Draft Public Offers and Admissions to Trading Regulations 2023 Draft Securitisation Regulations 2023 Draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024 Draft Data Reporting Services Regulations 2023

Richard Fuller Excerpts

Wednesday 17th January 2024 General Committees

[Bim Afolami]

I thank my right hon. Friend for that point, and I shall respond in the following way. Under the smarter regulatory framework, the broad approach is that Parliament—in this instance, this Committee—passes secondary legislation under the auspices of FSMA. Then, the detailed rulebook—which is, believe it or not, more detailed than this statutory instrument—comes in through the operation of the FCA. My right hon. Friend made a point about the consultation process. The consultation process can be long or short. I would expect that, as with various other measures under the Edinburgh reforms, the consultation process for statutory instruments as detailed as these will be quite short. We are looking for it to happen this calendar year. I do not want to be more precise than that, but I expect it to happen this calendar year.

[Richard Fuller (North East Bedfordshire) (Con)]

I want to follow up on the comment from my right hon. Friend the Member for East Yorkshire on the role of the FCA. The Minister will be aware of the concerns of Members on the Government Back Benches about the speed with which regulators perform their duties, how much we pass on to them, and how much we trust them to fulfil the will not just of Parliament but of our representatives. That applies to the FCA. I do not expect the Minister to comment on that directly, but can he assure the Committee that he will use his position to ensure that the FCA is kept on track in implementing the reforms at pace?

[Bim Afolami]

I will surprise my hon. Friend by commenting directly on what he has said. Like him, I have spent a long time thinking carefully about the role of the FCA and other regulators and the speed with which they discharge their duties. We give them a lot of work to do, but we also hope that that work is conducted as quickly as possible. The FCA has made improvements in that regard, but it is my job to ensure that it works as quickly as possible. When it comes to the Edinburgh reforms, under which these reforms sit, the Chancellor has been very clear that one of my key jobs is to deliver: not just to say that we are doing things, but to ensure that those things come into practice. I am very focused on that.

There are three types of DRSPs: first, approved reporting mechanisms, which report details about transactions in financial markets to the FCA on behalf of investment firms; secondly, approved publication arrangements, which publish trade reports to the public; and, thirdly, consolidated tape providers, which collate trading data from a variety of sources and publish it in a single live data stream. The draft regulations establish a new framework for the regulation of DRSPs, under which the FCA will make the detailed requirements in its rulebook, as we have discussed.

The instrument also delivers the Edinburgh reforms’ commitment to establish a regulatory framework for a UK consolidated tape. Currently, there are no consolidated tapes in this country, which means that market participants must go to various sources to get a cross-market view of trade data. That makes it expensive, burdensome and difficult for investors to access the data they need to make informed investment decisions in the UK. That is why, as part of the wholesale markets review, the Government consulted on legislative changes to facilitate the emergence of a consolidated tape in this country. There was broad support for the Government’s proposals, which this instrument delivers. A tape that collates data from multiple sources into one continuous live stream will make it easier for market participants to meet best execution requirements and manage risk. That will make UK markets more attractive and competitive.

The draft Securitisation Regulations 2023 establish a new legislative framework that replaces inherited EU law on securitisation. The introduction of the securitisation regulation in 2019 directly addressed financial stability deficiencies that arose after the global financial crisis. The Treasury conducted a review of the securitisation regulation in 2021. The review aimed to bolster securitisation standards, to increase investor protections, and to develop securitisation markets to facilitate real economy lending. The new framework established by the draft regulations will allow the financial services regulators—the FCA and the Prudential Regulation Authority—to make and further reform the firm-facing rules for securitisation with more agility and proportionality. The regulators will consider taking forward reforms in line with the outcomes of their own consultations and the 2021 Treasury securitisation review, which were received positively by industry.

The instrument also takes forward other reforms identified by the 2021 review. Those reforms include boosting the UK securitisation market’s competitiveness by no longer subjecting certain overseas firms to UK requirements when investing in UK securitisation. That will make overseas firms’ requirements more proportionate and increase their incentives to invest in UK securitisations, while also removing extraterritorial supervision issues for the regulators. I want the Committee to be clear on that point. The instrument also facilitates UK firms’ participation in international securitisation markets, which should benefit our industry.

The draft Public Offers and Admissions to Trading Regulations 2023 deliver a key recommendation—perhaps the key recommendation—from Lord Hill’s listings review to fundamentally overhaul the prospectus regime, and they mark a significant step in the Government’s reforms to make our capital markets more competitive. The current prospectus regulation, as outlined by Lord Hill and industry at length in his review, is inflexible and slows the raising of capital, which is the purpose of our capital markets. The instrument creates a new framework that requires companies raising capital to publish information that is relevant and useful for investors, while removing unnecessary barriers to such information. The new regime will mean that companies raising capital are required to publish a prospectus, except where they meet a series of exceptions—for example, where a security is traded on an exchange, or where the offer of securities is fewer than 150 investors. That means that, in practice, we are removing the need for a prospectus to be published in many situations. Just so that colleagues appreciate this, the purpose of that is absolutely not to reduce information for investors but to ensure that the right level of information is appropriate for the right type of investors for the right businesses.

The instrument also establishes a new regime for securities “admitted to trading’” on a regulated market or a multilateral trading facility, and creates a new regulated activity of operating an electronic system for public offers of certain securities that are above £5 million. By removing the €8 million threshold for a prospectus, which effectively acted as a blockage for certain private-capital raising, firms can raise larger amounts of capital more easily and more quickly.

That will allow firms raising money outside of capital markets—for example, through crowdfunding platforms, which has grown in popularity over recent years—to continue to do so, but do so in a more targeted way. The FCA will be given new rule-making responsibilities to set rules that apply directly to firms, such as when a prospectus is required. That will create a simpler and more effective regime.

I will now turn to the final instrument, the draft Financial Services Act 2021 (Overseas Funds Regime and Recognition of Parts of Schemes) (Amendment and Modification) Regulations 2024—I will take away from this the need to perhaps shorten the length of the names of such regulations.

This instrument amends the statute book to support the implementation of the overseas funds regime, which is a new route allowing overseas funds from equivalent countries or territories to be recognised for the purposes of marketing participation in such funds to UK retail investors. This instrument ensures that, where appropriate, funds recognised under the overseas funds regime are treated in the same way as other recognised funds. These changes are technical, but they are necessary to allow the overseas funds regime to operate as policy intends, ahead of the first funds being recognised under it. This will be critical to continue to support a competitive funds sector for UK investors.

In closing, the first three of these SIs replace key parts of assimilated EU law, putting in place new frameworks tailored to the UK as the Government deliver a smarter regulatory framework in financial services. The final instrument, as I have outlined, makes technical changes across the statute book to support the effective implementation of the overseas funds regime and the functioning of fund recognition. I hope that the Committee will join me in supporting these regulations, and I commend them to the House.