Clause 12 - Approval for particular arrangements
Financial Services Bill
Cathy Jamieson (Kilmarnock and Loudoun, Labour)
We do indeed seem to be making some progress, and I hope that can continue.
We tabled amendment 146, which I have not pressed, in order to ensure transparency and accountability for any changes. I still think there are some issues with the dual regulated firms. The Minister has given me some assurances, but we are keen to ensure that there will be absolute clarity in the approved persons regime, given the split in the redrawn responsibility for control functions between the PRA and the FCA in line with their objectives.
The Minister said quite a lot about that, but the question for us concerns the fact that some individuals may hold multiple control functions, meaning that under the proposed process they will have to apply to both regulators, which again seems somewhat unwieldy.
We have considered some of the issues of the approval process in the memorandum of understanding and the associated annexe, but I still think there is an issue, and I hope the Minister can explain simply what will happen if one regulator approves and the other does not. Will the rejecting regulator be required to issue a report, and what will happen in such circumstances?
Also, according to the new insertion into FSMA of new section 59A(1)
“The FCA must—
(a) keep under review the exercise of its power under section 59(3)(a) to specify any significant-influence function as a controlled function, and
(b) exercise that power in a way”
designated to minimise the need for a person to be approved by both regulators. Under new sections 59A and 59B
“The FCA may arrange with the PRA”
that the PRA does not need to obtain the FCA’s consent before approving a “significant-influence function”. We support the view that this arrangement must be in writing and published.
“The PRA may withdraw an approval”
given by the FCA or the PRA under section 59 of FSMA if the FCA considers that a person
“is not a fit and proper person to perform the function.”
I put it to the Minister that it would perhaps be a more efficient and an equally effective way to have the FCA carry out all the processes. Can he explain why, in section 64 of FSMA, there is no requirement for the two regulators to have the same or similar statements of principle about what constitutes a “fit and proper person”? That will be important for the public to understand.
I could read out at length about some of the problems and potential difficulties with this clause, but I hope that the Minister gets the drift of the areas about which I have concerns, so I will not detain the Committee any further at this point.
Mark Hoban (Financial Secretary, HM Treasury; Fareham, Conservative)
The hon. Lady raises some important points. This is where we get into the fine detail of how we deal with a situation where an institution is dual regulated, with both the PRA and the FCA. New section 59A requires the FCA to monitor the situation with a view to ensuring that there is no overlap between the functions it has specified as control functions, and the functions specified by the PRA as control functions, and where the FCA does identify such an overlap, the new section will require it to address it. In most cases, that will involve the FCA revoking specification of that function as an FCA control function.
There are processes in place. I appreciate that this is a complicated area, but it is right that, where a function is relevant to a prudentially regulated, or PRA-regulated, firm, given the particular interest that the PRA has in the safety and soundness of individual firms, it has the opportunity to approve individuals and specify “significant- influence functions”.
It may be the case that the PRA would recognise the finance director’s role as a significant-influence function, but because that role is not necessarily customer-facing, the FCA might not designate it as such a function if a firm is dual-regulated. We must recognise that people have different roles and responsibilities in different entities. A finance director might be a head of risk, for example, and would need to understand the complexity of balance sheet. The PRA will have insight into what is needed in such situations in a way that the FCA will not. We must follow through in the detail of regulation the two different responsibilities of the PRA and the FCA, but we also seek to minimise duplication where that is possible and appropriate. I hope that that reassures the hon. Lady that we have sensible arrangements in place that recognise the two bodies’ different roles.