Joint Committee on Financial Services and Markets Minutes of Evidence

Examination of witnesses (Questions 100 - 119)



Mr Heathcoat-Amory

  100.  Can I bring you back to this issue of statutory immunity. It is not absolute that they will not be protected where they are acting with malicious intent, for instance, although I do note that that defence will not exist for the public who come under their scrutiny, for instance market abuse, in that they could be found in breach of the rules even if they did not intend to commit market abuse. The central fact here surely is that the FSA is a private company and it has huge powers of investigation. For instance, in some cases it can enter premises without a warrant. It can also levy unlimited fines, deprive people of their livelihoods. This is quite different from the police, for instance, who do not have statutory immunity. After the Lawrence investigation recently it has actually been proposed that the police should come under some additional legislation. I am not quite clear why you are setting up a new body with these quite awesome powers which are not subject to the laws which the rest of us are.
  (Ms Hewitt)  I think we need to be very clear that we are not doing anything new in this Bill. The Financial Services Act 1986 gave precisely the same immunity to the predecessor body, to the SIB, and it did so for the very good reason that if the financial services regulator and the officers of the regulator have to spend all their time worrying about the possibility of what may be an ill-founded or malicious negligence action against them then we will tie the regulatory process up in red tape and lawyers and that will be extremely expensive for the industry as well as for the regulators and it will seriously undermine the capacity of the regulators to deal with inefficiency, incompetence or worse within this very important industry. Let me give you one very topical example. You will have seen in the Financial Times this morning that the FSA has threatened 12 major firms with having their authorisation withdrawn if they do not sort out their Millennium Bug problem because they are not up to speed on that issue. The FSA would find it virtually impossible to wave that kind of potential sanction against firms if the firms had the option of saying "you are threatening to shut me down, I am going off to sue you for negligence". That is why Parliament, as well as Government, in 1986 decided on the immunity from negligence actions where the FSA was acting in good faith, and I do stress that. That is why the Supreme Court in America, when an action for negligence was brought against the British regulator but brought in the American courts in an attempt to get round the immunity that exists in this country, having regard to the fact that Parliament had given this immunity, having regard to the fact that immunity existed in the USA, said that the action could not succeed and indeed could not proceed. Finally, if I may, Chairman, can I just draw your attention to the fact that in 1986 the Minister for Corporate Affairs said on the relevant provisions of the then Financial Services Act, on the Bill, that "a regulator will face a number of difficult choices in deciding when to act. One of the most difficult issues is deciding whether to withdraw a business's authorisation and supervisors should not have the threat of a negligence action hanging over their head when taking difficult decisions. If they do then the quality and effectiveness of regulation and the interests of investors will suffer."[

The Committee suspended from 4.02 p.m. to 4.11 p.m. for a division in the House of Commons.

Chairman:  I would like to move on to the next section of objectives and principles although I hope we can get through this reasonably quickly because there are issues about discipline and enforcement that are very much on people's minds. You said in your opening remarks that you think there is some clarification needed in the question of objectives as you mentioned in the progress report. You thought you had it broadly right and we just wanted to put two or three questions to you on that. Mrs Blackman?

Mrs Blackman

  101.  Minister, there has obviously been a lot of discussion about the definition of consumer and the principle of caveat emptor which I think the industry expects more of a consumer organisation. You acknowledge that there are some difficulties in your progress report but you did not state where you are in terms of any revisions you would see as being helpful.
  (Ms Hewitt)  What we are trying to do with the caveat emptor clause is to say that consumers, although they have to be protected, also have a role to play in protecting themselves in particular by having a responsibility for decisions about their financial arrangements. We also, of course, want to encourage and enable the FSA to differentiate between different categories of customers and counterparty. That is, we believe, the effect of the clause as currently drafted but clearly it has not been understood in that way and therefore we are looking at it again to see whether we and the Parliamentary draftsman can come up with a better form of words that will make those intentions clear. The caveat emptor clause is not there to let the industry off the hook, but equally we do not want a situation to arise where consumers believe that wherever they put their money and whatever decisions they make they will always be protected. They will need to have that responsibility for the decisions they make.


  102.  Will we have the redraft of this before we finish our deliberations?
  (Ms Hewitt)  I will certainly do my best to make sure that you do. We are to some extent in the hands of the Parliamentary draftsman but we are trying to get the redrafting done as quickly as possible.

Chairman:  It is probably sensible to leave that for now. Lord Eatwell had a question about systemic risk.

Lord Eatwell

  103.  I must confess I am puzzled by the statutory objectives as set out by the FSA particularly objective number 1: "maintaining confidence in the financial system,", which it seems to me covers issues of probity, of honesty and of the absence of market abuse. What it does not cover is the regulator's main job which is managing systemic risk. Since the management of systemic risk is one of the fundamental tasks of the FSA set out also in its Memorandum of Understanding with the Treasury and Bank of England, I really do not understand why it is not one of its objectives. Let me explain why I am particularly worried about this. It is because the management of risk is a crucial element in directing the energies of the FSA to maintain its understanding of market innovation and the implications of market innovation for the economy as a whole. The absence of managing systemic risk as one of the statutory objectives undermines the position of the FSA.
  (Ms Hewitt)  This is an extremely interesting point and I have had the benefit of reading your paper on proper objectives not only of the national regulators but also what we need to do in terms of the global financial architecture. Of course, at the global level what we are putting in place, in part as a result of the initiative of our own Chancellor, is a financial stability forum that brings together the IMF, the World Bank, the Basle Committee and so on to fulfil that function of managing and trying to avert systemic risk within the world financial markets. At a national level we have what seems to me to be a parallel arrangement contained in the Memorandum of Understanding between the Treasury, the Bank of England and the Financial Services Authority. The position that we have now in this country, and I believe it is the right position, is that these three institutions between them have a joint and shared responsibility for the common objective of financial stability and dealing with systemic risk. The Memorandum of Understanding—and obviously I would be delighted to supply the Committee with a copy if that would be helpful—does state quite specifically that the Bank will be responsible for the overall stability of the financial system and I think this is because the issue of systemic risk and financial stability taken as a whole goes wider than the powers and reach of the FSA, wide and important though those are, and the Bank has this crucial role because it is responsible for the stability of the monetary system and it is responsible for crucial parts of the financial infrastructure including the payments system. The Treasury has a different role. It brings to the joint panel on the issue of financial stability the information and expertise acquired, for instance, through our membership of the IMF and the World Bank. The Treasury of course also has a crucial role in terms of, through the Chancellor, deciding whether or not public funds should be committed to deal with potential banking collapse, for instance, which would indeed threaten systemic risk. And then the FSA certainly has a role, a crucial role, to share market information with the other two organisations and its own responsibility as the financial services regulator to contribute to the management of systemic risk and the achievement of financial stability, but I would say that that is a shared and common objective rather than one that needs to be given to the FSA alone.

  104.  Yes, but I am slightly puzzled about that because, as you quite rightly say, in its regulatory role the FSA has considerable responsibility for management of systemic risk. For example, the statement just today about the Euro 2000 is not just to protect consumers, but it is to make sure that the banking system does not collapse. Similarly, capital adequacy requirement, the value of risk modelling, the whole drive of ensuring that companies take risk effectively into account, which is a regulatory activity, is central really to a whole body of what the FSA does, yet when we look through the objectives we find that promoting public understanding is elevated above actually making sure that the financial system does not collapse.
  (Ms Hewitt)  The regulatory objectives are not put in any order of importance, but I think what you have said reinforces the point that a very large part of the FSA's activities are in fact directed towards managing systemic risk and that is in a sense embedded within their function and you have described indeed what it is that the FSA brings to the party, to the joint forum of the Treasury, the Bank of England and the FSA. I do not see that anything would be gained by adding this as a separate statutory objective, but of course if the Committee feels that that is going to add something that is not already there, then of course we will have a look at it.

Chairman:  I think that is probably as far as we can take it today. One of the other issues about the objectives which has been very much raised has been about competition.

Lord Trenchard

  105.  Minister, in your introductory remarks, you recognised the importance of the City representing 7 per cent of GDP and more than a million jobs and I was heartened to hear your recognition of the need for light-touch regulation where possible. You said that you had got the balance between the objectives about right. I am, therefore, rather surprised that you have not responded positively to the many suggestions that have been made to include the improvement or the maintenance and improvement of competition and the maintenance or enhancement of international competitiveness as objectives in their own right. Indeed, these two are included only in the principles and you have said that the order is not important, but it did not escape my notice that they are fifth and sixth in the list of six principles. Looking at the objectives, maintaining market confidence is obviously a proper objective of the regulator, although it is one which it shares obviously with others, like the Bank of England and the Treasury, and obviously the protection of consumers and the reduction of financial crime are essential objectives of the regulator. Public awareness, which includes the promotion of awareness of the benefits of investment and provision of advice, is, I think, a fairly broad and open-ended objective for a regulator, so I am surprised that in comparison with that, and obviously it is highly desirable that everybody should be educated all about the investment opportunities in the derivatives markets, but I think that the costs involved in providing such an education would in fact be prohibitive. Now, your progress report suggests that keeping competition and the maintenance of international competitiveness in the principles would be sufficient. I rather doubt it, but if you think, as you say, that maintaining a regulatory regime under which the City can thrive is of paramount importance, why take the risk? Why not include it there as a proper objective in its own right? The City has been extremely successful for many reasons. One of the greatest of the City's successes was the attraction and the retention of the eurobond market. The reasons the eurobond market came here, as I am sure you are aware, Minister, are that the tax and regulatory regimes here compared with those in the United States were much more favourable. Looking at the regulatory regime, the lightness of touch of the regulatory regime in the City was absolutely key in this and I think that if we have too heavy a regulatory system, it may well damage the City. If it is a proper objective of the regulator to promote awareness and education, surely it must be an equally important and proper objective to maintain international competitiveness?
  (Ms Hewitt)  What shall I say? No and then yes, I think, meaning yes, I agree with most, if not all, of your general points about the importance of competition and the contribution that good regulation can make to that and to competitiveness, but no, I am not convinced that including competition and competitiveness as objectives in clause 2 is the right way to go about it. The reason for that, and we have thought about this very carefully again in the light of the consultation, is that the FSA's primary role is the protection of consumers and markets. We have a competition authority in this country and it is the Office of Fair Trading and they are the experts charged with enforcing competition policy and indeed we are strengthening it through the Competition Act 1998, so we think it is right that they should continue to carry out the function of a competition authority in the financial services industry as in every other part of the economy. What we do believe, and that is reflected in clause 3 on the principles, is that in carrying out all its work in pursuit of its objectives, the FSA must indeed have regard at all times both to competition between authorised firms, between players in the marketplace, and the overall competitiveness of Britain's financial services industry within the global economy, but I think it would be a pity to create confusion about where competition issues actually sat and create a potential overlap between the OFT and the FSA. I am also concerned that if we just keep adding to the number of objectives that we are giving the Authority, we will weaken the accountability of the Authority because inevitably objectives have to be balanced against each other and if there are too many of them, then I think we risk weakening each of them.


  106.  I am conscious that we seem to be suggesting adding to them rather than subtracting from them.
  (Ms Hewitt)  Perhaps I should, if I may, just say one word or a few words about your comment on public awareness. We are not envisaging educating people about the derivatives market, but the problem is much more basic than that and as Treasury officials informed me shortly after I arrived in the Treasury, 50 per cent of the British public do not know what 50 per cent means, and the annual percentage rates, the APR——

Mr Heathcoat-Amory

  107.  That is a typical Treasury piece of information!
  (Ms Hewitt)  It is one of those great facts that goes down very well when you get people thinking about it, but let me show you what this means. We have a very helpful system in this country that lenders are required to publish APRs so that people can see what the real rate of interest is that they are being charged and not have it concealed within some misleading headline rate. There are many people in this country who believe when they look at APRs that if it is a big number, it must be good and if it is an even bigger number, it must be better still, so we have a real problem and it is very well established, I think, in economic theory and practice that well-informed consumers challenging providers are a very important source of competitiveness for the companies who serve those consumers.

Lord Trenchard

  108.  I think that is absolutely right, Minister, but is it proper that clients of wholesale firms involved in the eurobond market, many of them are foreign and they do not have retail consumers as their customers, so is it right that they should have to bear the costs of this education of retail consumers?
  (Ms Hewitt)  I think it is reasonable to spread the costs of the FSA's operation across the whole of the industry, but the FSA is currently consulting, I think, on its fees structure, so that may be a point which we may wish to consider further.

Chairman:  I would like to leave this topic now and move on to the question of discipline, enforcement and the Tribunal where there are a number of issues which are of interest to the Committee.

Mr Heathcoat-Amory

  109.  Minister, the European Convention on Human Rights hovers like a bee above this Bill and you have clearly made considerable efforts to comply with its judicial requirements and you have made or indicated some changes for the appeal structure, in particular, the procedures to be adopted by the independent Tribunal, but that still leaves the internal arrangements of the Financial Services Authority and I am a little concerned that it remains the case that the FSA will obviously have these investigative powers, and it will be not exactly making up its own rules, but it will have a very big influence on the rules it is enforcing and of course it can levy fines. I wonder whether if in all respects these do comply with the European Convention. I notice there has been a very important court case in France where the Supreme Court has ruled that the European Convention will apply to regulatory tribunals. Now, of course we are an entirely different legal jurisdiction here, but, nevertheless, I think that was a rather important court case. Do you yourself consider that the internal regulatory procedures of the FSA must be covered by the European Convention and do they yet comply? If they do not yet, can you give us an assurance that well before the end of our own proceedings you will be able to perhaps submit a rather more detailed reply even if you are not able to do so today?
  (Ms Hewitt)  Can I start by saying, Chairman, in response to that that of course we will ensure that the Bill that is introduced into Parliament is certified as being compliant with the Human Rights Convention. It is this Government that introduced the Human Rights Act and we will certainly ensure that this Bill, like other Bills, is Convention-compliant. Now, having said that, this is a matter on which there is quite legitimate room for disagreement between lawyers. As Lord Lester himself says in his very interesting opinion on this subject, the case law from the European Court of Human Rights in this area is complex and not always consistent. In relation to the French decision, I should say we have got that judgment in French, and legal French is particularly opaque, but obviously we will look at it in considerable detail. I think the important thing to note about the French judgment is that it was made on the basis that the COB's procedures were flawed because the staff member who presented the case, the prosecutor, as it were, also took part in the Tribunal's discussion and vote. Now, that would certainly not be possible under our arrangements. I might just note of course that the French courts do not provide rulings for the United Kingdom law on this point. There are several other things I think I need to address in relation to the Convention.

The Committee suspended from 4.32 pm to 4.41 pm for a division in the House of Lords.


  110.  Please continue.
  (Ms Hewitt)  I think the next point I wanted to make has to do with the internal procedures of the FSA and of course the FSA will have to publish its procedures and abide by them, but what we have ensured, and I think we spell it out in the progress report, is that the FSA at that stage, the internal stage, will have to explain to the person being investigated exactly what the basis of the case is. Evidence will have to be made available, the nature of the accusation will have to be spelt out, and the firm or the person concerned will have to be given a chance to come along and put their side of the case. Indeed Lord Lester himself notes that it appears that, for instance, the presumption of innocence within the Convention will not be infringed by action of the FSA before an appeal is heard. Now, the second point is what Lord Lester refers to as an appeal, but which is actually a first instance hearing in front of the Tribunal because what we are putting in place is this internal process, although including the Enforcement Committee, that will allow the FSA to make a reasonably rapid, reasonably informal decision. If the firm is content with that, and in many cases, and I have heard firms say this to me themselves, they say, "Yes, we got it wrong. We did not supervise the staff properly. We had not put in place the proper processes. We put our hands up and we pay the fine", and in that situation, where there is agreement by the firm about the action that is proposed to be taken, then it will simply be dealt with through that internal process and with the Enforcement Committee. However, where the firm, the authorised person is not happy with the action that the FSA is proposing to take or the basis of that action, then of course the matter will go the Tribunal for a first instance hearing and again in many respects or indeed in all of the crucial respects, Lord Lester indicates that that procedure, providing it is a first instance Tribunal, which it will be, is compliant with the Convention, and that is very important and the Tribunal, as I indicated earlier, is an independent, judicial body set up by the Lord Chancellor's Department, operating under the supervision of the Council on Tribunals and so on, so that is very important. Now, there are other Convention issues that really relate to the market abuse regime which we are still considering and of course we will let you have a further and more detailed view on this when we have had a chance to reflect further upon the legal position and obviously we will try and do that in good time given your own timetable.

  111.  Would it be fair to characterise this whole area as really following the same procedures that are already in place with the existing regulators, but, if anything, they have been strengthened by the introduction of the Tribunal?
  (Ms Hewitt)  We are indeed taking over some of the existing procedures, but of course they are not consistent as between the existing regulators, but we are improving them, I think, significantly and of course the Bill itself will set out some of the basic elements of that internal procedure, including, as I say, the opportunity to make representations and to see the evidence and so on. The FSA itself is consulting on those internal procedures. I think the period for comments on that has only just closed and we have not yet had the FSA's own conclusions and reflections upon that.

  112.  Do you have an open mind on the question of the status of the Enforcement Committee? I noticed that you moved to make two of the panels statutory bodies and you now have the proposal for the Enforcement Committee. Should this also be in the Bill along with the whole question of its membership and whether they have voting rights, et cetera?
  (Ms Hewitt)  The Enforcement Committee will be appointed by the Board and it will act on behalf of the Board. It will effectively be exercising the powers of the Board. Since, therefore, its entire legal being stems from the Bill, from the Act and from the existence of powers of the Board of the FSA, I do not think it would be necessary, and indeed it might not be appropriate, to give it a separate statutory existence.

Lord Poole

  113.  Could I ask you a question which relates quite specifically to a particular sort of case which I think there will be many of as a matter of fact. It relates to the protection of the individual because all too frequently firms want to get on and get everything done. They go to the FSA and they say, "Excuse me, we have discovered that such and such a thing has taken place. Our internal disciplinary procedures have been put into practice. Tell us what the fine is, and unless there is anything else you care about, we will get back to business", and the machine likes that sort of thing because it is a smooth, easy way of dealing with it, but at the heart of it there tends to be an individual who almost certainly is going to find himself unable to work again and there are quite a number of examples where this has happened where, paradoxically, the firms and the FSA are conspiring to whistle something through, but the individual rather gets left out. You might think that from me that is an odd remark, but actually we must really worry about that. It is not obviously a human rights thing, but it is very important that something should be in place to look after individuals in these difficult cases.
  (Ms Hewitt)  That is a very interesting point and one that the FSA might well wish to reflect upon as well in terms of its internal procedures. I think what one has to balance here is the fact that yes, an individual is the subject of the agreement between the firm and the regulator and the firm says, "Yes, we have got a chap in there. We should not have recruited him", or "We did not train him", or "We did not supervise him properly", whatever it is, "It's a fair cop and we will pay the fine", and almost certainly will get rid of the person concerned, and it is important that we have a regulatory system that can make those fairly fast, effective decisions. Of course, if the individual is cited, and that is what we are talking about here, where an individual is named in the disciplinary action against the firm, then he or she has the right to make representations of their own.

  114.  They are often not.
  (Ms Hewitt)  If they are not cited then on the face of it they would not be entitled to make a representation but if they are dismissed by the firm—and I imagine from what you are saying that that would be the normal consequence—then of course they do have the protection of the normal employment law, strengthened—strengthened, if I may say so—by the Government's new Fairness at Work Bill which we are about to introduce.

  115.  I hope you are right, maybe we can ask David Roe and his team to consider that a little bit more.
  (Ms Hewitt)  Fine.
  (Mr Roe)  Yes.

Mrs Blackman

  116.  You referred a few moments ago to a consultation exercise that has just taken place on enforcement, that has just closed, and responses are now being studied. Will those responses be available to us and be fed into the next revised draft Bill which is out fairly soon? It is a specific question about enforcement but it has a wider issue. I am just concerned that this Committee has access to conclusions to the various forms of consultations that have been going on as quickly as possible.
  (Ms Hewitt)  I completely understand that. It is very difficult to keep up with all the documents that both we and the FSA are consulting on. In this case the conclusions of the consultation will not necessarily feed into the revised draft Bill because what we think it is sensible to do here is put some basic elements into the Bill, the right to make representations, the right to see evidence, but we do not want to put all the detailed internal procedures into the Bill because, of course, then we would have to have primary legislation to amend them in future. What the FSA is consulting on is its own internal procedures which they will be under a statutory duty to publish, to consult upon and to follow. They will be bound by their own procedures. Of course they will be publishing the summary of responses, the conclusions of the consultation exercise and their own proposals in respect of them.

Chairman:  This is another area where we will be very interested to see what practitioners and consumers have to say. You have made a number of proposals on this whole area in response to the consultation and I am not sure we can take this much further until we have heard the other side of how people are responding to an issue where there has been a great deal of concern. Can I move on now to the question of market abuse where there are some similar issues which arise but nevertheless, as you say, it is a distinct issue of its own. Mr Sheerman?

Mr Sheerman

  117.  Minister, could I just start by saying that in the Progress Report, given the amount of interest that we have heard in terms of this section on market abuse in the Bill, it is a very short commentary. you mention in the overall aims that though a number would have preferred to see changes in the existing criminal regime rather than just the introduction of a new civil regime, when we came to the conference where we heard you speak last week and the evidence we took on Tuesday, it does increasingly bear upon us that this is a subject on which we are both very concerned. I wonder if you could clarify in a sense whether there are any further thoughts that the Treasury has on meeting this concern? There is this feeling that there is going to be the possibility of double jeopardy, there is going to be a feeling if you are not caught in one way you are caught in the other. I wonder in terms of a specific question, all of us want to cut out market abuse but we have got to be realistic in the sense that if companies fear heavy penalties they may feel that where they did not intend to abuse the market, unintended consequence, they fall foul of the FSA. Now we have had several explanations. There was a feeling in the Committee, taking the House of Lords totally, of "not content" fully with the remarks of the Chairman of the FSA on Tuesday on this. We would like a little bit more assurance on that matter. He made the point in passing that there are other parts of the law where you do not have to prove intent—dangerous and reckless driving and so on—which still causes injury and you can prosecute it of course under the law. I wonder if you could see your way clear of assuring the Committee that there is some further way to go of assuring those people in the markets that they are not in this situation?
  (Ms Hewitt)  Certainly I understand the strength of feeling on this issue and, of course, respect it. I think it is helpful just to start by clarifying, as it were, the two issues here. There is an issue about behaviour and there is an issue about people. In relation to behaviour, there is a category of behaviour called market abuse, abuse of the financial markets, which is a serious matter because it undermines confidence in the financial system as a whole and thus undermines all the objectives that we set out at the beginning. A sub set of market abuse constitutes criminal offences, criminal offences of market manipulation and insider trading in particular, although theft and fraud might come into it as well but clearly market abuse covers a range of behaviours that is wider than simply those criminal offences. Then if you look at the people to whom the laws might apply you have a broad set of market participants, a sub set of those are authorised persons. At the moment the criminal law regime, the narrower set of behaviour, the laws relating to that narrower set of behaviour apply to all market participants whether or not they are authorised. The wider set of rules concerned with the wider behaviour, the rest of market abuse that is not criminal, only applies to the sub set of participants, those who are authorised. So I think we have a gap in the regulatory system that it is simply not possible at the moment to take action in respect of non criminal market abuse by non authorised participants in the market, even though that behaviour may be extremely detrimental to the good working of the markets and confidence in the financial system. When you look at the FSA's consultation on this and learn this fascinating new language of squeezes and bear hugs and all the rest of it, you can see how frustrating it must be for market participants who know perfectly well what is going on but where nothing can be done about it. On the specific question of intent, when we are looking at this broader category of non criminal market abuse then I think it must be right to look at the effects of the behaviour, not the intention behind it. What we are concerned about here is the efficient operation of the market, not the moral culpability of the individual player of the market place. Confidence in the market is affected and can be damaged by people's actions even when they do not intend to do something fraudulent. Therefore, what the market abuse regime as drafted does and is designed to do is to alert market participants to the fact that they have to act with due care and attention when they are interacting with the financial market. If we found that somebody was very deliberately pursuing this course of market abuse action then that might have something to say about the appropriate level of fine but I do not think it is integral to the nature of the wrong that one is trying to address.

  118.  Minister, you would agree that this is probably the most sensitive part of the Bill and getting it right, even if it means building a little more assurance into the Bill, is I think, even from the evidence we have taken so far, absolutely crucial?
  (Ms Hewitt)  Yes, I think it is very important that we get it right but we have to get it right from the point of view of confidence in the system as well as from the point of view of fairness to the individual market participants because as we all know there are people out there, some of whom acting with criminal intent, and where there is evidence of criminal offences they will be prosecuted in the usual way, but there are also people who where there is not criminal intent, and maybe it is very difficult to prove motivation at any particular point in a highly complex set of virtualised transactions, but through carelessness or whatever are involved in actions that are very, very damaging and we do not want to leave our regulators powerless against abusive behaviour.

Mr Beard

  119.  Market abuse is very substantially covered in the competition legislation which was passed last year. Where do you see the division being drawn between what will be the responsibility of the FSA under this legislation and the responsibility of the Office of Fair Trading under the competition legislation?
  (Ms Hewitt)  I think there are two different things here really. There is a market abuse where there are some perhaps unauthorised firms getting together in a cartel-like operation, for instance, where there is anti-competitive behaviour, and that would clearly fall under the Competition Act 1998 and to be dealt with by the competition authorities. The kind of market abuse that the FSA needs to deal with is the various forms of manipulation, whether it is on the demand side or the supply side, which does not necessarily involve anti-competitive behaviour in the sense of monopolistic behaviour that the competition authorities would be dealing with, but does involve perhaps a temporary artificial manipulation of price or a squeezing of the supply in order to put people into unfair positions, and that, I think, is properly dealt with by the FSA under the market abuse regime. If there was behaviour which potentially could fall within both regimes then that would be something which the regulators would sort out between them as to which would be the lead institution dealing with the problem.

1  11 June 1986, Official Report, Cols.406-407. Back

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