Public Offers and Admissions to Trading Regulations 2023

Debate between Lord Livermore and Baroness Swinburne

Tuesday 16th January 2024 Grand Committee

[Lord Livermore (Lab)]

My Lords, I am very grateful to the Minister for introducing this SI, which we support, at such short notice. I note that the new prospectus regime is not due to come into effect until 2025. In the meantime, the UK’s public markets will continue to be at a competitive disadvantage. Given that the recent Financial Services and Markets Act contained a new competitiveness objective, does the Minister believe that swifter progress could be made on prospectus reform to support the UK’s international competitiveness?

The Explanatory Memorandum accompanying this SI notes that, in relation to regulated markets,

“the FCA will be given enhanced rulemaking responsibilities”—

for example, to set out when a prospectus is required or what it should contain. The EM also notes that the new regime will not come into effect until the FCA has made these new rules. Can the Minister clarify what progress the FCA has so far made and whether she is confident that this will not introduce any further delay to the new prospectus regime taking effect?

Finally, in the Treasury’s initial review of the prospectus regime, the Government committed to introducing a new regime of regulatory deference for offers into the UK of securities listed on certain designated overseas stock markets. The review was published almost two years ago, yet this SI does not introduce that deference mechanism for prospectuses. Can the Minister confirm whether such a regime remains under consideration and, if so, when and how it might be delivered?

[Baroness Swinburne (Con)]

My Lords, this will be quite fluid; I hope that some more papers will come my way as I start to speak and go through this. In closing, and in response to your Lordships’ remarks, this SI represents an important step in replacing assimilated law. I am really pleased that both noble Lords support the approach to regulation for financial services. We have the ability to tailor this to the UK in what I hope will be a coherent and logical way that will be conducive to UK economic growth in the long run, all of which we all collectively support. This instrument will be an important milestone in providing that improved competitiveness in our capital markets and, we hope, make some of that raising of capital in the UK easier and simpler.

I will turn to some of the very specific questions that noble Lords raised. There is some similarity and overlap between them. On the broad question of whether there is sufficient scrutiny of the new powers that the FCA is being given, those powers were given under the Financial Services and Markets Act. That discussion was had last year and pre-dates my time in this House, unfortunately. The reality is that those powers were given, and I think it is right. I understand the concerns that noble Lords and industry have regarding that unelected regulator having the full powers that it does. However, oversight by parliamentarians is really important. Now that the UK has left the EU, the Government intend to move the UK’s domestic model of financial services regulation so that financial services regulators—not just the FCA—make the detailed regulatory requirements within a framework set by government and Parliament.

It is right that the regulators should take much of the burden of responsibility for making those new rules. However, they need to come back to Parliament regularly with all the details that they are proposing. In fact, one of my noble friend Lord Hill’s key arguments was that the current prospectus regime is overly rigid and inflexible. It sets out very prescriptive rules in primary legislation, which means that when new methods of raising financing come along, the regulators were unable to adapt to them. They were unable to approve something if it was not prescribed in the first level of regulation.

This new burden will involve more work for the FCA and other regulators in due course. Indeed, the FCA has the ability and responsibility to levy the relevant fees to deliver its full responsibilities. I was asked whether it would be given more resources; if it needs more resources, it will raise them through its fees structure. We therefore feel that it is perfectly capable of dealing with the added rules that it will have to prepare. This House will no doubt scrutinise all these rules thoroughly; I am sure that the financial services regulatory committee will do its job thoroughly. I hope that the other place will also play its part in doing so, but I know that your Lordships’ House will do so.

With regard to redress under the scheme of arrangement, there are obviously compensation mechanisms built into this new set of prospectus rules and framework, and these will be protected. We will write with regard to the bankruptcy element of this. I do not have it in my briefing pack, but I will certainly get the noble Baroness, Lady Kramer, a specific answer on that. The noble Baroness is right that the public offer platforms have been caveat emptor up until now. The reality is that they are a very legitimate way of raising funds for businesses in this country. But when they are raising significant amounts of money, it is right that they have the same relative oversight that any other platform would have, whether it is an MTF or an exchange that would be raising capital. This will bring them under the scope of the regulatory framework, as far as the regulators are concerned.

With regard to the delays and the fact that will be in place only by 2025, I totally appreciate that these things take a long time but part of the scrutiny process for the regulators and their new powers is that they have to go through thorough consultation periods for every set of rules that they propose. They will indeed be doing that, and we therefore expect this to be by the first half of 2025.

On deference, the Government have published the outcome of their conclusion on the reforms to the prospectus regime and committed, in line with the stakeholder feedback, to prioritise the reforms taken forward in this SI. This note is supposed to be about deference and I am still trying to read it. I will write to the noble Lord, Lord Livermore, as I am not sure this will answer the question that he put to me with regard to that overseas deference mechanism. I will respond to that further. In the meantime, I apologise if this response was not as thorough as it needed to be.