Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) Order 2018 — House of Lords, 2018-06-25
Topic: Domestic Commerce
Michael Bates (Conservative, Centre-right): My Lords, the UK and London are world-leading financial centres, providing access to a wide pool of investors and international capital. This is built on the expertise of the UK’s financial services sector in providing products that meet the needs of a variety of economic actors in the UK and around the world. The UK has therefore sought to establish itself as a leading western centre for Islamic finance, illustrated by the UK becoming the first western country to issue a sovereign sukuk, or Islamic-equivalent bond, in 2014. The UK attracts business and investment from Muslim and non-Muslim countries around the world, supporting growth and jobs in the UK, as the UK’s financial services framework accommodates Islamic finance instruments alongside their conventional equivalents The Government are committed to ensuring that this continues to be the case. Changes were made to the law in 2010 to define alternative finance investment bonds, which cover sukuk, as a specified investment. More recently, we took measures in the Finance Act 2018 to afford such instruments the same tax treatment enjoyed by conventional bonds when traded on new types of trading venue. This was accepted by the House, but the specified investment definition in financial services legislation requires updating to match the tax change The order in front of the House today does exactly that and ensures that there is an alignment of the tax and regulatory treatment of alternative finance investment bonds to provide certainty, clarity and consistency for issuers of these instruments in UK markets. The order adds two types of financial trading venue—so-called multilateral trading facilities and organised trading facilities—to the list of permitted venues for alternative finance investment bonds. Conventional bonds can already be traded in these venues. The order also amends the Financial Services and Markets Act 2000 (Carrying on Regulated Activities by Way of Business) Order 2001 so that a person administering a benchmark, as specified in the regulated activities order, will be regarded as carrying on the activity by way of business. This technical amendment is consequential on the coming into force of the EU benchmarks regulation which was given effect in February of this year by the Financial Services and Markets Act 2000 (Benchmarks) Regulations 2018 The order tracks an amendment made by the Finance Act 2018 which came into force on 1 April 2018. This left a gap in the treatment of alternative finance investment bonds in financial services regulation. We intend to close that gap as quickly as possible in the interests of certainty, clarity and consistency. Similarly, the amendment to the "by way of business" order is the final part of the legislation needed to complete the implementation of the EU benchmarks regulation into UK law. We wish to reassure issuers of and traders in alternative finance investment bonds that these instruments will be legally recognised in UK markets, giving certainty to the market. The London Stock Exchange has warned that continued failure to update the legislation for alternative finance investment bonds in regulation is causing issuers to look elsewhere The changes do not cause any new costs for business, as the regulatory framework for alternative finance investment bonds has been in place since 2007. The Financial Conduct Authority confirmed that there is currently only one firm in the UK authorised to operate a trading venue of the type which might be impacted by the proposed amendments. Instruments of this nature are very sophisticated and highly unlikely to be traded in this manner by anyone without a significant level of expertise in financial services—in other words, firms authorised by the Financial Conduct Authority We have a situation where differing treatment in regulation and taxation is afforded to alternative finance investment bonds compared to their conventional counterparts. This is unintended from a policy perspective and the Government want to act quickly to address this gap to protect the competitiveness of the UK markets. For that reason, I beg to move.