Financial Services (Market Abuse)

Part of Oral Answers to Questions — Foreign and Commonwealth Office – in the House of Commons at 8:43 pm on 19 June 2012.

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Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 8:43, 19 June 2012

I am grateful to the hon. Gentleman for showing that sanity is sometimes tested in these debates. I should also pay tribute to his work and to that of the European Scrutiny Committee, without which many of these important debates would never materialise on the Floor of the House—even if this debate is in the middle of the football, possibly with less exposure and fewer viewers watching on BBC Parliament than might normally do so. I am sure that there will be a rerun of these proceedings and people will be able to watch them at their leisure.

What is different about the market abuse regulations? We know that a parallel criminal sanctions directive is being discussed, although the Government’s position is far from clear. They are almost saying that they will not opt in at this stage, but might change their mind later depending on a number of rather strange factors. There are important reasons why we need to tighten up the criminal offences regime for market manipulation and for insider dealing, and those important steps must be taken. I agree with some of the proposals in the market abuse regulations that will broaden the definition of insider information to cover information that is not generally available for reasons of transaction opacity.

I am particularly keen to see improvements in the market abuse regulations in areas such as commodities and derivatives trading, which were not as large and significant as they are now. About 15 years ago, some £300 million of commodities trading took place in the UK, whereas that has now increased by almost 1,000%. Billions and billions of pounds are now moving from investment-based activity to speculation-based activity. These issues are serious. One might think about speculation in metals and gold and wonder where the harm is, as that is the nature of the world we are in today. However, speculation in wheat, cocoa and other basic food and commodity substances that can have a bearing on the nutrition of many millions of people in developing countries is an issue that matters in the real world.

If there is market abuse and manipulation, it can have a serious impact on real lives. That is why it is important that when we see so many giant corporations with very deep pockets so often being accused of distorting markets and purchasing whole monthly future contracts, potentially hurting consumers in poorer countries, we should take the opportunity to ask whether we have the right market abuse arrangements in place and whether we could make changes. If companies were cornering the market in equities or listed shares it would trigger regulatory action, but when large corporations corner the market in commodities it does not. That is a bizarre anomaly and we need to modernise the arrangements.

We need to see other important changes in the market abuse regulations. How do we identify insider dealing and market manipulation? What are the rules about information being delayed before public announcements? After the financial crisis, there were serious lessons to be learned about revealing information about abuses that might have a bearing on systemically important transactions and organisations. There are some proposals in the arrangements to deal with these issues. These are very serious questions that need to be addressed.

There is a parallel proposal for a criminal sanctions directive that defines the two offences of insider dealing and market manipulation, which should be regarded by member states as criminal offences if committed intentionally. The intention is to introduce a minimum level of harmonisation for criminal sanctions and, in particular, to provide that the competent authority should have the power to impose administrative pecuniary sanctions of up to twice the amount of profit gained or lost.

There is virtue in the criminal sanctions directive and the market abuse regulations, but we are now in this rather byzantine legislative Committee treacle trying to move these issues forward. The Minister may well be personally involved in these areas—I do not know to what extent—but if hon. Members care to take the time to look at the voluminous documentation associated with this debate they will find some interesting correspondence between the Minister and the European Scrutiny Committee. The Minister will have to forgive me if I paraphrase him incorrectly, but in that correspondence he says that the Council discussions have been somewhat fractured—I think that was the word he used—as a result of the fact that the criminal sanctions directive is taken through the Justice and Home Affairs Council whereas the market abuse regulations are taken through ECOFIN.

We then have the added little twist that the Cypriot presidency is taking over on 1 July an issue that has not been resolved and is still in abeyance. The Justice Secretary attended the Justice and Home Affairs Council at the end of April, which kept open—this is where we get into Eurospeak—the “horizontal articles” for a “partial general approach”. I know that is something that Members will be familiar with. In other words, those involved were saying, “Nothing is really going to change on this particular issue. We are just going to tread water for quite some time.”

Then we have the crazy situation in which the market abuse regulation grinds slowly forward while in a parallel universe the criminal sanctions directive enters an entirely different Council Committee. One almost, but not quite, feels sorry for the Minister trying to balance or juggle this particularly tricky set of negotiations, but rather than waiting, reacting and observing the process, he needs to grip this issue by the scruff of the neck and move it forward.

Ultimately, this is the main question I want to ask him: what is he doing to move matters forward? Can he give a proper explanation of where he stands on the substantive elements of the market abuse regulations and of the criminal sanctions directive in particular? He says that it is difficult to assess the scope and implications so far because it depends on the review of the markets in financial instruments directive and various other factors. Difficult or not, he needs to set out the Government’s position on the substantive policy issues. That is what I expected him to do this evening. The issues are not rocket science. He should set out his position. Even if it is a negotiating position, I would like to know the Government’s starting point in this set of discussions. This is a poor way of making decisions.

Clear leadership is not being shown in sorting out the matter and getting a grip of the question. It is necessary to improve and modernise the regulations on market abuse because modern-day financial markets have left behind the old regime. I understand the Commission’s attempts to get some coherence and harmony on market abuse issues and to deal with the regulatory arbitrage issues that arise from time to time, but the Government must answer a number of questions. Why do they feel that they are still unable to set out their position on the substantive policy issues? When does the Minister expect some resolution of the issues? In particular, who does he think should be moving matters forward? Is he just a bystander, waiting for others to do that—the Cypriot presidency or someone else? When will he, as a Minister, show a lead, tackling market abuse, dealing with insider trading arrangements and ironing out some of these important questions? He is too relaxed and a little complacent on these questions. He needs to take charge and grasp the issue.