Clause 21 - Discretionary licence conditions

Football Governance Bill – in a Public Bill Committee am 10:30 am ar 21 Mai 2024.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Virendra Sharma Virendra Sharma Llafur, Ealing, Southall

With this it will be convenient to discuss the following:

Clauses 22 to 24 stand part.

Schedule 6.

Clause 25 stand part.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

I will begin with clause 21. Where needed, discretionary licence conditions will be used by the regulator to bring a club up to the required level of compliance with the threshold requirements. That means that the regulator is satisfied that the club can currently, and will continue to be able to, operate sustainably in financial, non-financial and fan engagement areas, as per the regulator’s objectives. Those conditions will be in addition to the standardised mandatory licence conditions and, when applied, will be tailored to the club’s specific circumstances and identified financial risks. If a club already meets the threshold requirements set by the regulator, the regulator will not need to attach any discretionary licence conditions. That means that it can be light touch where appropriate, and need not directly intervene if the desired outcomes are already being met. Discretionary licence conditions could also be used to protect and promote the financial resilience of the football system. The conditions would be used to resolve risks that might not threaten any one club significantly, but their potential aggregated, correlated or multiplied effects may pose a significant risk to large parts of the football system, or the pyramid as a whole.

Clause 22 sets out the scope of the regulator’s powers to attach or vary a discretionary licence condition. Under the financial resources threshold requirement, discretionary conditions may only relate to one of four areas including debt management, liquidity requirements, and overall cost reduction, or they might restrict a club’s ability to receive illicit finance. The fourth area is integral and enables the regulator to restrict the club’s ability to access funding that it has reasonable grounds to suspect is connected to serious criminal conduct. It will empower the regulator to limit illicit finance, which is inherently unsustainable for a club.

Under the non-financial resources threshold requirement, conditions may only relate to one of three areas: internal financial controls, risk management, and financial reporting. As outlined in the previous clause, the regulator can also attach discretionary licence conditions to advance its systemic financial resilience objective. That objective is specifically to address systemic risks, or structural issues, by applying conditions to multiple clubs or even to all licensed clubs. Clause 22 limits the scope of discretionary licence conditions to only conditions that relate to debt management, liquidity requirements, and overall cost reduction.

To future-proof the regulated regime, the Secretary of State will have the power to amend the areas to which discretionary licence conditions may relate. However, that can be done only if the regulator makes a request in writing to the Secretary of State, having first held a consultation, explaining why an amendment is needed by reference to the purpose of the Act. That will limit the risk of unwanted, politically motivated scope-creep in the future.

Clause 23 sets out the procedure for attaching or varying financial discretionary licence conditions on clubs. The procedure outlined in the clause ensures that clubs and competition organisers are notified and given the appropriate opportunity to engage in advance when the regulator considers a discretionary licence condition is needed. Where appropriate, the regulator will seek to allow the relevant club and league to address identified issues and risks so that it does not have to intervene formally. That may produce a better regulatory response and outcome. The football industry may be best placed to address specific issues within the overall context of a league’s regulatory framework.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

I thank the Minister for what he has said so far. I want to touch on a point for the clubs and, certainly, for supporters, having spoken to those of both Everton and Nottingham Forest, regarding profit and sustainability rules and the tariff that was served on them. At the moment, there seems to be zero confidence in the Premier League’s ability to govern that system and there are many calls—in fact, I got about 14 last night—from supporters right across the board who are asking why the independent financial regulator is not taking control of the whole profit and sustainability issue, any breaches and then levying the punishment to clubs in a manner that people think would be fair and transparent and, as I say, a process that they have a belief in. At the moment, they undoubtedly do not have that and that is a real worry.

It would be remiss of me not to touch on Manchester City winning the league yesterday and congratulate the club on that. However, there are 115 charges hanging over the club’s head and there is lots of disquiet around the whole process. It would have been welcome if the Minister had considered whether that should sit with the independent financial regulator to restore faith in the whole process, which, unfortunately, is not there.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

I understand what the hon. Gentleman says, but there is a balance about football having its rules and independence. We have to honour that in terms of relationships with UEFA and FIFA. However, we are ensuring that there is a regulatory regime that I hope will start to improve confidence among fans, as the hon. Gentleman describes. When it comes to the specific area under focus, if the regulator feels that the league’s proposition does not meet the objectives it needs to fulfil its duties, it can decide that it will still impose its own. The regulator will have to be satisfied that what the league is proposing will meet its required objectives.

Before any action is taken by the regulator, there will be a period where both the relevant leagues and clubs can make any representations and in which the relevant league, as a competition organiser, can also give a commitment to take action in lieu of the condition being attached or varied, as proposed by the regulator. Where the regulator is looking to attach financial discretionary licence conditions to a club, it must go through the relevant procedure to do so, as outlined in clause 23.

Clause 24 sets out further details on one key aspect of the procedure: a final, formal opportunity for competition organisers to offer a self-regulatory solution to a problem identified by the regulator so that the regulator does not have to step in. That is known as the competition organiser making a commitment in lieu of a financial discretionary licence condition. The clause is another important aspect of the regulator’s approach, which emphasises engagement and working with the industry to minimise formal intervention where possible. The regulator will still have powers to step in if the issue is not resolved, but it provides the chance for a competition organiser to present a football industry-led solution to an identified risk.

The regulator can accept a commitment if it concludes that that commitment should achieve the same results as the proposed discretionary licence condition and it does not conflict with the regulator’s objectives. If the commitment proposed by the league will not achieve the regulator’s desired outcome, the regulator can reject it—to repeat the point to the hon. Member for Liverpool, West Derby—and retains the power to intervene directly by imposing the discretionary licence condition.

Photo of Ian Byrne Ian Byrne Llafur, Liverpool, West Derby

For clarity, if the disquiet continues around the Premier League’s handling of the financial sustainability rules and the punishments it has meted out, and if the independent regulator believes it is not a fair and transparent system and that there are holes in the system, it can intervene.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities) 10:45, 21 Mai 2024

This is in relation to the mandatory conditions that all clubs have to meet under the regulatory regime. If the regulator identifies that a club is not meeting one of the mandatory conditions set out in the Bill on the financial side, it can apply its own discretionary conditions. If the league proposes a solution to the problem and the regulator believes that it will work, it can then allow the league to apply that. However, if the regulator feels that the proposal put forward by the league would not get that club up to the standards required, it can then impose its own rule. I hope that makes sense.

Schedule 6 outlines the procedure for when the regulator is minded to accept a commitment given by a competition organiser, and covers requests to vary an existing commitment. The schedule therefore expands on clause 24. As I say, if it does not accept the commitment, the regulator can impose the original conditions. The intention is that commitments could provide a less burdensome solution for all parties that still addresses the risk. However, for that to be the case, it is important that there is a clear procedure for the interaction between clubs, the relevant competition organisers and the regulator. Schedule 6 sets out that procedure in further detail. The notification processes and timings set out in the schedule allow clubs the opportunity to make representations before the regulator accepts a commitment or requested variation of an existing commitment from a competition organiser, and before the regulator releases a competition organiser from a commitment.

Finally, clause 25 sets out the procedure for the regulator to attach or vary non-financial discretionary licence conditions. Such conditions, set under the non-financial resources and fan engagement threshold requirements, will not be subject to the commitments procedure involving relevant leagues as outlined in the previous clauses. Instead, the procedure is that the regulator must notify only the club and give the club a period of no less than 14 days to make representations. As per previous clauses, this is an important safeguard to allow the club to make its case. However, the clause allows the regulator to take more immediate action in situations that are more urgent and serious. If the regulator believes that giving the club notice and allowing a period for representations will jeopardise or risk jeopardising one of its objectives, it can apply the discretionary licence condition immediately, without prior notice.

Photo of Stephanie Peacock Stephanie Peacock Shadow Minister (Digital, Culture, Media and Sport)

I will start by briefly addressing the broad provisions around discretionary licence conditions in clauses 21, 22 and 23 together, before moving on to a discussion on commitments in lieu of licence conditions, covering clauses 24 and 25 and schedule 6.

Looking first at the discretionary licence conditions, clause 21 allows the regulator to attach licence conditions that are specific to a particular club. This allows the regulator a mechanism to put the principles of proportionality and consistency into practice: every club will be required to meet the threshold conditions for a full licence, providing us with consistency, but where a club falls short, the regulator’s response can be bespoke, allowing for proportionality.

Clause 22 provides strict limits as to what the discretionary licence conditions can cover, ensuring that they are focused on the areas in which they are most needed. Finally, clause 23 requires the Independent Football Regulator to notify a club, as well as the relevant competition organiser, about a proposed financial discretionary licence condition before attaching it to a licence. This is a sensible provision, which allows for a club and the regulator to remain in conversation unless there is an immediate risk that further delay would threaten the club’s financial sustainability.

I will move on to the idea of commitments in lieu of discretionary licence conditions. This requirement, which was not initially proposed as part of the fan-led review or the Government’s White Paper, says that the regulator must invite the relevant competition organiser to give a commitment to make a rule of its own instead of the proposed condition’s being attached to the particular club’s licence. I understand that the reasoning behind that provision is to ensure that competition impacts can be reduced, allowing a competition organiser to try to ensure that one club alone does not have to face a rule that other clubs do not. Further to that, it exists to offer competition organisers an opportunity to improve consistency across clubs in following good practice. However, despite that, a number of concerns about these clauses have been raised with me, so I hope that the Minister can provide some further context in answer to some of the following questions.

First, it would be good to have confirmation that this provision cannot be exploited to delay the regulator from imposing licence conditions. Consultation will be incredibly important as part of the regulator’s functions, but the regulator must have the teeth to make an executive decision where needed. In that vein, it would be good if the Minister could provide some insight on what these commitments might mean for rule primacy.

I understand that the regulator will have the final say on whether a commitment in lieu is accepted, and that the discretionary licence condition must be dropped while a commitment is in force, but it still remains the case that any accepted commitment will mean that both the regulator and competition organiser will have oversight and scope in the same area. That could see clubs paying twice for two sets of overlapping rules. Who has ultimate power in these cases?

Another area where clarification is needed is on the topic of commercial sensitivities. Although the Premier League is in many ways representative of clubs, it is also a competitor to clubs when it comes to gaining big sponsorship deals. Can the Minister confirm that the regulator will be alert to the ways in which discretionary licence conditions are discussed with competition organisers, so that sensitive information is not disclosed? Indeed, in cases involving such commercially sensitive information, it seems slightly odd to think that the competition organiser, which will not have the full picture, would be better placed to create a rule than the regulator itself, which will be privy to more of the financial details.

Finally, it is welcome that the relevant club will be consulted about a commitment in lieu beforehand, as per schedule 6, but, for the other clubs competing in a relevant competition, who will also be impacted by the commitment, there is no right to consultation. That might seem strange to clubs that have done what is required of them to meet the threshold requirements; they face being subject to further regulation due to the specific circumstances of another club’s finances, without a fair say in the matter. I should be grateful to the Minister, therefore, if he would set out how the Bill will ensure that clubs are not ignored in the engagement process when the commitment in lieu being proposed will directly apply to them.

Photo of Stuart Andrew Stuart Andrew Assistant Whip, Parliamentary Under Secretary of State (Department for Culture, Media and Sport), Parliamentary Under Secretary of State (Department for Business and Trade) (Minister for Equalities)

The hon. Lady makes important points. The idea is that as we have a regulator on a statutory footing, which will improve standards, hopefully that will bring football along with those improved standards. However, she is right to highlight the point about sensitive information. The regulator will be on a statutory footing and will be able to look at that information.

That is why it is important for the regulator to allow the leagues and clubs to make representations. The leagues may be able to say, “We can offer a commitment in lieu that will address this and look at the detail of that,” but the regulator, having information from the club that may be sensitive and private, can work out that, “Actually, that commitment in lieu will not meet the objectives,” and therefore impose its own discretionary licence condition.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clauses 22 to 24 ordered to stand part of the Bill.

Schedule 6 agreed to.

Clause 25 ordered to stand part of the Bill.