HC Deb 06 May 1998 vol 311 cc383-4W
Mr. Caplin

To ask the Chancellor of the Exchequer if he will make a statement about the measures to be included in the proposed Bill reforming the regulation of financial services which are aimed at sustaining confidence in United Kingdom financial markets. [41214]

Mr. Darling

The financial markets play a pivotal role in ensuring the efficient allocation of resources within the economy. This is at the heart of growth and continued prosperity—resources going where they are best employed. It is vital that these markets are a fair and clean place to do business. The Financial Services Authority's (FSA) objectives will include sustaining confidence in the UK financial sector and markets and assisting in the detection and prevention of financial crime.

I intend that the new bill will equip the FSA with all the necessary powers to enable them to fulfil these objectives. As the Economic Secretary said in answer to a question by my hon. Friend on 7 April 1998, Official Report, columns 152–53, the new legislation will enable the FSA to make rules binding on authorised firms for the protection of investors, depositors and policyholders. The FSA will also be able to make rules requiring firms to have appropriate anti-money laundering systems and controls in place. Breach of these rules will potentially trigger an array of intervention and disciplinary actions among which will be a power to levy fines on regulated institutions.

The new legislation on which we plan to consult in the Summer will also greatly enhance the FSA's ability to combat market abuse. I intend to introduce a new civil fines regime which will allow the FSA to impose fines on any person or firm, whether part of the regulated community or not, who engages in market abuse, for example market manipulation or misuse of privileged information. The intention is to deter abusive behaviour which undermines confidence in the UK financial markets and which, if unchecked, would ultimately damage the integrity of those markets. The legislation will give the Treasury the power to prescribe markets, and instruments traded on those markets, to be covered by the new regime. We are planning to consult on the basis that the initial coverage will be abuse, on or off-market, which affects investments traded on recognised investment exchanges.

The legislation providing for the new civil fines regime will also require the FSA to produce a Code of Market Conduct to supplement the basic provisions defining the abuses. The aim of this Code, which the Courts and Appeals Tribunal will have to have regard to, is to give guidance in general terms to market participants as to what kinds of behaviour are likely to be acceptable and what unacceptable. The FSA will be consulting on a draft of this Code shortly.

This new regime will complement, not replace, the existing criminal offences of market manipulation and insider dealing. Where criminal offences have been committed, criminal proceedings, as now, will be the appropriate course to take. As the FSA will have the relevant knowledge and expertise, I intend that the bill will allow the FSA to take criminal prosecutions of insider dealing and market manipulation offences itself. The DTI, SFO and CPS will retain concurrent powers. The FSA will also be able to prosecute criminal breaches of the Money Laundering Regulations.

It is right to provide the regulator with an effective array of sanctions, but these must be balanced by a satisfactory appeals mechanism. We are proposing to create a new single tribunal to consider appeals against the FSA's exercise of its regulatory powers. The tribunal will be entirely independent of the FSA, and will be managed as part of the Court Service.

I also intend to improve the range of sanctions available to the Competent Authority for listing (currently the London Stock Exchange) to deal with breaches of the listing rules by those admitted to the Official List. The bill will therefore give the Competent Authority the power to impose fines for breaches of the listing rules by issuers or by directors.

In addition, I propose to make a number of changes to improve the regulatory regime for investment exchanges and clearing houses. The UK has a wide range of respected and internationally competitive recognised investment exchanges and clearing houses which have played a large part in ensuring that the UK markets are, and are perceived to be, fair and well-regulated.

I intend that the draft legislation to be published for consultation in the Summer will build on the existing exemption regime under which investment exchanges and clearing houses will fulfil certain regulatory criteria can be recognised by the FSA and be exempted from the need to be authorised. The new Bill will incorporate improvements to this regime. These will include a power for the FSA to issue directions to recognised investment exchanges and clearing houses to take necessary steps to meet the recognition criteria. Recognised investment exchanges and clearing houses will also be given immunity from suit by their members for regulatory actions.

Taken together with the other changes to be introduced in the new bill, these measures will further enhance the UK's position as one of the best-regulated, and thus most attractive, financial markets in the world.