‘(1A) An order under subsection (1) is not to be made unless a draft of the order has been laid before and approved by resolution of both Houses of Parliament.’.
Government Members may want to hear what I have to say and see how long I speak before I get that sort of accolade. I hope that I will start off with something that is relatively brief in moving amendment 141. As people will be aware if they have read it in detail—as, of course, they will have—
I thank the Minister for the clarification; it was very helpful of him to do that right at the beginning. I am sure that he is as keen to make progress as I am. However, I just want to make a couple of points about the reasons why we tabled the amendment and then I am sure that he will give us the assurances about where the measure is located in the Bill and why it has been put there, because this is about parliamentary accountability.
Of course, the power for the Treasury to amend, repeal or vary the threshold conditions under schedule 6 to FSMA 2000 already exists without an affirmative resolution. We felt that it was important that we had the opportunity to revisit that in the context of the Bill. In particular, that was to ensure that, in the interests of transparency and accountability, at every stage, the Treasury or Government were indeed able to put as much information as possible before Parliament.
Having heard what the Minister has had to say, I must say that our reasons for tabling the amendment concerned the frequency and circumstances that were envisaged about potentially significant changes that, at present, Ministers would perhaps want to reserve for themselves. What can the Minister say about that in terms of the amendment or of the issue that he says is covered in the Bill? Also, in general terms—we have discussed this issue several times during our consideration of the Bill—does he agree that Parliament should have the power of scrutiny and accountability over such important aspects of legislation? When it comes to anything concerned with financial services, the public want to see at this point in time that everything that we are doing has the maximum possible scrutiny, even to the extent of perhaps going through the Bill not only line by line but sometimes word by word to ensure that we absolutely have everything correct.
I see that the Minister is looking up his pages. If he is now ready to make a response to those points, I will happily stop to allow him to do so.
It is on page 129 in clause 46(2)(a)(i), and it says:
“after “section” insert 1J, 3B(4), 55C”.
So it is tucked away in the Bill and the hon. Lady will see that, in the desire of this Government to enhance parliamentary accountability, there are a number of new measures that are subject to the affirmative procedure, so we will spend more time in Committee, which is surely to the benefit of democracy as a whole.
I thank the Minister for that clarification and for his commitment to parliamentary democracy and accountability. Without wishing to criticise him, during our proceedings I have thought that hon. Members were simply going through a process of moving amendments, opposing them and taking votes that would always end up with the same result, rather than actually considering how we could improve the Bill. The process has been somewhat frustrating. He has assured us that the provision is tucked away in clause 46(2). I accept his assurance with good grace and I beg to ask leave to withdraw the amendment.
‘(3) In considering how much weight (if any) to attach to the opinion the UK regulator must have regard to—
(a) the nature and scope of the supervision exercised in relation to the non-EEA firm by the overseas regulator; and
(b) decisions previously made by EU regulatory authorities regarding the overseas regulator.’.
I note that the accolade was rather more muted that time. Perhaps hon. Members are aware that I have slightly more to say on this amendment than on the previous one. The amendment would omit proposed new section 55D(3) and replace it with a provision that contains an additional requirement for the UK regulator to have regard to decisions made before by EU regulatory authorities regarding the overseas regulator. We are concerned that the regulatory environment varies widely across jurisdictions and I have been given examples of such variations.
Angola has a single regulator, the national bank of Angola. Its regulatory environment standards and procedures will probably be very different from those of Australia, for example, where regulation is enforced primarily by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority. Angola’s standards and procedures will also be very different from those in the Chinese system, which is regulated by four main bodies: the China Securities Regulatory Commission; the China Banking Regulatory Commission; the China Insurance Regulatory Commission; and the People’s Bank of China.
I want the Minister to tell us how all that will be taken into account when regulators consider information received from overseas regulators. How will they decide what is an equivalent standard? What tests will they introduce? What consultation will they undertake and with whom? How will they come to their decisions? Will there be guidance on which bodies qualify as overseas regulators? For example, must such regulators be bodies that deal with the equivalent of both business conduct and prudential matters? Are there any plans to change the FSA handbook’s definition of an overseas regulator? I will not succumb to the temptation to read out in detail everything that is in the FSA handbook, but if I wanted to be awkward or to prolong the debate, I might be tempted to discuss some of those issues and the differences between the various bodies. However, I will restrict my remarks and ask the Minister to respond to my questions. This is important. We have to understand whether there will be equivalence and, if so, how will it be decided? Who will make that decision? How will it be communicated to the public and, in particular, the consumers of the various services that will be on offer? I shall give the Minister the opportunity to respond.
Our shout of acclamation when the hon. Lady spoke about the previous amendment was to welcome her finding her voice after almost five days of silence in Committee. We are delighted that the baton has been passed to her from the hon. Member for Nottingham East.
Proposed new section 55D provides that the FCA and the PRA will attach an appropriate level of weight to the opinion of an overseas regulator of a non-EEA firm when assessing an application from such a firm. Clearly, it is important for the PRA and FCA to consider the nature of that regulator and its effectiveness and reach their own conclusions. The PRA and FCA, in assessing a non-EEA firm, will consider the firm and how the regulator has assessed it, but will also consider how the overseas regulator has supervised the firm and the regulator’s opinion of the firm in that context. It is important that the FCA and PRA reach their own decisions about the firm; that is what the Bill provides for.
The PRA and FCA will be familiar with the strengths and weaknesses of different overseas regulators, which will help them gauge the degree of reliance to place on the views of that regulator about the applicant firm. Clearly, the reaction of other EU regulators to the overseas regulator might be helpful in that regard. There is nothing to prevent the FCA or PRA from considering what other EU regulators have said about the overseas regulator. However, it is for the FCA and PRA to reach their conclusions about how much weight to place on the opinion of the overseas regulator, rather than being guided or required to follow the judgment of other EU regulators, which would be the consequence of paragraph (b) of the amendment.
Particularly in relation to how much weight, if any, to attach to the opinion of the UK regulator, people might be concerned if matters were simply dismissed and no weight at all were given. I am seeking some assurance that a process is in place to consider it and that it will be properly decided on, rather than considered cursorily before a decision to take no account whatever.
Such decisions are carefully thought through. The FCA and PRA will consider not just the applicant firm but the overseas regulator. My concern with the amendment is that it would require the PRA and FCA to have regard to decisions made by other EU regulatory authorities. The FCA and PRA may not agree with those regulatory decisions, which might have been made in different circumstances. There is a danger in binding or requiring the FCA and PRA to place unmerited weight on the opinion of an overseas regulator simply because a different EU regulator has done so. It could lead to significant adverse effects on UK consumers and depositors.
It is important that a proper process is in place. The PRA and FCA should make up their own minds about what they think of the overseas regulator’s views and should have the freedom to do so. Although they can take into account the views of other EU regulators, they should not feel bound in any sense to place undue weight on those opinions.
The reason why I press the Minister is that I have concerns. He said that people will take account and that consideration will be given, but I am still unclear what level of scrutiny there will be and how that process will be put in place. I also have concerns about the notion that decisions made previously by other EU regulatory authorities would somehow not be taken account of.
The Minister mentioned that decisions might have been made in different circumstances, or that the regulatory authorities here might not agree with what went previously, but I would have thought that it was none the less important to make a conscious effort to consider those decisions, decide either to agree or not agree with them and have reasons for that. That is all that we are seeking in the amendment. We were being somewhat but not entirely facetious. I asked about the different regulatory environments and how we decide which ones are equivalent. That is important in the context of how the process is put in place.
I am disappointed that the Minister has given no indication of anything else, such as guidance that might be issued or anything that can be done in support; I am simply to leave any oversight to the authorities themselves. That appears to be what he is saying. If that is the view, I will press the amendment to a vote. At times when discussing the amendments, the Minister and Government Members might at least have looked as though they were taking some account of the real issues being raised and given some assurances that they would look again, perhaps coming back at a later date with further information or changes to the Bill. Surely that is what we are here to do––improve the Bill, not simply have the Government get absolutely everything through unchanged. Having been a Minister in another Parliament, I understand that that often seems to be the task when setting out, but it is important to listen to the Committee. Given that, I will press the amendment to a vote.
I want to make a few points about the clause, which covers a wide range of issues. Once again, some of the concerns about the Bill generally are highlighted, such as on co-ordination between the PRA and the FCA and how that will work in practice. One concern is whether we have enough clarity on the application process for firms, and whether it is easy enough. If the Minister can say, hand on heart, that we are not making it a more difficult place to set up new businesses in financial services through additional regulation that is not required, I will be happy to hear that.
A number of the procedures in the clause are obviously mechanical and technical, but there are some concerns about the draft memorandum of understanding between the PRA and the FCA, which have been rehearsed in earlier debates. There are three brief paragraphs on how applications will work, but the memorandum of understanding provides little clarity for dual-regulated firms on how the process will work in practice. As for practical matters, it might seem to us, who will not have to go through the process, that it is easy enough to write the procedures or to have something in the memorandum of understanding and say that the rest will be clarified in due course. However, for firms that have to go through the process, questions about the applications, how they will be co-ordinated between the regulators, how they will significantly influence functions, how interviews will be carried out and so on are unaddressed so far under the MOU.
There are also concerns about the PRA and the FCA having separate rule books. Where will firms look to receive the clarity that they will require to understand how the process works? Worries have also been expressed about whether the memorandum of understanding is indeed the right place to put the co-ordination of matters between the PRA and the FCA, especially as people have described them as being vague. Perhaps more detailed provisions under a statutory order with oversight from the Treasury would have been more appropriate to make sure that the process works in practice.
I want to express a brief worry about the statutory deadlines to determine applications because they remain unchanged at six months for a complete application and 12 months for an incomplete application. There is concern about a more cumbersome process and whether the regulators will be able to achieve that timescale. I look forward to hearing the Minister’s response to my comments.
The hon. Lady asked some detailed questions about clause 9. As she knows, it provides for the regulator’s powers and responsibilities relating to the giving of permission to carry on regulated activities. The Government recognise that, while the legislative framework is crucial, much will depend on the operational delivery of regulation by the PRA and the FCA. Respondents to early consultations highlighted the importance of an efficient authorisation process for maintaining an innovative, competitive and efficient financial sector, and overwhelmingly expressed a preference for an approach in which one of the regulators has responsibility for processing applications and for seeking consent from the other when appropriate.
The alternative of a twin-track process for applications under which an application has to be submitted to each regulator was considered potentially unclear and burdensome. The clause therefore provides for an efficient authorisation process, while delivering a clear role for each regulator, and transparency and certainty for applicants. The clause will replace part 4 of FSMA with proposed new part 4A. Proposed new section 55A specifies that the regulator responsible for prudential regulation of the applicant will manage the application process and ultimately decide whether to grant permission. For a new bank, which will be regulated by the PRA on a prudential basis and by the FCA for all other conduct issues, the PRA will be in the lead and the FCA will be responsible for all other firms. For dual-regulator firms, the PRA will be required to gain the consent of the FCA before giving permission.
The hon. Lady asked whether there should be changes in the statutory deadline process. We are keen to ensure that the process of application is not unduly delayed, particularly given the emphasis that we are placing on competition under the Bill. One of the ways of improving competition is by new people coming into the market, so extending the deadline for the application process might delay the entry of new entrants. A dual-regulator firm requires the PRA and the FCA to work closely together on the operational procedures to achieve that result.
The hon. Lady talked about the interviews for individuals and their influence function. Clearly, there are detailed provisions in that respect and who will take responsibility again depends on the nature of the function and who is the regulator. Clarity is important. We talked earlier about the need to ensure that the process, when there are two regulators, works efficiently and effectively not only in the interests of the regulator, but of consumers. I hope that I have dealt with the issues raised by the hon. Lady. If I have missed one, I shall come back to her.
I thank the Minister for that. Our concerns relate to the practical application of the procedures. I am happy to hear him talk more about some of that. There are still concerns around the statutory deadlines and whether problems will emerge with them, but I hear what he is saying about the need to move on with those. I retain some concerns about the use of the memorandum of understanding. These things, as I indicated earlier, always look as if they are sensible and helpful when they are on bits of paper, but the real test will be on how they work in practice. The dual-regulated firms are still concerned about how that will take place practically. In light of the Minister’s comment at this stage, it would not be helpful to oppose the clause standing part of the Bill, so I will not press it to a vote.