Clause 6 — Extension of scope of regulation

Financial Services Bill (Money) (No. 2) – in the House of Commons at 8:45 pm on 10th December 2012.

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Photo of Lindsay Hoyle Lindsay Hoyle Deputy Speaker and Chairman of Ways and Means, Chair, Panel of Chairs, Chairman of Ways and Means, Chair, Panel of Chairs

With this it will be convenient to consider the following:

Lords amendment 60, and amendments (a), (b) and (c) thereto.

Lords amendment 61, 62, 79, 115 to 121, 139, 140, 142, 146, 182, and 203 to 205.

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury

I come now to the Government’s implementation of the independent review of LIBOR conducted by Mr Martin Wheatley. I announced the Government’s response to the Wheatley review in mid-October and three sets of amendments to the Bill have been made to implement those recommendations that require legislation. The first is to enable activities in relation to benchmarks, such as LIBOR and potentially others, to be brought within the scope of regulation under FSMA. The second is to create criminal offences designed to tackle misconduct in the financial sector, including a new criminal offence for making false or misleading submissions in connection with the determination of a benchmark. The third is to provide the FCA with a rule-making power to require banks to submit to LIBOR and other benchmarks. Those amendments complement the market-led reforms to LIBOR as recommended by the Wheatley review. Martin Wheatley recommended that submission to, and the administration of, LIBOR become regulated activities, and amendments 59 to 62 create a framework to enable activities in relation to benchmarks to be specified as regulated activities under FSMA.

Amendment 60 defines “ benchmark” as an “index, rate or price”, defined from time to time by reference to the state of the market and used in relation to investments. A benchmark is capable of being regulated only if it meets that definition. The precise benchmarks that are subject to regulation will be specified by way of statutory instrument. The Government recently published a consultation paper on this legislation. Initially, the activities to become regulated will be LIBOR submission and administration, as recommended by the Wheatley review. However, further benchmarks can be added and the Government are considering and consulting on whether additional benchmarks should be brought within the regulatory perimeter. The types of benchmarks that could be eligible include equity or bond indices, derivatives and commodity or energy benchmarks. The definition of benchmark, as drafted, requires that it be used for one or more purposes that relate to section 22 of, and schedule 2 to, FSMA.

Chris Leslie has tabled an amendment that would extend that definition to include commodities. Let me say first that I totally understand the requirement that we should be able to address some of the alleged abuses that have taken place and have the powers in statute to include those benchmarks that are relevant to some of the concerns that have been expressed recently. We do not believe that there is any requirement to extend the legislation on that. In fact, the Bill was drafted to anticipate the Wheatley review and the work going on in other benchmarks. Benchmarks can represent many things, including commodities or energies, provided that they are traded financially in the way we often see. Under the definition, regulation by the FCA extends to benchmarks that involve financial matters consistent with FSMA and the objectives of the FCA as the financial services regulator.

The Wheatley review also recommended that banks should be encouraged to participate in LIBOR—participation is currently voluntary. In the absence of such submissions, LIBOR would cease to be a representative benchmark and, in an extreme scenario, would not be published at all. Therefore, Lords amendment 79 allows the FCA to require firms to participate in particular benchmarks, while making reference to a “code or other document”. That allows the detail of the requirement to be determined by the benchmark administrator, not by the FCA. It might not be necessary for the FCA to use that power immediately, if at all, and it has recently opened a discussion on how and when the use of that power could be considered.

The Wheatley review also recommended the creation of a new criminal offence in relation to the manipulation of benchmarks such as LIBOR and the re-examination of the criminal sanctions for market manipulation under FSMA. Although such conduct could already be a criminal offence under legislation, this is a helpful clarification of some of the powers. There will be three criminal offences: first, we are re-creating the offence of making a false or misleading statement; secondly, we are widening the offence in section 397(3) to include creating a false or misleading impression as to the market in, or the price or value of, an investment for the purposes of making a profit or avoiding a loss; and thirdly, we are creating a new criminal offence related to misleading statements and impressions in respect of specified benchmarks.

The amendments also replicate the penalties for existing offences: a person found guilty might face a prison sentence of up to seven years and an unlimited fine. The detail of the investments, agreements and benchmarks for which those criminal offences apply will be set out in secondary legislation. That is included in the public consultation currently under way.

Under the current arrangements, where enforcement action results in a firm paying a financial penalty, that is applied as a discount to fees paid by other firms the following year. Without reform, unprecedented fines, such as those relating to the attempted manipulation of LIBOR, would have represented a significant windfall to regulated firms. In future, regulatory fines revenue in excess of enforcement case costs will go to the Consolidated Fund. The hon. Member for Nottingham East and I had an exchange about that earlier. The regulators will be able to net off enforcement case costs before handing over the penalties to the public purse. The new arrangements will apply to FSA fines received from 1 April 2012, so the measure will include the penalty imposed on Barclays in relation to the attempted manipulation of LIBOR.

The Government have announced that £35 million of fines imposed from attempted LIBOR manipulation and other unacceptable behaviour received this year will be used to support Britain’s armed forces community. In addition, £5 million will go to the creation of new, groundbreaking first world war galleries at the Imperial War museum. I hope that the House will agree to these amendments but, of course, I stand ready to respond to any points Members make.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

We have moved on to another series of amendments that have arisen largely as a result of the scandal that was discovered this summer, when it was found that some of the largest banks—obviously, we have heard about the concerns in relation to Barclays—had been manipulating LIBOR, the benchmark from which flows billions, if not trillions, in financial services products and investments worldwide.

The scandal had massive ramifications across the banking sector. It was as though having gone through three or four years of attempted reform following the global financial crisis, after which it was clear that the risks that many in the banking sector had been taking were not properly understood or accounted for, the sector was again knocked sideways. It turns out that it was not just about exuberant risk-taking; it was, in fact, about corrupt manipulation of what people had thought was a trustworthy index. What is worse, it hit the reputation of the City of London in particular. It was all in the name: the London interbank offered rate. This was taken by many other international financial centres to be a moment of weakness for the UK financial services sector, and we saw several examples of other jurisdictions taking action swiftly to capitalise on the disarray in which many in the financial services sector found themselves. It was therefore important that the Government took urgent action and commissioned a review of what happened in the LIBOR scandal.

At the time, we felt that the matter was of such significance that we called for an independent judicial inquiry into the whole question of banking standards and ethics. As I am sure you will recall, Mr Deputy Speaker, we had a very heated debate in which the Government said, “We’ll have a parliamentary banking commission,” while we said, “Go for an independent judicial variant.” Of course, the Government won the day, and hence the Chairman of the Treasury Committee is now demonstrating his stewardship of that commission, which is due to report shortly. I hope that it has an opportunity to look into the wider issue of ethics and standards in banking. The Government have been keen that it starts to focus, almost in pre-legislative mode ahead of the banking reform Bill, on the Vickers reforms, but these questions of standards, ethics and culture also matter tremendously.

The Government made several amendments to the Bill in the House of Lords. In amendment 79, it is envisaged that there will be new provisions for a benchmark administrator, but it is not certain that a private sector organisation, even if it has a certain amount of experience, will be totally immune from conflicts of interest. Did the Government give any consideration to establishing a more independent body or entity for that administrative process? It is vital that the process of finding a new benchmark administrator is open and transparent. Will the Minister give more details about the process that he is undertaking and how the tender process is happening?

On amendment 115, it is important to ensure that the new criminal offences have a strong effect in respect of misleading statements on benchmarking and in general. In terms of its jurisdiction, is the amendment limited to British banking and financial services activities, or does it cover activities undertaken by UK organisations or UK-approved persons in operations in countries beyond our shores? Clearly, in a globalised world, that is relevant to how we see the behaviour of those in the sector.

The Government’s proposals to regulate benchmarking currently apply only to investments. We want to ensure that the regulatory net is also cast around commodities, including oil trading, gas market trading, silver, gold, foodstuffs, and so on. I am sure, Mr Deputy Speaker, that you can think of a range of potential commodities. Therefore, in the marvellous parliamentary way in which we do these things, we are seeking to amend a Lords amendment to ensure that the definition is focused not only on investment but, for clarity’s sake, puts commodities into the Bill. The Government say that they are consulting on this arrangement and might have the power to include those things later down the line but do not believe that there is a requirement to do so at this stage. However, it is time that we got ahead of these issues early on.

In the Public Bill Committee in March, after several hours of debate—it had been a bit of a long day—I asked the Minister’s predecessor, in relation to LIBOR and the benchmarking of these arrangements, “Do the Government have a view about whether there is manipulation and whether changes need to be made to the regulatory arrangements?” He stood up and answered with the single word, no. Of course, he came to regret that stance and several months later—I think it was in June—we learned that a tremendous scandal had taken place. If we have these legislative vehicles, it is important that we take the opportunity to deal with any potential issues.

Photo of Alison McGovern Alison McGovern Labour, Wirral South 9:00 pm, 10th December 2012

My hon. Friend mentioned ethics a moment ago. Although we need a financial services system that is internally ethical and that has the right culture, there is a broader problem. The LIBOR scandal bit in the way it did not because it was a usual Whitehall story, but because the Government rely on LIBOR, among other indices, to know what is going on in financial services. This might not be the part of the Bill that has been most hotly debated this evening, but we are all reliant on these indices. Is that why my hon. Friend is suggesting that we should cast the net a little wider and try to get ahead of the problem rather than constantly chase ourselves?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

My hon. Friend makes an excellent intervention. She is right. In our debates about financial services we sometimes talk in rarefied or esoteric technical terms, but this issue is certainly of relevance to all our constituents, whose mortgage rates, the interest they pay on loans, and, in the case of oil markets, the price they pay for petrol at the petrol station and the price they pay to heat their homes, as well as prices in the gas and food markets—the price of a loaf of bread, for example—are all too often rooted in the costs of these commodities and investments, as determined by the global trading environment.

This is what it boils down to: it is a question of trust. Hitherto, people assumed that all the market benchmark arrangements were simply transparent exchanges of data and prices that showed the true value of an investment, product or commodity, and that people were buying and selling in an open and fair process. It turned out that those in the know, who were often highly paid traders in the bigger banks—incidentally, even more revelations will come out over the coming months about the banks that might have been involved in LIBOR—knew how to wangle the system and play the market in a way that helped not only the profits of their particular company, but that boosted their own personal bonus arrangements. It was a question of using other people’s money in order to shift massive volumes of trades. Even if the changes in price were fractional and seemed irrelevant, when they were multiplied by the billions of trades that were taking place they could have massive financial advantages to those traders involved.

It was alleged recently that banks rigged electricity markets in the United States and record fines have been issued. That involved British institutions, so British regulators should be explicitly equipped to tackle attempts to rig commodities trading, whether it be spot trading, forward contracts, futures contracts or hedging arrangements. Global commodities markets include a vast range of products, such as grains, fibre, other food, precious and industrial metals, energy, carbon offsets and so on.

As I have said, British households are affected by commodity market manipulation—perhaps even more than attempts to rig LIBOR. Commodity speculation has contributed to the record costs of staple foods in recent years. In fact, some people argue that the riots and social unrest in Egypt, Tunisia and other countries were influenced by pricing issues and distortions.

Last month, after the Energy Secretary made a statement to Parliament, the Financial Services Authority and Ofgem confirmed that they were conducting an inquiry into claims that British companies manipulated the wholesale gas market on 28 September. The Government have said that it would not be appropriate to use legislation to cover pure commodities, such as gas, but that if commodities are referenced by derivatives or other financial instruments, it is covered by the definition of investments. However, a derivative instrument may essentially be a traded instrument and there is no reason for it to fall within that definition. It could be regarded as an insurance product and so does not fall clearly within the definition if investments in Lords amendment 119.

Total, the French oil company, recently made open allegations against one of the PRAs. That is not the PRA as we know and love it—the Prudential Regulatory Authority—but another acronym. Price reporting agencies are companies or organisations that essentially gather information, almost as a journalist might do, and figure out broadly what is happening in the market. However, it is not necessarily a true reflection of what is happening. Total alleged that there were erratic processes involved and that it was not a true reflection of the state of the market. There were also questions over the methodologies of the price reporting agencies. Does the Minister think that price reporting agencies need to be within the regulatory ambit? Again, they are important component players in the financial services sector, but are not familiar to all our constituents—but by goodness, they would become familiar to all our constituents if they were not trusted or were seen to be failing in some way.

Photo of Mike Freer Mike Freer Conservative, Finchley and Golders Green

Much commodity trading is still focused on trading on the floor, rather than on the screen. Does the shadow Minister not accept that as the trend moves towards trading on the screen, that should drive transparency? Should we not let the transparency of the market work first, before we rush to regulate?

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I do want to see more transparency. Electronic data exchanges certainly have the potential to provide the regulators, including the Bank of England, with more real-time transactional information about what is actually happening. I do not necessarily want to see regulators wading through reams of information, but I want to ensure that, if needs be, they have the scope to act. It is not clear that the Financial Services Bill, as it first entered Parliament in February, would have captured the LIBOR benchmarking situation within the regulatory perimeter. There were suggestions from the FSA that it was not something that it could deal with. That was not good enough and the Government have come forward with amendments. I want to ensure that those amendments allow the regulators to trigger inquiries and oversight for all benchmarking indices and arrangements, especially in the commodities market.

Robert Halfon, who has been campaigning on oil and petrol prices, has called for an OFT and FSA investigation into manipulation by oil firms in recent times. The United States Commodity Futures Trading Commission has raised questions about price fixing and manipulation in the silver market. That study was inconclusive, but questions linger over metals markets more broadly. The Minister’s good friend, the European Commissioner for Internal Market and Services, Commissioner Barnier, has suggested that all commodity indices should be covered in this way. Rather than waiting for European regulators to ensure that this happens, why do we not take this opportunity to deal with the issue?

We should not just say that benchmarking means investments; it is vital that we put it beyond doubt that the question of commodities is included. It is a stitch in time to ensure that we cast the regulatory perimeter correctly. I commend amendments (a), (b) and (c) to Lords amendment 60 to the House.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

I promise not to test your patience, Mr Deputy Speaker, or that of the House by speaking for too long. Some, I know, will be of the view that indices and benchmarks are dry, dull, technical subjects—[Hon. Members: “Never!”] Hon. Members may say that, but I suspect them of sarcasm.

I begin with an explanation of why I think this part of the legislation so important, and why the amendments tabled by my hon. Friend Chris Leslie are crucial. In my view, they relate directly to the subject that currently fills our newspapers and television screens—the indignity and horror of food banks. The reason my constituents, and those of other hon. Members, cannot just pop to the shops and buy food is because food costs more than the amount of money in their pockets. In the long term, the answer to that problem is not charity—grateful though we are for those efforts—but a food system that provides sustenance for people to buy in shops at a price they can afford. Price is not a technical, dry issue that ought to be left to economists in the academy; it should be of importance to every family, as I know it is to every MP.

Food prices unite those who are finding life difficult at the moment both at home and far away. Although I applaud the efforts of those who try to help people out, in the end we must seek a better solution. Whether we like it or not, since the 18th century this country has taken part in global trade. We had a strategic role in that which I will not bore the House with, but part of it means that we, more than others, have a special responsibility to understand global trading systems, not least the one that ensures there is enough food for us to buy here at home, and that farmers in this country and far away get paid a fair price.

This morning I was with the UN Secretary-General’s special representative for food security. He described two current problems in the commodity market that I hope will help people to realise why we must understand that phenomenon. First, global food prices are currently extremely volatile. Secondly, although prices are moving sharply up and down, they are trending upwards. That means that those most vulnerable to the price change in that commodity face an ever-worsening scenario as they try to feed themselves and their families. How can benchmarks and a better understanding of the data help? Well, when we understand those movements we can try to find out what is behind volatility in global prices.

Briefly, let me take hon. Members back in time to about 2005 until the end of 2007. Economists around the world were busy writing papers on derivatives and what we now call shadow banking, and saying that sharing risk in that way was a good idea and helped to manage investment and the finance markets globally. We now know that facts and information were available that we could not see, and my question concerns what is going on now that we cannot see, specifically in relation to food prices. Is there an issue with derivatives based on commodities? My hon. Friend has already given some indications of why we might think that.

The UN has done some work, and some academics around the world think there is a problem with derivatives based on commodities, and that just as sub-prime markets were an unseen problem for too long, there may be problems now that we cannot see. That is what makes benchmarks and indices so important. We need verifiable, trustworthy numbers that we can investigate to ascertain what is happening in global food markets. As I have said, this is not a techie, dry subject that matters only to economists and those who pore over numbers; the reality is that it matters to every one of our constituents, but most especially to those with the least money to spare.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East 9:15 pm, 10th December 2012

Will my hon. Friend reflect on the fact that trading in commodity derivatives can skew investment and whole industries if not properly regulated? For example, I visited the jute museum in Dundee, where one display made the point that the jute lords made more from trading in futures than they made from production. That might have made them less interested in diversifying their manufacturing industry, which has completely died.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

I thank my hon. Friend for that highly appropriate intervention. When the history of Great Britain is written, it will show that that part of the east coast of Scotland has had a great influence on economics throughout. The example from Dundee is a good one.

All hon. Members look back at global financial trading and markets and wonder how we got to the situation we found ourselves in. When the shadow banking market and complex derivatives and products were created, people became much more interested in them than in the real economy and the fundamentals of our economy. They saw the financial system as a servant to the rest of the economy rather than the other way around. I hope that view is shared broadly on both sides of the House. The Minister is nodding, but I am not entirely sure he agrees with that specific point. I will live in hope and imagine he does.

When the Minister is consulting on whether to broaden the Bill’s reach from the indices that I have mentioned to commodities, will he consider the impact of escalating food and oil prices not only on his constituents and mine, but on those who live closest to the extreme poverty line in the poorest countries? Will he consider the price of maize and wheat in very poor countries, where there is no social support system and no welfare state security net of the sort we have in this country? Will this country take a leading role in properly understanding what is happening in that market?

Photo of Geoffrey Clifton-Brown Geoffrey Clifton-Brown Chair, Committee of Selection

To use the increase in food commodity prices as an argument for increased control over derivatives trading is a little far-fetched. Surely increased prices have much more to do with the increased world population and the weather than they have to do with commodities trading.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

As I have said, this morning I listened to a presentation from the UN Secretary-General’s special representative on global food security. We discussed the matters that the hon. Gentleman mentions, but there was strong interest in whether the trading of commodity derivatives has played a role or had an impact in increased prices. The hon. Gentleman may suggest that its effect is negligible, and I would be happy to see any evidence he can forward to me. As I try to understand the phenomenon, I am happy to look at numbers and think about the evidence. I am an empiricist if nothing else; we should always consider the evidence. One of the problems to date, however, has been the availability of information, and making it clear and evident for all to see. I have tried to make the point that people looking at the world economy could not, for specific reasons, necessarily see the problems relating to sub-prime mortgages. As my hon. Friend the Member for Nottingham East has suggested, we should try to get ahead of the problem and ensure that there are no longer problems that we simply do not see.

Photo of Gordon Birtwistle Gordon Birtwistle Liberal Democrat, Burnley

The hon. Lady is making a good point, but did the person whom she met this morning give her alternatives to the derivatives and commodities markets? The worldwide food supply is decided by commodities buying. There is a drought in America, so the price of wheat goes up. There is heavy rain in this country, so we have problems ourselves. There are problems in Bangladesh and all around the world that push up the price of food. The same is true for oil; when there is a shortage of oil, the oil price goes up. Did the gentleman whom she spoke to this morning provide an alternative to what we have now? Maybe we could look at it and come up with some suggestions ourselves.

Photo of Alison McGovern Alison McGovern Labour, Wirral South

I thank the hon. Gentleman for his intervention and his compliment that he thinks my point is not wholly without merit, but it might test your patience, Mr Deputy Speaker, if I tried to shoehorn into the debate on the amendment possible solutions to the global food crisis and productivity in agriculture.

On derivatives, in agricultural production there is a need to hedge. There needs to be some kind of financial security to take account of unforeseen weather events and so on, so of course there is a need to hedge, but that is not what I am talking about. The question is whether some of the recent high-volume, high-speed forms of speculation and trading have had an impact on the global food price. I suspect that they might have, but it would be nice to have more information.

Photo of Mark Durkan Mark Durkan Shadow SDLP Spokesperson (International Development), Shadow SDLP Spokesperson (Work and Pensions), Shadow SDLP Spokesperson (Foreign and Commonwealth Affairs), Shadow SDLP Spokesperson (Home Affairs), Shadow SDLP Spokesperson (Justice), Shadow SDLP Spokesperson (Treasury)

When some of us raised these issues in the previous Parliament, the then Government pooh-poohed the whole problem of speculation in relation to derivatives and so on. Does the hon. Lady share the concern that, as banks, hedge funds and all our pension funds try to work their way towards replenishing themselves after the crisis, there is a danger that they will go back to the bad ways of speculating in all sorts of commodities? Does she think the Government should prioritise this issue during their G8 presidency next year, and discuss with other Governments how to circumscribe the capacity of financial institutions to play dangerous games with this sort of speculation?

Photo of Alison McGovern Alison McGovern Labour, Wirral South

I thank the hon. Gentleman for his intervention, which was characteristically well made. I share his fear, and his point about the G8 is absolutely correct. It will be great to have the G8 summit in Northern Ireland. I am sure that the Minister has heard the hon. Gentleman’s point and will duly feed it back to the Prime Minister, because there is no doubt that it is important.

In conclusion, underlying what we are trying to achieve is a financial system that has appropriate oversight. Given the importance—we now this know—to our everyday well-being and comfort of what appear to be financial technicalities and bits of information that people do not necessarily connect with the realities of life, I hope that the Government will pay the most careful attention to the results of the consultation on commodities, because we might have a genuine opportunity to set in train rules that will help us to spot the awful crashes and difficult phenomena of the future.

Photo of Greg Clark Greg Clark The Financial Secretary to the Treasury

It is a pleasure to respond to this short but important debate.

Chris Leslie referred to the heated exchanges before the summer. They were necessarily heated because they concerned a major scandal that did great damage to the country’s reputation. The whole House feels strongly about this matter because the industry is vital to the country’s economic future. About 2 million people are employed in the financial services and related industries, most of them in capacities far removed from the ability—and still more the inclination—to engage in the kind of behaviour that came to light in the LIBOR scandal. It is a particular source of outrage that many ordinary working people across the UK with careers in the banking industry have been besmirched by the behaviour of people far from them. As a result, in their ordinary working lives and in conducting their activities, they found themselves bracketed with people who were shaming an industry that they were proud to work in—an industry associated with high standards of sobriety and propriety—and it is particularly important that we act decisively and firmly against the perpetrators of the manipulation that came to light in the summer.

The amendments do precisely that. All Members will recognise the pace with which we have responded, given that the allegations came to light in late June. We immediately asked an independent reviewer, Martin Wheatley, to look into the allegation. He conducted his work over the summer and reported in September. The Government considered all his recommendations and have adopted every one of them. The fact that we are here, in early December, reaching the final stages of legislation to act on those recommendations shows that the Government and the House have taken the allegations very seriously and are acting to restore the reputation not only of the City of London, but of the financial services industry in this country. I hope that the world will see that, when something comes to light that objectively is scandalous, we will not stand by and watch it happen, but will take legislative action immediately.

I shall refer to some of the points made by the hon. Members for Nottingham East and for Wirral South (Alison McGovern). Let me deal first with the independence of benchmark providers. There are, of course, lots of different benchmark providers, not all of which—it is important to say—were associated with the problems that LIBOR and the British Bankers Association had. The Wheatley review recommended that the BBA step aside from setting LIBOR. Future administrators, which may be private, commercial or otherwise—there is no restriction—will be subject to the type of regulation powers contained in these amendments. On LIBOR specifically, the tender committee chaired by Baroness Hogg is in its early stages. We will of course update the House on the progress it makes when it considers who will operate the LIBOR benchmark in future.

The hon. Gentleman asked whether the powers in the amendments will be restricted to the UK or whether they will cover other jurisdictions. The answer is that there needs to be some connection with the UK, as might be expected under legislation passed by this Parliament, but the amendments take a broad approach to the term “connection”. There will be a sufficient connection if, for example, a statement that could have contributed to the manipulation of benchmarks was made in or from the UK, if the person at whom it was aimed was in the UK, or if there were an agreement or conspiracy that such activity would be entered into in the UK. We take a broad view of that. He also asked whether the Bill was wide enough to bring PRAs—price reporting agencies, rather than the Prudential Regulatory Authority—into regulation. The answer is yes, through the secondary legislation that is provided for by the Bill. Where PRAs are used in relation to investments, including derivatives, futures and options, they will be included.

The hon. Gentleman asked whether the powers should explicitly consider commodities. Let me make it absolutely clear that there is no question whatever but that it should be possible to include benchmarks such as those in the gas or energy markets. The consultation provides for that and it is precisely what Martin Wheatley’s report envisaged. Where benchmarks are used for financial investments and financial transactions, it is right that they should be vested in that way, but it would be wrong simply to vest powers for the regulation of every commodity in the Financial Conduct Authority, because commodities can represent many things. The term “commodities” is broad. We would not want the Financial Conduct Authority to regulate benchmarks relating to trading in live cattle or lean hogs, for example, even though they may fit the definition of “commodities”. The current definition means that the regulation of benchmarks by the FCA extends to all the benchmarks that involve financial matters, as is consistent with the Financial Services and Markets Act 2000 and the objectives of the FCA as a financial services regulator.

For that reason—this has been considered in the other place as well as this place—the powers that we are taking have not just LIBOR in mind, but the other benchmarks that could give rise to similar concerns and which in recent days have done so. The criminal offence will pertain to those benchmarks as well as LIBOR. They will ensure that investors, whether in this country or around the world, can have confidence that we have the fullest possible regime of sanctions to prevent and govern any demonstrated misconduct or attempted manipulation of LIBOR.

Let me say a little about the comments that the hon. Member for Wirral South made. She talked about her concerns about the use of derivatives in food commodities in particular. The use of derivatives in food markets can achieve precisely some of the advantages that she talked about—that is, enable farmers, whether in this country or around the world, to get investments into expanding production in anticipation of future demands. The process brings forward into the present day the needs of the future; that is what futures markets are about. It is important that farmers in this country, but also around the world, who might not have access to capital can make those connections, so that they can supply in advance what will be required in the future. There is some research, which I would be happy to share, on the contribution that derivatives have made to ensuring adequate food supplies not just in this country but around the world.

I shall conclude by saying that the regime that we are putting in place will provide a swift and robust response to the totally unacceptable set of practices that was unearthed before the summer. We have moved further and faster than any other jurisdiction in the world, and I hope that the House will see fit to approve the provisions tonight so that we can move forward and demonstrate to the world that this is the best jurisdiction in which to trade.

Lords amendment 59 agreed to .

Amendment (a) proposed to Lords amendment 60.—(Chris Leslie .)

Question put, That the amendment be made.

The House divided:

Ayes 200, Noes 266.

Division number 119 Financial Services Bill (Money) (No. 2) — Clause 6 — Extension of scope of regulation

Aye: 200 MPs

No: 266 MPs

Ayes: A-Z by last name


Nos: A-Z by last name


Question accordingly negatived.

Lords amendment 60 agreed to.

Lords amendments 61 to 97 agreed to.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

Amendment 98 is in a separate group relating to clearing houses, and I would like to make some remarks.