UK Bill Would Give FSA Veto Power over Exchange Rules

A bill giving the Financial Services Authority veto power over rule changes by UK-recognized exchanges that would have a disportionate and excessive regulatory impact has been introduced by Treasury senior official Ed Ball MP. The Investment Exchanges and Clearing Houses Act is partially an effort to preserve the UK’s proportionate risk-based approach to regulation in the face of NASDAQ’s interest in acquiring the London Stock Exchange. The MP was confident that the legislation would ensure that the UK can maintain its approach to financial market regulation without imposing a disproportionate burden on the exchanges and clearing houses. In the UK and probably elsewhere, the phrase disproportionate burden is code for the Sarbanes-Oxley Act and particularly the Section 404 internal control mandates.

Under the bill, the FSA would not need to vet every single rule change proposed by an exchange or clearing house. The new power is intended to be a back stop. The bill would authorize the FSA to specify in its rules the kind of regulatory provision it needs to see, Mr. Ball explained, and to specify what it does not want to vet. He predicted that a great deal of the ordinary regulatory provision of the exchanges and clearing houses, the large majority of it, would not need to be vetted.

Fundamental to the bill is the principle that the government is blind to ownership of exchanges so long as the regulatory environment is protected. The legislation will apply to all UK recognized investment exchanges and clearing houses from the outset. It will not just apply after there has been a change of control and it will not apply only to those exchanges and clearing houses which are in foreign hands. The senior official assured that the new powers will not make foreign ownership of UK exchanges and clearing houses any easier or more difficult than it is at the moment.