Undertakings for Collective Investment in Transferable Securities Regulations 2011
(Limited Text - Ministerial Extracts only)
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Lord Sassoon
That the draft regulations laid before the House on 10 June be approved.
Relevant document: 24th Report from the Joint Committee on Statutory Instruments, considered in Grand Committee on 27 June.
Lord Eatwell
My Lords, I wish to bring to the attention of the whole House some aspects of these regulations that are a source of grave concern. During the discussion on the regulations in Grand Committee on Monday, it became evident, to me at least, that the Government have seriously misjudged the regulations’ importance, notably in their potential impact on the savings of British families and on UK consumers of financial services in general.
These regulations are the latest stage in the programme to establish throughout Europe a single market in transferrable financial instruments, where Europe is defined as the EEA—the European economic area. The programme began in 1988. An important component of that process has been to give fund managers in non-member states the ability to passport their services into another member state. Today—29 June—this is done by complying with various requirements of the regulator in the jurisdiction in which the funds are to be marketed. For example, the FSA typically requires fund management companies to establish a legal presence in the UK that can be regulated and supervised by the FSA. As of this Friday—1 July, when these regulations come into force—that will no longer be the case. Instead, the so-called simplified notification procedure established by these regulations removes the rights of national regulators to vet funds before they are marketed. Thereby, British savers will be relying on the regulator in, say, Iceland, Romania or Malta to ensure that their savings are adequately protected.
This is a fundamental change. It is not, as the noble Lord, Lord Sassoon, argued in Grand Committee,
“a sensible piece of tidying-up”.—[Official Report, 27/6/11; col. GC 145]
In fact, the European authorities have recognised some of the potential dangers and, by means of the same regulations, have introduced two measures to attempt to protect consumers. First, there is to be a simplified prospectus—a key investor information document—and, secondly, there is to be improved supervisory co-operation across member states. Of course these are desirable measures, but it has for many years been a fundamental tenet of financial regulation in this country that caveat emptor is not a satisfactory doctrine in the complex world of financial instruments. However well informed the buyer might be, the seller always has the upper hand. Moreover, having sat on the boards of various national financial regulators of the past 20 years—I sit at present on the board of a regulator outwith the European Union—I assure noble Lords that exchange of information between regulators is often imperfect and sometimes downright misleading, particularly where sensitive national interests are involved.
In the Treasury's own assessment of the impact of the regulations, it is conceded that the new management company passport,
“may cause some operational and supervisory difficulties which could reduce consumer protection”.
Having apparently recognised the problem, the Government have decided to do nothing about it, over and above what they are required to do by the European regulations themselves. The safeguards built into the regulations are significantly inferior to those enjoyed by British consumers today; they will lose those safeguards on Friday.
I have just one question for the Minister: what additional measures of consumer protection will the Government introduce on Friday to compensate for the erosion of UK consumer protection by the regulations?
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, I am continually surprised by things that come up in this House that I was not expecting but, on a totally non-contentious piece of European legislation, I am surprised that the noble Lord, Lord Eatwell, pronounces that such horrific things are allegedly to happen.
For the benefit of noble Lords, perhaps I should explain that the statutory instrument implements an EU directive which is concerned with the sale of collective savings products. It is the third amendment to a directive that dates back to the late 1980s. It is a directive which is pro-consumer—it gives greater protection to consumers than exists today. It helps to complete the single market in fund management. It is supportive of UK-based financial services businesses.
At a time when lots of contentious matters come from Brussels which we rightly debate at length in your Lordships' House, it is remarkable that the Opposition seek to find fault with something which has been endorsed by consumer and business interests. I do not know whether the noble Lord, Lord Eatwell, talked to his noble friend Lord Davies of Oldham who, in a Written Ministerial Statement laid in this House on 4 June 2007, said that the UK supported the commission's proposals for reform of the UCITS framework. Those are the proposals which we consider this afternoon. He may or may not have talked to his colleague, Mr Chris Leslie, who in another place this Monday said, among other things, that the regulations are generally uncontentious. That seems remarkably at odds with the position taken by the noble Lord, Lord Eatwell.
Unless noble Lords would like me to, I do not want to prolong debate on what is, as I said, a very good piece of legislation proposed by the Commission which has had the UK's full support over the past three years. In answer to the noble Lord’s specific question and contentions, he is wrong in what he says about the passporting of funds. It is true that incoming funds can start accessing the UK market as soon as a complete notification is received, but the FSA does not believe that that will significantly change the processes by which it monitors incoming UCITS today. The funds will still be required to comply with UK law, and the FSA will be able to direct its operator to suspend the promotion of the scheme if it contravenes those laws.
I do not believe in the premise from which the noble Lord, Lord Eatwell, starts. Indeed, in answer to his question, we will be bringing in tighter protection for consumers on 1 July, because that is precisely what, among other things, the instrument does. It improves and simplifies investor disclosure, making it easier for investors to understand the risks involved in what they are buying.
I could go on, but I think that I have detained the House long enough.