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Lord Burlison: My Lords, I beg to move that the House do now adjourn during pleasure for five minutes.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.35 to 8.40 p.m.]

Financial Services and Markets Bill

Further consideration of amendments on Report resumed.

Clause 83 [Prospectuses]:

Lord Bach moved Amendment No. 121


The noble Lord said: My Lords, in moving Amendment No. 121 on behalf of my noble friend I should like to speak also to Amendments Nos. 122, 125, 126, 129 and 130. All of these are government amendments which make minor but essential drafting changes. Amendments Nos. 121, 125, 126 and 129 insert the word "competent" before "authority". This amendment is necessary to ensure that it is absolutely clear that it is the competent authority, rather than the FSA, to which reference is being made. The Bill names the FSA as the competent authority and that will be correct so long as the authority continues to exercise these functions. However, if the functions were ever transferred the FSA would no longer be the competent authority and there is a danger that the Bill would not make sense.

The other amendments in this group, Amendments Nos. 122 and 130, concern the power to define the term "approved exchange". This power is currently contained in Clause 101. However, the definition is relevant only to Part V1 as it is modified by Schedule 9 to the Bill where the term "approved exchange" appears in paragraph 5. Amendment No. 130, therefore, deletes the power in Clause 101 and Amendment No. 122 inserts it in its proper place in Schedule 9. I beg to move.

On Question, amendment agreed to.

Schedule 9 [Non-listing Prospectuses]:

Lord McIntosh of Haringey moved Amendment No. 122:


    Page 253, line 7, at end insert--


("( ) After paragraph 8 of that Schedule, insert--
"Meaning of "approved exchange"
9. "Approved exchange" has such meaning as may be prescribed." ").

On Question, amendment agreed to.

Clause 89 [Penalties for breach of listing rules]:

[Amendment No. 122A not moved.]

18 Apr 2000 : Column 657

Clause 90 [Warning notices]:

Lord McIntosh of Haringey moved Amendments Nos. 123 and 124:


    Page 42, line 4, leave out ("impose a penalty on") and insert ("take action against").


    Page 42, line 6, leave out subsections (2) and (3) and insert--


("(2) A warning notice about a proposal to impose a penalty must state the amount of the proposed penalty.
(3) A warning notice about a proposal to publish a statement must set out the terms of the proposed statement.
(4) If the competent authority decides to take action against a person under section 89, it must give him a decision notice.
(5) A decision notice about the imposition of a penalty must state the amount of the penalty.
(6) A decision notice about the publication of a statement must set out the terms of the statement.
(7) If the competent authority decides to take action against a person under section 89, he may refer the matter to the Tribunal.").

On Question, amendments agreed to.

Clause 91 [Statement of policy]:

Lord McIntosh of Haringey moved Amendments Nos. 125 and 126:


    Page 42, line 19, after first ("The") insert ("competent").


    Page 42, line 37, after ("The") insert ("competent").

On Question, amendments agreed to.

Clause 93 [Notice for payment]:

Lord McIntosh of Haringey moved Amendment No. 127:


    Leave out Clause 93.

On Question, amendment agreed to.

Lord Bach moved Amendment No. 128:


    After Clause 93, insert the following new clause--

("Competition
COMPETITION SCRUTINY

.--(1) The Treasury may by order provide for--
(a) regulating provisions, and
(b) the practices of the competent authority in exercising its functions under this Part ("practices"),
to be kept under review.
(2) Provision made as a result of subsection (1) must require the person responsible for keeping regulating provisions and practices under review to consider--
(a) whether any regulating provision or practice has a significant adverse effect on competition; or
(b) whether two or more regulating provisions or practices taken together have, or a particular combination of regulating provisions and practices has, such an effect.
(3) An order under this section may include provision corresponding to that made by any provision of Chapter III of Part X.
(4) Subsection (3) is not to be read as in any way restricting the power conferred by subsection (1).
(5) Subsections (6) to (8) apply for the purposes of provision made by or under this section.

18 Apr 2000 : Column 658


(6) Regulating provisions or practices have a significant adverse effect on competition if--
(a) they have, or are intended or likely to have, that effect; or
(b) the effect that they have, or are intended or likely to have, is to require or encourage behaviour which has, or is intended or likely to have, a significantly adverse effect on competition.
(7) If regulating provisions or practices have, or are intended or likely to have, the effect of requiring or encouraging exploitation of the strength of a market position they are to be taken to have, or be intended or be likely to have, an adverse effect on competition.
(8) In determining whether any of the regulating provisions or practices have, or are intended or likely to have, a particular effect, it may be assumed that the persons to whom the provisions concerned are addressed will act in accordance with them.
(9) "Regulating provisions" means--
(a) listing rules,
(b) general guidance given by the competent authority in connection with its functions under this Part.").

The noble Lord said: My Lords, in moving government Amendment No. 128 I should like to speak also to Amendments Nos. 128A and 157A. We made clear in Committee in another place our intention to subject the competent authority to competition scrutiny in respect of its regulating provisions and practices. Currently, there is no such scrutiny under the Financial Services Act. Like the FSA more generally, the competent authority in going about its functions under the Bill can do things which have an impact on competition. Almost all regulation by definition involves restrictions which can affect competition in one way or another. We believe it right, therefore, that the special competition scrutiny regime should apply to the competent authority as well as the FSA and recognised bodies. The new clause, therefore, gives us the power to apply such a regime to the competent authority by order.

The reason for doing this by order is to allow flexibility to adapt the competition scrutiny regime should the power in Schedule 8 to the Bill ever be exercised to transfer the function to another body. For example, if we ever split the function between two bodies we might need to make changes to these provisions. We cannot foresee now whether we shall ever transfer the function and, if so, to what kind of body. However, given that we have such a power in the Bill, which was debated and agreed in Committee, we believe that it makes sense to introduce a provision for competition scrutiny arrangements. The Delegated Powers and Deregulation Committee has not raised any questions about our taking this power.

The new clause allows the Treasury to provide for the competition scrutiny of the competent authority's regulating provisions and practices. Subsection (3) provides that the order may include provision corresponding to that made by any provision of Chapter III of Part X. We intend to exercise this power to bring in the same arrangements for the competition scrutiny of the competent authority as the Bill has put in place for the Financial Services Authority.

The Director-General of Fair Trading will be placed under a duty to report on regulating provisions or practices of the competent authority which have a significantly adverse effect on competition. The

18 Apr 2000 : Column 659

Competition Commission will then, as in Part X, reach a conclusion on whether there is a significant adverse effect and, if so, whether it is justified. If the commission reports that any such effect is justified, in ordinary circumstances that will be the end of the matter. If, however, the commission reports that an adverse effect is not justified the Treasury will, in ordinary circumstances, have to direct the competent authority to make any necessary changes.

The only exceptions to what I have just said arise where the competent authority makes any necessary changes itself which obviate the need for Treasury action, or where the Treasury considers that the exceptional circumstances of the case lead it to a different conclusion from the commission. An example of this, which was outlined by my noble friend when we debated Chapter III of Part X, is where it is necessary to meet our international obligations. If the Treasury considers that there are exceptional circumstances which lead it to a different conclusion we intend to provide, as in Part X, that it must publish a statement of its reasons and lay a copy before Parliament. As has been indicated in previous debates, Treasury Ministers expect that this House or another place may wish to question them on their reasons for coming to a different conclusion.

I turn next to Amendments Nos. 128A and 157A tabled by noble Lords opposite. These amendments have the same effect, although the former in relation to the competition scrutiny regime for the competent authority and the latter in relation to the regime which covers the FSA more generally. The amendments would include within the scope of those items covered by the competition scrutiny regime matters which have a significantly adverse effect on competition between authorised persons and particular classes of authorised persons and the competitive position of the United Kingdom.

I am happy to reassure noble Lords that the first two elements of this definition--competition between authorised persons and between classes of authorised persons--are already included in the wide class of matters which have a significantly adverse effect on competition, but only in the case of the competition regime under Chapter III of Part X. Why? As noble Lords will appreciate, in the case of the new clause we are concerned with issuers, not authorised persons. The competitive position of the United Kingdom is also covered in so far as we are talking about things which the FSA does that damage competition. I fear that there may be some confusion as to how the Bill works, so perhaps I may take a brief step back. All regulation has an impact on competition. Regulation involves placing restrictions on those who can perform a regulated activity and the way that they perform it.

No one doubts that it is necessary, nor that too much can be counter-productive.

The Bill sets the FSA objectives and principles of good regulation, and subjects it to transparency and accountability arrangements which should lead it to strike the right balance between regulation and competition. However, if it does not, and it over-regulates so as to produce a significantly adverse effect

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on competition, then the competition authorities can step in and investigate and, ultimately, the FSA can be directed to change what it is doing.

However, if the FSA is regulating in accordance with its objectives and principles in a way that does not have a significantly adverse effect on competition, then what is there for the competition authorities to examine? There is, we certainly acknowledge, a separate issue concerning the competitive position of the UK, which noble Lords are attempting to introduce into the competition scrutiny regime. This separate issue is whether the regulatory framework set up by the Bill, including the objectives and principles, remains the right one in the light of developments in the UK and world financial markets. That is a legitimate question. But it is not one that is appropriate for the competition scrutiny regime.

As was made clear in our debate last week on Report, Ministers will keep the legislation under continual review. As part of that, of course, they will consider its impact on the UK's competitive position. Ministers will be responsible for their policies to Parliament in the usual way. If appropriate, Ministers could decide at some point to commission a review of the impact of the regulatory regime on competition and the competitive position of the UK. Whether the competition authorities would be the right bodies to carry out that particular task would of course be considered carefully if the issue arose.

In conclusion, let me try to reassure noble Lords that there is nothing missing in the competition scrutiny regime. It covers the right things, which are the effects of the FSA's regulatory provisions and practices on competition. Its job is not to review whether the FSA's objectives and principles are the right ones; and indeed the Bill does not give the Treasury powers to change those objectives and principles. These are things for Parliament to decide in the first instance, and for Ministers to keep under review thereafter.

In the light of this somewhat lengthy explanation, I hope that noble Lords will not move those amendments. I beg to move.


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