TRANSACTIONS ARRANGED BY LISTED INSTITUTIONS (Hansard, 30 October 1986)

§ Mr. Howard
These amendments reflect the decision announced by my hon. Friend the Economic Secretary, in May, that the Bank of England should regulate the wholesale money, bullion and foreign currency markets. The behaviour of these markets is closely connected with the money supply and the Bank of England, as part of its economic responsibilities, has by tradition been closely involved with them and has generally supervised them. Under the Bill as originally drafted, some of the activities in these markets were covered by the Bill, and others were not. This was not an altogether satisfactory position and on reflection it was decided that the bank should be made responsible for these markets. The Government will be publishing a consultative document about their future regulation later this year.
As a consequence of this decision and in order to reduce supervisory overlap, the Economic Secretary announced that the Bill would be amended so as to remove from regulation under it certain transactions in the wholesale markets undertaken or arranged by institutions subject to supervision by the bank under the new arrangements. These amendments implement that undertaking. They have been the subject of widespread consultation with interested parties. The general approach has been widely welcomed and we have been able to meet the detailed difficulties which have been drawn to our attention. I commend the amendments to the House.

§ Mr. Gould
The Minister will accept that this is an important innovation and that the House should pause to register what is happening.
The amendments deal with the problem that has bedevilled the Bill in different areas. I refer to drawing a distinction between those areas of investment business which affect the small, unprofessional investor and those which are in the hands of professionals. The wholesale money markets fall within that latter category.
I can accept the broad argument for treating the two categories in slightly different ways, or in a substantially different way, by removing one category from the supervisory framework in the Bill. I am less convinced by the argument about a supervisory overlap. That has never been regarded as a reason for exempting other forms of investment activity from the Bill's provisions. Almost every form of business covered by the Bill is supervised in one form or another by a supervisory authority. It is, therefore, hard to see why the argument should carry any weight. I am not persuaded by that argument.
528 Even if one accepted the argument, there is one peculiarity about the way in which the new provision is drafted. The list of exempted money market institutions is entirely within the discretion of the Bank of England, subject to the Treasury's approval. That is a peculiar feature in a Bill sponsored by the Department of Trade and Industry. A major hole, or vacuum, has suddenly appeared in the Bill, the dimensions of which are in the hands of the Bank of England and the Treasury.
On many occasions the Minister has argued effectively that his objective is to remove such regulations from the dead hand of the Treasury. That was the argument before making the Securities and Investments Board a private body. The suggestion that it should he a public body brought forth the argument that—horror of horrors—its budget and resources would be under the control of the Treasury. I am not particularly persuaded by that argument, but it seems to be the only argument that the Government can advance on that point. If the Treasury's role is so inimical to what the Department of Trade and Industry wants to achieve, how can the Minister, apparently without demur, stand at that Dispatch Box and say that, with Treasury approval, the Bank of England can remove wholesale a vast chunk of investment activity from the Bill's purview? Do we not have yet another example — and there may be others—of the Treasury having muscled in and outgunned the Department of Trade and Industry? Is the Minister happy with that?

§ Mr. Tim Smith
The transactions that will be subject to these arrangements appear to be listed in the new schedule to come after schedule 3. I am not sure whether that schedule can be altered by the Bank of England without further authority. Was the hon. Member for Dagenham (Mr. Gould) saying that the schedule could be changed on the say-so of the Bank of England? If so, I share his concern.
Moreover, the distinction between debt and equity is not as clear as it was. It is now possible to issue an instrument that begins as straightforward debt but which, because it has conversion rights, can end up being straightforward equity. I am not sure how these arrangements deal with that. An instrument that started off as a money market instrument would end up as a security which should be regulated by the Bill.

§ Mr. Bermingham
I support what the hon. Member for Beaconsfield (Mr. Smith) has said. There are so many converted and new types of stock coming on to the market which change their shape and format over a period of time that one wonders what is being covered by what.
Who in the Treasury will authorise the Bankof England altering the list rather than schedule 3 itself? It seems to be rather like one's left hand shaking one's right hand to congratulate it on what one has done. If there is no regulation, one begins to wonder what is going on. Is there an ongoing battle with the dead hand of the Treasury crawling once more from its grave to throttle our institutions?
I thought that we had been promised that all that would go with this new, wonderful set of securities regulations. But perhaps I am once again being a little cynical in thinking that the words that first accompanied this Bill at the Dispatch Box will not be those that will be uttered at the end of its passage.
529 I am making a serious point. Who at the Treasury will control? How will there be any accountability when the Treasury authorises the bank? Who controls the bank? The answer is the Treasury.

§ Mr. Howard
The hon. Member for Dagenham (Mr. Gould) uncharacteristically misconstrued the arguments that I have been advancing on another issue. I am certain that I never used the phrase "the dead hand of the Treasury", although I drew the attention of the House, in another context, to the importance of ensuring that the regulatory structure set up by the Bill is free from the public sector financial constraints that would have been a feature of the statutory system that is so beloved by the hon. Gentleman and his hon. Friends.
I do not accept that there is a hole in the regulation or a vacuum. Indeed, the hon. Gentleman recognised the good sense of taking these wholesale instruments out of the regulatory regime of the legislation. These amendments seek to move the dividing line between the areas regulated by the Bank of England and those regulated by the Bill. The principle behind the move is widely supported. The dividing line is somewhat pragmatic, and no doubt people will have their views about the details, and things will change. That is why amendment No. 57 adds a new provision to those listed in clause 43 in order to ensure that amendments can be made by order if they prove necessary.
But those amendments to the list of instruments now found in the new schedule are to be made by the Secretary of State and not by the Bank of England or the Treasury. The Treasury's role is in approving criteria for admission to, and removal from, the bank's list of institutions—not of instruments. It is important that the Treasury should have that role, because it ensures proper accountability to the Government and Parliament in that regard. Therefore, we are talking about a sensible distinction in recognising the reality of the distinctions to be made between the wholesale money markets and those areas that more properly come within the ambit of the Bill. The changes reflect that distinction.