Skip to main content

Financial Services

Volume 115: debated on Thursday 7 May 1987

The text on this page has been created from Hansard archive content, it may contain typographical errors.

6.15 pm

The Parliamentary Under-Secretary of State for Trade and Industry
(Mr. Michael Howard)

I believe that it is.

I beg to move,
That the draft Financial Services Act 1986 (Delegation) Order 1987, which was laid before this House on 22nd April 1987, be approved.
As the House has agreed, we are also discussing motions 4 and 5.
That the draft Financial Services (Transfer of Functions Relating to Friendly Societies) Order (Northern Ireland) 1987, which was laid before this House on 22nd April. be approved.
That the draft Financial Services (Transfer of Functions Relating to Friendly Societies) Order 1987, which was laid before this House on 22nd April, be approved.
It is almost exactly two years since the House debated the financial services White Paper. The Financial Services Bill, which was based on that White Paper, was subsequently introduced in the House in December 1985 and received long and careful consideration before receiving Royal Assent in November last year. In parallel with this parliamentary consideration, the Securities and Investments Board and the prospective self-regulation organisations were working to develop the rules and institutions which will regulate investment business under the Act. The orders we are now debating represent the single most significant parliamentary step in setting up the new regulatory system envisaged in the Act.

The Financial Services Act embodies our belief that, to achieve effective regulation of the financial services sector, it is necessary to combine two elements. The first element is strong statutory backing for the regulatory system. The Act will make it a criminal offence to carry on investment business without authorisation. It will provide for rules to he made governing the way in which authorised businesses carry on investment business and it will provide legal sanctions, including civil suits, injunctions, restitution orders and withdrawal of authorisation, if the rules are broken.

The second element is practitioner-based administration of those statutory powers. The Government believe that, if they are given the right powers, practitioner-based bodies have the best prospects of effectively regulating investment businesses and protecting the interests of investors. Accordingly, the Act has, from its introduction, provided for the majority of powers it confers on the Secretary of State to be transferred to a designated agency whose governing body would include both practitioners in the financial services sector and non-practitioners who have the knowledge and expertise to ensure that investors' interests are properly looked after.

The Act lays down a number of criteria which must, in the opinion of the Secretary of State, be satisfied before powers can be transferred to a designated agency. The agency must be able and willing to exercise the powers that are to be transferred. It must have a balanced governing body whose members are appointed by the Secretary of State and the Governor of the Bank of England. In this respect I should mention that, while the SIB has always had a strong independent element on its board, we have been mindful of the comments expressed during the passage of the Bill, and the recently announced appointments will further reinforce that non-practitioner element. The agency must have satisfactory monitoring, enforcement and decision-making arrangements. It must have effective arrangements for the investigation of complaints, which must provide, in appropriate cases, for investigations to be carried out independently. It must be able and willing to provide high standards in the conduct of investment business and to co-operate with other financial regulators. The Act also provides that, provided it meets those criteria, the body to which the initial transfer of functions shall be made must be the Securities and Investments Board Limited—the SIB.

I should add that the Act also provides for the transfer to a transferee body of certain powers relating to friendly societies. The conditions that have to be satisfied before these powers can be transferred are broadly the same as those to which I have just referred.

The purpose of these draft orders is, therefore, to transfer to the SIB the bulk of the transferable powers under the Act. The package represents a considerable range of powers which will establish the SIB as the keystone in the new regulatory framework. It is intended that the SIB should have the ultimate responsibility for establishing the standards which firms will have to meet in order to be regarded as fit and proper to carry on investment business. This will result both from the SIB's power to grant direct authorisation to businesses and from its function of recognising self-regulating organisations and professional bodies, membership of which will confer authorisation.

The SIB will also draw up the rules and regulations which will set the standards for behaviour by investment businesses. In some cases this will be because the SIB's own rules are directly applicable. In other cases, the rules of recognised self-regulating organisations and professional bodies will apply: but those rules will have to afford protection to investors at least equivalent to that afforded by the SIB's rule book. Finally, the SIB will be responsible for enforcement, having at its disposal a wide range of investigation powers and sanctions, including the power to initiate prosecutions for some offences.

The principal order is the Financial Services (Delegation) Order, which concerns functions other than those relating exclusively to friendly societies. The other two orders transfer functions relating to friendly societies in Great Britain and in Northern Ireland.

There are a certain number of transferable powers not covered by the orders. The most significant are the powers in chapter VIII of the Act relating to collective investment schemes. These represent a largely self-contained area which can be dealt with independently of the recognition of SROs and RPBs and the authorisation of businesses which must begin as soon as possible if the basic framework of the Act is to be introduced at an early date. Other powers which are retained concern various international matters; the powers to make indemnity rules, where the SIB has decided not to make proposals, opting instead for a widely drawn compensation scheme; certain powers relating to persons who are not authorised persons; and the function of revoking recognition of art SRO on certain grounds related to insurance since my Department remains primarily responsible for the regulation of insurance companies.

Before laying the draft delegation orders my right hon. Friend the Secretary of State and the two registrars for friendly societies are required by the Act to satisfy themselves that the SIB meets the criteria to which I have already referred. They must also be satisfied that the rules and regulations which it proposes to make afford an adequate level of protection for investors and, where appropriate, comply with the principles set out in schedule 8 to the Act.

Schedule 8 provides that the rules must promote high standards of integrity and fair dealing in the conduct of investment business. They must require an authorised person to exercise due diligence in providing investment services. They must require an authorised person to subordinate his own interests to those of his clients and to act fairly between his clients. They must require an authorised person to have regard to his clients' circumstances and to disclose his interest in any transaction, including commissions and other inducements. They must require an authorised person to disclose the capacity in which he acts and to give sufficient information for a potential investor to make an informed decision. They must provide for adequate warnings to be given to investors when the price of an investment is stabilised and they must provide for the protection of property held by an authorised person.

The rules on compensation must make the best provision that can reasonably be made. The rules must require the keeping of proper records and make provision for their inspection when appropriate. Finally, the rules must take account of the fact that different classes of investors warrant different levels of protection.

My right hon. Friend the Secretary of State is also required to satisfy himself as to the acceptability of the rules in competition terms. On 10 February we received the SIB's formal request for transfer of powers, together with its proposed rules and regulations entitled "Regulation of Investment Business" and a document entitled "SIB's Approach to its Regulator Responsibilities", copies of both of which have been made available in the Table Office. We subsequently received reports on these documents from the Director General of Fair Trading and further amendments proposed by the SIB, on which the director general has also reported. Copies of all these documents have been placed in the Library. We have also received a large number of comments both from representative bodies and individual practitioners.

Having considered all the material submitted, it has been decided that the SIB and the rules it proposes to make fulfil the conditions and requirements laid down in the Act for a transfer of the powers referred to in the draft orders. The House will recognise that the SIB's rule book covers a large range of topics. I propose to refer specifically to the two issues which provoked considerably more comments than any other, both in the Director General's report and in the comments made by interested parties. These were the costs to small independent insurance intermediaries of complying with the new requirements and the issue which has come to be known as polarisation.

It would be pointless to pretend—and we have never done so—that improvements in investor protection can be achieved without cost and without placing some new requirements on firms. To mention just two of the characteristics of the new system, regular monitoring arrangements and an adequate compensation scheme are bound to cost money. Having said that, I should say also that I think some of the estimates of compliance costs which I have heard have been considerable overestimates. Some of the estimates, for example, have assumed elaborate new compliance procedures whereas in fact many of the SIB requirements reflect current best practice and will require little if any change in practice in reputable businesses. Furthermore, the SIB has made considerable efforts to keep costs at an acceptable level. Indeed, in March amendments to the rule book were proposed which were designed to reduce the costs of compliance for small investment businesses which do not handle clients' money. Having considered all the evidence, my right hon. Friend is satisfied, as required by the terms of the Financial Services Act 1986, that the SIB's proposals will not significantly restrict, distort or prevent competition on this account.

The polarisation debate has in some ways been the other side of the coin, in the sense that very many of those most worried about the costs which they believed the SIB's rules implied were equally strong in their support of the polarisation rules. These rules have evoked very strong support on both sides of the House. Indeed, more than 60 members supported early-day motion 814 backing polarisation. Most hon. Members will be aware that polarisation is the requirement that all those who sell life assurance and unit trusts should act either as fully independent intermediaries or as company representatives selling only the product of a single company or group. The SIB has argued, and we accept, that this is an important safeguard for investors. Some have argued that it will have an anti-competitive effect. We take the contrary view. Polarisation will clarify the status of investment advisers and will therefore promote transparency in the market. It will therefore enhance rather than restrict competition.

The Director General of Fair Trading did not find the polarisation rules on their own anti-competitive. Indeed, he, like us, considered them in isolation to be conducive to competition. But he was concerned about the implications of polarisation when combined with the costs of compliance for small intermediaries. This concern arose from the director general's assessment that the number of of independent intermediaries would be significantly reduced; that the rules would lead to a reduction in independent advice from banks and building societies; and that the overall result was therefore likely to be an increase in the influence of company representatives.

We have considered the director general's arguments carefully but we canot accept his conclusions. First, as I have said, I do not believe that the costs of compliance will be as high as some have suggested. Moreover, polarisation will ensure that the independence of genuinely independent advisers is perceived as a real advantage. So I believe that there will continue to be a substantial body of independent intermediaries. Indeed, I expect the rules to be of positive benefit to the genuinely independent intermediary, with the result that the availability of independent advice will be safeguarded. This reinforces the view that polarisation is in itself conducive to competition. Secondly, I believe that the banks and building societies will be able to adjust to the new regime without radical change, and that the availability of independent advice from banks and building societies will not be significantly reduced since these will he able to continue to operate, if they wish, broadly as they do now. For those reasons we have come to the conclusion that the rules will not have a significantly anti-competitive effect.

In seeking approval for the draft orders, we are recommending transfer powers to the SIB on the basis of the rules it has submitted.

My hon. and learned Friend said that in his view there would be a substantial number of independent intermediaries. I think that those were his words. As Sir Gordon Borrie raised the important point as to what the number would be and was not too sure about that, will my hon. and learned Friend say what he means and what number he has in mind?

I cannot give any really sensible numerical estimate, but I would not expect any substantial decrease in the number of independent intermediaries or in the availability of independent advice on these matters.

Further to the point made by my hon. Friend the Member for Beaconsfield (Mr. Smith), am I not right in thinking that Sir Gordon Borrie's expression of concern was delivered before the initiative taken by the SIB materially to reduce the costs to small intermediaries, provided that they did not handle clients' money? Is it not now much less likely, therefore, that Sir Gordon Borrie's fears will materialise?

My hon. Friend is right to the extent that the original reservations that the director general expressed came before the modification of the SIB's rules on costs. The director general was required to comment on the modification, and I fear that it was not sufficient to alter his original view, so it would be rash to claim that that view was wholly invalidated—at least for him—by the modification.

In seeking approval for these draft orders, we are therefore recommending transfer of powers to the SIB on the basis of the rules that it has submitted, as modified by amendments that it proposed during our consideration. This is an appropriate point to pay tribute to the work that the SIB and its staff have put into the draft rules and the setting up of the framework described in its document. No one should underestimate the difficulties of producing a new body of regulation essentially from scratch. The SIB has worked hard to enable, this next step in improving investor protection to be taken, and I am sure that, once the powers are transferred. it will apply itself with equal vigour to the tasks that Parliament has given it. I ask the House to approve the draft orders.

6.31 pm

Having expected this debate for a couple of months, as a major set piece debate on the City and its regulations, I find it odd that such a central proposal is being smuggled through when the rest of the country, and much of the rest of the House, have their minds elsewhere. [HON. MEMBERS: "Where are Labour Members?"] My people have decided on a sensible division of labour, whereby I shall put our case at the Dispatch Box tonight and they will pave the way for the election outside. We shall meet tomorrow and find out which of us has been more successful. Therefore, I am happy to say that Labour Members do not intend to divide the House on this order, and I shall not be requesting an adjournment to consult my supporters on their attitude to the order.

Having made that statement, for obvious reasons, it does not mean that our doubts about the SIB have been removed by the rule book, the events of the past two months or the Minister's speech. We remain opposed to the measure, not because we do not believe that the City requires supervision—it patently does—or because we do not believe that the SIB could be made into an appropriate vehicle for that supervision, but because we would he opposed to designating the SIB in its present form. First, the SIB is not a public body, and remains in a curious constitutional position, being a private company limited by guarantee. Secondly, it is not a publicly funded body. I have been entertained by some of the letters that I have received in recent weeks from modest financial intermediaries complaining about the cost of the structure. I hope that they will take the advantage of voting Labour at the forthcoming general election, thus relieving themselves of that burden.

Thirdly, we oppose the designation of the SIB in its present form because, as the Minister is well aware from our previous criticisms, it contains a clear majority of practitioners in the City. That means that there is a danger of the SIB confusing its two roles—as the body that supervises the City, and as the body that speaks for the City. It could thus become a sort of Law Society of the financial institutions. The Minister came near to recognising that point when he emphasised that the costs of meeting the SIB's rules has been exaggerated by some of the companies that have complained. He pointed out that the SIB had gone to great trouble to minimise the cost of meeting its rules. That is perfectly true, but the other side of the coin is that some of the rules have been criticised because, rather than changing existing practice, they seek to codify it. That applies in particular to the requirements for disclosure, which are no more onerous than the requirements met at present by most companies.

Of the 18 members of the SIB, only one could be described as representing the interest of the wider consuming public — the many private investors — attracted into the market by the present Government. There are, to be sure, half a dozen other representatives of consumers of financial services, but they are representatives of the major institutions, which are well placed to make their voices heard by those who operate on their behalf.

Finally, we are opposed to the designation of the SIB in its present form because it does not include coverage of Lloyd's insurance market or of the work of the Takeover Panel. Those two omissions are curious as it is in those areas that the worst financial scandals have occurred over the past three years. The omission of the Takeover Panel is particularly odd. Over the past year, it has become clear that if there has been a weakness of self-regulation it has rested with the Takeover Panel and that, if there is a case for providing greater powers of investigation and subsequently of sanctions, it rests in the area that the panel supervises. For those reasons, we believe that the SIB is inadequate to the task.

To be fair to the Government, I think that, if they had their time again and were introducing a Financial Services Bill now in the light of the events of the past 12 months, they would not be proposing the measure that the House passed 18 months ago and that they are obliged to defend tonight. Nevertheless, the Minister is obliged to lay the order designating the SIB, and I am obliged to note the order in its present form.

I have three comments on the rule book as laid by the SIB. First, I have enormous sympathy with the point made by Sir Gordon Borrie about the impenetrability of the rules. It is regrettable that we are confronted with a set of semi-statutes of such length, language and complexity. I take the point made eloquently — and by comparison with the rule book with great lucidity — by the stock exchange in its circular to members. The SROs are placed in greater difficulty when they are at a tertiary level of the process — following the Financial Services Act and the SIB rule book — and are then obliged to devise their own rules to meet the registration requirements of the SIB on the basis of SIB draft rules which are impenetrable, complex and lengthy.

Secondly, it is regrettable that there is not a greater thrust in the SIB rules to tackle some of the cartels that still exist. I draw the Minister's attention to recent comment in the financial press concerning the commissions charged by the unit trusts. It is noticeable that since big bang there has been a sharp reduction in the cost of trading by the unit trusts. Their fees have gone down by about 50 per cent. and stamp duty has been halved, yet the spread being charged by the unit trusts has remained constant and, in one or two celebrated cases, has actually expanded.

A body that supervises the City — not only by preventing fraud but by ensuring that the City provides a fair return for and decent access to the small investor—should turn its mind to that development which is enabling the unit trust to take advantage and to pocket the gains of big bang rather than turning them over to the many small investors who put their money into unit trusts.

Thirdly, I must confess that I have mixed views on polarisation, partly, no doubt, because of the impenetrability of the problem. On the whole, I incline to the view taken by the Under-Secretary of State and by the SIB. But, regardless of which view one takes on the merits of polarisation, it was vital that the SIB won that debate and obtained the backing of the Minister and the House. If, at this early stage of the SIB's existence, it had lost this, its first battle with the major forces in the City, thereafter its standing, prestige and status would have suffered a major blow from which it might never have recovered. Therefore, whether or not the SIB were right in the first instance—I believe that, on balance, it was—it is vital that the House backs it in this matter and makes it clear that the SIB has our confidence.

The designation of the SIB in the order will be judged by history in the light of results. That, effectively, brings us to the resources available to the SIB compared with those available to other regulatory bodies, most notably the Securities and Exchange Commission. Those resources appear dangerously thin on the ground. The SEC has an annual budget of $40 million for surveillance alone. There are no comparable resources available to the SIB, which is faced with a major task.

The extent to which there is a churning of shares in the market at present is alarming. I looked at the figures only the other week when I received the stock exchange's latest fact sheet. Trading in December last year was on a turnover of £57 billion, which was double the figure for December 1985. Total turnover for March was £165 billion — three times the turnover figure in December and six times the figure for December 1985. That level of churning in turnover, especially in the gilts market, cannot be healthy. Inevitably, it will pose major questions of supervision, of regulation and of the prevention of fraud.

Other evidence has been made available to us by the latest issue of Acquisitions Monthly, which has updated its survey of share price movements in the context of takeover bids and which points out that the increase in the price of the share of the target company in the period preceding the announcement of a bid continues to rise inexplicably and disturbingly. Acquisitions Monthly found that, of the 100 such bids that it monitored in the last six months of 1986, on average, the share price of the target company rose by 11 per cent. before the bid went public, in a quarter of the cases it rose by more than 20 per cent. and in one tenth of the cases it rose by more than 30 per cent. No doubt, in most of those cases there is an innocent explanation. But it is difficult to avoid the conclusion that in some there is a less innocent explanation which reflects people taking an opportunity in the market on information which they had obtained in a professional or perhaps rather unprofessional manner. That poses a major task for the SIB. I wish it well. I hope that it proves adequate to the task.

I am confident on one point—current events in the City will force themselves upon the consciousness of the House in the near future and we shall have another opportunity to debate this matter, perhaps when the attention of the House is focused in the Chamber rather than on the ballot box outside. On that occasion. I promise the Minister a more testing time in the debate.

6.43 pm

I have not taken part in these debates before but, because I have been in touch with people in the City who have registered some concern to me, I want to ask my hon. and learned Friend the Under-Secretary of State some questions about the orders. I should like to declare an interest in that I am a non-executive director of a small financial institution, although it is largely unaffected by the orders.

No one would disagree with the principle of regulation, which has been warmly welcomed. I know that my hon. and learned Friend the Under-Secretary of State has had an extremely difficult job, which he has discharged with great vigour and skill. He will be aware that there are those — as there always are — in such cases who do not necessarily agree with his conclusions, but that is inevitable. These arguments are at the margin because the Government have decided the road down which they wish to go. Despite the fact that I think that it is a pity that some of these matters have not been more fully debated, as the hon. Member for Livingston (Mr. Cook) said, we are now at a stage when the order for the delegation of authority has been laid before the House and we can comment only in the most general terms.

Will my hon. and learned Friend the Minister agree not to stick or to urge the SIB to stick too firmly to any particular timetable? Some quarters feel that it will take time from delegation to get the systems up and running effectively and efficiently. These are important and weighty matters, and the most detailed and careful consideration will need to be given before any conclusions are reached. I understand that the clearing banks have received legal advice that the decision by my right hon. Friend the Secretary of State on polarisation is in breach of the treaty of Rome.

It is vital that, when the new framework is operative, it should be as good and as effective as possible. There is a danger that, by trying to stick to some kind of arbitrary timetable, or by laying down a timetable in a way that would be difficult or politically embarrassing to turn from, the system could come into effect when the proposed rules and requirements of financial organisations have not been thought through properly and current doubts and disagreements resolved. There are, therefore, strong grounds, although, of course, I welcome the new era of regulation in principle and in fact, for urging my hon. and learned Friend the Minister not to seek to have the machine up and running by a certain date if, by then, the vehicle is not ready or has been constructed in such a way that it will either seize up or cause potential users to go elsewhere for their financial advice and activities.

At the moment, as the House knows, there are significant disagreements and discussions, some or all involving the Department of Trade and Industry, the Bank of England, the SIB, SROs and potential members of SROs—on such matters as segregation of capital, the scope and rules of SROs and proposals for complaints and compensation, to mention but a few. The SIB has not yet produced all its draft rules—for example, those relating only to collective investment schemes have not yet appeared. There are important and weighty decisions which have not yet been taken which will need time to be examined carefully and thoughtfully and which I hope my hon. and learned Friend the Minister agrees are worthy of being given further time and consideration.

It has been suggested that for the operation of the system to be fully in place by 1 January 1988 firms seeking authorisation will have to have applied for membership to the relevant SRO by 1 November 1987. It seems highly unlikely that the matters to which reference has been made will have been resolved in time for the necessary decisions and preparations to be taken by the end of October. There is no particular magic, it has been suggested to me, in either date. Even if there were, it is surely right to suggest that the great importance of regulating the scheme correctly and workably is greater than the desirability of announcing that a series of decisions and acts will have been carried out by a certain fixed date, especially when so many of these decisions depend on unresolved issues.

The House will very much appreciate the great care taken by my hon. and learned Friend the Minister on this legislation. I ask him to agree that it is vital that we do not rush the last fence. I hope that he will further consider the matters that I have mentioned.

6.48 pm

If any hon. Member present at the beginning of the debate had thought that the absence of Opposition Members showed that they were largely in agreement with the orders, the hon. Member for Livingston (Mr. Cook) disabused him of it. As the hon. Gentleman said, his troops will reappear, perhaps on another occasion — no doubt, on the Opposition Benches.

We have got this legislation right. The premise that the hon. Member for Livingston put forward that we should have a full statutory, bureaucratic system such as the American one is a mistake. The Government are right to put the emphasis on the regulatory authority being practitioner based so that it is more likely to be able to regulate the City in an effective way. It is a false premise to try to suggest that there is an argument as between a practitioner-based regulation and a full statutory system. With this legislation, we have managed to get the best of all worlds. We have full statutory backing and the country outside, the City and people who deal in financial services outside the City will have seen that the Government are taking regulation and industrial protection very seriously. If there is any wrong-doing it will be brought to book very quickly.

Enforcement is the key. If there were hon. Members on the Opposition Benches, I am sure that they would agree that this legislation must be toughly enforced. The three-tier approach that we have with the SROs, the SIB and the Government standing behind them is a system that will bring wrong-doers to book very quickly.

Does my hon. Friend agree, that, in addition to the structure that he has described, the heart of the matter is whether there will be independent watchdogs on these organisations that will ensure that the system works effectively? It is not sufficient to have the structure; we must also have within it people who will be independent and who will exercise those powers with courage and integrity.

I agree with my hon. Friend, and we must see how that develops.

If people say, "What is the evidence that it is being treated seriously?", one can point out that some of the rules of giving evidence and such matters have been changed and that they are tougher in this legislation than in any other part of the criminal law. We have got that right and people should understand that. One example of that is compelling people to appear before the SIB or SROs as well as their auditors and bankers. That shows that the Government are taking this matter seriously. My hon. Friend the Member for Crawley (Mr. Soames) was right on that point.

I want to move on to some of the aspects that affect some of the small practitioners. My hon. and learned Friend the Minister knows that many hon. Members were deeply concerned about the impact of the bureaucratic compliance and how its cost was to impinge on some of the small practitioners in the financial, insurance and other sectors. The chairman of the SIB has responded reasonably to that concern and has done something that many of us in respect of other parts of policy have been pressing on the Government. He has instigated a two-tier regulatory system. What is reasonable for a giant firm such as Prudential Assurance or Pearl Assurance to comply with is not reasonable for a two, three or 10-man firm. I am glad that Sir Kenneth Berrill has agreed to that and that there will be two-tier regulations, especially for those firms that are not handling clients' money.

My hon. Friend knows a great deal about these matters, but does he agree that, because of the fundamental nature and importance of the next stage of this legislation, it is vital that it is not rushed, since if it is not right there could be a lack of confidence in the market and regulations which may lead to business going elsewhere, which would be a very unhappy state of affairs?

I agree with that. If we had made this regulatory system too burdensome it would be a very strange thing if the Government, who have done so much over the last eight years to encourage the growth of small firms, were to find that they had passed legislation that was forcing small firms to join together and become larger firms.

I welcome the flexibility that Sir Kenneth Berrill has shown and the reduction in the charges. For example, a three-man firm that previously had to pay an application fee of £1,150 would now be required to pay £900. The periodic fee for the same size of firm would fall by 33 per cent. from £2,250 to £1,500. There would be a similar reduction for a 10-man firm. That shows that Sir Kenneth Berrill has applied his mind to this matter and that what I feared at one time would happen—that it would force firms to join together—will not happen, because these charges are not unreasonable.

The overriding responsibilities of Sir Kenneth Berrill and the members of the SIB are to protect the investor. It is a tricky task to carry out the onerous duty that the Act has laid on the SIB and to balance it without putting too much of a cost or bureaucratic burden on the smaller firms, which at the end of the day costs money.

Does my hon. Friend agree that by removing the insistence for carrying professional indemnity the SIB has further reduced costs that would have been quite a burden on the small firm and are a burden on all firms? Therefore, the firms that feel that they should take professional indemnity will be able to apply for it, but it will not be an obligation for trading in this market.

I agree with my hon. Friend.

I am glad that the need for two-tier regulation and two-tier cost structures has been recognised by Sir Kenneth Berrill. I hope that my hon. and learned Friend the Minister will continue to keep this aspect of regulatory framework in mind, and that he will agree that we are not in the business of forcing firms to join together; we are in the business of effective and tough investor regulation. As I believe that Sir Kenneth Berrill has shown by his changes that were announced some weeks ago, it is possible to combine the best of both worlds—a degree of flexibility and two-tier regulation — with the need to have that essential and effective industrial protection.

6.57 pm

This is a somewhat invidious point at which to launch on to a debate as I suspect that the affairs of the City of London may shortly be punctuated by the affairs of the City of Westminster.

Perhaps I can start what I trust will be a brief, although punctuated, intervention by saying how much I welcome the orders that have been made by my hon. and learned Friend the Minister. I look forward to the SIB taking up its new responsibilities for regulation of the investment markets.

My hon. and learned Friend the Minister, who has played such a conspicuous and able part in the passage of the Bill through the House, will admit that during the lengthy Committee stage a contribution of some note was made about enhancing the status and powers of the SIB, a move which, in retrospect, has been increasingly welcomed in the City and by commentators. It was vindicated by subsequent events. By the sensitive way in which he has consulted about the rules and evolved not only the personnel but the activities of the board, Sir Kenneth Berrill has displayed a competence and an ability that have already gained the respect of investment markets and, indeed, investors not only in this country but beyond.

The order is important. For the first time, it transfers significant powers from the hands of the Secretary of State to an independent, powerful body that is recognised and identified by law and that, for the first time, will have a significant ability to take to task the fraudsters—

It being Seven o'clock, and there being private business set down by THE CHAIRMAN OF WAYS AND MEANS under Standing Order No. 16 (Time for taking private business), further proceeding stood postponed.