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Investment Exchanges and Clearing Houses Bill

As I said, we should never be complacent. It is easy to portray the Barings situation as the consequence of one rogue trader acting in a criminal way. If one examines the matter closely, however, there was a systemic failure throughout the management and the regulatory system, and people simply did not understand the risks that the bank was taking. I am a member of the Treasury Committee, which has discussed with the FSA how it regulates matters such as hedge funds and the current risk-based system of assessment. I am confident that the FSA appreciates what the banks that operate out of the UK are doing, what sort of business they are engaged in and what risks are associated with it. [Interruption.] Farepak does not come under the FSA, although perhaps that is a subject for future debate. The UK approach is widely seen as the best in the world, and it underpins London’s success as a modern international financial centre. It is important that we preserve that approach, which is the essence of the Bill. While we are debating how we regulate our financial markets and City institutions, I want to restate why, while we should aim to achieve a degree of harmonisation and a level playing field across the European Union—and, indeed, further afield—it must never be at the expense of our international competitiveness. London has a comparative advantage in financial services, and if other countries want to compete with us they should do so by raising their game to our level, not by seeking to hold us back with inflexible, over-burdensome, gold-plated regulation. A one-size-fits-all approach in a new enlarged European Union is unlikely to be to London’s advantage, and we should resist attempts to force us down that path. However, we should do so not through withdrawal and seeking to isolate and disassociate ourselves from our European partners, as I have heard the right hon. Member for Wokingham (Mr. Redwood) suggest, but through co-operation, negotiation, being at the table and making our voice heard. As the Minister has said, we should welcome European co-operation on regulation, but only where it is necessary, where it truly furthers the integration of the internal market and where other non-legislative policy solutions have been thoroughly considered. Any new regulation must be implemented in a sensitive light-touch manner, too. The City is stronger because of its position within the EU. We act as Europe’s wholesale financial services gateway to the world, and the world’s financial services’ gateway to Europe. It is in Britain’s best interests that we stay fully engaged, but we must do it in the City’s best interests, not at the City’s expense. That is increasingly true on a global scale as developing markets open up, and countries such as China and India develop their financial sectors. Regulatory co-operation is more important than ever before, but we must continue to strike the right balance between protecting investors and entrenching financial stability, and encouraging innovation and foreign investment. We should not be scared of foreign investment or foreign ownership in the City. In the late 1990s, more than 40 per cent. of City employees had an overseas employer, and I am sure that that percentage has, if anything, grown since then. Some of the recognised exchanges are subsidiaries of foreign companies. However, we need to be watchful to ensure that foreign takeovers do not lead to the imposition of burdensome foreign regulatory standards on UK exchanges and issuers, and that, as the hon. Member for Fareham (Mr. Hoban) said, the US’s extra-territorial ambitions are curbed. I say that as someone who has worked for an American investment bank and has been on the receiving end of the not-so-light regulatory touch of the Securities and Exchange Commission. As a member of the Treasury Committee, I visited the US earlier this year with my hon. Friend the Member for Edmonton (Mr. Love), and we heard first-hand about the impact of Sarbanes-Oxley. The London stock exchange has benefited as a result of Sarbanes-Oxley. It attracted a record 129 international companies to its main market and the alternative investment market last year, up 82 per cent. on 2004. Twenty-five per cent. of companies surveyed identified the UK’s standards of regulation and corporate governance as the most important factor in their decision to float in London, and of those that had considered listing on a US exchange, 90 per cent. felt that the demands of Sarbanes-Oxley made listing in London more attractive. We were therefore right to choose not to go down that path. However, we need to be ever vigilant to ensure that we do not import overseas regulatory burdens, and that we have the best possible environment in which our financial services industry can continue to prosper and to create jobs. I very much welcome the Government’s initiative in introducing the Bill. I am sure that it will be welcomed in the City, as it has been on both sides of the House.