Financial Services and Markets Act 2000 (Regulated Activities) (Amendment No. 3) Order 2006

My Lords, I begin by thanking the Minister for the clear way in which he introduced the regulations. The importance of the regulations stems from the importance of the financial services sector in London and the rest of the UK. The industry has grown much quicker over the past 10 years than even many of those in it would have expected—and it continues to grow today. While I agree with the noble Baroness, Lady Noakes, that one great success of London has been its ability to be seen as a global player and that much of the growth in business within London has stemmed from transactions outside the EU, it remains the case that the EU is a potentially large source of further growth for the financial services sector in London. Therefore, the financial services action plan serves and will serve to benefit London arguably more than any of its competitors in the EU because it has the strength and ability to compete to a greater extent than many of its competitors in the EU. However, I agree with the noble Baroness’s critique in another respect, which has some relevance to the future activities of the Government. I refer to the way in which the Government dealt with the negotiations and their failure in ECOFIN adequately to represent our best interests. One of the least attractive features of the Chancellor’s performance of his job has been the contempt with which he has dealt with European debate and discussions, his unwillingness ever to attend any of the relevant meetings and, when he has attended, his extreme enthusiasm for leaving halfway through—very often with only a very junior Minister in attendance. I hope that when his successor takes up his job in the summer he will give a suitably greater importance to the work of ECOFIN and the other EU institutions with regard to financial affairs. One abiding lesson of any round of negotiations—and certainly one that I was taught as a young man in politics—is that you have to attend all meetings and stay to the end. That is a lesson that I am sure that the Chancellor follows with internal Labour Party meetings; it is a pity that he has not followed it with regard to EU meetings. When one is looking at detailed regulations such as these it is very tempting to consider a small number of issues with complete and total erudition and then to look the Minister hard in the face and ask him if he is satisfied with them. I was very tempted to do that in this case, in respect of the crucial issue of systematic internalisers. I wanted to ask him whether he was satisfied that the costs envisaged in implementing the new systematic internalisers were appropriate in all circumstances. However, I felt that as he was relatively new to his job such a question would be unfair—so I will not ask it. The key issue around the regulations, which the noble Baroness raised, relates to the burden and cost. From reading the RAO about the costs, it is obvious that it has been much easier to make an estimate of the costs than it has of the benefits. When I see that the benefits are thought to be in a range of nought to £6.6 billion and that probably it will be £240 million as a second-order benefit, I have severe misgivings about any aspect of these figures whatever. But I want to correct the noble Baroness, if I heard her correctly. I think that she said, in paragraph 33, that the one-off cost of implementation significantly exceeded the expected ongoing benefits, whereas what it says is that, "““the one-off cost of implementation significantly exceeds the expected on-going costs””." In other words, it will cost a heck of a lot to get the new systems up and running. There will be costs thereafter but, on an annual basis, it is very much less than the start-up costs. That certainly seems a logical situation, given that the costs relate largely to new systems and training. While it is difficult to establish this area of costs at this point, it is the key issue that the regulations raise, given that the underlying basis of the regulations was set out in the directive and that we are not addressing the directive. In drawing up these regulations, are the Government satisfied that they have kept the gold-plating tendencies of the Treasury at bay? Equally, are they satisfied with regard to the FSA handbook that the way in which the directive is being implemented minimises the regulatory burden rather than gold-plates it? Can the Minister confirm whether the timetable for revisions to the FSA handbook, which is due to be produced by the end of the month, will be met? I take the noble Baroness’s point that we may be ahead of other member states in implementing this directive—but I thought that as a general principle we were in favour of meeting our obligations and when other people do not meet theirs we point it out to them as forcefully as we can. There is inevitably a lot of speculation about how these regulations will work in practice, whether they will need amending and whether they have been implemented correctly. If there is any sector of the UK economy which is capable of making sure that any set of regulations works to its advantage, I am pretty confident that it is the City of London. With that thought in mind, I am happy to support the regulations.