APPLICATION OF DESIGNATED RULES AND REGULATIONS TO MEMBERS OF SELF-REGULATING ORGANISATIONS (Hansard, 26 October 1989)

§ Mr. Redwood
I beg to move amendment No. 215A, in page 183, line 14, at end insert— `(3A) It may be provided that, to such extent as may be specified, the designated rules or regulations may not be modified or waived (under section 63B below or section 50) in relation to a member of a recognised self-regulating organisation. Where such provision is made any modification or waiver previously granted shall cease to have effect, subject to any transitional provision or saving contained in the rules or regulations.'.

Mr. Deputy Speaker
With this it will be convenient to take amendment No. 255, in schedule 21, page 301, line 7, at end insert— '(3A) It may be provided that, to such extent as may be specified, the designated rules or regulations may not be modified or waived (under paragraph 22B below or section 50) in relation to a member society. Where such provision is made any modification or waiver previously granted shall cease to have effect, subject to any transitional provision or saving contained in the rules or regulations.'.

§ Mr Redwood
The amendments are concerned with the extent to which rules which have been designated by the SIB under new section 63A may be waived or modified by an SRO. The Government think that there should be a mechanism by which the majority of these rules may be waived or modified for individual members of the SROs. These rules would be very different from the statements of principle made under new section 47A.
Without the flexibility represented by the power to waive or modify, it would be difficult to make effective use of the power to draft rules which might be designated. It may be appropriate at this stage to stress the important role that the SROs play and will continue to play in the structure established by the Financial Services Act. It is only these organisations that have the experience necessary to make the detailed rules appropriate to their members and to monitor and enforce compliance with those rules.
It is also clear, however, that the unconstrained use of waivers might have the potential to undermine the intention behind this new power, which is to provide a common core of rules which apply essentialy to all SRO members.
I believe that the SROs can be relied upon to use their power to waive or modify designated rules in a responsible way, but I am also conscious that there are likely to be some designated rules to which any modification or waiver might be inappropriate in principle. The amendments recognise that distinction by providing the SIB with the power to specify that certain rules designated under new section 63A may not be waived or modified by an SRO in any circumstances or only in circumstances set out in the rules or regulations.
I stress that I and, I understand, the SIB see this very much as a reserve power. I would expect that, provided SROs exercised their power to waive designated rules with 1248 moderation, there would be no need for the SIB to exercise the power that the amendment gives it. On that basis, I commend the amendment to the House.

§ Mr. John Garrett
In Committee, we in general opposed the power to waive rules given to SROs, and the amendments seem to reverse the Government's position. They provide that to such an extent as may be specified, presumably by the SIB, the designated rules or regulations may not be modified or waived in relation to a member of a recognised self-regulating profession. Interestingly, we understood from the SIB that the power of waive provisions came as a surprise to it. It was not particularly keen on them. We would like the Minister to say whether what I have described is true and that this is a significant change of position by the Government, in which case it is welcome.

§ Mr. Tim Smith
I received a note from the Securities Association about the amendment. It was worried that the amendment would introduce an unfortunate degree of inflexibility into the system. Will my hon. Friend the Minister confirm that this is a reserve power which will be used only in cases of abuse by SROs? That reassurance will probably meet the association's concerns.

§ Mr. Cousins
What proposals do the Government have for monitoring these proposals? There is now the possibility of some choice of regulatory system. The creditability of the mixed economy regulation that the Minister is proposing depends on there not being regulatory arbitrage. The proposals may go some way to undermine the clarity of the system. That may be acceptable, but does the Minister propose to put in place a monitoring of the system by the SIB, some other agency or even the Department, to ensure that abuses do not grow up from the ability to choose the regulatory mechanism under which one operates?

§ Mr. Redwood
I have explained the purposes behind the amendments. They reflect the debate in Committee and the response to the consultations that my officials have undertaken during the past few months. I hope that the hon. Member for Norwich, South (Mr. Garrett) welcomes it on the basis that I have described.
I must tell my hon. Friend the Member for Beaconsfield (Mr. Smith) that I spelled it out carefully, and it is on the basis which I described that it goes forward for those special circumstances which I outlined.
The hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) asked about the monitoring changes and whether there could be choice between regulators in a way which could reduce the protection to investors and other users of these financial markets. I do not think that that is possible, because all these SROs and practitioner bodies have to meet the adequacy test. That is the underlying guarantee concerning the protection offered.