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Lord Elton: My Lords, perhaps the noble Lord would be kind enough to expand on that. Where transactions of the new joint exchange take place in Germany and not in England, will they be subject to British or German regulation? How will inquiries etc. be managed in such cases?
Lord McIntosh of Haringey: My Lords, the noble Lord did not use the words "super euro regulator" but they have been used. I do not care for that form of words. If there were to be a super euro regulator, that would require legislation at Community level. I have no knowledge that that is proposed. As regards who will be the competent authority for listing following the merger, as has been recognised, we have already amended the Bill in the light of the proposed demutualisation. The competent authority is, and will continue to be, the FSA. Part IV of the Financial
Lord Elton: My Lords, I am sorry to delay the House, but sometimes the most stupid Member is the most useful because he reveals difficulties which others may not have regarded as being difficult. If a German citizen has business conducted at the German end of this new body and believes that, perhaps with justice, he has been wrongfully dealt with, will his recourse be local or will it be to London? If it is to London, surely we need to take account of that in this legislation.
Lord McIntosh of Haringey: My Lords, as the noble Lord is perfectly well aware, we are in a transitional stage between host state and home state regulation. Therefore, any answer I give to the noble Lord would necessarily be a transitional answer, which might be changed at some future stage.
While there is host state regulation, it is the location of the authorised person which determines the regulatory authority. When a move to home state regulation is complete, it will be the location of the consumer which is the relevant consideration. I believe the noble Lord's concern is that there might be some stage at which there is no proper regulatory body. I can assure him that literally dozens of pages of the Act are devoted to the issue, which is not new and not dependent on the merger of the London Stock Exchange and the Deutsche Bo rse to ensure that there will be neither overlap nor a gap between the provisions of regulatory authorities in different countries.
As I have just been passed a note, perhaps I may see whether there is anything further that I can add to reassure the noble Lord, Lord Elton. I am advised that nothing has changed. People in Germany can trade on the London Stock Exchange now. Where people engage, for example, in abusive behaviour, it will be possible for the local regulator, and perhaps the overseas regulator, to take action. There are arrangements in place for co-operation. I believe that that confirms what I have already said off my own bat, so to speak, as regards the fact that there is no problem either of overlap or of a gap in jurisdiction.
Lord Saatchi: My Lords, will the Minister allow just a moment for me to sum up my understanding of what he has said and express some residual concerns which are left? I am grateful to the noble Lord for his reply and to other noble Lords who have spoken.
Let us consider the EC directive on the mutual recognition of stock exchanges. That assumes that each country has its own designated stock exchange. Until last week that was true: each country had its own listing authority and stock exchange. After this merger we shall have two listing authorities, but only one stock exchange.
One of the points that arises is that as from 1st May one has to apply to the FSA to have one's shares admitted to the official list and then to the London Stock Exchange for the right to deal in those shares. But, following the merger, the admission to deal will be for dealing on the merged entity. Will the FSA have a supervisory reach over those newly listed shares on the new exchange? Is it not true that German and British shares are now subject to different listing requirements?
Therefore, is it not true that this Bill cannot be the last word on the regulation of the Stock Exchange? There will have to be consistency in listing requirements. Therefore one is bound to ask what proposals the Minister will bring forward in due course for a statutory framework for regulation of the new exchange without which the FSA will appear to be operating in an uncontrolled environment?
Lord McIntosh of Haringey: My Lords, since we are at Report stage and if we are to continue with this debate, it might be better if a separate opportunity were found for a proper debate on this matter. I am grateful to the noble Lord for seeking to raise the matter because perhaps that avoided a Statement, a Private Notice Question or some other more time-consuming business.
Clearly, my responses to the noble Lord must be confined to those matters which may be thought to be affected by this Bill. That is what I have done. I hope that I have given the noble Lord an absolute assurance that the problems he anticipates simply will not occur. In my first answer I said that the merged company will be based in, and managed from, London and that the market for blue chip shares in London will continue to be a recognised investment exchange overseen by the FSA.
I believe that that answers the noble Lord's quite specific point. As regards the more fanciful suggestions that the FSA might have to be merged with some other body, they are just that--fanciful suggestions. There are other regulatory bodies in other European countries and in particular in Germany. When and if the regulatory bodies in the other countries reach the standard which we believe we are pioneering in this country with this legislation, and when they are willing, ready and able to take on comparable responsibilities, then what is open to us is not a super regulator, in case anyone is afraid of that, but home state regulation, which is a more simple and rational basis for regulation than that which we have
Lord Hunt of Wirral: My Lords, I thank the Minister. I appreciate the flexibility that the noble Lord is showing when dealing with certain very fundamental questions about this Bill. However, perhaps we should bear in mind the fact that the FSA issued a press release in which it said it was working closely,
Lord McIntosh of Haringey: My Lords, I believe that my responsibilities begin and end with the assurance that I have given to the House that no amendments to this Bill are required as a result of the events that have taken place, or are in the course of so doing. Of course the FSA is in discussion with the German regulator; indeed, that is entirely right. No doubt the FSA will consider it its duty to make public the results of those negotiations as and when it thinks fit. That is not a responsibility of the Government and it is not my responsibility as the Minister responsible for steering the Bill through this House.
A confusion has arisen with which I believe I should now try to deal. The obligation in Clause 2 of the Bill to maintain the competitiveness of the United Kingdom is an obligation on the FSA; it is not an obligation on every single listed exchange or clearing-house. Even before this merger was proposed, the London Stock Exchange was on line to be demutualised--in other words, to become a private company. It is not the role of government or of legislation to state what its object should be. As long as we stick to the rule that it is the FSA which has among its principles the maintenance of the competitiveness of the British economy, we shall not fall into the trap of thinking that that must, therefore, be the obligation of all authorised persons.
There is a danger of confusing listing, which is dealt with in Part VI of the Bill, and the regulation of trading markets that is dealt with in Part XVIII. There is only one listing authority under Part VI--namely, the FSA--and its remit under those provisions is in relation to issuers. Part XVIII of the Bill provides sufficient flexibility to enable the FSA to regulate the proposed new markets.
Assistance is to be provided to individuals who have referred to the tribunal a decision of the FSA to impose a penalty for market abuse. It also covers cases where the FSA proposes to make a public statement that an individual has abused the market. The limitation to market abuse proceedings reflects the fact that this scheme is to be established, as a precaution, for this category of cases where we think it is appropriate to apply the full criminal protections under the European Convention on Human Rights.
The effect of Amendment No. 149A would be to widen the coverage of the scheme to cover all decisions referred to the tribunal. This is not necessary as a matter of law, and I do not think that it would be sensible to do this as a matter of public policy. Legal assistance is not generally available in tribunal proceedings, which are intended to be speedier and less formal than court proceedings.
As I said, the additional protections that have been put in the Bill in relation to market abuse were included as a precautionary measure because of concern expressed about the possibility that the market regime might be judged to be "criminal" for ECHR purposes. The noble Lord, Lord Kingsland, repeated the claim that he has made on a number of occasions--and, indeed, in the context of a number of Bills--that this has to be a criminal offence and that the ECHR has said so. I have to point out that lawyers disagree on this matter. I am aware of what the noble Lord, Lord Kingsland, says, just as I am aware of what the noble Lord, Lord Lester, and the noble and learned Lord, Lord Millett, say. However, our evidence to the Burns Committee from Sir Sydney Kentridge and Mr James Eadie made it clear that we take the view that this is primarily a civil regime.
Perhaps I may make an analogy with the professions. For example, doctors practising medicine are subject to regulation by the General Medical Council. The European Court has had occasion to consider whether the disciplinary regime that applies to doctors, lawyers and architects should be dealt with as a civil or a criminal matter for ECHR purposes. In each case, it decided that the regime was civil. That is the analogy; it is not with the legal assistance scheme we are proposing, which is confined to market abuse, but with the legal assistance scheme that would be extended in the way suggested by these amendments.
We do not see any need to extend this protection for the exercise of the various disciplinary and other supervisory powers of the FSA, such as the power to vary a Part IV permission to restrict the carrying on of a particular kind of regulated business. These decisions are concerned with the setting and policing of standards for the regulated community and, in that
Amendment No. 158D seeks to extend protections concerning the use of compelled evidence in proceedings to those involving disciplinary measures under Part XIV, in the same way as for penalties and statements for market abuse. Again, we have included this protection as matter of precaution for market abuse cases. The amendment is unnecessary as a matter of law, as Sir Sydney Kentridge said in our evidence to the Joint Committee. Similarly, it is undesirable as matter of policy because it would place an unhelpful restraint on the FSA's ability to deal with misconduct by regulated persons.
Criminal offences, or market abuse, may be committed by a wide range of people, but disciplinary penalties under Clause 202 apply only to authorised persons. Authorisation is not just a privilege that allows a person to do financial services business; it also involves obligations. One of the most important of those obligations is to be frank with the FSA about how the authorised person's business has been conducted, including in cases where there has been misconduct.
It is important that the regulatory system should be as effective as possible in order to protect consumers, maintain market confidence and reduce financial crime. In appropriate circumstances the use of compelled evidence can be valuable for the regulatory. The existing financial services regulators use compelled evidence at present. I can see no reason to put unnecessary obstacles in the way of effective regulation. I have to resist these amendments. I hope that the noble Lord will not press them.
Lord Kingsland: My Lords, the Minister referred to "unnecessary obstacles" being put in the way of effective regulation. However, at an earlier stage of his intervention, he said that it was highly desirable for there to be disciplinary procedures under the Bill. The Minister indicates that perhaps my noble friend Lord Saatchi should now be responding. I understood from my noble friend's opening words that he was not introducing the amendments and that that would be my task.
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