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Investment Exchanges and Clearing Houses Bill

Let me reassure the hon. Member for South-West Hertfordshire (Mr. Gauke) and my hon. Friend the Member for Wolverhampton, South-West (Rob Marris). The tests in clause 1 for ““excessive”” are whether the regulatory provision goes beyond what is required by UK or EU law and, in addition, either is not directed at securing a proper regulatory objective or the regulatory burden that it would impose is disproportionate to the end that it is intended to secure. Under the Financial Services and Markets Act 2000, and therefore in UK law, the FSA is required to have regard to four statutory objectives, which are market confidence, public awareness, protection of consumers and reduction of financial crime, so protection of consumers is one of the regulatory objectives to which the FSA must have regard at all times. However, that is one of four objectives, so the FSA must always balance consumer protection against, for example, market confidence. When we speak of a proportionate and risk-based approach to regulation, that allows the FSA to take a lighter touch approach to regulation in those areas where it believes market confidence can be maintained with a greater degree of risk. Hence, the AIM market is a more risk-loving, less regulated market, but the individual retail consumer going in needs to know that there is less market protection. The FSA must consider the four new tests set out in clause 1(4)(a) to (d) in the context of its four statutory objectives. Those four tests therefore inform the FSA in striking the balance between its statutory duties to protect consumers and to maintain market confidence, although it would not have to strike such a balance with regard to that particular example. In our judgment, so long as it has regard to those four points and is conscious of its need to strike a balance between market confidence and the protection of consumers, we think that it will be proof against judicial review in making such judgments. That does not mean that the FSA is bound to reject a regulatory proposal for an exchange that goes beyond the UK or EU requirements of the time. If it took the view that a proper regulatory objective was being pursued—for example, investor protection—and in its judgment that objective was not disproportionate or excessive, the FSA could judge, consistent with the four objectives in the Bill and its statutory duties, that the objective was correct and that it was being done in a proportionate way, and it could allow the rule to go through, which should provide some comfort. The Bill allows the FSA to strike that balance, but at the same time the FSA can take action, if it judges that it is proportionate.