It is a pleasure to respond to this short but important debate.
The hon. Member for Nottingham East (Chris Leslie) referred to the heated exchanges before the summer. They were necessarily heated because they concerned a major scandal that did great damage to the country’s reputation. The whole House feels strongly about this matter because the industry is vital to the country’s economic future. About 2 million people are employed in the financial services and related industries, most of them in capacities far removed from the ability—and still more the inclination—to engage in the kind of behaviour that came to light in the LIBOR scandal. It is a particular source of outrage that many ordinary working people across the UK with careers in the banking industry have been besmirched by the behaviour of people far from them. As a result, in their ordinary working lives and in conducting their activities, they found themselves bracketed with people who were shaming an industry that they were proud to work in—an industry associated with high standards of sobriety and propriety—and it is particularly important that we act decisively and firmly against the perpetrators of the manipulation that came to light in the summer.
The amendments do precisely that. All Members will recognise the pace with which we have responded, given that the allegations came to light in late June. We immediately asked an independent reviewer, Martin Wheatley, to look into the allegation. He conducted his work over the summer and reported in September. The Government considered all his recommendations and have adopted every one of them. The fact that we are here, in early December, reaching the final stages of legislation to act on those recommendations shows that the Government and the House have taken the allegations very seriously and are acting to restore the reputation not only of the City of London, but of the financial services industry in this country. I hope that the world will see that, when something comes to light that objectively is scandalous, we will not stand by and watch it happen, but will take legislative action immediately.
I shall refer to some of the points made by the hon. Members for Nottingham East and for Wirral South (Alison McGovern). Let me deal first with the independence of benchmark providers. There are, of course, lots of different benchmark providers, not all of which—it is important to say—were associated with the problems that LIBOR and the British Bankers Association had. The Wheatley review recommended that the BBA step aside from setting LIBOR. Future administrators, which may be private, commercial or otherwise—there is no restriction—will be subject to the type of regulation
powers contained in these amendments. On LIBOR specifically, the tender committee chaired by Baroness Hogg is in its early stages. We will of course update the House on the progress it makes when it considers who will operate the LIBOR benchmark in future.
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The hon. Gentleman asked whether the powers in the amendments will be restricted to the UK or whether they will cover other jurisdictions. The answer is that there needs to be some connection with the UK, as might be expected under legislation passed by this Parliament, but the amendments take a broad approach to the term “connection”. There will be a sufficient connection if, for example, a statement that could have contributed to the manipulation of benchmarks was made in or from the UK, if the person at whom it was aimed was in the UK, or if there were an agreement or conspiracy that such activity would be entered into in the UK. We take a broad view of that. He also asked whether the Bill was wide enough to bring PRAs—price reporting agencies, rather than the Prudential Regulatory Authority—into regulation. The answer is yes, through the secondary legislation that is provided for by the Bill. Where PRAs are used in relation to investments, including derivatives, futures and options, they will be included.
The hon. Gentleman asked whether the powers should explicitly consider commodities. Let me make it absolutely clear that there is no question whatever but that it should be possible to include benchmarks such as those in the gas or energy markets. The consultation provides for that and it is precisely what Martin Wheatley’s report envisaged. Where benchmarks are used for financial investments and financial transactions, it is right that they should be vested in that way, but it would be wrong simply to vest powers for the regulation of every commodity in the Financial Conduct Authority, because commodities can represent many things. The term “commodities” is broad. We would not want the Financial Conduct Authority to regulate benchmarks relating to trading in live cattle or lean hogs, for example, even though they may fit the definition of “commodities”. The current definition means that the regulation of benchmarks by the FCA extends to all the benchmarks that involve financial matters, as is consistent with the Financial Services and Markets Act 2000 and the objectives of the FCA as a financial services regulator.
For that reason—this has been considered in the other place as well as this place—the powers that we are taking have not just LIBOR in mind, but the other benchmarks that could give rise to similar concerns and which in recent days have done so. The criminal offence will pertain to those benchmarks as well as LIBOR. They will ensure that investors, whether in this country or around the world, can have confidence that we have the fullest possible regime of sanctions to prevent and govern any demonstrated misconduct or attempted manipulation of LIBOR.
Let me say a little about the comments that the hon. Member for Wirral South made. She talked about her concerns about the use of derivatives in food commodities in particular. The use of derivatives in food markets can achieve precisely some of the advantages that she talked about—that is, enable farmers, whether in this country or around the world, to get investments into expanding production in anticipation of future demands. The process
brings forward into the present day the needs of the future; that is what futures markets are about. It is important that farmers in this country, but also around the world, who might not have access to capital can make those connections, so that they can supply in advance what will be required in the future. There is some research, which I would be happy to share, on the contribution that derivatives have made to ensuring adequate food supplies not just in this country but around the world.
I shall conclude by saying that the regime that we are putting in place will provide a swift and robust response to the totally unacceptable set of practices that was unearthed before the summer. We have moved further and faster than any other jurisdiction in the world, and I hope that the House will see fit to approve the provisions tonight so that we can move forward and demonstrate to the world that this is the best jurisdiction in which to trade.
Lords amendment 59 agreed to.
Amendment (a) proposed to Lords amendment 60.—(Chris Leslie.)
Question put, That the amendment be made.