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Investment Exchanges and Clearing Houses Bill

I add my words of support for the Bill, which is a sensible proposal, although I have a couple of queries. I support the Bill because on the issue of globalisation, of which we have heard much today, it answers two questions correctly. The first is on ownership and national champions. Despite the comments by the hon. Member for Twickenham (Dr. Cable), I agree with the points made by the Economic Secretary and my hon. Friend the Member for Fareham (Mr. Hoban) that this is not an issue of economic nationalism. The ownership of institutions in the City is not important. Indeed, there are far more important issues at stake. At a time of growing economic nationalism—the chairman of the CBI, Sir John Sunderland, in remarks reported this morning, was critical of France, Spain, Italy and the US for their economic nationalism—it is pleasing that we have a consensus between the major parties that focusing on ownership is a mistake. Indeed, the City has done well out of Wimbledonisation, whereby we provide the venue and the rest of the world provides the players, and that is to be welcomed. The second question that arises from globalisation concerns the difficulty that countries have in achieving the appropriate level of regulation. There is often a race to the bottom, as the jurisdiction with the lowest level of regulation is seen as the most attractive to businesses. That argument is grossly overstated. Globalisation punishes inappropriate, disproportionate and bad regulation, and Sarbanes-Oxley is an example. As several hon. Members have pointed out, Sarbanes-Oxley has resulted in some companies listing in the UK rather than in the US. However, good regulation is necessary. If a country gets the balance right—and we can argue that this country has done so, especially compared with the US in this area—it does well. The race to the bottom argument is therefore weak. Countries should retain their own regulatory control, as the Bill suggests, because otherwise the pressure is towards regulation. If globalisation is about economic integration, it also pushes countries towards regulatory integration. Co-operation between regulators is at times appropriate, but too much regulatory integration would be dangerous. One example is the extra-territorial approach adopted by the US on occasion, which is a concern. To return to the points made by the hon. Member for Twickenham, the concern is not that a US exchange will wish to impose additional regulatory burdens on those companies listed on a UK exchange that becomes a subsidiary of the US exchange. The concern is that US legislators will attempt to impose additional regulatory burdens on those companies listed on the LSE or AIM. Extraterritorial legislation regulation is one way in which Governments have attempted to deal with the supposed race to the bottom. Another way—and this was touched on by the hon. Member for Bristol, East (Kerry McCarthy)—is supranational regulation, and we see that with the European Union. Some of the arguments that can be used for the approach set out in the Bill—that UK regulation should continue to apply and that we should not be influenced by overseas factors—also apply to European legislation, as the hon. Lady acknowledged. The issue is about getting the balance right. I have two specific concerns about the wording of the Bill. The first is the point that I made to the Economic Secretary during his speech earlier. For argument’s sake, let us suppose that NASDAQ buys the LSE. Then, prompted by NASDAQ, presumably for reasons of US law, the LSE proposes a rule change to implement Sarbanes-Oxley. The FSA considers that change—whether it is excessive or disproportionate—and blocks it. The next step would be a challenge and judicial review. At that point, the regulatory objectives that apply to the FSA come into play. The FSA has the regulatory objective of protecting consumers, and rightly so. However, it does not have the regulatory objective of protecting or maintaining the competitiveness of UK financial services. Does that make the FSA vulnerable to judicial review in such circumstances? I assume that the Treasury has sought advice on that point, but perhaps the Financial Secretary could address the issue when he winds up. The issue could have been addressed in a couple of ways. First, section 5 of the Financial Services and Markets Act 2000, which relates to the protection of consumers, could be amended to add a carve-out that makes it clear that any requirement that the FSA deems to be excessive under section 300A is not an appropriate measure for the protection of consumers. The other—and perhaps preferable—way to deal with the issue would be to treat the desirability of maintaining the competitive position of the UK as a regulatory objective, instead of an also-ran, second-tier point. I assume that the Treasury has considered that option and rejected it for various reasons, but I raise the point none the less.