Clause 13 - Further amendments relating to performance of regulated activities

Financial Services Bill – in a Public Bill Committee at 8:28 pm on 6th March 2012.

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Question proposed, That the clause stand part of the Bill.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

Again, I hope that I can cover the points of concern fairly briefly. The clause introduces schedule 5, which amends part 5 of the FSMA, consequential on replacement of the FSA by the new regulators. Part 5 of the FSMA is entitled “Performance of Regulated Activities”, and relates to prohibition orders, approvals, disciplinary actions, penalties, statements of policy and procedure and the statement of principle on conduct codes.

In discussions on previous amendments, I outlined some of the concerns about the FCA and PRA time frames for approving persons holding control functions. The FCA and PRA are each meant to issue statements or codes of practice governing approved persons. I have some questions for the Minister. First, if we wade through the changes, we see that it appears that the process for approving a person to hold a control function can be extended to six months if it is related to a new firm seeking authorisation for its business. The worry is that that might lead to an unnecessarily long time being taken in approving an individual. Such individuals might have left their previous jobs and be waiting for the regulator to decide whether to approve them. Does he agree that it may be better for people to know sooner rather than later, so that if, for whatever reason, they were not approved, they could look for another role? People have asked whether the provision would impede the creation of new firms and employment in the city.

Secondly, does the Minister agree that it would be more efficient for firms if the regulators were required to issue joint statements and codes of practice? There will probably be a significant degree of overlap and room for inconsistency if they continue to work separately.

Thirdly, a key point is that although the regulators must publish statements and codes of practice, again, there does not appear to be real accountability to or oversight by the Treasury or Parliament on the codes’ content. For example, the regulators appear to be able to change them at will. Will the Minister explain why he believes that there should be no accountability to the Treasury in relation to codes of practice?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

On the hon. Lady’s final question, there comes a point when the regulators need to design their own codes of practice. They do not need to be accountable to the Treasury for those. In the Bill, the Government have set broad frameworks around the perimeter on the types of powers and processes we expect to see, and we have set statutory deadlines. Once the framework is established, it will be important to allow the regulators to get on with their job within it.

The hon. Lady has raised some helpful points. She identified the risk of a process being delayed or logjammed, particularly if both regulators have to agree every significant-influence function. The reality is that the PRA and the FCA are under a duty to co-ordinate, which covers all their functions, so the Government expect the two authorities to be in a single administrative process for the significant-influence function applications, taking into account the statutory deadline within which they have to work. The Bank and the FSA have published a draft MOU that provides additional details about how regulators will co-ordinate their activities to achieve their distinct objectives. The MOU also reassures firms that the new regulators will set up efficient processes to manage the input of both authorities where that is required, and will work together to minimise any unnecessary duplication or logjams.

On the point about unnecessary duplication, what constitutes a fit and proper person will be slightly different from each regulator’s perspective. For a dual-regulated firm, the FCA is interested in the firm’s relationship with customers and its awareness of customer issues from a conduct perspective, but the PRA will look at the firm from a prudential perspective, so the regulators will have different views. It is important for them to have not only a common core to avoid unnecessary overlap, but sufficient distinction to enable both regulators to fulfil their duties, which is why clause 12(4) provides for each regulator to have its own code.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 8:45 pm, 6th March 2012

I want some clarity about the common core and how that core will be agreed given that there are two separate sets of rules.

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

That is why co-operation between the PRA and the FCA is important. They are under a duty to co-operate and co-ordinate, and it is in their interests to make the application process as painless as possible  for the applicant, particularly the sheer paperwork part of the process, so they also have an incentive to co-operate. In earlier debates, we referred to the proportionality duty that applies to the regulators in respect to burdens that they impose on others, and to the requirement on them to co-operate in having regard to efficiency and the best use of resources. The duties for proportionality and efficiency, with the provision to co-ordinate on application processes, will drive the two regulators in the direction of both being efficient and meeting their regulatory objectives.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

That clarification has been helpful, although I still have concerns about the crossover of core functions and how that core will be agreed. One difficulty, when people are under a duty to co-operate, is to ensure that there is oversight of that co-operation and that there is a productive outcome. People who have separate rulebooks could co-operate, but they might eventually agree to disagree, which is my concern.

The Minister has not given us an answer to my question about the time scale. How will we ensure that all the required work is done within a reasonable time scale?

Photo of Mark Hoban Mark Hoban The Financial Secretary to the Treasury

The hon. Lady makes an important point, but we should reflect on the need for balance, particularly in relation to a new business. That time scale is a subset of a longer set of other processes for the authorisation of a new firm. It is important that regulators carry out proper due diligence, particular when a new firm is established, to make sure that it meets the codes of the PRA and the FCA. We need to ensure that we do not get the cart before the horse, so that we do not have a situation where the regulator is required to determine an application for approval before it has determined an application for authorisation. I agree it creates some uncertainty, but I suspect the uncertainty about whether a firm would be authorised is probably greater than whether a person would be approved.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury)

I am grateful for that clarification. The final issue I want to put on record is our concern about the oversight by either the Treasury or Parliament. On every occasion that we have tried to increase transparency, or give Parliament the opportunity in the Bill to oversee a process or have a report, the Minister’s view has been that it is in the Bill, it has already been done or we do not need it. I am concerned that it seems the regulators can change at will some of the statements in the code of practice without there necessarily being any oversight. I have heard what the Minister has said and I am sure we will come back to the matter.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.