---

Investment Exchanges and Clearing Houses Bill

I should like to return to an issue that I have raised a couple of times, as I am concerned about vulnerability to judicial review in circumstances with which the Bill is designed to deal. For example, in a takeover of the London stock exchange by a US exchange, a rule could be proposed and the FSA could seek to block it. Under clause 1, the FSA would consider whether"““the proposed provision will impose a requirement on persons affected””" and whether the requirement is ““excessive””. Proposed new subsections (3) and (4) provide guidance about what is excessive. If the proposal"““is disproportionate to the end to be achieved””" the FSA can block it. That wording is on the right lines, and I do not wish to query it. If that test is met, proposed new subsection (2) states that"““the Authority may direct that the proposed provision must not be made.””" If there is a challenge to that direction, it will be examined on the basis of the Financial Services and Markets Act 2000, regulatory objectives and the second-tier matters to which the FSA must have regard. The judicial review will not necessarily be conducted on the basis of what is contained in the Bill—that is, the definition of ““excessive””. Put simply, the first test, the ““excessive”” test, is whether the rule is disproportionate. The next test is whether the rule is appropriate to secure the relevant regulatory objective, which is the protection of consumers. I question whether it is possible that a particular rule change might fail the test set out in subsections (2), (3) and (4)—that is, it might be excessive because it is disproportionate, as defined in the Bill—but the direction made by the FSA would nevertheless be correct, given the objective of securing the appropriate degree of protection for consumers. As the hon. Member for Wolverhampton, South-West (Rob Marris) suggested earlier, many of the provisions are designed to protect consumers. My argument is that a rule may be appropriate for the protection of consumers under the FSA test set out in the Financial Services and Markets Act 2000, because the protection of consumers is a regulatory objective, whereas the desirability of maintaining the competitive position of UK markets is not. That was an issue when the Act was passed. A measure might meet one of the two tests, but not both. In those circumstances, the very outcome that the Bill is designed to prevent—judicial review—may be available to a US exchange or to the London stock exchange. As I mentioned earlier, there are two ways of addressing that. One is to make competitiveness a regulatory objective. The other is to narrow the definition of protection of consumers in this limited context. The hon. Member for Wolverhampton, South-West raised concerns about the protection of consumers. In this narrow circumstance, to be consistent with the rest of the Bill, there may be an argument for considering that point. I would be grateful for the Economic Secretary’s view and his reassurance that the two stages of the test do not raise issues that need to be addressed.