Clause 33 - Suspension and removal of financial instruments from trading

Financial Services Bill – in a Public Bill Committee at 9:30 am on 15th 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)

It is good to see that we are making some progress. I hope to continue in that vein, although I want to put a few important points on the record. Clause 33 introduces certain requirements and allows the FCA to require an institution to suspend or remove a financial instrument from trading in order to protect the interests of investors or the orderly functioning of the financial markets. The changes are generally uncontroversial, but some areas need particular scrutiny.

Section 313C(3) in part 18A of FSMA contains a requirement that if the FCA

“receives notice from the competent authority of another EEA State that that authority, pursuant to Article 41.2 of the markets in financial instruments directive—

(a) has required the suspension of a financial instrument from trading, or

(b) has required the removal of a financial instrument from trading”,

the FCA must require the relevant exchanges or multilateral trading facilities that it regulates to suspend or remove such financial instruments from trading, unless such a step would be likely to cause significant damage to the interests of investors or the orderly functioning of financial markets.

We are looking for some clarity from the Minister. For example, if an EEA state were to decide that some trading derivatives, such as sub-prime mortgage backed securities or credit default swaps, should be suspended or removed from trading, but the FCA decided that that suspension or removal would likely cause damage to the interests of investors or the orderly functioning of financial markets and so decided not to suspend or remove the financial instrument, that would cause a huge asymmetry in the global marketplace, so I would like the Minister to respond to the following questions. What would be the consequences of such a decision? Does the Minister agree that if another competent authority in another state wanted to suspend or to remove a financial instrument, there would be a reason for that? If the suspension or removal of an instrument were to destabilise the markets, would the FCA not be required to consult the Financial Policy Committee or the Treasury to ensure that it would not need to step in with its emergency macro-prudential toolkit? What consultation measures would the FCA need in order to refuse to suspend or to remove a financial instrument from trading?

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

The clause is very simple, because it substitutes “FCA” for “Authority” and “FCA’s” for “Authority’s”, and the relevant powers have been in FSMA for some time. There are times when we need to allow the regulator to exercise its judgment and to consider whether the steps taken by a competent authority in another EEA member state are appropriate, and processes will be in place to deal with that. On systemic risk, the FCA will clearly need to consider the consequences of its actions and whether it needs to discuss them with the FPC if there is a threat to financial stability, but I am confident that the proper processes are in place for that to happen.

Photo of Cathy Jamieson Cathy Jamieson Shadow Minister (Treasury) 9:45 am, 15th March 2012

I thank the Minister for that response, but we have put such issues on the table because we have been keen throughout the Bill to ensure that where the arrangements are fairly complex—notwithstanding that for the Minister and others who are directly involved it may seem that all the ducks are in a row, so to speak, and that people will understand it—the important oversight processes are in place. I understand what the Minister says about allowing the regulators and appropriate authorities to make such decisions and judgments, but, none the less, looking at the overall picture, we are keen to ensure that everything possible is in place wherever there are difficulties or anything that needs to be resolved.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Clause 34 ordered to stand part of the Bill.