§ Mr. Tim Smithasked the Secretary of State for Trade and Industry what proposals the Government have for regulating financial conglomerates; and if he will make a statement.
§ Mr. HowardThe growth of financial conglomerates poses particular problems for regulators. But these new financial supermarkets provide benefits for their customers and for investors. It is for the regulators to find ways of ensuring that these new entities are operating prudently, without erecting barriers which would prevent them from148W operating efficiently and competitively. Regulation must be clear enough to guide but not cramp structural change in the industry.
The needs of the different regulators are not identical. Investor protection, policy holder protection and depositor protection each call for different rules and different regulatory arrangements. The answer to the financial conglomerates is not necessarily the creation of an extra regulator specifically for them. That would mean duplication and inefficiency. The answer lies in facilitating co-operation between regulators. That involves three things—clear regulatory boundaries, shared information about the different aspects of the financial conglomerate in which one or more regulator has an interest and mechanisms for co-ordinating regulatory action with a view to resolving, conflicts of regulatory interest where possible.
Both the Financial Services Bill and the proposed new Banking Bill will lay down the boundaries of the two regulatory systems and provide powers to enable these boundaries to be swiftly adjusted to meet the needs arising from the creation of new financial products.
The Building Societies Bill and the Financial Services Bill contain powers to enable information to be disclosed to other regulators. The Government intend to enlarge the scope of the powers in the Financial Services Bill to enable information obtained under the Banking, Companies and Insurance Companies Acts to be disclosed to other regulators in appropriate circumstances.
Co-operation between regulators will be achieved by extra-statutory arrangements to nominate one of the regulators with an interest in a conglomerate to act as lead regulator. It will be for the regulators concerned to agree which of them should assume this role for each conglomerate. Essentially this role will be to ensure that all relevant information is obtained and shared, including information about potential difficulties, and to co-ordinate action by individual regulators. Each regulator will continue to have his own statutory duties and responsibilities. The task of the lead regulator is to promote an agreed solution which adequately takes account of the interersts of all the regulators.
The Department of Trade and Industry has established interdepartmental machinery to promote and monitor the new arrangements.