§
.—(1) Within three years of any rules (other than rules which impose fees) being made under this Part the Authority must carry out a review of such rules to determine whether they continue to be appropriate for the purpose for which they were made.
(2) If, following such a review, the Authority concludes that the rules in question should be changed in a way which is, in the opinion of the Authority, significant the Authority must make new rules and the provisions of section 127 shall apply to them.
(3) If, following a review, the Authority concludes that the rules in question should be approved in the form then in force, or in a form which does not differ from such rules in a way which is, in the opinion of the Authority, significant, it must publish a statement of its conclusions in the way appearing to be best calculated to bring it to the attention of the public.
(4) The statement of the Authority's conclusions must be accompanied by—
(5) Before approving any rules to which subsection (3) applies, the Authority must have regard to any representations made to it in accordance with subsection (4)(e).
(6) If the rules are approved by the Authority, it must make a statement as to the representations (if any) made to it and its response in general terms.
(7) If the rules approved by the Authority differ from the rules under review (taking account of the changes referred to in subsection (4)(c)) in a way which is, in the opinion of the Authority, significant—
(8) 'Cost benefit analysis' means an estimate of the costs together with an estimate of the benefits that will arise if the rules under review are approved.
(9) Rules approved under this section shall be deemed to be made on the date on which the rules are approved.".—[Mr. Heathcoat-Amory.]
Brought up, and read the First time.
§ Mr. David Heathcoat-Amory (Wells)I beg to move, That the clause be read a Second time.
§ Mr. Deputy Speaker (Mr. Michael Lord)With this it will be convenient to discuss the following: new clause 5—Relationship between guidance and rules issued by Authority— 925
(1) If a person behaves in a way which complies with general guidance he shall not be regarded, for the purposes of this Act, as contravening any rule.(2) The Authority may give guidance (which is not general guidance) to the effect that compliance with the guidance by the person or persons to whom the guidance is expressed to be given shall not be regarded, for the purposes of this Act, as contravening any rule.(3) 'General guidance' has the same meaning as in section 130.".Amendment No. 35, in clause 110, page 50, line 20, at end insert—(c) make provision prohibiting or restricting or otherwise regulating the carrying on by an authorised person of any regulated activity at or from an establishment maintained by him outside the United Kingdom unless:
- (i) he is carrying it on with or for a person in the United Kingdom, or
- (ii) both of the conditions set out in subsection (7) apply.
(7) The conditions are that—Amendment No. 50, in clause 110, page 50, line 20, at end insert—
- (a) his registered office (or if he does not have a registered office, his head office) is in the United Kingdom; and
- (b) in the view of the Authority, the provision is desirable in order to—
- (i) protect the reputation of the financial system (as defined in section 3(2)) or of authorised persons or a class of authorised persons, or
- (ii) prevent authorised persons carrying on the activity in a way which is likely to jeopardise the integrity or the solvency of the firm.".
(6A) The Authority shall not make rules imposing requirements or restrictions on the conduct of business with, or on the marketing of investments or investment services to, persons outside the United Kingdom unless the scope of those rules has been prescribed in an order made by the Treasury.".Amendment No. 51, in clause 111, page 50, line 42, at end insert—(6) The Authority may not make rules relating to any non-regulated activity unless the scope of those rules has been prescribed in an order made by the Treasury.".Amendment No. 8, in clause 112, page 50, line 43, after "person", insert—who is authorised under this Act to accept deposits".Amendment No. 230, in clause 129, page 59, line 5, after "rules", insert—, statements of principle or codes".
§ Mr. Heathcoat-AmoryWe are still considering the important principles underlying the Bill. Later, we shall discuss amendments that are more technical. However, this group of new clauses and amendments relate to the scope of the Bill and to the rule-making powers of the Financial Services Authority.
The FSA derives its power largely from that ability to make rules. As we are aware from previous debates, those rules will not be approved by Parliament, so we are, in effect, devolving the law-making task to an outside body. That is why it is important that the Bill should limit such power. It is also right that the House should ensure that the rules made by the FSA are, as far as possible, appropriate for the objectives that we set it. The rules must not exceed those objectives and must constantly be tested against them.
926 New clause 4 would ensure that the authority reviews the rules within three years. Such a review would establish whether the rules were still appropriate. Many of the rules are new and comparatively untested. Indeed, many are still evolving—the authority is consulting on its rule-making task.
Furthermore, the market is always changing, so it is right constantly to test whether rules are still appropriate, or have been rendered obsolete or unworkable by the passage of time. The new clause would require the authority to undertake a cost-benefit analysis for each rule. The authority is already required to do so for new rules, but not for the existing rules that have been grandfathered into the Bill and are continued. We need to subject new and existing rules to a cost benefit analysis, and to do so within three years.
This matter is of great importance to the City and to the financial services industry generally, especially, perhaps, small firms and independent financial advisers, who are often on the receiving end of regulations that they may not always feel to be appropriate or necessary, and which are always expensive to apply. If we are worried about the intrinsic expansionary tendency in the regulatory system, we need to set up countervailing forces wherever we can, to try to restrict the regulatory authority to what is efficient and effective.
§ Mr. John Bercow (Buckingham)Is not my right hon. Friend effectively advocating, via the authority, the operation of a form of sunset regulation, which, as we know from the empirical evidence, works very well at both state and federal level in the United States?
§ Mr. Heathcoat-AmoryI am extremely attracted to the concept of sunset clauses. My hon. Friend mentioned America, where they are common. The rules that we are considering here are passed not by Parliament, but by the Financial Services Authority, so he may have it in mind to impose that concept on the authority. That concept is not in the Bill at the moment, but it may deserve further consideration by the authority.
For my part, for the purpose of new clause 4, I am focusing perhaps more narrowly on trying to build into the Bill a countervailing pressure to ensure that the phenomenon known as regulatory creep meets its match in a requirement on the authority continually to examine its rules, with a view possibly to repealing them, along the lines suggested by my hon. Friend, or at least amending them, or, if it does not decide to do either of those things, to explain why not. That would achieve many of the desirable objectives of a sunset clause without introducing that concept.
It is not just the health of the domestic industry that we are concerned about in this regard. We are also anxious to ensure the international competitiveness of the financial services industry in the United Kingdom. Higher regulatory burdens and excessive costs could drive a very successful United Kingdom industry overseas.
For all those reasons, we want to subject the rules continually to the cost-benefit analysis procedure. That is not to say that we do not need rules; we certainly do, and they must be clear and must be enforced. We all want a regulatory system that is effective and efficient. A balance must be maintained. That is what a cost-benefit analysis does—it seeks to ensure that the benefit of a rule outweighs the cost.
927 The Government have accepted that such an analysis should be carried out for new rules, so I believe that they will be attracted to new clause 4, which would extend that requirement to the existing body of rules, and give the FSA some time to carry out a review, because that requirement must be met within three years.
The new clause requires the authority to publish the information as part of a statement of conclusions, having carried out the work. That would be accompanied by a cost-benefit analysis, an explanation of the purpose of the rules under scrutiny and a schedule of any proposed changes. The authority would also have to supply a statement of its reasons for believing that the rules continue to be compatible with its general duties and—very importantly—it would have to provide a statement that representations about the rules in question could be made to the authority by market traders and firms in the industry generally. That would be a reasonable requirement to impose on the authority. As I said, it would be in line with what is already required for new rules.
New clause 5 would make it clear that the general guidance given to the Financial Services Authority could be relied on. That is a separate and most important concept. It is designed to ensure that someone who believes that he has complied with published guidance and rules should be guilty of no offence. That seems perfectly obvious, but there is great nervousness in the industry about someone being caught unawares for breaking an FSA rule or unintentionally breaching a more general principle in the Bill. That is a particular risk that we run with the concept of market abuse, which does not build in sufficiently the concept of intent.
Someone could be guilty of market abusive behaviour without intending to do so. That possibility has created severe misgivings not just within the regulated community, but more generally. The market abuse provisions apply to the public as well, so any member of the public could be guilty of market abuse even if he does not fall to be directly regulated under the Bill. When people and firms seek to protect themselves by seeking guidance from the authority or by complying with published guidance from the authority, they should be entitled to rely on that. In so far as they comply with the guidance, they should be certain that they are guilty of no offence.
The general guidance concerned is defined in clause 130, so there is no difficulty with definitions. I believe that the Government are sympathetic to new clause 5 because it would provide a form of natural justice. It would make it clear that the guidance issued by the authority provided a safe harbour for market operators and the public.
The amendments relate more to the scope of the Bill. Amendment No. 35 would restrict the authority's ability to make rules to regulate non-United Kingdom businesses—businesses that are carried out from an establishment outside the United Kingdom. The restriction would not apply if the business concerned carried out business on behalf of someone in the United Kingdom or if it had a registered office in the United Kingdom and it was necessary to regulate it to protect the financial system. There are limits and restrictions on our proposal.
Without the safeguard in the amendment, the authority can impose rules on outside and overseas businesses just because they derive from the United Kingdom, 928 even though they are likely to be regulated abroad. That is a form of double regulation that will put our firms at a competitive disadvantage. It is objectionable in principle to subject firms or individuals to a form of dual regulation.
Amendment No. 50 similarly addresses extraterritorial regulation by the authority over the marketing of investments to people outside the UK. It would require those rules to be prescribed in a Treasury order. Again, we would not put a complete block on such extraterritorial regulation; we would simply require it to be more explicit and to form part of a Treasury order that I should like to see approved under the positive resolution procedure.
4.45 pm
At the moment, there seems to be a dichotomy in the Treasury's approach. Powers are being given to the FSA to regulate products offered abroad; that is to say, products put on sale by UK businesses. That is a country-of-origin approach, which if generally accepted would be beneficial to this country.
If there were a reciprocal arrangement, a product or service approved under this country's regulatory powers could be offered to other countries on the continent or to America without further regulation. Customers, consumers and authorities in those other countries would rely on the fact that the FSA was—at least, it should be—a world-class regulator, and they would have certainty about our products and services because they had been regulated in this country.
That would be a good, desirable system, but the Government rather spoil their case by giving the authority powers to regulate here products and services offered from other countries. That is country-of-destination regulation. If other regulatory authorities take the same view, we will end up with dual regulation. Authorities in countries such as France are probably rather doubtful about the benefit to them of accepting financial products and services offered by the City of London without a further regulatory barrier. Their attitude will be reinforced by the knowledge that we insist, in the Bill, on regulating products offered to this country from abroad.
The Government need to sort out exactly where they stand on that issue; otherwise, we shall put our industry at a competitive disadvantage by putting it in jeopardy of double regulation.
Amendment No. 51 would limit the scope of the authority in relation to non-regulated activities. That, too, is an important issue of principle. The Bill is, or should be, about regulating commercial activities that fall within a definition. The Bill is widely drawn, so that definition is necessarily extremely wide; it encompasses banking, dealing in all kinds of investment and giving investment advice about a range of products and services. However, it should stop there.
I am concerned that, in addition to those activities, the authority can extend its remit to unregulated activities, which could include every conceivable form of commercial activity. For example, clause 38 states that in giving permission to an authorised person to carry on his activity, the authority can impose requirements about activities that are not regulated. The FSA could therefore authorise a company to deal in investments or services that constitute regulated activities, but in addition it could regulate any of the company's other activities without any restriction.
929 While clause 38 is about giving permission to people or firms to engage in such activities, clause 111 concerns the FSA's rule-making duties. It allows the FSA to make rules not only on regulated activities, but on just about anything else. That could constitute a dangerous extension of the Bill's scope to pretty well anything.
The explanatory notes, which the Government issued some time ago, described the way in which the Bill had been designed to set limits on the FSA and its duties, obligations and powers. Yet in the important matter of scope—what can be regulated and what sort of rules can be made—there are no limits; the FSA can stray into non-regulated activities of any sort. Amendment No. 51 requires that that be done only if it is prescribed by a Treasury order. It is a reasonable amendment that does not ban the activity altogether, but merely requires the Treasury to introduce an order for the House to pass by affirmative resolution, so ensuring that there is a genuine opportunity for debate.
Clause 112 allows the authority to impose on firms what can only be described as ad hoc financial requirements, in addition to its rules. The FSA can do that without issuing a warning notice. Amendment No. 8 would restrict that power to deposit takers. That, too, is a reasonable amendment, because the powers to impose such financial requirements already exist: they have been held by the Bank of England, which has similar powers over deposit takers. Our amendment would bring the Bill into line with the pre-existing situation, which has worked perfectly well.
The amendments are important because they deal with the rule-making powers of the authority and so go to the heart of the FSA's functions. Perhaps equally important is their effect on the scope of the Bill. If the amendments are made, we shall at least know the limits of the powers that we are granting to the authority.
§ Mr. Howard Flight (Arundel and South Downs)As my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has said, this debate is about many important issues of principle. We raised those issues in Committee; Ministers said that they would address some of them, but it seems to us that they have not done so.
I have discussed the provisions of new clause 4 with the FSA, which has expressed the view that it would like to carry out a cost-benefit analysis of all its rules. However, because it is not practical to do that when the legislation is enacted, the FSA believes that it should be done over time, as laid down by the new clause.
I echo the point made by my hon. Friend the Member for Buckingham (Mr. Bercow)—that our proposals contain an element of the sunset principle, in that the FSA would be required to phase out rules that had gone out of date or become uneconomic in cost-benefit terms. Hon. Members will have seen the FSA paper on risk management and its task of balancing the cost-effectiveness of rules, the importance of the territory they cover and their impact.
The industry is concerned about the costs of regulation, but there is no easy formula whereby those costs can be controlled. The Opposition suggested an amendment to limit fee increases to increases in the retail prices index, 930 but I do not think that that is a practical approach. Instead, we propose an internal control mechanism, governed not by total costs, but by economic efficiency.
New clause 5 deals with issues of safe harbour and guidance. The FSA has told everyone that the Bill provides a safe harbour through its approach to guidance, and that it will use guidance to put into practice the same arrangements as are found in the United States, in terms of no action letters. However, that is not what the Bill provides for. There is a gap between what the financial community, especially international groups operating in the UK, are being told and what the Bill prescribes.
My right hon. Friend has focused on territoriality and on the FSA creeping into non-regulated territories. As for territoriality, I cannot understand why the Treasury has been peddling the line that it has adopted. It seems unacceptable that United Kingdom businesses that are operating overseas should be subject to double and different regulation when they are marketing their products in other countries. That is not current practice, and an argument may be advanced by other regulatory bodies in a European Union context that it is inappropriate. The logic that the amendment picks up is ultimately that of reputation. The impact of the Bill goes considerably too far.
Amendment No. 230 reflects an amendment that we tabled in Committee. We wish to make it clear that guidance given by the FSA should relate not only to rules but to statements of principle and codes. The Government will recollect that they said that they would reconsider the matter. There are several areas where codes and statements of principle are likely to require guidance, yet they are not covered in the Bill.
§ Mr. Tim Loughton (East Worthing and Shoreham)I support the comments made by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) and my hon. Friend the Member for Arundel and South Downs (Mr. Flight). New clause 4 is probably the most important component of the group of new clauses and amendments that we are discussing. It is about efficiency and cost control but, more than that, it is about self-discipline for the Financial Services Authority itself.
There were problems with the Financial Services Act 1986—we have heard about them many times—because there was no obvious mechanism for an on-going review of the new rules that came out as a result of the Act. The measure came in for much criticism for being bogged down with many more rules. It was a matter not of taking old rules off the original book but of adding layer upon layer of rules, until we had a muddled and complicated rule book at the end of August.
We must remember that none of us has seen the new rule book. All our deliberations over the best part of the past 12 months have been to produce a rule book, the details of which we have not seen. We have plenty of principles and ideas of what might go into the book, but in terms of chapter and verse we are still very much in the dark about what the rule book—the bible of the FSA—will contain.
It is essential that the continuing appropriateness of the rules is held under review, and the mechanism proposed in new clause 3 seems to be a sensible way of proceeding. Any new rules that come along should be subject to cost-benefit analysis. After three years, there should be an 931 explanation of the continuing appropriateness of the rules. Markets, and the financial services industry generally, move quickly. What may be appropriate to regulate financial services today may be completely out of date in three years' time. New technology and new products will require new forms of regulation, which, hopefully, will be lighter-touch regulation. It is only right that we should have a mechanism of determining whether the rules that are put in place as a result of this legislation are still appropriate in three years' time, and that that mechanism should operate on a three-year rolling basis thereafter.
Given that the industry made so many representations in the run-up to, and during deliberations on, the Bill, it would be useful and of reassurance to it if there were a clearly defined watershed three years hence. Institutions that find that rules are not working in the best interests of the financial services community that they serve would then have a clear opportunity to make fresh representations to the FSA and then to the Treasury about how the rules might be changed, and about the on-going problems of cost-benefit analysis.
In Committee, we spent some time discussing the cumulative effect of the extra regulations and their cost, particularly when put into an international context. Many of us argued then that there should be detailed and specific requirements in the annual report, so that the FSA would have an opportunity—and, indeed, an obligation—to report in transparent terms all the regulations that had been added to the financial services industry during that year, on top of those that had been added in previous years. We could then see the sum total of regulations added—and, we hope, a few taken off as well.
The additional checks and balances that many Opposition Members advocated were not taken on board by the Government. If such requirements will not to appear in the annual report, it is entirely sensible that the proposals in new clause 4 should be adopted, laying down clearly defined lines of scrutiny to be undertaken three years hence. The rule book is still at an experimental stage, because the FSA is a different beast from any previous body of that kind, and many mistakes will no doubt continue to be made, through no one's fault.
A review in the cool light of three years' experience seems a sensible idea, and will reinforce the FSA's ability to do its job properly. More importantly, it will reassure the financial services community that matters are being properly kept in check.
5 pm
§ Mr. Andrew Tyrie (Chichester)I strongly support the arguments of my right hon. and hon. Friends on the new clauses and amendments. We shall discuss reviews later, when we consider clause 10. Many of the same arguments apply to this group of amendments. I shall not elaborate on all the many points that my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) made in his opening remarks. Instead, I shall reiterate one of the points that has been made, and add another.
It is in the nature of regulation to ratchet up. Once regulations are in place, they tend to be built on. Unless there is a countervailing force to cut regulations back, it is difficult to get rid of them. That is why it is all too easy for so-called light-touch regulation to become burdensome.
932 There are many examples. One example that should be examined when, we hope, new clause 4 is accepted and the Bill is enacted, is the self-regulating organisation-derived rules on capital adequacy. I should be interested to hear the Minister's views.
§ Mr. Nick Hawkins (Surrey Heath)I am grateful to my hon. Friend for giving way. He will recall that, as an officer of the all-party group on insurance and financial services, I have dealt extensively with the issue of regulation. Before entering the House, I also had to deal professionally with the capital adequacy rules of an SRO. I endorse what my hon. Friend said. Does he agree that there is an urgent need for Ministers to consider the issue, which is a matter of great concern to the industry?
§ Mr. TyrieI agree with my hon. Friend. Ministers will have to deal with the issue anyway, but the incorporation of new clause 4 into the Bill will ensure that that is done in a timely manner.
I support the suggestion that rules should be made subject to a rigorous cost-benefit analysis. The latest document produced by the FSA, "A new regulator for the new millennium", is full of new-millennial jargon, but presents a similar approach—a belief in the need for a cost-benefit analysis, reflecting the acceptance of a trade-off between economic performance and the degree of regulation, for which we have consistently argued throughout the proceedings on the Bill.
I shall make one further point. A provision such as new clause 4 might initially appear to have been tabled primarily to help practitioners. It is a classic example of a provision that appears to help the City, but would ultimately help consumers. Regulations that build up and remain without serving a valid purpose, or which impose an unnecessary burden, result in increased costs. These are ultimately borne by consumers and, to the extent that the City performs less well and provides a lower tax yield, also by taxpayers. New clause 4 is a step in the right direction towards ensuring the continued competitiveness and good economic performance of the City.
§ The Financial Secretary to the Treasury (Mr. Stephen Timms)I appreciate that the aim of new clause 4 is to ensure that the authority reviews its rules regularly and changes them when they are no longer appropriate. I agree that regular review should take place, and I expect the FSA to monitor the application and implications of its rules continuously, not only every three years. However, to require the FSA to undergo a public consultation exercise on each rule every three years is unnecessarily bureaucratic.
Conservative Members implied that they intended the review to be a one-off exercise. However, that is not the implication of the new clause as drafted, and I do not believe that the Opposition intend that.
§ Mr. FlightIt would be a rolling process.
§ Mr. TimmsThat is right. Every three years, each rule would be reviewed. That would lead to a cumbersome bureaucracy, and would not be an effective method of achieving the Opposition's objective. As well as the FSA's review process, the consumer and practitioner panels will play an important part in continuously monitoring the rules. That will allow effort to be focused 933 on problems rather than reviewing and consulting about each rule every three years. The process for which the new clause provides would be administratively onerous and potentially unworkable. It would put a strain on the authority, and divert time and money from its important tasks. It would be better to concentrate on solving the problems that have been identified.
Let us consider new clause 5. If the authority issued guidance on a specific rule, and the guidance was followed to the letter, it is difficult to understand how the FSA could discipline someone for breaching that rule. That person would be in a strong position; the FSA made that point in the policy statement that it published last September. If the FSA behaved in a contrary manner, the tribunal would take a dim view, to say the least, unless the authority had extremely good reasons for its actions. The tribunal exists as a safeguard against capricious acts by the FSA, which new clause 5 aims to address.
In Committee, we discussed the way in which attaching specific status to, for example, general guidance could lead the FSA to be unwilling or unable to give guidance informally and on request. New clause 5 would elevate guidance to law. We must maintain the important distinction between guidance and law. New clause 5 could lead to absurd results. For example, if it were accepted, would we need to issue guidance on guidance? It is important to maintain the clear distinction between law and guidance which new clause 5 would remove.
Let us consider amendments Nos. 35 and 50. We are committed to light-touch regulation. We would generally try to avoid what the right hon. Member for Wells (Mr. Heathcoat-Amory) described as double regulation in the international arena. We are committed also to the home state regulatory principle in the context of Europe, but at the same time, and in advance of a move to a fuller home state regulatory basis in certain respects, we need to balance that against proper protection for consumers.
Amendment No. 35 goes in part to what is often termed the "foreign business carve out" under the existing self-regulating organisations' rule books. Where business is conducted from an overseas branch of a UK-authorised firm, some of the self-regulating organisations' conduct of business rules are disapplied. That is clearly an important regulatory principle and although I would certainly expect an appropriately light touch to be maintained under the new regime so that unnecessary double regulation is avoided, making special provision in the Bill is another matter. That could prevent the FSA from applying rules to businesses in unusual cases in which it might be appropriate to apply them.
For example, there may be merit in the FSA applying limited conduct of business rules to overseas branches of firms to make it clear to customers that, in conducting business through the overseas branch, the firm is not acting in accordance with the FSA's detailed UK rules and regulations, which they might otherwise think was the case. It is important that customers are not misled about the protection and regulation that they are receiving and there may be other good reasons for applying conduct of business rules to overseas branches.
Amendment No. 35 could also cause difficulties, were conduct of business or marketing regulation to move to a fuller home-state approach in Europe. Currently, the home 934 state is responsible under the directives for prudential supervision, including capital adequacy systems, establishing the fitness and properness of workers and so on. To me, it looks as though there would be fairly immediate conflict between the requirements of the directives and the amendment.
Amendment No. 50 proposes that the FSA should not apply conduct of business rules to UK offices of authorised firms carrying on business with overseas persons, except where the scope of the rules has been prescribed by the Treasury. Again, although I agree that double regulation should be avoided wherever possible, it is not clear, for example, how the amendment would fit in with any wider move, which may well come, to a fuller home state basis of regulation of the marketing of financial services.
On amendment No. 51, when we debated clause 111 in Standing Committee, the hon. Member for Chichester (Mr. Tyrie) expressed concern. He said:
The Treasury is not the right policeman for much of the Bill."—[Official Report, Standing Committee A, 4 November 1999; c. 761.]In the narrow context of the amendment, which would give the Treasury a new policing role, he was right. The Bill provides for extensive consultation and cost-benefit analysis for rules made under clause 111 and we do not think it appropriate for that particular rule-making power to be limited in the way proposed.Clause 111 is essentially aimed at protecting consumers and gives the FSA power to make rules for those matters on which the regulators are able to make rules under current legislation. For example, rules can currently be made to require notification of certain events to be given in respect of a firm's non-regulated activities or non-regulated group members in certain circumstances. We think that that should continue.
On amendment No. 8, it is quite right that the clause 112 power has been included, partly to enable the FSA to continue the banking supervisors' existing practice of setting individual capital ratios that reflect the overall nature and riskiness of a bank or building society. That is a long-standing and valuable tool for banking supervision, but the principle is not confined to banks. The rationale for the power to impose bespoke capital requirements is that a firm may have an unusual risk profile compared with other similar firms.
That rationale applies equally to deposit takers and investment firms. Investment firms' need to impose bespoke requirements is more likely to be used in respect of companies with complex businesses—broadly speaking, former Securities and Futures Authority member firms—but may be relevant in other cases. That is reflected not only in section 49 of the Financial Services Act 1986, but in the capital adequacy directive and the existing rules. Chapter 10 of the SFA rules includes a power to impose a bespoke "secondary requirement" on an investment services directive firm to reflect its particular risk profile or operational risks.
5.15 pm
I was glad that the hon. Member for Arundel and South Downs (Mr. Flight) spoke to amendment No. 230, as the right hon. Member for Wells did not mention it. As the hon. Gentleman said, we dealt with the matter in Committee, and my hon. Friend the Economic Secretary said then that we wanted to consider it further.
935 We want the FSA to be able to give guidance when that is desirable. We view the guidance power as an important tool enabling the authority to carry out its functions flexibly and with a light touch. Clause 129(1)(d) enables it to give guidance on
any other matters about which it appears to the Authority to be desirable to give information or advice.We want to look further at the points raised by amendment No. 230 in the light of that. We have not been able to do so yet because we have been resolving other issues, but I repeat my hon. Friend's commitment. I hope that, in the light of what I have said, the matter will not be pressed to a Division.May I take advantage of the conviviality that we are currently enjoying, and wish my right hon. Friend the Chief Secretary to the Treasury a very happy birthday? He is characteristically present, as we would all expect him to be.
§ Mr. Heathcoat-AmoryIn the same spirit, I too wish the Chief Secretary a very happy birthday. He has aged a little over the past year, but he retains much of his vigour.
I am grateful to the Financial Secretary for responding to many of our concerns. We do not intend to press the new clause to a Division, so hon. Members can relax in that regard.
I am aware that there may be technical deficiencies in some of the new clauses and amendments. They were tabled in probing mode: we wanted in particular to hear a little more about the Government's attitude to the rule book and how it might be reviewed, and to hear more about the question of extra-territorial regulation. Although the Financial Secretary mentioned those points, I do not think that we got to the bottom of the issue of origin-state regulation as against state-of-destination regulation. I fear that that will cause considerable problems in the future, especially in an era of e-commerce when many products can be offered, bought and sold electronically across national borders. I do not think that either the Treasury or the authority has really grappled with the whole question of who authorises the products or processes involved, and how consumers in different countries can obtain redress when things go wrong.
It is very much in the country's interests for us to get this right. I believe that we have much to gain from an origin-state approach. It would enable the City and the British financial services industry generally to offer products abroad on a global basis, and enable others to rely on the strength of our regulatory system. That will not be accepted, however, if at the same time we retain powers to regulate and keep out other products. Other countries will latch on to that, and will use it as a pretext to block, or at least regulate to a different standard, products on sale from this country. I am putting a marker down, because we must all return to the issue in due course.
I am grateful for what the Financial Secretary said about whether, and the extent to which, people could rely on guidance issued by the Treasury. I took him to mean that we have more to hear from the authority or the Treasury, and I think that that is probably a good thing.
A number of question marks hang over these matters, but in many instances the Government and the authority, rather than the Opposition, will be vulnerable. The best that we can do is to flag up the issues and difficulties. 936 If they are not properly dealt with in the Bill, that will be a danger for the outside world and for the industry, but it could be an embarrassment to the Government in due course, so I urge the Minister to keep those matters at least under review.
I beg to ask leave to withdraw the motion.
Motion and clause, by leave, withdrawn.