Good afternoon, Mr Howarth. It is a pleasure to serve under your chairmanship once again. I am sure that we will continue to make good and steady progress during the rest of the afternoon with the co-operation—if I can use that word—of all.
Clause 24 deals with the important issue of control over authorised persons, and it provides another example of the twin peaks of regulation, which is a theme that has been running through much of our debates. In this case, however, one of the twin peaks or mountains seems to be higher or more important than the other, particularly when it comes to approving or objecting to an acquisition.
In proposed new section 187A of FSMA, the FCA has directive powers over the PRA as regards objections to an acquisition. The FCA can direct the PRA to object to the acquisition or direct the PRA not to approve the acquisition unless it does so subject to conditions specified in the direction. However, there are limitations on the FCA’s power to give directions. The FCA can only give directions if it considers that there are reasonable grounds to object to the acquisition. The grounds for objection can only relate to the risk of money laundering or terrorist financing, as per section 186(f) of FSMA. The FCA must notify the PRA of its intention to give a direction before doing so. Can the Minister imagine any other conditions where there might be reasonable grounds to object to an acquisition? For example, given the FCA’s duty under new section 1B of FSMA, which is proposed in clause 5, to discharge its general functions in a way which promotes competition, unless this would be incompatible with its strategic and other operational objectives, would the Government not consider it appropriate for the FCA to consider the impact of an acquisition on competition issues, even within the constraints of the EU acquisitions directive? While the Minister contemplates that and comes to a conclusion, I have a couple more questions.
There are even further restrictions on the FCA giving directions as highlighted by proposed new section 187A(7) to FSMA, which states:
“Directions given by the FCA under this section are subject to any directions given to the FCA under section 3I.”
That section is, of course, proposed new section 3I in clause 5, which is titled, “Power of PRA to require FCA to refrain from specified action”. The section also gives the PRA the power of veto over the FCA. I hope that people are still following, because I must admit that it took me some time to work my way through it. The proposed new section allows the PRA to direct the FCA not to exercise a regulatory power in relation to a PRA-authorised person or not to exercise it in a particular manner, if exercise of the power might threaten the stability of the UK financial system, or lead to a failure of a PRA-authorised person in a disorderly manner, and the PRA considers that giving a direction is necessary to avoid that consequence. I raise that because the Treasury Committee has already highlighted it as a concern. Paragraph 96 of its report on the FCA states:
“By granting a veto right over decisions taken by the FCA to the PRA, the Government risks both the perception and reality that the FCA ranks below the PRA and is a second class regulator.”
Some of those concerns have come out in discussions already and it relates to the point with which I started: one peak being higher than the other or, perhaps, in a more Orwellian setting, one regulator being more equal than the other.
The Treasury Committee has argued against the power. It believes that if veto powers are granted, they should be granted to the FPC rather than the PRA. According to the Treasury Committee report of 27 February, “Financial Conduct Authority: Report on the Government Response”, the Government
“expects the veto to be used in exceptional circumstances”.
The Committee states in paragraph 14 that it believes the Government are missing the point:
“The issue of principle of a PRA veto over FCA actions is not dependent upon how often the veto is exercised. The Committee still considers that the veto should be granted to the FPC rather than to the PRA. If the Government were to proceed with the introduction of a veto power for the PRA it should be subject to a statutory requirement for retrospective review at a later date.”
Will the Minister address that specific point? Does he believe that the statutory requirement for review is adequately in place, and if not, how will he address the concerns?
The PRA must consult the FCA before giving a direction, and the direction and reasons for giving it must be given to the Treasury. The Treasury must lay that direction before Parliament, and the PRA must publish it, unless the PRA considers that it would be against the public interest to do so. Given that the theme of openness and transparency has run through the legislation, can the Minister say under what circumstances it would be appropriate for the PRA and not the Treasury to determine whether something was against the public interest? Under what circumstances would the Government not have a say?
The hon. Lady raises some helpful points. On the areas where the FCA can intervene, she raised a particular issue about the pursuit of its competition objective. Where there are concerns about competition, the people best placed to make decisions are the competition authorities. Their remit is to look at acquisitions to see if there is a significant increase in market share and so on, so that is clearly a matter for the competition authorities rather than the FCA.
Are there other grounds to object to change of control? Grounds to object are limited by European directive, and that is in part to create a level playing field in a single market. The Bill is not the place to add new grounds for objection; everything should be done within the framework of competition law.
On the veto, let me say briefly that I wholly reject the idea that the FCA is a second-class regulator. The FCA will touch more people’s lives than the PRA, it will have much greater influence on how we buy goods and services, what we buy and whether we get a good deal. Prudential regulations are at the forefront of our minds at the moment, but let us hope that the banking and insurance systems move to a point where we do not need to worry that much about the prudential side and consumers can focus on whether they get a good deal.
I do not believe that the FPC is the right body to exercise a veto. It will not have a detailed knowledge of the circumstances of individual firms unless it replicates the micro-prudential activities of the PRA, and that would not be a great idea. We have talked about the cost of its doing that, which would be expensive. In my magnanimous style, I said—
I was being sarcastic rather than modest, which I say to avoid such criticisms from Opposition Members.
During the debate, I said that we should come back to the point about who decides what goes into the public domain. It should not necessarily be the joint decision of the PRA and the Treasury. We should look at the arrangements to remove the bias towards non-disclosure, given that the thrust of our reforms is in favour of disclosure. I hope that I have reassured the hon. Lady.
The Minister’s clarification has been helpful, particularly on the EU acquisitions directive and competition, and how such matters will work in practice. I hear his comments about the FCA touching more people’s lives, and I heard murmurs—if not of approval, then certainly of agreement—from Opposition colleagues.
We have tried to make the important point that the Treasury Committee raised such concerns; they have not simply been thought up to make the Minister ask for more notes and have to think on his feet. The Treasury Committee has raised those issues, and I hope that its members, who were involved in producing its report, feel that they have been given assurance on those points.
I also hear what the Minister has said about who decides what goes into the public domain and what is in the best interests of the public. I am grateful to him for listening to that point, which is important. He referred to decisions being made jointly and to how else they might be arrived at, and I am sure that he will enlighten us with his thoughts during further debate on the Bill. He has given us reassurances and clarifications, and therefore I do not intend to oppose the clause.