§ 2. Mr. Tim Smith
To ask the Chancellor of the Duchy of Lancaster if he will make a statement on progress in implementing the Financial Services Act.
§ Mr. Maude
Three self-regulating organisations have now been recognised under the Financial Services Act 1986. In addition, eight professional bodies have obtained interim recognition under schedule 15 to the Act. Two other self-regulating organisations, one professional body, seven investment exchanges — including one overseas exchange—and two clearing houses have applied for recognition, but have yet to be recognised. I intend that the central provisions of the Act will be implemented in April.
§ Mr. Smith
Is my hon. Friend aware that he has made excellent progress in implementing the provisions of the Act? Given the complex and comprehensive nature of the provisions, it is remarkable that there has not been more slippage. However, will he comment on two matters that will be important after A day in April? First, when will the compensation scheme be introduced; and, secondly, how will we ensure that there are not too many investment businesses that have only provisional authorisation after A day?
§ Mr. Maude
It has always been intended that the compensation fund should come into operation three months after section 3 of the Act is implemented in April, and that remains our intention. I fear that there will inevitably be a number of investment businesses that are interim-authorised immediately after A day, particularly at the smaller end of the range. We understand that about 10,000 to 12,000 firms will he applying to the Financial Intermediaries, Managers and Brokers Regulatory Association for authorisation. It is simply a physical impossibility for all those to receive full vetting treatment before A day. However, I know that FIMBRA has that problem in mind and will seek to keep to a minimum the number of interim authorisations.
§ Mr. McCrindle
The Minister will be aware of allegations of excessive legalism on the part of the Securities and Investment Board and some of the SROs. He will also be aware of the suggestion that the cost of registration, particularly for small firms, is quite excessive. Has he given any consideration to those allegations, and what is the response that he would like to communicate, perhaps through this question and answer session?
§ Mr. Maude
We are aware of the concerns expressed. It is important that we should have a full and adequate system of investor protection, but it is equally important, in the interests of investors, that that system of regulation should not be so burdensome on business that choice for consumers of investment services is reduced. This is why we have built into the Act the competition scrutiny carried out by the Director General of Fair Trading.
In addition, my right hon. and noble Friend has asked the Securities and Investments Board to report to us on a quarterly basis after the Act comes into full force in April on the effect of the Act and the rule books on businesses themselves. I stress that it is a practitioner—led system of regulation. All the self-regulatory organisations and the SIB are dominated by practitioners. It is up to the practitioners to ensure that their voices and concerns are heard in the process of regulation.
§ Mr. Blair
Is the Minister aware that, although the provisions of the Financial Services Act are necessary, they will impose a great administrative burden on many small firms and individuals, as well as on the organisations dealing with the applications? I understand that many 339 thousands of firms may be in that position. Will he tell us what will be the position of the firms that are unable to register with the self-regulatory organisations or the SIB, simply because of the incapacity of those organisations to process the applications sufficiently quickly?
§ Mr. Maude
My message to those firms is clear. If they submit their applications by P day, which is 27 February, even if the organisations cannot fully process the applications by A day, the firms will obtain the benefit of interim authorisation. The message to those companies is clear: to submit their application swiftly and, in any event, before 27 February.
It is right that we should try to ensure that the burden falling on small businesses is as limited as possible. FIM BRA comprises 85 per cent. of small firms, which have a clearly heard voice in the councils of FIMBRA. In the recent elections a number of small firm representatives were elected to the ruling council of FIMBRA, which is a healthy sign.