Clause 10 - Passporting: exercise of EEA rights and Treaty rights

Part of Financial Services Bill – in a Public Bill Committee at 7:30 pm on 6 March 2012.

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Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury 7:30, 6 March 2012

The hon. Lady has raised important issues. One of the benefits of the European Union is the ability for firms authorised in one member state to do business in another through the passporting arrangements. It is vital to have clarity about the responsibilities of different aspects of the regulatory structure and to ensure that we know precisely what is happening, given the varying nature of firms.

Regarding the draft memorandum of understanding on co-operation, we have sought to look at passporting in subsection (3), so that we are clear. In situations where an institution passports inward via the banking consolidation and insurance directives, the PRA will be the lead regulator and the FCA may make representations.  If the passporting is under other directives, the FCA will be the lead regulator. However, the PRA may make representations in certain circumstances, when the applicant firm is in the same group as a PRA-regulated firm. It is likely that the groups such activities will be well aware of where the division of responsibility is.

To be clear, the FCA will supervise the market conduct and consumer protection elements of any incoming firm’s business. The PRA will scrutinise the safety and soundness of the incoming firms that would normally qualify for PRA regulation, but working closely with the home state supervisor so that they can co-ordinate action when the activities of passporting firms cause a financial stability risk. The reality, as I think the hon. Lady indicated, is that the most prudential regulation of an inward passporting firm rests with the home state, except for the setting of liquidity standards. I think the boundaries are clear.

The hon. Lady referred to the powers of intervention, which are exercisable only when the home regulator has failed to act. One would expect such interventions to be very rare indeed, but it is right that when there is an intervention that might have a prudential impact, the PRA is involved, and that is the point of the consultation.