Clause 18 - Penalties for breach of part 6 rules

Financial Services Bill – in a Public Bill Committee at 9:30 am on 8th March 2012.

Alert me about debates like this

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

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury) 9:45 am, 8th March 2012

The clause is very short, and it would change section 91 of the Financial Services and Markets Act 2000 with respect to penalties for breach of part 6 rules. Those rules are mostly related to listings arrangements. It brings into focus the general question of the appropriate nature of penalties for breaching any series of Financial Conduct Authority rules. It is appropriate to discuss only listing arrangements in relation to the clause, but we could characterise the provision as a statute of limitations.

Under part 6 rules, the listings authority—in this case, the FCA—would issue a warning notice, and the clock would start ticking over a period during which a judgment must be taken and a penalty for an infringement be made. Presently, after a two-year period has expired, no penalty can be applied. The Bill will extend the statute of limitation to a three-year period. Will the Minister explain the rationale behind choosing a three-year rather than a two-year limit? Why has he not gone for a four-year limit? Some cases are exceptionally complex. If they end up being referred to the legal system, the process might be onerous and voluminous and take a considerable period of time. Why did he not take this opportunity to change the limit to four years for safety’s sake? Why has a three-year limit been chosen?

My other question for the Minister is about the nature of penalties, particularly those relating to listings infringements. What sorts of penalties can be applied? Are they simply fines? Can people be struck off? Can people even be referred to other areas of civil or criminal cases? What powers will the FCA have in relation to breaches?

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

Let me deal with the hon. Gentleman’s last point first, then I shall return to the two or four-year issue. He has asked about the penalties that can be imposed under section 91. The provision allows the Financial Services Authority to impose penalties for breaches of part 6 rules following a procedure. Penalties are in line with the usual FSMA model, and include warning notices, decision notices and references to the tribunal if a person does not agree with the FSA’s decision. The full range of powers is available, as it would be for any other breach of FSMA, so I hope that reassures him.

The hon. Gentleman has made an interesting point about the time periods. If we did not make the amendment there would be a discrepancy in proposed new sections 88A and 89Q, which refer to a three-year period, so clause 18  brings the measure into line. He asked, “Why three years?” There is a careful balance to be struck. As he said, when a notice is published and the clock starts ticking, there is a risk that if someone were to use judicial review or other delaying tactics, time might run out, so a longer period would help enforcement. However, if a period is too long, uncertainty is created in the eyes of the regulated firm, which might lead to procedures being overly protracted.

It is worth reflecting that when the Bill that became the Financial Services Act 2010 was debated before the general election, clause 17 proposed increasing the limitation period from two years to four years. People were concerned that extending the period to four years was unreasonable. My noble Friend Baroness Noakes tabled a Lords amendment to stop the increase in limitation period, but the hon. Gentleman’s noble Friend, Lord Myners, tabled another to increase it to three years, so he rode back a bit on the four-year extension. The amendment proposed by Lord Myners was accepted in the wash-up. It was a Government amendment. The amendment tabled by my noble Friend Baroness Noakes was not accepted; some things do not change, I am afraid. I think there is consensus on three years being a reasonable period.

Photo of Chris Leslie Chris Leslie Shadow Minister (Treasury)

I understand that there has been a history of debate in the other place on the matter, and I do not want to duplicate those debates. However, it is important to put on the record that a three-year process sounds reasonable. I hope that the Minister will keep the issue under review in case we find people escaping the system, perhaps because they have dawdled for too long.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.