My Lords, first I declare my interests in financial services, as in the register—just in case. I will speak to the Financial Services and Markets Act 2000 (Designated Activities) (Supervision and Enforcement) Regulations and then to the Short Selling Regulations.
The set of rules and provisions under which the FCA can give directions is important. Every time something is the subject of such a direction or supervisory action, there is an opportunity to go to a tribunal. I wonder whether the Minister has any statistics, from looking at the FCA’s present powers and at when tribunals can be invoked, on how frequent that is. I am trying to get at one of the things that has irritated me, which, as the Minister knows, is that the FCA seems quite slow to respond when something is going on in the market. One’s instinct, if we know that something is going wrong, is to want quick action. These provisions allow that, but they could always be subject to challenge. So how might that interfere? The question is a little theoretical, but is anything already being done in that way with which we might compare it? I realise that that information might not be to hand; if it is not, I would be happy to have a letter.
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The particular instances when these directions can be given—they are not sort of day-to-day things—are laid out separately in the statutory instruments relating to that subject matter. So, we have the short selling one before us today and a few weeks ago we dealt with the CCI one. I noticed that the consumer composite investments regulations say:
“The FCA may give a direction only if it appears to the FCA—
(a) in the case of a direction given to a person, that in carrying on the activity the person is failing, or is likely to fail, to comply with a requirement imposed on the person by designated activity rules made by virtue of regulation 6, or
(b) in the case of a direction given to a person or a description of persons, that it is desirable to exercise the power for the purposes of advancing any of the FCA’s operational objectives set out in section 1B(3) of FSMA 2000”.
Two of those are to do with consumers and the other one is basically to do with the integrity of markets. But the provisions for short selling are different. It still has the first one about failing, but it does not have the one about the FCA’s operational objectives, and then it has a list of other things that are relevant vis-à-vis short selling—I do not need to read them out.
So I am slightly puzzled as to why the one to do with the operational objectives does not appear as a routine. It seems that the two that were put into the consumer composite investments regulations seem to be two fundamental points: that you are failing or that it is not in line with the FCA’s operational objectives. I would have expected those to be replicated in every statutory instrument that comes along as they go into the designated activities regime. So I am curious about why it is left out.
I can see that it might have been thought that the consumer side does not apply quite so much to things such as short selling, but I think that would be wrong and, in any case, there are still others. But, apart from that, I am relatively happy with the proposals, as long as they are not so tribunal-bound that they cannot act, and we have not missed out on putting in other occasions when they might want to be able to intervene.
With that, I turn to the short selling regulations. I am well aware of the history of those regulations, which were a spinoff from AIFMD and extraordinarily difficult to negotiate to get into anything halfway sensible. So, it is quite nice to see that actually most of it has now been kept and that, of the things that the UK objected to most and we could not get out of, two have been have taken out—and for the most part, that is reasonable. I think some people say, “Well, why can’t you short sell sovereign debt and have sovereign CDSs?” I think that the liquidity is such that you do not have to worry about whether you are going to be able to get hold of them, but experience has shown that, if you cannot short the sovereign, the markets will find a way to do the equivalent, which means shorting those people who are holding the sovereign, which happens to be banks–and it is probably a worse thing to be shorting banks than it is to be shorting the sovereign. So it is a reasonable provision to not have those in any more.
The other one was to do with how much transparency there should be over short selling provisions. We went round and round this argument at the time, and everybody was very cross about all the short selling that had been done against Greece and during the financial crisis. They wanted to know who the culprits were but, generally speaking, the aggregated numbers are what really matters. If you have too much transparency, you can expose the strategies of other financial organisations, so I agree that going back to where we used to be is correct in that sense.
In reading through the response on short selling, I noticed that there were more than 800 consumer respondents, most of whom responded in a standard way—I think online. In their response, the Government explained that a lot of the things said by consumer respondents were more relevant to the US situation. That was probably a fair statement, although I obviously do not have access to the consultation documents. However, this again shows that people are interested in what goes on in short selling. They are concerned, even if they do not know exactly what the legislation is. To some extent, that reinforces my thinking that it is necessary to consider how consumers view things. Apart from that, there were only about 25 respondents, which is not very many.
I have to say, on my favourite subject of consumer collective investments, that there was a substantial response to that consultation, which the Government not only ignored and said very little about but then did precisely the opposite of what was said. There is an interesting contrast between the way in which that was dealt with—I know that the noble Lord was not necessarily the Minister at that time—and the more sympathetic way in which the consumers were dealt with. That is all I have to say at the moment.