Schedule 2 to FSMA 2000 relates to regulated activities. The two changes involve order-making powers and parliamentary control. There are two parts to the clause. One part changes the language in the FSMA provision to relate to the new regulators being put in place. The other relates to parliamentary control. There are new arrangements, particularly relating to the affirmative order-making process. Although the affirmative process makes sense, the Minister will know that we would prefer the Government to table draft orders. We would prefer an enhanced affirmative order process, which would give the House and its Committees a proper opportunity to scrutinise the serious issues involved.
We are talking about provisions that will transfer areas of business and activity that are outside regulatory parameters to the auspices of the FCA or the PRA. As such, it is quite a serious matter that probably merits more than the typical hour and a half rubber-stamping discussion and vote that we tend to get in an affirmative process. It is the sort of thing that, naturally, the Treasury Committee might want to talk about. I think we should establish a financial policy scrutiny committee in the House for proper and rigorous scrutiny.
To get a sense of what we are talking about here, it would be helpful if the Minster could tell us what areas of financial activity will remain outside the scope of the FCA and the PRA. We need to get a sense of what that is to understand what might have to be suddenly transferred to the regulatory ambit, especially under the reasons of urgency elements in the clause. It is understandable that, from time to time, if there are urgent crisis scenarios, the Treasury can take powers to make an extension and go into new terrain. However, at the very least, we should have a proper overview, a proper map, of what might be outside currently, and what could come within that.
There is a separate issue of co-ordination. How can the Minister be assured that the two regulators will co-ordinate adequately to prevent any confusion in such circumstances? What exact additional powers will be associated with that extra regulatory activity? I want to have a sense of what those issues are. For example, the lead story on the front page of today’s Financial Times is about the LIBOR process; a very interesting story about billions and billions of pounds of trades that are subject to the LIBOR rating. The Financial Times,when considering the regulatory perimeter of particular organisations, raised a question mark about whether the LIBOR process might need to be subject to regulatory activity. I appreciate that there is a process—the British Bankers Association currently oversees the LIBOR arrangements—but it is interesting that that subject has been raised. The Treasury made a prosaic comment on the story. It is a classic example of an area that currently does not fall within the regulatory perimeter, but might need to do so.
I would be grateful if the Minister gave us a sense of what is happening with that particular example, which in many ways typifies where we are on some of these clause 6, 7 and 8 issues about regulated activities—they are very important. Many people who currently do not have to deal with the regulators might suddenly find that they need to deal with them. That might be a perfectly good and reasonable thing, but I would like to have a sense of how frequently the Minister envisages this sort of thing happening, and whether we might be in the midst of a similar issue in relation to LIBOR.
Clause 7 is relatively straightforward. It amends paragraph 26 of schedule 2 to FSMA, which relates to the parliamentary control orders made under section 22 of FSMA. Such orders set out the scope of activity of a regulator under FSMA and are known as the regulated activities order. Clause 7 provides that where an order extends the scope of regulation, it must be subject to approval by both Houses before being made. In urgent cases, such an order may be subject to affirmative resolution by the 28-day procedure.
The hon. Member for Nottingham East said that we probably need more than the hour and a half allowed for a normal statutory instrument Committee to discuss amendments to the regulated activity order. I have been doing my job in government and in opposition since December 2005. I cannot recollect a time when we even tested that limit.
It is important to show that, where there is a change to the regulatory perimeter, there is consultation. I remember when the shadow Chancellor was the City Minister. At that time, he talked about light-touch regulation. He did not believe that light-touch regulation applied to travel insurance, and brought that within the regulatory perimeter. Of course, that was subject to quite a full consultation prior to the regulatory activities order being amended in this House. There is a process; it is not done overnight. It is not something that is usually done without public consultation. A range of financial activities are outside the regulatory perimeter. Until relatively recently, the Northern Ireland credit unions were outside the regulatory perimeter; the Presbyterian Mutual Society was definitely outside it. Business lending, when done by a company such as GE Capital, is outside the regulatory perimeter. Quite a few financial services businesses are also outside that perimeter. We have set in place the Financial Policy Committee to help police that perimeter and decide where it should be moved, and to give an opinion whether firms within that perimeter should be regulated by the PRA or the FCA for prudential reasons. It is an important power: it is important that Parliament has its say but also that the powers are exercised where there has been consultation. I am not aware of any exceptions to that .
The Minister does not have a view on that. That makes me worry slightly about what is happening. I hope that some inspiration could strike in time for the clause 8 stand part debate. That also talks specifically about the regulatory perimeter of the Prudential Regulation Authority, which is probably quite appropriate in relation to the LIBOR arrangement. I will ask the Minister again when we get to clause 8.
I understand the need for these provisions. We tested the issue about the super affirmative process previously, and the Minister was pretty implacable on that. Let us hope that in another place or on Report we get a chance to push that point again. I shall not labour the point; I have made the arguments that I want to make; I will not oppose clause 7 standing part of the Bill.