Alternative Investment Fund Managers Regulations 2013

Lord Davies of Oldham Excerpts

Wednesday 10th July 2013 Grand Committee

[Lord Burnett]

The Floor is the noble Lord’s.

[Lord Davies of Oldham]

My Lords, I am delighted to have the Floor. I cannot think of anything more exciting than to discuss this SI with the Minister. It looks as though only the two of us will participate in this absolutely fascinating debate.

Of course, we agree with the broad terms of the SI. After all, the origins of the directive were derived several years ago from a position that we largely endorsed in government. The Minister will appreciate that we very much agree that supervision and control should be robust and effective, and we expect the Financial Conduct Authority to fulfil that function. The SI indicates the need of this important part of our investment and service economy to have the opportunity to seek custom right across the European Community.

The Minister may nod his head enthusiastically, because I know his views on the European position, but I notice a dearth of Conservative support in the Committee on this issue. On issues such as this, in the absence of some of those noble Lords who, like their colleagues on the Conservative Benches in the Commons, always smell a rat in anything to do with the European Community, one always worries whether any such indication exists as far as this SI is concerned. Certainly, our side supports it.

The Minister identified the issue of costs, which, it is clear from the documentation, are not negligible. However, I ask the Minister to come clean on something that I do not think occurred in the other place. When this SI was being considered and the consultation had taken place with the industry, how is it that the Government, with extraordinarily adroit timing, also included in the Finance Bill £150 million of tax cuts to the industry? In this a case once again of the Government, with their well-known friends in the City and conscious that some costs are involved—I am not underestimating the costs—thinking that some softening of the impact must be made by other aspects of government policy?

All I can say is that I do not agree with that. I am not at all convinced about the necessity for that. After all, as the Minister was at pains to point out, and as was also made clear in the other place, there are considerable benefits from what the noble Lord referred to quite clearly as a passport for effective operation in Europe. That is not a negligible thing. Ordinary citizens pay for a passport when they have the right to go abroad, so I am not clear why the costs appear to have been partially defrayed by the Government acting in another legislative capacity to moderate costs for the industry with the tax concessions that they have made. After all, it is not as if the industry has not for some time been quite adroit at lobbying on this issue—with considerable effect, I might add.

I apologise if I am a little slow in understanding the position but perhaps the Minister can spell it out. I understand entirely the €500 million threshold on activity and the €100 million base, but I take it that those who fall below that threshold yet are in this category of activity are subject to some regulation from the Financial Conduct Authority. I was not quite sure whether the Minister had spelt that point out. I apologise to him in advance if he did and I merely missed it.

We endorse this SI and hope that it will bring to the industry the opportunities of using the passport for effective operation in Europe. I have one last question. The Minister referred to the date by which we were obliged to comply. What are the prospects of the other 27 states complying with that timetable? He says, “Well, we haven’t gold-plated this particular SI”. No, but fair is fair and a level playing field must exist across Europe. We therefore want some assurance that other actors on the European scene will meet the same obligations with the same degree of scrutiny and control as is to be applied in the United Kingdom.

[Lord Newby]

My Lords, I am most grateful to the noble Lord for his intervention. Since he referred to the timing of this debate, I must apologise that we have chosen to have it on a particularly exciting afternoon in the first test. Australia were 19 for two when I last heard.

[Lord Davies of Oldham]

That is almost the best news that the Minister has ever presented to me in any Committee, or in the House.

[Lord Newby]

I do not want to dampen the mood but the noble Lord will know the score at which England were all out, so I am pleased to have been able to assist him marginally.

Regarding the noble Lord’s questions, he raised the point about whether the decision in the Budget to abolish Schedule 19 stamp duty reserve tax was a sop to the industry that was being hit by this directive, to which the answer is no. It is not, if for no other reason than that the firms covered by this directive were not bearing the stamp duty. This directive covers hedge funds and private equity, which were not paying the stamp duty reserve tax in the first place, so that is not the case. The reason for abolishing that relatively modest bit of stamp duty was that we were undertaking a package of reforms designed to enhance the competitiveness of the funds industry, and to help secure our status as the global asset management centre. The scope within the EU to expand that kind of activity of fund management is considerable, in our view, and we do not want to constrain it by unnecessary burdens of any sort.

The noble Lord asked about the state of play in terms of the implementation of the directive elsewhere. We are aware that Austria, Bulgaria, Cyprus, the Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Latvia, Luxembourg, Malta, the Netherlands, Romania, Slovakia and Sweden have stated that they will implement the directive by the deadline. The majority of those member states now have relevant legislation being considered by their parliaments. I am afraid that I cannot give the noble Lord any information on the state of implementation in Belgium, Estonia, Greece, Hungary, Lithuania, Poland, Portugal, Slovenia or Spain. However, as far as we are aware, there is no reason to believe that any of those jurisdictions will miss the deadline.

The noble Lord asked whether sub-threshold managers are authorised by the FCA. Yes, they are. All sub-threshold managers will be subject to at least the same regulatory standards and oversight by the FCA as they are now, so they are not unregulated. I hope that I have answered the questions posed by noble Lords and, on that basis, commend the regulations to the Committee.