We agree in principle with the intention to simplify powers but, as I have indicated, the Bill is not necessarily an example of such simplification. We do not agree with the so-called simplification in clause 29, as a result of which the Bank and the FCA will no longer need to bring to the attention of members of the recognised body, or of any other persons they consider likely to be affected, their proposal to issue a direction or revoke a recognition order.
Other organisations such as the Solicitors Regulation Authority at least recognise the possible need to notify interested third parties. On its website, the SRA states that it may revoke the recognition of a recognised body in specified circumstances. It explains how people would be given 28 days’ written notice, with reasons, of the decision, and that the revocation would take effect on the expiry of that notice. Importantly, the SRA highlights the fact that if it considers it to be in the public interest to do so, it may notify specified third parties of its decision. The SRA sets out the third parties who may be notified of such a decision.
Will the Minister explain why it would be beneficial to the financial system for a regulator to give a direction under section 296, or to make a revocation order under section 297(2) or (2A), only through written notice of its intention to do so to the recognised body concerned? Why do the Government believe that a reduced level of publicity around such a direction or revocation would be beneficial? Does the Minister not accept that the regulator should have to ensure that relevant third parties be made aware of its proposal to issue a direction or make a revocation order? It seems counterintuitive to suggest that notification of third parties would not be in the public interest and would not support the achievement of the regulatory objectives.
We agree with the premise that the appropriate regulator can prescribe a shorter period than is currently the case under FSMA if the Bank or the FCA needs to act urgently in the interests of addressing a potential threat to financial stability. Should there not be a point of procedure, however, under which the regulator must at least notify the FPC? The FPC is ultimately responsible for financial stability and—as outlined in proposed new section 9C(2) and (3), in clause 3—has a responsibility to identify, monitor and take action to remove or reduce systemic risks
“with a view to protecting and enhancing the resilience of the UK financial system.”
“systemic risks attributable to structural features of financial markets, such as connections between financial institutions”.
If a matter regarding a clearing house or an investment exchange was so urgent that the period of two months previously prescribed under FSMA was not enough time to make a representation, it would seem clear that some of the fabric of the structural features of the financial markets was under threat and that the FPC should be notified. If the matter was so urgent that the appropriate regulator—if, as amended section 298(7) of FSMA will state, it “reasonably considers it necessary”—could give a direction without following the procedure set out in section 298, we would consider it even more crucial to let the FPC know. Will the Minister explain the procedures for regulatory co-ordination—we are back to that whole issue—under those circumstances? Will he describe a situation in which he believes that the need to give a direction or to revoke a recognition order to a clearing house or an investment exchange would not be of major concern to the financial system? Will he explain why, if a case is so urgent that the proper procedure does not need to be followed, it need not be an issue of a possible regulatory failure? We believe that, if the case is urgent, the regulator must carry out an investigation into the events and circumstances, and report back its results to the Treasury, as is set out in part 5 of the Bill.
On the first issue, about the omission of provisions in section 298 of FSMA, the original vision harks back to a day when people had to be members of a stock exchange, for example, to trade. A stock exchange or a multilateral trading facility is now just a platform on which people can trade, so there is no need for the requirement to notify those who trade on such a body, as if they were members of it. The provision brings the legislation up to date because, as it reflects the current trading practice, such a requirement is no longer necessary.
On notification of the FPC, the reality is that, if we think of a world with several different trading platforms for shares, in which one platform represents 1% of the turnover, the FCA might decide that the problems of that exchange are so fundamental that it has to act immediately, but that will probably not impact on financial stability, because the platform deals with only 1% of the trade. The regulator—whether it is the FCA for an exchange, or the Bank of England for a clearing house—needs to think through whether there is a real threat, and if the regulator acts urgently, it does not necessarily follow that there is a threat. In the same way, if the FCA decided overnight to prevent a product from being sold, we would not expect that to create a threat to financial stability that had to be referred to the FPC. A proportionality test has to be applied.
I hope the hon. Lady will allow us to move on to the next clause.
I shall be brief. I hear what the Minister is saying, but I am not entirely persuaded that, for something so urgent that the normal procedures do not have to be used or can be suspended, other people would not want to be made aware of it. On the proportionality test, I again comment that there are many requirements for co-ordination—for people to discuss things with one another—in making decisions, but ultimately the public want to be reassured about who makes the decision, how that decision is conveyed and that those matters are done correctly. That theme runs through the whole Bill, but I do not want to oppose the clause.