those responsible for the supervision of the body or association in the country mentioned in paragraph (a) above and the authorities, bodies and persons mentioned in paragraph (b) above.
(3) In determining whether to make a recognition order by virtue of subsection (2) above the Secretary of State may have regard to the extent to which persons in the United Kingdom and persons in the country mentioned in that subsection have access to the financial markets in each other's countries. (4) In relation to a body or association declared to be a recognised investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above—
  1. (a) the reference in section 35(2) above to the matters dealt with in Schedule 3 to this Act shall be construed as a reference to corresponding matters;
  2. (b) sections 36(7) and (8) and 38(7) and (8) above shall have effect as if the requirements mentioned in section 36(7)(a) and in section 38(7)(a) were those of subsection (2)(a) and (b) above; and
  3. (c) the grounds on which the order may be revoked under section 36(7) or 38(7) above shall include the ground that it appears to the Secretary of State that revocation is desirable in the interests of investors and potential investors in the United Kingdom.
 (5) In this section "country" includes any territory or any part of a country or territory. (6) A body or association declared to be a recognised investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above is in this Act referred to as an "overseas investment exchange" or an "overseas clearing house".".

7.15 pm
Mr. Howard

I beg to move, That this House doth agree with the Lords in the said amendment.

Mr. Deputy Speaker

With this we may discuss the following Lords amendments: No. 183, in clause 96, page 76, line 7, leave out "subsection (5)" and insert subsections (5) and (5A)". No. 188, page 76, line 16, at end insert— (5A) This section does not apply to the making or revocation of a recognition order in respect of an overseas investment exchange or overseas clearing house or the making of an application to the court under section 12 above in respect of any such exchange or clearing house. No. 190, page 81, line 9, at end insert— () Subsection (3)(c) above does not apply to an overseas investment exchange or overseas clearing house. No. 311, page 112, line 21, after "exchange" insert other than an overseas investment exchange". No. 369, page 133, line 25, after "exchange" insert other than an overseas investment exchange". No. 374, page 134, line 6, after "exchange" insert other than an overseas investment exchange". No. 387, page 142, line 8, at end insert— "overseas investment exchange" and "overseas clearing house" mean a recognised investment exchange or recognised clearing house in the case of which the recognition order was made by virtue of section (Overseas investment exchanges and clearing houses) above;".

Mr. Howard

These amendments will facilitate the proposed trading links between exchanges in clearing houses in the United Kingdom and those overseas. This is especially desirable in view of the increasingly international nature of the financial services industry. A number of links are being planned between exchanges and clearing houses here and overseas which will enable investors in the United Kingdom to benefit from the increasingly diverse variety of investment services available throughout the world and will help to promote to foreign investors the services provided by investment businesses in the United Kingdom.

The amendments reflect the fact that some overseas investment exchanges and clearing houses may not, because of a special feature in the regulatory regime in their home state, be able to meet all the requirements for recognition in the Bill. Nevertheless, if one takes account of the exchange or clearing house rule as to the supervision to which it is subject and its ability and willingness to cooperate with the relevant authorities here, the interests of investors using its facilities are as well protected as the interests of an investor using the facilities in a domestic exchange or clearing house recognised under the Bill.

The amendments therefore provide that if the Secretary of State is satisfied that the conditions are met, and if there are adequate arrangements for mutual co-operation in the sharing of information between the regulatory authorities in the country concerned and the authorities here, he may recognise an overseas exchange or clearing house even though it does not meet the strict letter of the requirements imposed on domestic exchanges or clearing houses. This is not a soft option. It is a sensible and pragmatic approach to recognising and building on the regulatory regimes in other countries. This should be a mutual process. The clause provides that in deciding whether to recognise an overseas exchange or clearing house the Secretary of State may have regard to the extent to which persons in the United Kingdom have access to the financial markets in the country concerned.

The amendments respond to the need for the Bill to reflect the increasingly international nature of financial services. They make the appropriate provisions for overseas investment exchanges and overseas clearing houses and I commend them to the House.

Mr. Bermingham

I hope that the Minister can put my mind at rest about these amendments. The original idea was that we should recognise only those exchanges which had rules and controls comparable with the proposed rules and controls in our markets. There appears to have been a little wavering at the edges in the interests of promoting international trade, to use the Minister's words. It would appear that if some rules and controls are a little below our standards we may still recognise those exchanges and clearing houses, especially if people of our country are dealing in or involved with those exchanges. That is a recipe for trouble. We have only to look back over the past few years to see the flow of funds around the world dodging in and out of various tax havens such as the Cayman Islands and falling ultimately into the hands of British citizens who then rather rapidly depart for foreign parts. We never seem to extradite them from abroad.

I am very worried about how investors and investments can be moved around the world and about the idea of recognising international exchanges if they do not have the same controls and regulations as ours. At the end of the day, we must be looking after one person. As the Bill has trundled its weary way through the various Committees and passages in another place, and as it has grown in size, the importance of that one person has diminished. That person is the investor. There are so many complications and we now appear to be easing off the little international agreements which we were to have so that the controls and regulations of those we recognise should at least be as good as the controls and regulations which we ourselves may establish. I hope that the Minister will comment on that point.

Mr. Gould

The Minister rightly referred to the reciprocal aspect of the amendments and drew attention to something which I warmly endorse—the importance of obtaining international agreements on common standards. I have supported from afar his efforts with the American authorities. This is an opportunity for him to explain to the House what progress has been made in that direction since we last discussed the matter.

Mr. Howard

Since these matters were last debated a memorandum of understanding has been agreed between the United States and Britain which provides in detail for the circumstances in which information is to be exchanged between regulators in the two countries. It is a far-reaching agreement of considerable significance. I hope that it will provide the basis for a treaty between both countries in the near future.

We are hoping to build upon that precedent and we are discussing with the Japanese on the basis that it might be possible to come to an agreement with them. We hope that in due course it will be possible to come to agreements with yet other countries.

We are aware of the importance of co-operation between international regulators. I believe that the key to that operation is the mutual exchange of information, because that information is the key to discovering who is responsible for misbehaviour. We have made a good deal of progress and we shall continue to pursue the matter.

The hon. Member for St. Helens, South (Mr. Bermingham) will forgive me if I say that I have already dealt with his questions. I said that it was essential that such investors' interests should be as well protected as the interests of an investor using the facilities of a domestic exchange or clearing house recognised under the Bill. This provision does not detract from that important requirement for the provision of proper protection for investors. However, circumstances, perhaps arising out of the law of the country concerned, for other reasons might prevent the clearing house or investment exchange overseas from complying with all the provisions which would apply to clearing houses and investment exchanges in Britain.

It is not necessary to insist on compliance with each of those requirements, as long as the essential safeguard of adequate investor protection, commensurate with that provided by the arrangements in Britain, is available. Only if that protection is available do these provisions come into operation.

Mr. Bermingham

I agree with the Minister, but perhaps he has misunderstood my point. Some countries might not meet every criterion of our regulations, but the Minister said that when the regulations were as good as ours they would still he considered. Who will judge how well an investor is protected under regulations which are not equivalent to ours and which are operated in a country whose laws are different from ours?

Mr. Howard

The Secretary of State. It is not a transferable power.

Mr. Cash

Perhaps we should keep a close watch on the extent to which, when other countries are acquiring interests in investment exchanges, the equivalent rules or the way in which misbehaviour can occur is related to the activities of countries which do not have the same attitudes as we have. I know that such exchanges will be covered by the Bill, but I hope that those who come into the country will be carefully monitored and a check will be made of which companies are owned by which countries.

Mr. Howard

That is a different point and is not related to the provisions which deal with the recognition of overseas investors. There is no intention of accepting any less investor protection in terms of the recognition of such bodies than applies to domestic bodies.

Question put and agreed to.

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