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New Clause

Volume 115: debated on Thursday 7 May 1987

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Powers For Securing Reciprocal Facilities For Banking And Other Financial Business

Lords amendment: No. 53, after clause 89, insert—

"For the avoidance of doubt it is hereby declared that a notice under section 183 of the Financial Services Act 1986 (disqualification or restriction of persons connected with overseas countries which do not afford reciprocal facilities for financial business) may be served on any person connected with the country in question who is carrying on or appears to the Secretary of State or the Treasury to intend to carry on in, or in relation to, the United Kingdom business of any of the descriptions specified in subsection (1) of that section whether or not it is of the same description as that affected by the less favourable terms which are the occasion for the service of the notice."

I beg to move, That this House doth agree with the Lords in the said amendment.

The amendments relate to a point raised by my noble Friend Lord Elton during debate on Report in another place. The question which then arose was whether the drafting of section 183 of the Financial Services Act 1986 was sufficiently clear. That section deals with reciprocity and provides the Government with reserve powers, the purpose being to secure reciprocal access for British firms in overseas markets. It allows for the refusal, the restriction or the removal of authorisation to carry on banking, investment or insurance business in the United Kingdom if the country of origin of the institution concerned does not allow reciprocal access in those areas to British institutions.

The intention has always been that these powers should operate in such a way that action could be taken against, for example, a banking institution on the grounds of lack of access to investment or insurance markets, or vice versa. This is known as a cross-functional approach, and it gives the necessary degree of flexibility for the powers to achieve their objective.

It was considered that the present wording of the provision is ambiguous and that it is insufficiently clear whether cross functionality would apply if challenged, and the new clause was introduced to put the matter beyond doubt. The related amendment to clause 108, No. 56, ensures that as the new clause is a clarification of existing legislation it will come into effect immediately following the Bill's enactment.

I am glad to note that the new clause begins

"For the avoidance of doubt".
This is a matter upon which there should be no doubt, and the provision goes to the centre of gravity of the "playing field". I refer to the way in which reciprocity between nations—I have in mind specially Japan and the United States — operates in the international securities and banking markets. It is essential that we have such a provision, and I greatly welcome it. I think that my hon. Friend the Economic Secretary to the Treasury will recall that I tabled a series of amendments in Committee, which provoked a certain amount of comment in the press and elsewhere at the time which argued strongly for adequate reciprocity. I am delighted that the Government have taken the steps that they have and that my hon. and learned Friend the Under-Secretary of State for Trade and Industry went recently to Japan to discuss these very matters with those responsible in that country.

There is also the general question of the GATT round and the manner in which bilateral arrangements and agreements are entered into. We cannot work on the basis that the Japanese, or other countries that have enormous capitalisation at their disposal, are in a position to do a Monty Python on our banking system. It is essential that the amendment should be agreed to. I welcome the fact that my right hon. Friend has adopted it.

I welcome the remarks of my hon. Friend the Member for Stafford (Mr. Cash). It is important that we have in place provisions that will be seen to be able to work if they need to be brought into play. If there were any legal doubt that they could be implemented, they would fail in much of their purpose, which is to encourage the countries in which British financial institutions may want to operate to offer the same access to our banks and insurance companies, for example, as we offer them by way of a welcome to the City. Doubt had been cast upon that and we want to make it clear that we have relevant provisions in the Bill and in the Financial Services Act, and that such provisions, if they had to be brought into force, would be effective and would enable us to take appropriate action.

As I have said during earlier stages in our consideration of the Bill, we hope that we shall not have to implement these provisions. Our purpose is to open up foreign financial markets rather than to close the City, or British financial markets, to foreign institutions. It is clearly right that the relevant provisions in our legislation by way of reserve powers should be effective if ever they have to be used. Although the new clause is designed for the avoidance of doubt, it adds strength to our commitment and will make it clear to all outside that we want to have provisions of this sort and that we want them to be right, so that if they have to be used they will be effective in practice.

Question put and agreed to.