Draft Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2017

Jonathan Reynolds Excerpts

Tuesday 14th March 2017 General Committees

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Good morning, Mr Flello; it is indeed a pleasure to see you in the Chair.

We find ourselves in a slightly unusual position with this procedure today—we do live in unusual times. As we have heard from the Minister, it is the Government’s intention to continue with the transposition of elements of the second markets in financial instruments directive into UK law. However, this process takes place while a huge question mark hangs over our future relationship with the European Union, under whose auspices the directive was drawn up. Although there seems to be an indication of a broad consensus that there will be no bonfire of EU regulation, we have yet to receive any real clarity or guarantees from the Government in that regard.

MiFID II has been the subject of much discussion among market participants since the referendum result. In particular, it has been mooted as potentially providing an answer to the financial services sector’s anxiety about securing passporting arrangements for the cross-border trading arrangements on which it depends to function. It is almost a decade since the original MiFID legislation was applied in the UK. It has achieved many of its original goals in creating a more harmonious investment landscape across Europe, and it is important that we preserve the elements of consumer protection that it has embedded in UK markets.

Best execution has played an important role in contributing to better outcomes for consumers and creating a more efficient trading landscape across Europe. Labour supports those efforts and sees the importance of a robust framework in which they can operate. For that reason, we support treating the operations of organised trading facilities as a regulated activity.

Labour supports moving binary options from the supervision of the Gambling Commission to the Financial Conduct Authority. That is not to say that we do not have some concerns about the regulation of binary options and how they are used by consumers, who are potentially vulnerable, but we believe that they have more in common with high-risk financial products than betting activities. We remain in dialogue with the FCA to ensure that those products come with the appropriate caveats. Structured deposits are an entirely different class of product, but the same principle applies: consumers must have full disclosure on the products that they are purchasing. Any further clarity in that regard will be welcome.

Labour also supports the ongoing efforts to transpose MiFID II into national law, which will help to harmonise standards across Europe and provide a higher standard of consumer protection in the UK. As we come to exit the EU, it is essential that we consider the benefits that historic regulation has brought us and how they can be protected in the future. Indeed, if equivalence is to be sought as we enter the negotiations, it is vital that we as policy makers ensure that these obligations continue to be diligently met, regardless of the overall climate of uncertainty.