Financial Services and Markets Bill

– in the House of Lords at 8:22 pm on 27th March 2000.

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House again in Committee.

Clause 152 [Power of the Director to request information]:

Photo of Lord Saatchi Lord Saatchi Conservative 8:37 pm, 27th March 2000

moved Amendment No. 233F:

Page 71, line 42, after ("information") insert ("relevant to the investigation").

Photo of Lord Saatchi Lord Saatchi Conservative

This is a relatively minor amendment. It is simply intended to qualify the power of the Director-General of Fair Trading in obtaining information for the purposes of an investigation being carried on by him. The amendment would require the information requested by the director-general and the notice referred to in Clause 152(3) to be information relevant to the investigation. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

This is certainly a nice, straightforward amendment; unfortunately, accreted to it are many government amendments to which I must speak. However, I start by making welcoming noises to Amendment No. 233F.

The amendments in this group concern the investigation powers of the Director-General of Fair Trading and the role of the Competition Commission in the external scrutiny arrangements. Amendment No. 233F, to which the noble Lord, Lord Saatchi, has just spoken, would amend subsection (3) of Clause 152. This clause gives the director-general powers to require people to provide him with documents and information.

Documents and other information are dealt with separately, in Clause 152(2) and (3) respectively. In Clause 152(2) the director may require someone to produce a specified document which, under paragraph (c) relates,

"to any matter relevant to the investigation".

Clause 152(3), which concerns information, does not contain any similar provision. I agree that such a limitation would be appropriate. This would bring the clause into line with the analogous provision in Clause 26 of the Competition Act 1998. I am grateful to the noble Lord, Lord Saatchi, for bringing forward this amendment. If I may, I shall take it away and produce our own amendment on Report which will meet the point while ensuring consistency with the provisions of Clause 152(2)(c)--the main problem being the use of the words "relevant to" in the amendment.

Turning now to my own amendments in this clause--Amendments Nos. 234A, 234B, 234E, 234H, 234J, 234M and 234P--these amendments align the language in the Bill with that used to describe what the Competition Commission does in connection with mergers under the provisions of the Fair Trading Act 1973. In the case of mergers, following a reference by the Director-General of Fair Trading, the reporting side of the commission "investigates" a matter and reports its "conclusions".

The language of this part of the Bill is partly consistent with this at present. For example, paragraph 1 of Schedule 13 refers to an "investigation" carried out by the commission, and Clause 153(8) talks about the commission's "conclusions". But there are also references to the commission "considering" a report at various stages and to the commission coming up with "opinions". The amendments we are proposing simply replace references to the commission "considering" the matter and coming up with "opinions" with reference to its "investigating" and coming up with "conclusions".

Finally, let me deal with Amendments Nos. 234G and 234R. These amendments affect what the FSA can be directed to do following an investigation by the commission. Clause 153 places the commission under a duty to come up with its conclusion as to whether regulating provisions or practices are anti-competitive. If it concludes that they are, then it considers whether the effect is justified. If it does not consider that the effect is justified, then it must say what it thinks should be done about it.

But Clause 153(7) provides that the commission must ensure, so far as is reasonably possible, that the conclusion it reaches should be compatible with the functions conferred on the FSA and the obligations imposed on it under the Bill.

Clause 154(7), which concerns the Treasury's power to direct the FSA to make changes, similarly provides that the authority may not be required to take action that would be incompatible with its functions or obligations.

Amendments Nos. 234G and 234R have not yet been spoken to. Although we can still deal with them in the same group, I would rather noble Lords opposite spoke to those amendments before I continue. I commend my amendments to the Committee.

Photo of Lord Kingsland Lord Kingsland Conservative 8:45 pm, 27th March 2000

My Lords, I shall now speak to Amendments Nos. 234G and 234R. So far as concerns Amendment No. 234G, under the procedure envisaged by Chapter III of Part X of the Bill, the Director-General of Fair Trading keeps the authority's so-called regulating provisions under review. If a report is made by the Director-General, the Competition Commission must consider the matter. However, under Clause 153(7) the commission must ensure, so far as it is reasonably possible, that the conclusion it reaches is compatible with the functions conferred, and obligations imposed, on the authority by or under the Bill.

This amendment proposes that the provisions of Clause 153(7) should be amended so that the Competition Commission must ensure that the conclusions it reaches take into account the functions conferred, and obligations imposed, on the authority by or under the Bill. The amendment would give the commission more flexibility in reaching its conclusions and it would not be restrained by the requirement that its conclusions must be compatible with the authority's functions.

Amendment No. 234R is a probing amendment. Clause 154 of the Bill deals with the role of the Treasury once the Competition Commission has made its report under Clause 153. Clause 154(7) provides that the authority may not be required as a result of that clause to take any action--

"(a) that it would not have power to take in the absence of a direction under"-- the clause--or,

"(b) that would otherwise be incompatible with any of the functions conferred, or obligations imposed, on it by or under this Act".

The precise effect of this provision is not clear. If the authority cannot be required to do anything which is incompatible with any of the functions conferred or obligations imposed on it by or under the Bill, it puts into doubt the effectiveness of the competition provisions set out in Chapter III of Part X. The authority could argue that the rules in question are necessary in order for it to meet its regulatory objective of, for example, protecting consumers. In those circumstances, can the Treasury really require the authority to modify its rules?

There seems to be, if I can put it this way, an unsatisfactory overlap between the powers of the Treasury under Chapter III of Part X and the functions conferred or obligations imposed on the authority by Clause 2.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I am grateful to the noble Lord for his explanation of Amendments Nos. 234G and 234R.

These amendments effect what the FSA can be directed to do following an investigation by the commission. Clause 153 places the commission under a duty to come up with its conclusion as to whether regulating provisions or practices are anti-competitive. If it concludes that they are, then it considers whether the effect is justified. If it does not consider that the effect is justified, then it must say what it thinks should be done about it.

But--almost in the same words as those used by the noble Lord, Lord Kingsland--Clause 153(7) provides that the commission must ensure, so far as it is reasonably possible, that the conclusion it reaches should be compatible with the functions conferred on the FSA and the obligations imposed on it under the Bill.

Clause 154(7), which concerns the Treasury's power to direct the FSA to make changes, similarly provides that the authority may not be required to take action that would be incompatible with its functions or obligations. I fear that the noble Lord and I are repeating each other to some extent.

The amendments tabled by the noble Lord would remove this constraint. I am afraid that I cannot accept this. The effect would be to allow the Treasury, following an adverse report by the Competition Commission, to direct the FSA to change its rules in a way which could mean that the statutory objectives were no longer met. For example, the Treasury would be able to tell the FSA to stop imposing requirements "X" or "Y" or new entrants to the banking sector, where the effect of not imposing those requirements would be that consumers would not be adequately protected or that confidence in the financial system would not be maintained.

The purpose of this external competition scrutiny is not--let me emphasise this--to provide a means for the commission and the Treasury to second guess whether the objectives which Parliament has given to the FSA are the right ones. That would be the effect of these amendments. The purpose of this external competition scrutiny is to provide a mechanism for ensuring that where the FSA does not regulate at the right level--that is, where it fails to give sufficient weight to the matters set out in Clause 2(3)--then the Competition Commission can report its conclusions as to what action should be taken and the Treasury can direct the FSA to make any necessary changes to get regulation back to the right level.

That must surely be the right approach. Otherwise we would not need to put objectives or principles in the Bill; we could just give the Treasury a power to tell the FSA what its objectives should be from time to time. The noble Lord, Lord Saatchi, suggested that as a way of cutting out a lot of time-consuming debate at an earlier point in our proceedings. However, if we are serious about it, the Committee will agree that the current approach in the Bill is the better one.

Photo of Lord Kingsland Lord Kingsland Conservative

If that is so, why does the Minister need to interpose the Treasury at all in this part of the Bill? Surely, if the authority, in implementing the recommended changes of the Director-General of Fair Trading and the Competition Commission, is constrained by the objectives of the Bill, then surely the Treasury has nothing to fear from seeing what they conclude is implemented--because, by definition, it can only be implemented within the objectives.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

That is nearly always the case, but, as so often, we have to provide a reserve power because the Treasury has to pay attention to other wider implications, such as our international obligations, which must override any other domestic legislation.

Photo of Lord Kingsland Lord Kingsland Conservative

I knew that there must be an answer to that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, amendment agreed to.

Clause 152, as amended, agreed to.

Clause 153 [Consideration by Competition Commission]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 234A to 234F:

Page 72, line 20, leave out ("consider") and insert ("investigate").

Page 72, line 27, leave out ("whether, in the opinion of the Commission") and insert ("the Commission's conclusion as to whether").

Page 72, line 30, leave out ("significant anti-competitive effect") and insert ("significantly adverse effect on competition").

Page 72, line 34, leave out from ("section") to ("must") in line 35 and insert ("stating the Commission's conclusion that there is a significantly adverse effect on competition").

Page 72, line 39, leave out ("opinion as to the action, if any, that") and insert ("conclusion as to what action, if any,").

Page 72, line 42, leave out ("anti-competitive effect") and insert ("adverse effect on competition").On Question, amendment agreed to.

On Question, amendments agreed to.

[Amendment No. 234G not moved.]

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 234H and 234J:

Page 73, line 3, leave out paragraphs (a) and (b) and insert ("its conclusions").

Page 73, line 7, leave out ("that conclusion or opinion") and insert ("them").

On Question, amendments agreed to.

Clause 153, as amended, agreed to.

Clause 154 [Role of the Treasury]:

Photo of Lord Dean of Harptree Lord Dean of Harptree Conservative

I call Amendment No. 234K. I should point out that there is an error in this amendment. It should read "153(2)" and not "154(2)".

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 234K:

Page 73, line 12, leave out from ("section") to end of line 13 and insert (" 154(2) which states its conclusion that there is a significantly adverse effect on competition").

On Question, amendment agreed to.

[Amendment No. 234L not moved.]

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 234M to 234Q:

Page 73, line 14, leave out ("opinion,") and insert ("conclusion,").

Page 73, line 14, leave out ("anti-competitive effect") and insert ("adverse effect on competition").

Page 73, line 24, leave out from ("to") to ("section") in line 25 and insert ("any conclusion of the Commission included in the report because of").

Page 73, line 27, leave out ("anti-competitive effect") and insert ("adverse effect on competition").

On Question, amendments agreed to.

[Amendment No. 234R not moved.]

Clause 154, as amended, agreed to.

Schedule 13 agreed to.

Clause 155 [The Competition Act 1998]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

In moving Amendment No. 234S, I should like to speak also to Amendments Nos. 234T to 234X. At present the Bill excludes from the scope of the Competition Act agreements or conduct which is "required or contemplated" by FSA regulating provisions or practices. The wording of this exclusion is carried forward from the Financial Services Act 1986. The competition regime in that Act was cast originally against the background of legislation which has been replaced by the Competition Act 1998. However, the exclusion in the Bill for things "required" by FSA regulating provisions is not necessary. As I have said, this is already the effect of the Competition Act. These amendments therefore delete the exclusion for things required. This just removes unnecessary words.

We are also taking this opportunity to narrow the exclusion from the Competition Act for things contemplated by the FSA's regulating provisions. This is in response to Don Cruickshank's interim report on banking services in the United Kingdom, which recommended removing any unnecessary exclusions from domestic competition law. We think that there is merit in exclusion from the Competition Act going wider than "things solely required" of the FSA. This is because the FSA may issue guidance or codes of conduct which do not require anyone to do anything, but which indicate a course of action which the FSA thinks is the acceptable way of complying with the rule or with the statute. Guidance cannot require something to be done. If people act in accordance with options afforded in guidance or a code, then it would not be fair if they could be penalised under the Competition Act.

In addition, guidance which represents the FSA's considered view as to acceptable ways of complying with rules would be undermined if those who follow it could be penalised under the Competition Act for doing so. In the absence of a provision to the effect of the amendment, we think that the FSA would come under pressure to write a very prescriptive rule book, which I think that everybody is agreed would not be the best way to regulate. However, we think that the current exclusion goes too far. What might be contemplated by the FSA's regulating provision could be things which the FSA had not considered in any depth, if at all, when drawing up these provisions. This represents a wide exclusion from the Competition Act.

In the exclusion we want to cover things to which, in drawing up the regulatory provisions, the FSA has turned its mind. Don Cruickshank, in commenting on our proposals, welcomed this change. We are therefore cutting back the exclusion for things which are encouraged by FSA regulating provision.

Finally, Amendments Nos. 234T, 234V and 234X, delete references to "practices". As drafted, the exclusion in the Bill covers things which are done as a result of the FSA's regulating provisions or practices. However, again we think that this goes too far. If people are encouraged to do something by the FSA regulatory provisions, which have been through the consultation process, and will have been the subject of cost-benefit analyses that is one thing, but where people do things as a result of FSA's practices, we do not think there should be an exclusion. It will be up to firms to decide what they do in response to practices. They are not obliged to do anything. Where they do something which is anti-competitive, there will be no protection from the Competition Act. That is the current position under the Financial Services Act and we are simply reverting to that. I beg to move.

On Question, amendment agreed to.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 234T to 234X:

Page 74, line 26, leave out ("or practices").

Page 74, line 29, leave out ("required or contemplated") and insert ("encouraged").

Page 74, line 30, leave out ("or practices").

Page 74, line 35, leave out ("required or contemplated") and insert ("encouraged").

Page 74, line 36, leave out ("or practices").

On Question, amendments agreed to.

Clause 155, as amended, agreed.

Clause 156 [Authority's power to require information]:

Photo of The Earl of Northesk The Earl of Northesk Conservative

moved Amendment No. 234Y:

Page 75, line 4, leave out ("in writing").

Photo of The Earl of Northesk The Earl of Northesk Conservative

I beg to move Amendment No. 234Y. I hope that it will be for the convenience of the Committee if I confine myself to this amendment. My concern here is unrelated to the subject matter of the others in the grouping, to which my noble friends will speak in due course in their place on the Marshalled List.

I begin by reassuring the Minister that this is very much a probing amendment and confess that I ought to have spotted the point of concern rather earlier in the Bill's passage. Indeed, in the interests of consistency I could perhaps have trailed though all the Bill's 408 clauses and 19 schedules, to delete all instances where the words "in writing" appear. As a marginal defence, I suspect that the query that I have may be especially apposite in the context of the authority's information-gathering remit. None the less, I hope that the Minister and the Committee will excuse me for succumbing to the convenience at this stage of limiting myself to probing this single example.

My purpose is straightforward. I simply want to clarify that the mechanisms for communication within, to, and from the authority are consistent with the provisions of the Electronic Communications Bill; in effect, that the Bill is entirely e-commerce friendly. Using the specific example that I am probing here, it would seem that the authority is required to serve a notice on an authorised person for the information it requires exclusively in writing. Perhaps I am being too stupid, but there does not seem to be any facility for allowing the authority to achieve the same end electronically, although I note the phrasing of subsection (5) that information can be provided,

"in such form as it [the authority] may reasonably require".

That may be the Government's expressed intention. It may even be that such an approach is appropriate in the context of this part of the Bill. But, as we all know, the Chancellor and the Government attach huge importance to speeding up the UK's progress towards an "e-shaped" economy. As we also all know, financial services are already well down that path. Accordingly, it is important to ensure that, where appropriate, facility for electronic communication is fully on the face of the Bill.

Perhaps I may therefore ask the Minister, in his absence, whether, in the context of this clause, it is the intention that the notices referred to should always be in writing--that is to say, paper based--or is it the intention that the drafting allows for an either/or interpretation that includes communication by electronic means? If the latter is the case, should not that be spelt out more clearly in the drafting? More generally, is the Minister satisfied, in his absence, that the whole Bill has been drafted to ensure that, where appropriate, facility to communicate electronically is explicit on its face?

I hope that the Government can give the Committee some comfort on these points. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative 9:00 pm, 27th March 2000

I wonder whether this is an appropriate moment to speak to the other 17 amendments in the group.

Photo of Lord Bach Lord Bach Government Whip

I am to reply to these amendments. I think that the noble Earl, Lord Northesk, was under a misunderstanding. The Minister, my noble friend Lord McIntosh, would not dream of disappearing while the noble Earl was on his feet. I am afraid that the noble Earl has me to reply to him.

Photo of Lord Kingsland Lord Kingsland Conservative

I see that the noble Lord, Lord McIntosh, finds the attractions of your Lordships' House quite irresistible because he is amongst us again.

Amendment No. 234YC follows on the requirement in Clause 157(5) that certain service providers to the person referred to in Clause 157(2), to whom the authority has given a notice under Clause 157(1), must provide all such assistance to the person appointed to provide a report under Clause 157(1). Those service providers could be bankers, lawyers and other advisers and indeed agents who owe fiduciary duties of confidentiality to their clients. The amendment makes it clear that those persons do not breach their duties to their clients by complying with the obligation imposed by Clause 157(5).

Amendment 234YD makes the same amendment to Clause 159 by replacing the words "circumstances suggesting" with the words "reasonable grounds for suspecting". This is the judicial review point to which I have already referred. Interestingly, the words "has reasonable grounds for suspecting" were in the original draft of the Bill printed on 17th June 1999; but it was only later that the Government replaced those words with the words "circumstances suggesting".

Amendment No. 234YG also relates to the point about judicial review and adds the words "on reasonable grounds" to Clause 161(3)(a). Members of the Committee may recall, in the course of their preparations for work on the Bill, that it was remarked in the Committee stage in the Commons that the Government appeared to be determined to reduce the risk of the authority's activities being subject to judicial review. Many of the amendments to Part XI which we are now discussing are intended to redress this balance.

Clause 161(3)(a) deals with the powers of investigators appointed by the FSA or the Secretary of State. Normally the investigating authority must give written notice for the appointment of an investigator to the person who is the subject of the investigation. However, this requirement does not apply in certain circumstances, including where the investigating authority believes that the notice would be likely to result in the investigation being frustrated. Our amendment would require the belief to be "on reasonable grounds".

Amendment No. 234YH concerns Clause 161(6) of the Bill. Here the investigator must make a report of his investigation to the investigating authority. This amendment would require the investigator to provide also a copy of such a report, not unreasonably, to the person subject to the investigation.

Amendment No. 234YJ covers the same point. When a person is required to attend upon an investigator, to answer questions or to provide other information, the investigator should give that person a notice which specifies the provisions under which the investigator was appointed and which states the reasons for his appointment.

Amendment No. 234YK is similar to the amendments above and inserts the words "on reasonable grounds" to Clause 163(3). Clause 163(2) refers to the powers of the investigator to require a person, who is neither the subject of the investigation nor a person connected with him, to attend before the investigator to answer questions or otherwise provide information. The amendment would require the investigator to be satisfied "on reasonable grounds" that the requirement imposed on the person concerned was necessary or expedient for the purposes of the investigation.

Amendment No. 234YL makes the same amendment to Clause 164(3). Again, Amendment No. 234YM adds a "reasonable grounds" qualification when the investigator considers the matters in Clause 164(1).

Amendment No. 234YN amends Clause 164 so that its provisions are consistent with Clause 162. It is not clear why the provisions of these two clauses differ, given that they cover the same point--an investigator requiring a person to attend before him to answer questions or otherwise provide information.

Amendment No. 237A is, I say candidly, a probing amendment. It is intended to raise the issue of the status of confidential information which is produced or disclosed to an investigating authority under Part XI. It is not clear under what obligation the investigating authority will be when, in the course of an investigation or in other circumstances, a person, whether an authorised person or not, produces documents or other information to the regulators. Is the authority under any obligation to keep that information confidential, or can it pass it on to other regulators, either in the United Kingdom or abroad? To what extent can the authority make the information publicly available?

Amendment No. 237B refers to Clause 166(6), which contains a specific provision to protect a person engaged in the banking business to take into account the duty of confidentiality owed by the bank to the customer. The amendment would extend the protections to others; for example, solicitors and persons acting as agents who owed duties of confidentiality as a result of acting in a fiduciary capacity.

Amendment No. 237C mirrors Amendment No. 234YA and provides that a "Relevant person" in Clause 166(8) means a person who, within the previous six years, has been a director, controller, auditor or another similar party, as set out in paragraphs (a) to (d) of Clause 166(8).

Finally, Amendment No. 237D makes it absolutely clear that the person upon whom an information requirement has been imposed has a reasonable period in which to comply with the information request. I shall have to reflect on Amendment No. 257D and come back to your Lordships.

Photo of Lord Grabiner Lord Grabiner Labour

Perhaps I may comment on the fasciculus of amendments tabled by the noble Lord, Lord Kingsland, which are conveniently gathered together under Clause 159, Amendments Nos. 234YD to 234YF, and under Clause 161, Amendment No. 234YG. The import of the proposed amendments is essentially to delete the expression, "circumstances suggesting", and substitute, "reasonable grounds for suspecting".

The structure of Clause 159 in its bare essentials is subjectively worded; it provides that,

"if it appears to the Authority that there are circumstances suggesting that", and there follows a whole series of matters that would give cause for concern to the regulatory body. In those circumstances, under subsection (3) the authority is empowered to,

"appoint one or more competent persons to conduct an investigation on its behalf".

I am not sure what the relevance of "competent" is; one would assume that only competent persons would be appointed. However, we shall see that there is some origin to the provision, which has to do with necessary expertise rather than ability. There are a number of legislative examples. There is a good record for the use of that language.

First, it is suggested by the noble Lord, Lord Kingsland, that the object of the exercise is to secure, so far as possible, some basis for introducing the application of the judicial review process. That is the purpose of the amendment.

First, if it does not "appear to the authority", that would be eminently judicially reviewable. If there are no "circumstances suggesting", again that would be eminently judicially reviewable. Therefore, I respectfully suggest that the amendment adds nothing to the debate because, under the Bill as currently drafted, all would be eminently and properly the subject of judicial review, or would be in an appropriate circumstance.

The only other point of principle that I make is that there is a great deal of relevant legislative history relating to this problem. This afternoon I dug out quite quickly some working examples. One appears in Section 177 of the Financial Services Act 1986, which provides:

"If it appears to the Secretary of State that there are circumstances suggesting that an offence under Part V of the Criminal Justice Act 1993 (insider dealing) may have been committed, he may appoint one or more competent inspectors"-- one sees the familiar expression--

"to carry out such investigations as are requisite to establish whether or not any such offence had been committed and to report the results of their investigations to him".

That is an example where the investigation could in due course lead to a criminal prosecution. Precisely the same formula is used in that Act as appears in the drafting of this Bill which the noble Lord seeks to amend.

Another example is to be found in Section 432(2) of the Companies Act 1985:

"The Secretary of State may make such an appointment [of competent inspectors] if it appears to him that there are circumstances suggesting", that an investigation should be conducted.

The final example is to be found in the Fair Trading Act 1973. Sections 50 and 51 give power respectively to the Director General of Fair Trading and the Secretary of State, or the Secretary of State and any other Minister, to make a monopoly reference where it appears to him or them that a monopoly exists, or may exist. In that legislation the reference is to the Monopolies and Mergers Commission, now the Competition Commission. However, that legislation is unaffected by the introduction of the Competition Act 1998.

Very similar provisions are to be found in Section 64(1)(a) of the 1973 Act in respect of a merger reference:

"A merger reference may be made to the Commission by the Secretary of State where it appears to him that it is or may be the fact that two or more enterprises ... have ... ceased to be distinct enterprises".

Similarly, in Section 75(1) provision is made for a reference in anticipation of a merger.

All of those examples turn upon the subjective judgment of the person who is charged with the duty to make the necessary appointment. Some of the examples can lead to criminal proceedings; others can lead to an expensive and complex inquiry by the Competition Commission. None of those examples incorporates the kind of language which the amendments suggest. I respectfully suggest that these amendments are entirely unnecessary and, if anything, indicate a little over-lawyering on the part of those who advise noble Lords opposite.

Photo of Lord Kingsland Lord Kingsland Conservative 9:15 pm, 27th March 2000

I believe I said, when I dealt with these amendments, that their object was not to convert matters which were not judicially reviewable into matters which were but to make them more easily judicially reviewable. The noble Lord, Lord Borrie, will recall that two years ago when we debated the Competition Bill--not at exactly the same length as this Bill but almost--an issue arose as to the investigatory powers of the director-general.

My memory may not serve me well and therefore I cannot claim certainty in this regard. I recall that in that Bill, in regard to the director-general, a similar form of words indicating subjectivity was used, but that in the course of the debate it was accepted by the Minister that the word "reasonably" could be incorporated into the text. In other words, that word impliedly qualified the discretion of the authority. If tonight the Minister is prepared to go as far as the Minister did in the context of the Competition Bill I shall be perfectly content. If not, I believe that my form of words makes it easier. I see the noble Lord, Lord Grabiner, nodding.

Photo of Lord Grabiner Lord Grabiner Labour

I entirely agree with what the noble Lord says. The point is that the amendment would make the position too easy; and one would simply invite litigation as an entirely unnecessary exercise.

Photo of Lord Kingsland Lord Kingsland Conservative

I have the greatest admiration for the noble Lord, Lord Grabiner, but I regard it as a shocking allegation that I, of all people, should wish to encourage litigation. On the contrary, I wish to encourage a prudent authority. I believe that an objective requirement which makes the authority look before it leaps is likely to lead to much better decision making than is a subjective requirement. That was the force that drove me to table the amendments. It was not the honeyed words of the advisers to which the noble Lord, Lord Grabiner, referred.

Photo of Lord Grabiner Lord Grabiner Labour

Before the noble Lord sits down, I am delighted that those words struck home!

Photo of Lord Bach Lord Bach Government Whip

If the Front Bench can get a word in, this is my first entry into discussions on the Bill! I believe that the same applies to the noble Earl, Lord Northesk. I do not know whether he thought of any animal analogies. I thought of shark-infested waters, but immediately put that to one side because it would not be a fitting description of any noble Lord. However, "Daniel in the lion's den" might be more suitable because a lion is more similar to a number of noble Lords.

The key to effective regulation is information. That is what this part of the Bill is about. To regulate effectively the broad range of markets and businesses for which it is responsible, and to take timely, well-considered and proportionate--that is an important word--regulatory decisions, the FSA must have access to detailed, up-to-date and relevant information. Equally, it must have effective powers to investigate possible wrong-doing in order to maintain the confidence of all players in our financial markets from the small investor to the large market professional. This is vital for maintaining the high reputation of the United Kingdom as a place in which to do financial services business.

The effectiveness of the powers in this part of the Bill is therefore central to the new, rationalised regulatory system. In keeping with our general policy of rationalising powers, Part XI of the Bill represents a careful synthesis of the different investigation powers exercised by the existing regulators. What we started with was a mixture of statutory and contractual powers--one kind of power for one kind of person doing one kind of activity, with another power for another person doing a similar sort of business.

Much of the debate in another place--it has been referred to--centred on the extent to which the FSA is required to act reasonably and to impose requirements only to the extent that they are reasonable. It was following that discussion that the Government agreed to review the use of explicit reasonableness references in the Bill more generally, with the result that we made a number of amendments to other parts of the Bill the other day. Clearly some of the more important amendments moved and spoken to today seek to introduce further explicit references to "reasonableness". I do not think that the noble Lord will be surprised to hear that we do not consider those to be as helpful or as necessary as the other amendments.

Dealing with the amendments debated, but not necessarily in order, as regards reasonableness, Amendments Nos. 234YD, 234YE and 234YF seek to reverse changes made in another place by changing the trigger for the FSA and the Secretary of State to start an investigation into particular possible contraventions. This important clause, Clause 159, covers a broad range of possible contraventions, ranging from breaches of rules by authorised persons, through market abuse, to serious criminal offences under the money-laundering regulations, the carrying on of illegal regulated activity, the making of misleading statements and, last but not least, insider dealing.

When we introduced the Bill in another place, the clause was drafted on the basis that the trigger for an investigation power was where the FSA or the Secretary of State had,

"reasonable grounds for suspecting that", a contravention may have taken place.

However, we concluded that that wording imposed too high a test for launching an investigation. We are talking about an investigation in this context. It is similar to, if not the exact equivalent of, the level of suspicion that a policeman must have in order to carry out an arrest and which would often be met only after some, perhaps considerable, investigation.

This is too high a test if we want to have a regulatory system that responds quickly and effectively to possible wrong-doing. We cannot have a system where the regulator must have the kind of case required to justify an arrest in other circumstances before investigations can begin. That might not matter when what is at issue is a breach of the rule by an authorised person, as the more general information gathering powers under Clause 156 would be available to build such a case.

However, the trigger is wholly unsuitable for investigating possible illegal regulated activity or financial promotion, market abuse and the other issues I raised. In such cases, there may be no alternative means for exploring the circumstances in order to build the kind of case that would be sufficient to meet the reasonable-grounds-for-suspecting trigger. We make no apologies for wanting to be sure that investigations can take place as and when the circumstances suggest that they are needed. Nothing is to be gained by having a regulator who cannot respond quickly or by encouraging wrong-doers to seek to prevent the launch of inquiries through procedural challenges in the courts.

Therefore, the Bill was amended in another place to align the trigger for these investigation powers with those currently applying to the investigations of insider dealing under Section 177 of the Financial Services Act 1986. My noble friend Lord Grabiner regaled the Committee with other examples which, perhaps to put it mildly, are telling.

We cannot accept any weakening of the powers. The FSA and the Secretary of State must have powers they can exercise on the basis of circumstances suggesting a contravention. Waiting until the existence of the kind of grounds which would in a different context be clear enough to justify an arrest means leaving things too late.

The noble Lord, Lord Kingsland, suggested that that has something to do with trying to avoid judicial review. That is not the case. As I believe my noble friend Lord Grabiner made clear, one cannot get rid of judicial review so easily. Judicial review will still exist. It is true that we do not want to encourage a situation in which every decision to launch an investigation is liable to be referred to the courts. That would severely reduce the effectiveness of the system in detecting wrong-doing and eliminating it from our financial markets. For those reasons, I invite the noble Lord not to move his amendments.

Amendments Nos. 234YG, 234YK and 234YM contain the phrase "on reasonable grounds" in connection with other judgments which an investigator may be called upon to make. We want investigation powers which are effective. A balance must be struck. The requirement for reasonable grounds perhaps seems more onerous than it sounds, bearing in mind that reasonable grounds for suspecting is the test which a police officer must satisfy before he can arrest a citizen.

We do not want to open up too great a scope for investigations to be tied up or frustrated. We want an investigator to be able to take a reasonable judgment about the prospects of the investigation being frustrated without a substantial risk that the investigation could then be frustrated by a subsequent challenge to the decision to withhold the notice. We want investigators looking into serious crimes such as illegal deposit-taking or insider dealing to be able to form a reasonable judgment as to the witnesses to interview without opening up the investigation to a risk of challenge.

After all, if the investigator is wrong to consider that a person can give information, he will gain no information as a result. We must not allow amendments to take place at the expense of the ability to launch investigations when appropriate, or the ability of investigators to take simple practical judgments about the proper conduct of those investigations. We believe that these three amendments go too far and, again, we would ask the noble Lord to withdraw them.

I move on because this is a large number of amendments, moved briefly by the noble Lord, Lord Kingsland. I deal next with Amendments Nos. 234YB and 237C. I shall come to the amendment of the noble Earl, Lord Northesk, when it is moved shortly. If I may, I shall call these the "statute of limitations" amendments. Amendment No. 234YB would impose a statute of limitations of six years on the period after which a person who used to be an authorised person may be required to provide regulatory information. Amendment No. 237C would impose that same six-year limit on the period during which a former controller, auditor, actuary, accountant, lawyer or employee of a person under investigation could be required to disclose information covered by banking confidence.

I want to make it clear on behalf of the Government that it is not our intention that any person who has once been authorised, or who has held some position in relation to an authorised person, should be subject to an endless stream of information requests for ever more. We considered the possibility of a cut-off period for those powers but concluded that, by its very nature, it was bound to be arbitrary. We do not believe that we can afford to introduce some arbitrary period after which the regulator must simply wash his hands of an authorised person and the customers of that person for whom he bears some responsibility.

What would happen if, some years down the road, concerns emerged that there had been mass mis-selling along the lines of the pensions scandal about which the House heard so much. Surely that scandal is evidence enough that there can be a very real need for information about transactions carried out many years previously, certainly more than six. In order to assess the extent of the problem, the FSA may well need to have access to information from all those who were active in the market at the time, not only those who are still authorised. The Government are committed to ensuring that the regulator will have all the powers that he needs in order to deal with any future scandals of that nature. The Committee would not expect anything less.

Therefore, we have taken forward the existing approach--it is not a novel one--to be found in Section 39(8) of the Banking Act, which applies the power to collect information to former authorised institutions under the Act. However, it would be wrong to give the impression that those powers are not properly constrained. The power under Clause 156 is circumscribed, for example, by the requirement in subsection (4) of that clause, which limits it to,

"information and documents reasonably required in connection with the exercise by the Authority of functions conferred on it by ... this Act".

That ensures that a former authorised person will not be pursued endlessly with information requests. Only when the FSA has some legitimate need for information in connection with the discharge of its functions may it invoke this power.

The same applies to the investigation powers. The information that the FSA can require from a former auditor, controller or employee is constrained by the purpose of the investigation. It is common sense that the longer the period since they held the position in question, the less likely it is that they will have relevant information required by the authority. However, if they have that information, why should we prevent the authority from requiring it?

I turn to Amendment No. 234YA, which I call the "without delay" amendment. It is important that the FSA can gain access to information and documents on a timely basis--obviously, the vital ingredient of effective regulation. That is why in our subsection (3) of the clause we provide that the FSA can require the information and documents "without delay". The noble Lord's amendment would require instead that all requests for information are subject to some specified period for compliance. Clearly, the intention behind the amendment is laudable. However, we maintain that it is unnecessary.

The FSA must, of course, be reasonable in its expectations of when information may be forthcoming. It is implicit in the use of the term "without delay" that what is being referred to is some unjustified or unreasonable delay. So the true meaning of Clause 156(3) does not enable the FSA to require a person to meet some unreasonable or impractical requirement. That would clearly be an absurd interpretation.

The noble Lord suggests instead that there should always be a specified period which is reasonable. That would be rather more bureaucratic and would place the onus on the FSA to decide what period must reasonably be allowed for producing the information, whereas the current wording enables the provider of the information to take such time as is necessary for providing the information, so long as he does not delay in the normal sense of that word.

I turn to Amendments Nos. 234YC and 237B which deal with fiduciary duties. The Government have sympathy with the noble Lord's wish to ensure that a person who is required to give assistance under Clause 157(5) cannot be sued for breach of fiduciary duty or other obligation as a result. That is clearly right. However, we have concluded that the insertion of an explicit provision is unnecessary. Compliance with the statutory duty imposed by subsection (5) would be a defence to any allegation of breach of a fiduciary or other duty.

Moreover, Amendment No. 234YC is potentially damaging because it could cast doubt on that principle in other cases by implying that compliance with a statutory requirement could otherwise give rise to an action for breach of some other duty.

Amendment No. 237B seeks to extend the additional protection for banking confidentiality under Clause 166(6) to duties of confidence arising from acting in a fiduciary capacity. Clause 166(6) follows the model under current legislation--specifically Section 105(2A) of the Financial Services Act, as inserted by the Companies Act 1989. We are not attracted to extending this special regime in the way suggested. For one thing the term "acting in a fiduciary capacity" covers a very broad range of circumstances: for example, professional advisers such as accountants, stockbrokers and solicitors who may owe duties to their clients; company directors in relation to their shareholders; and agents and trustees. Those are all people from whom the FSA may require information. But it is necessary to draw a line somewhere. Why should it not apply to other duties of confidence? We cannot draw up special rules for them all.

We are following the existing legislation in drawing it round the relatively well-understood legal concept of banking confidentiality. That is a concept which has grown up over many years and has a clear and accustomed meaning.That is less true of fiduciary duties, particularly given that that would include constructive trusts which can arise, as the Committee heard earlier, in a wide variety of situations. There is a danger that this amendment will give rise to many different interpretations and disputes over the exercise of these powers.

The noble Earl, Lord Northesk, has been very patient and I turn now to his amendment. Amendment No. 234Y would remove the need for a notice issued under Clause 156 requiring information to be "in writing". We were not sure what was the noble Earl's concern until he made his helpful speech, but it is about electronic communications. I can tell him clearly that the Electronic Communications Bill will enable the Government to ensure that all references like this in this Bill will be kept up to date with modern communications technology. So he need not fear that e-commerce will play no or little part in those transactions.

I turn now to the three amendments, Nos. 234YJ, 234YL and 234YP, which would require the investigator to issue copies of a notice setting out details of the investigation to anyone subject to a requirement under Clauses 162, 163 and 164. In the case of the former two clauses, that would apply only if the person on whom the requirement was being imposed was not himself the subject of the investigation. We do not believe that the amendments are necessary. If an investigator is to require anyone to comply with statutory powers to provide information or to attend for an interview or whatever, of course that investigator must produce evidence of their powers to so require. We see no advantage in specifying that that needs to take a particular form. The Bill has been criticised in some quarters as being too long and it has been alleged that that stems from too much readiness to write into statute that which is perhaps not needed. This amendment may be an example.

Amendment No. 234YP, along with Amendment No. 234YN, to which I shall speak also, would include an unnecessary additional reference to requirements being reasonably considered,

"relevant to the purposes of the investigation".

The Committee will have read the various subsections of Clause 164. We do not believe that there is any need for the new provision. Amendment No. 234YH would require an investigator to provide the person under investigation with a copy of the report at the same time as he sent it to the investigating authority, whether that be the FSA or the Secretary of State. We are bringing forward amendments which will provide persons against whom the FSA is taking disciplinary action with generous rights of access to material modelled on the criminal disclosure regime. The amendment would take transparency to a level that is--bizarre is perhaps too strong a word--rather too far.

To require an investigator to copy his report to the person under investigation as a matter of routine, even before the investigating authority had seen it or had had time to consider whether it should lead to any action, would be unprecedented. The investigating authority must be able to make a judgment on what action to take on the basis of the report it has commissioned. If a decision to take disciplinary action is taken, the rights of access to material will apply from the warning notice stage, subject to the necessary opportunity for the investigating authority to decide whether certain disclosures would be against the public interest, including, for example, disclosures which would unfairly identify the source of information or prejudice the source for the future or involve an unjustified disclosure of commercially sensitive information about the business of others. The amendment would by-pass all those important judgments. I believe that a like amendment was moved in another place.

Amendment No. 237D, to which I shall come in a moment, leads me to Amendment No. 237A, which we believe to be unnecessary. Of course it is necessary for investigators or an investigating authority to respect the confidential nature of information which has come under its possession in the course of its duties, unless disclosing it is necessary for the performance of their functions. Clause 338 provides for that already. It makes it clear that any confidential information obtained by any one of a number of primary recipients must be kept confidential. Subsections (5)(a) and (5)(c) define the FSA and the Secretary of State as primary recipients. Subsection (5)(d) does the same for persons appointed to make a report under Clause 157.

The Committee will perhaps be pleased to hear that I turn finally to Amendment No. 237D, which again raises a debate familiar from another place. We do not believe it is necessary. No warrant will be issued if the justice of the peace or sheriff is not satisfied that there has been a failure to comply with the requirement. If a reasonable period had not been allowed for compliance, no doubt the justice of the peace or the sheriff would say in a robust way that the test had not been met, so no warrant would be forthcoming. All that the amendment would achieve is to require arbitrary timescales to be set on all information requirements under this part. We do not believe that that is the best way in which to carry on.

I have attempted to answer the many amendments raised by noble Lords opposite. I have tried to explain why we must resist them. I hope that they will withdraw them.

Photo of Lord Bach Lord Bach Government Whip

I believe that Article 6.1 of the European Convention on Human Rights applies to all parts of the Bill. I shall be surprised if it does not.

Photo of Lord Kingsland Lord Kingsland Conservative

I am much obliged and thank the Minister for that reply.

Photo of Lord Elton Lord Elton Conservative

Before my noble friend replies, in speaking to Amendment No. 234YH the Minister sought to dissuade my noble friend from proceeding with his amendment on the grounds that--I think I quote his words exactly--"We are bringing forward amendments to provide generous rights of access". Can he tell us when that will be and where they will strike?

Photo of Lord Bach Lord Bach Government Whip

At Report stage, the noble Lord will be pleased to hear.

Photo of Lord Elton Lord Elton Conservative

I have to say I am pleased only for the sake of getting to bed earlier tonight. It would be better to have discussed them in Committee, unless they are entirely uncontroversial.

Photo of The Earl of Northesk The Earl of Northesk Conservative

I am grateful to the Minister for his diligence in responding to this grouping. I apologise for my slight confusion at the start of this mini-debate. As the noble Lord pointed out, after all these hours in Committee, it is a happy coincidence that the stalwarts of the respective Front Benches have found themselves making their first forays into the lions' den.

I accept that the grouping is something of a miscellany, but it is an important one, not least because of the inclusion of Amendment No. 234Y. We shall want to reflect carefully on the Minister's comments, particularly as regards the amendments spoken to by my noble friend Lord Kingsland. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 234YA and 234YB not moved.]

Clause 156 agreed to.

Schedule 14 agreed to.

Clause 157 [Reports by skilled persons]:

[Amendment No. 234YC not moved.]

Clause 157 agreed to.

Clause 158 agreed to.

Clause 159 [Appointment of persons to carry out investigations in particular cases]:

[Amendments Nos. 234YD to 234YF not moved.]

Clauses 159 agreed to.

Clause 160 agreed to.

Clause 161 [Investigations: general]:

[Amendments Nos. 234YG and 234YH not moved.]

Clause 161 agreed to.

Clause 162 [Powers of persons appointed under section 158]:

[Amendment No. 234YJ not moved.]

Clause 162 agreed to.

Clause 163 [Additional power of persons appointed as a result of section 159(1)]:

[Amendments Nos. 234YK and 234YL not moved.]

Clause 163 agreed to.

Clause 164 [Powers of person appointed to investigate as a result of section 159(2)]:

[Amendments Nos. 234YM to 234YP not moved.]

Clause 164 agreed to.

Clause 165 [Admissibility of statements made to investigators]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No 235:

Page 81, line 42, leave out from second ("to") to end of line 1 on page 82 and insert ("action to be taken against a person under section 113--").

Photo of Lord Bach Lord Bach Government Whip

Amendment No. 235 has already been debated with Amendment No. 219. However, I should like to make a point to the noble Lord, Lord Kingsland.

The noble Lord asked me a question concerning Article 6 of the ECHR. I was tempted into making a response that may yet prove to be correct. However, I have to tell the noble Lord that I do not yet know whether it is. I undertake to research the matter and I shall write to him with a view. I felt that it would be best to put this matter on the record straightaway.

On Question, amendment agreed to.

[Amendment No. 235A not moved.]

Clause 165, as amended, agreed to.

Clause 166 [Information and documents: supplemental provisions]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 236 and 237:

Page 82, line 30, leave out from beginning to ("a") in line 32.

Page 82, line 32, after ("required") insert ("under this Part").

On Question, amendments agreed to.

Photo of Lord Boardman Lord Boardman Conservative

moved Amendment No. 237A:

Page 82, line 33, at end insert--

("( ) Where confidential information is produced or disclosed to an investigating authority under this Part the investigating authority shall keep such information confidential unless it is necessary to disclose such information for the purposes of the proper performance of its functions under this Act.").

Photo of Lord Boardman Lord Boardman Conservative

On behalf of my noble friend, I should like to move Amendment No. 237A. I am still concerned about these amendments and the replies which the Minister gave a few moments ago to other similar points that have been made as regards the breach of confidentiality that applies throughout this Bill.

These clauses provide for a free-for-all supply of information from those sources that are essentially looked upon as being confidential; namely, bankers, lawyers and the like. While I understand the need to get hold of such information, I am still concerned at the inclusion in the Bill of phrases such as,

"such information as is necessary", without any controls and breaching every established rule of confidentiality. I worry tremendously.

One safeguard that helps to maintain the rule of law is that people who have doubts about their affairs are prepared to take advice. I believe that there is an advantage to be had when individuals can, as it were, put their head on someone else's shoulder, speak of their troubles and receive appropriate advice. That established the convention of confidentiality between lawyers and their clients. The same applies to a great extent to bankers.

I deplore the way in which breach of confidentiality is incorporated into the Bill whenever someone thinks that it is right that such confidentiality should be breached. It is a great pity that this should be allowed to pass without any form of scrutiny. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I take it that the noble Lord, Lord Boardman, is moving the amendment tabled in the names of the noble Lords, Lord Saatchi and Lord Kingsland. I had thought that this amendment was not going to be moved on the basis that the matter has already been debated. These amendments have been spoken to by the noble Lord who moved the whole group, and have already been replied to by my noble friend Lord Bach.

Photo of Lord Boardman Lord Boardman Conservative

These amendments were not grouped with the amendments to which my noble friend spoke and the noble Lord, Lord Bach, replied. I know my noble friend touched on the subject many times, but he did not speak to these amendments. I refrained from entering into the debate at the time because I thought that we would come to them later. They are quite separate amendments from those which my noble friend moved and to which the Minister replied.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

Clearly I am ultimately responsible for the groupings that come before the Committee. If I have made a mistake, I apologise. My firm understanding was that we proposed to Members of the Committee opposite a grouping for the amendments which included Amendments Nos. 237A to C. I know that my noble friend Lord Bach responded specifically to those amendments. If I am wrong, I apologise to the noble Lord, Lord Boardman. Perhaps my noble friend could write to him amplifying his responses.

In case there is any suggestion that we may have been breaching well established rules of confidentiality, let me say that we inserted into this Bill, in the form of amendments last week, firm protection for legal confidentiality. We shall have to think about whether there is any analogy with banking confidentiality which ought to be enshrined in the Bill.

Photo of Lord Kingsland Lord Kingsland Conservative

I apologise to my noble friend Lord Boardman. I ought to have come back to the noble Lord, Lord Bach, who replied and said something further on the question of confidentiality, if only to warn the noble Lord that the Opposition intend to return to it on Report.

This point is linked with the issue of privileged communications in Clause 401, which we have not yet reached. I recognise that Members of the Committee opposite have given some consideration to this matter, but I share my noble friend's anxiety as to what happens to information given to the investigators once it is in their hands, particularly in relation to other authorities. This was a vexed problem at the time we debated the Competition Bill and I should like to go back and look at the solution there in order to inform myself as to what the solution should be here.

There is a linked issue with privileged communications and when we reach Clause 401--I intend to table an amendment to that--we ought to be able to reopen this topic. To that extent I can reassure my noble friend and at the same time let the Government know, roughly speaking, what my position is.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

That is fair. We are happy to debate this when we reach Clause 401 in Committee or indeed on Report if Members of the Committee prefer.

Photo of Lord Boardman Lord Boardman Conservative

In view of those assurances that we will come to this matter in the future--confidentiality is a matter of considerable importance and must be preserved--I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 237B and 237C not moved.]

Clause 166, as amended, agreed to.

Clause 167 [Entry of premises under warrant]:

[Amendments Nos. 237D and 237E not moved.]

Clause 167 agreed to.

Clause 168 agreed to.

Clause 169 [Obligation to notify the Authority]:

Photo of Lord Kingsland Lord Kingsland Conservative 10:00 pm, 27th March 2000

moved Amendment No. 237F:

Page 85, leave out lines 32 and 33 and insert ("A person may not acquire--").

Photo of Lord Kingsland Lord Kingsland Conservative

In moving Amendment No. 237F, I shall speak also to a long list of other amendments connected to it by the grouping.

Amendments Nos. 237F to 237H should be read together. Their purpose is to tighten up the current drafting in Clause 169 which is concerned with the acquisition of control, additional kinds of control or increases in relevant kinds of control over a United Kingdom authorised person. Failure to comply with Clause 169(1) is a criminal offence. That fact can be gleaned from Clause 182. Therefore it is particularly important that persons seeking to acquire control or to increase control over a UK authorised person should know exactly where they stand.

The present wording in Clause 166(1), which refers to a step which a person proposes to take, is not particularly satisfactory. What kind of step would result in acquiring the relevant control? Is it when the managing director of the acquirer decides to make the acquisition, or when his board endorses the decision, or at some later stage? Moreover, the use of the word "step" is confusing in this context because it has a particular meaning in Clauses 171(2) and 172(2).

These amendments would make the position clear beyond doubt and also mirror the corresponding provisions in Regulation 41 of the Investment Services Regulations 1995 which implement the Investment Services Directive in United Kingdom law. The amendments are also consistent with the relevant provisions of the Investment Services Directive. Neither the directive nor the regulations refer to "steps" that a person proposes to take. The requirement in the directive and in the regulations is straightforward and clear; namely, a person cannot acquire control (or increase control) of an authorised person unless he has first notified the competent authorities. As I have already mentioned, the criminal sanction for breach of Clause 169(1) requires a clear procedure with no room for uncertainty.

Amendments Nos. 241A and 241B deal with the corresponding case of where a person ceases to have control, or reduces his control, of a UK authorised person. Again, there is a requirement to notify the authority before taking the relevant action. Under Clause 182, failing to give notice is a criminal offence. For the same reasons given in relation to Amendments No. 237F to 237H, greater certainty is required. These amendments follow precisely the same approach as the amendments to Clause 169. Amendments Nos. 241C and 241D are consequential.

Amendments Nos. 241E and 241F and I believe Amendment No. 254L all relate to the same point. Clause 247(2)(e) and (h) refer to persons "exercising influence over" other persons. There is an extended definition of "controller" in Clause 397. It would be more satisfactory to use this defined term rather than the somewhat vague expression of persons "exercising influence over".

Amendment No. 278A is a technical but very important amendment. Clause 397 defines who is to be a controller, which is important, for example, in relation to the whole of Part XII--the part concerned with control over authorised persons. The proposed amendment relates to one of the definitions of "associate", which is to found in subsection (4)(g) of the clause. This is a crucial term because, when determining whether a person does acquire control, it is important to look at that "person's associates", as is clear from subsection (3). Subsection (4)(g) is far wider than I think is needed, or required, by the Disclosure of Major Shareholdings Directive, which is used to define who acquires control, so that the acquisition can be regulated under the directive.

Paragraph (g) is far too wide, as, in effect, it requires even more than double counting the shares or other interests where a certain Mr X owns those shares or other interests but uses a broker to buy or sell them for him or a nominee to hold them. The broker's or nominee's own holdings have to be aggregated with those of Mr X. I understand that the Department of Trade and Industry has accepted that the nominee would not hold a disclosable interest for the purposes of the disclosure provisions of Section 198 of the Companies Act (which is also based on the definitions in the Major Shareholdings Directive) where the nominee cannot exercise or control the exercise of voting rights otherwise than at the direction of Mr X. This is clear from Section 109.

It is also important to persuade the Treasury to agree to this proposal. We are aware of a particular instance where a leading merchant bank was told by its lawyers that it would have to aggregate, for the purposes of the present "acquisition of control" provisions in the third life assurance directive, all the holdings of its nominee, whoever the nominee was holding for, even if the nominee could not vote in its own discretion; and also had to aggregate all of the holdings of the stockbroker that it used to acquire the shares--again, whoever the stockbroker had been acting for. I believe that I have spoken to all the amendments in the group. I beg to move.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I shall speak first to Amendments Nos. 237F to 237H and 241A to 241F. We are broadly in agreement on the objectives of these amendments. We are keen that we do not go too far down a chain of causation, and that it is only the step which results in the acquisition of control that should need to be notified. It is also important that it should be made clear that the acquisition of control cannot proceed without approval.

When I looked at these amendments I had two thoughts. First, they appeared to be drafting amendments. They seemed to say the same thing as the Bill, but rather more elegantly than the Bill says it. I shall no doubt get into terrible trouble for saying that. I understand now that there may be points of substance in the difference in drafting. We believe that the text of the Bill is correct as it stands. However, I wish to think about the points that have been made by the noble Lord and, if necessary, consult further with our lawyers to make sure that no amendment is required. I should not like to think that we had turned down something which either constitutes more elegant drafting or which makes more clearly a substantive point that we wish to make. I hope that on that basis the noble Lord will not press the amendment.

Amendments Nos. 254L, 254M, 254YL and 254YM are also matters to which we have given much thought. The term "controller" has been defined--and has been included in the Bill rather late--in order to set thresholds for the point at which a person comes under the obligation to notify the FSA of their control. The term is defined in strict terms in Clause 397.

Clauses 247 and 265 do not set out a strict threshold test for the exercise of the FSA's powers to authorise or order the end of authorisation of a collective investment scheme. They are concerned with the matters which may be taken into account when the FSA is revoking an authorisation order for a collective investment scheme or when deciding whether an operator of an individually recognised overseas scheme and its trustees or depositories are fit and proper persons.

It would be absurd if, when making an assessment, the FSA could take into account the fact of a 10 per cent holding but not that of a 9.5 per cent holding. That would be the result of replacing "any person exercising influence" with the stricter term "controller", which is what these amendments would do. The amendments would introduce an artificial restraint on the FSA in the proper conduct of its duties. I hope that the noble Lord will not press these amendments.

Amendment No. 278A is also interesting. The noble Lord explained it clearly. I am sympathetic to the point that he raises. I agree that there may be a degree of unnecessary double counting of shares and voting rights in the Bill as currently drafted. The noble Lord referred to a particular merchant bank and to a particular example. As I do not know which merchant bank he is talking about, I should be grateful if he will write to me about it and we can discuss the matter more effectively than we can across the Floor of the Chamber.

The amendment as drafted would breach the European directives--Article 11 of the Second Banking Directive and Article 9 of the Investment Services Directive--which state that a holding of voting rights or capital must be notified. The point raised by the amendment does not stand alone; it is one of several issues thrown up by the definition of "associate" in Part XII of the Bill.

There could be a similar difficulty in relation to provisional agreements between buyers and sellers of shares. We are considering the point that has been raised. As I say, we shall be glad to discuss the example that the noble Lord has mentioned. However, we recognise that there may be a need in the context of Part XII to take other steps to cut back on the existing procedures.

The noble Lord told the Committee that the DTI has advised that there is no need to aggregate nominee holdings for the purpose of the major shareholdings directive. The difficulty did not arise with the major shareholdings directive but with the investment services directive and the second banking directive, to which I have referred. They apply the requirements to holdings of shares or voting rights, and both count equally for these purposes. I hope that there will be no conflict between one directive and another, otherwise we shall get into deeper waters than we can deal with in the Committee.

Our aim is to strike the right balance between giving full effect to the requirements of the directives while not going too far the other way and imposing unnecessary, onerous requirements on people. This is a difficult exercise. We are currently trying to find a ready solution to the point that has been raised that is compatible with the directives. One approach we are considering is to introduce a power to exempt particular circumstances from the requirement to notify. But clearly further thought is required on these matters. On the basis of my response, I hope that the noble Lord will not press these amendments.

Photo of Lord Walker of Worcester Lord Walker of Worcester Conservative

When the Minister said that he thought the amendments would add elegance to the Bill, I thought that he would immediately accept them. Anything that can add elegance to this Bill is something to be welcomed.

In reality, my noble friend made a very important point, which needs clarifying. I hope that if the Government do not take action we will return to it at Report stage.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I did not reject the amendment on the ground of inelegance, nor did I put that forward as being the only consideration. I hate to say it, but in many ways this is a very beautiful Bill. It uses common language to give precision in a way that I have not encountered before in legislation. I am rather proud to be involved in it in that respect.

But my arguments against the amendment were not about the elegance or inelegance of the language but about compliance with European directives.

Photo of Lord Walker of Worcester Lord Walker of Worcester Conservative

I can only say that, in all the legislation with which I was involved in the previous government, no Bill was beautiful if it needed several hundred government amendments.

Photo of Lord Kingsland Lord Kingsland Conservative

The Minister's emollient observations have had a suitably disarming effect on the Opposition Front Bench. It is the first occasion during the Committee stage of the Bill that I have been offered by the Minister what I would call "the Lord Hunt of Wirral facility"--that is to say, the offer to talk to me in private before the next phase. I feel particularly flattered that I have at last reached the point where I have been put on the same pedestal.

Photo of Lord Kingsland Lord Kingsland Conservative

I like to wait for an invitation.

Photo of Lord Kingsland Lord Kingsland Conservative

I notice that I did not speak to Amendment No. 241M. Perhaps I might rather unconventionally do this now so that when we get to Amendment No. 241M I shall not have to speak to it again. I hope that the Minister will tolerate that because the amendment should be part of this group.

Part XIV of the Bill deals with disciplinary measures in the event of a contravention by an authorised person of a requirement imposed on him by or under the Bill. The authority has two basic disciplinary measures: the first is that the authority may publish a statement to the effect that it considers that an authorised person has contravened a requirement--the so-called naming and shaming measure in Clause 198; the second is that the authority may impose a financial penalty, and here the Committee has to look at Clause 199 to understand the details of that.

I understand that it has been a source of controversy that the regulators under the current regime have imposed substantial penalties on authorised persons, not only for breaches of business conduct rules but also for breaches of the FSA's statement of principles. As the Committee is aware, the statement of principles is drafted in very wide and general terms. For example, the first principle is that a firm should observe high standards of integrity and fair dealing. The second principle is that a firm should act with due skill, care and diligence. Because of the very wide scope of those principles, the regulators have found it relatively easy to establish breaches, and they have not hesitated to impose substantial fines in cases of those breaches.

In most of the cases of breaches of the principles a better remedy, I would submit, is the naming and shaming remedy in Clause 198. Therefore, Amendment No. 241M provides that:

"The Authority may not in respect of any contravention of a statement of principle or code of practice with respect to the conduct expected of an authorised person ... require a person to pay a penalty under this section".

Photo of Lord Bach Lord Bach Government Whip

I am not sure that Amendment No. 241M has been taken in the right order, but I am quite happy to reply to it briefly, if that would be to the convenience of the Committee. It does stand on its own in that sense.

As the noble Lord has explained, the effect of the amendment would be that an authorised person would not be required to pay a financial penalty in respect of a contravention of a statement of principle or code of practice. My honourable friend the Financial Secretary to the Treasury dealt with this amendment in some detail in another place. The only place in the Bill where statements of principle or codes of practice are provided for is Part V, which applies to approved persons rather than authorised persons. Part VIII of course applies for the market abuse code. Financial penalties for market abuse are provided for under that part, not Part XIV. In addition, a penalty under Part VIII is for committing market abuses defined in Clause 109, rather than for a breach of the code as such.

The principles for business are in fact not, in the terminology of the Bill, statements of principle, but are rules under Part X, albeit ones that are set at a very high level of generality. People certainly could be disciplined for a breach of them in the normal way. Most of the cases expected by the FSA will involve breaches of detailed rules and only some cases on the basis of the principles alone. As its use would be rare, it would not be sensible to remove the authority's ability to take action for breach of rules, even high level rules like the principles for business. Detailed rules are never going to be able to cover every eventuality, particularly in innovative markets. If an authorised person does breach a high level rule in a way which is not foreseen in more detailed rules, his conduct may just the same harm the interests of consumers. We believe it is right that the regulators should be able to take appropriate action. Without this option, the authority would inevitably, in the interests of protecting consumers, draw up more and more detailed rule books; a regime which was more highly prescriptive would serve only to increase costs and deter business. We do not want that. Nor do we believe it is what the industry wants either.

A Joint Committee under the noble Lord, Lord Burns, considered this issue at some length and came to the conclusion that strengthening the role of guidance was a better way to meet legitimate demand for greater certainty than writing more rules. The principles for business will be elaborated on by a body of rules, evidential provisions and guidance. The FSA make clear in its response to consultation paper 17 the importance of ensuring that the application of the principles of business is reasonably predictable. We agree with that. On that basis I hope that the noble Lord will consider withdrawing his amendment.

Photo of Lord Kingsland Lord Kingsland Conservative

I am sorry if I spoke to that amendment out of turn. I had the impression that it was part of the group that I had previously dealt with. I am obviously not going to press this amendment, but I think the point that lies behind the amendment is a point that has lain behind a number of other amendments to the systems of codes, rules, guidance, principles and so forth. What the Opposition are seeking is as certain an environment as possible for authorised persons operating in markets.

In that respect, I believe that there is room for improvement in the Bill. I am not particularly concerned about how it is achieved--whether it is achieved by greater precision of principles or allowing guidance to have greater weight in terms of protecting an individual or even giving him a safe haven. The method used is not the most important part. The most important part is that the overall framework should provide a suitable degree of certainty; so that the market can remain confidently innovative without in any way being fraudulent or corrupt. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments No. 237G and 237H not moved.]

Clause 169 agreed to.

Clauses 170 to 172 agreed to.

Clause 173 [Notification]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 238 and 239:

Page 88, line 10, after ("may") insert ("reasonably").

Page 88, line 12, leave out ("considers reasonable") and insert ("reasonably considers necessary in order to enable it to determine what action it is to take in response to the notice").

On Question, amendments agreed to.

Clause 173, as amended, agreed to.

Clauses 174 to 176 agreed to.

Clause 177 [Objection to acquisition of control]:

On Question, amendment agreed to.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 241:

Page 89, line 44, at end insert--

("( ) "Consumers" means persons who are consumers for the purposes of section 129.").

On Question, amendment agreed to.

Clause 177, as amended, agreed to.

Clauses 178 to 180 agreed to.

Clause 181 [Notification]:

[Amendments Nos. 241A to 241E not moved.]

Clause 181 agreed to.

Clause 182 [Offences under this Part]:

[Amendment No. 241F not moved.]

Clause 182 agreed to.

Clauses 183 and 184 agreed to.

Clause 185 [General grounds on which powers of investigation are exercisable]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

This amendment concerns the FSA's powers of intervention in respect of an incoming firm; in other words, a treaty or EEA firm which is exercising its treaty or passport rights to carry out a regulated activity in the United Kingdom in accordance with Schedules 3 and 4.

Clause 185 provides that the FSA may exercise its power of intervention in respect of an incoming firm if it contravenes a requirement or knowingly or recklessly gives the FSA false or misleading information. The FSA can also exercise its power of intervention if it is desirable in order to protect the interests of consumers. However, the current clause limits that power to protecting the interests of consumers in relation to a regulated activity carried on by the firm. That limitation would prevent the FSA from taking steps to protect consumers generally from systemic risks which may be posed by the firm, rather than just to protect the firm's own customers in relation to regulated activities carried on by it.

For example, the FSA might have concerns about the impact of an incoming dealer or hedge fund, which could go wider than considering just the firm's own customers in relation to a regulated activity, which might themselves be wholesale firms. Those concerns could extend to the customers of those firms also.

A similar restriction is to be found in subsection (1)(c) of Clause 42, which provides for the exercise of the FSA's own initiative power where it appears to it to be desirable to vary a Part IV permission in order to protect the interests of consumers or potential consumers in relation to a regulated activity covered by the permission.

It is the Government's intention to introduce further amendments on Report to remove the limitation in that clause also, and to align these grounds on the basis of consumers and potential consumers generally. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative

This is a tidying-up amendment of which we approve.

On Question, amendment agreed to.

Clause 185, as amended, agreed to.

Clauses 186 and 187 agreed to.

Clause 188 [Procedure]:

On Question, Whether Clause 188 shall stand part of the Bill.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I gave notice of my intention to oppose the Question that Clause 188 stand part of the Bill. That notice is the introduction to a horribly long list of amendments on the groupings list which I shall not weary the Committee by repeating. Amendment No. 254A, an opposition amendment, appears to have crept into the group by mistake. I apologise for that. I shall expect noble Lords to speak to it when we come to that point on the Marshalled List.

Perhaps I may now speak to the amendments. This is the first of a series of groups of amendments which take forward the rationalisation of the decision-making procedures. The amendments may seem rather daunting. These are important changes and have taken some time to work through. I recognise that Members of the Committee may wish to subject these aspects of the Bill to further scrutiny on Report.

As I explained to the noble Lord, Lord Saatchi, in my letter to him on 22nd March, which was copied to all Members of the Committee who have taken part in these debates to date, we have been acutely conscious of the need to give your Lordships as much opportunity as possible to study the changes and to debate them. It is for that reason that we have brought forward these amendments in the manner that we have. We have made them available at the earliest opportunity in order that noble Lords can see and debate the overall effect of the changes.

As well as the amendments that we have tabled, we have made available the texts of the amendments that we propose to table on Report. In other words, these are the amendments to parts of the Bill that have already been dealt with in Committee. There may be some further refinements to be made on Report, perhaps reflecting points raised today.

In the light of what was said by the noble Lord, Lord Saatchi, and others at the outset of this Committee stage this afternoon, I appreciate the particular point that was raised; namely, that the co-ordinates of these draft amendments are to the Bill as printed in Committee. I undertake to provide a concordance very rapidly between those amendments and the Bill as amended in Committee, which will be produced at the end of this week or the beginning of next week, so that noble Lords who have taken the time to study the draft amendments will see how they fit into the debate on Report.

Photo of Lord Saatchi Lord Saatchi Conservative

I thank the Minister very much for dealing with a large part of our concern.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I am grateful for that response.

These rather technical amendments to Parts XIII and XVII of the Bill--quite technical and complex parts in their own right--should assist in understanding the critical changes to the decision-making procedures which we shall come to debate when we reach Part XXVI of the Bill.

Perhaps I may outline the overall intention of the changes that we seek to make, which are twofold. First, we seek to enhance the rights of persons who are subject to disciplinary-type action, including market abuse and the other powers to impose penalties or make public statements about misconduct, or whose livelihoods are threatened by a proposal to cancel permission under Part IV, or to withdraw approval or issue a prohibition order under Part V. Secondly, we seek to ensure that these protections, which considerably enhance those that exist currently, apply only where appropriate and not generally to routine supervisory actions. We do not want a regulatory system that is too hamstrung by its procedures to respond in a timely fashion to market developments.

I remind the noble Lord, Lord Kingsland, of the distinction that I drew earlier in Committee between routine supervisory decisions and those decisions which, by their nature, remove or damage a person's ability to pursue his business. It is not the case, as the noble Lord appeared to suggest last week, that we are insensitive to the potential effect of a range of regulatory decisions on the livelihoods of financial services professionals. We attempt to strike a careful balance between the need for effective regulation and the legitimate expectations of those involved in the industry. While it is simply not appropriate to deal with the generality of supervisory-type decisions as if they were disciplinary actions, we recognise that there is a class of decision which implies the permanent or long-term removal of the ability of a person to pursue his current line of business. As I have indicated, this includes those cases where the FSA proposes to cancel an authorised person's permission under Part IV, or to withdraw approval or issue a prohibition order under Part V. The full disciplinary procedures will apply in those cases.

I deal briefly with the procedures for these disciplinary-type decisions. The FSA's disciplinary procedures have rightly attracted considerable interest at every stage in the consideration of this Bill. In response to concerns, the Government have stressed the importance of the new, independent first instance tribunal. However, the Government have also built in a number of further administrative safeguards, some of which draw on the procedural provisions which apply to the criminal law--for example, those contained in the Criminal Procedure and Investigations Act 1996. Some noble Lords may remember that with the same pain as I recall.

In disciplinary-type cases, Part XXVI will require the FSA to give persons, including third parties who may be affected by the decision, the right to make representations and refer matters to the tribunal. Persons affected will be given access to the FSA's material, including evidence which it considers might undermine the decision. The FSA will be required to set up procedures which ensure that the person who prepares the FSA's case is not also involved in the FSA's decision. The FSA will not be able to implement the decision until the person's remedies, such as his right to refer the matter to the tribunal, have been exhausted.

However, it would not be right or effective to require the FSA to treat all its decisions as if it were conducting something akin to a criminal prosecution. That would introduce an unnecessary level of formality into the FSA's day-to-day supervisory relationship with the firms that it regulates; and it would add substantially and unnecessarily to the costs of FSA supervision, which could adversely affect the competitive position of the United Kingdom. It is the Government's policy that the FSA should apply light touch regulation where possible and effective consumer protection where necessary. For example, the FSA's supervisory functions may require it to act swiftly in an emergency so that decisions have to be taken by an appropriately senior person within the FSA, notwithstanding that he may have been involved in some way in gathering the evidence or have an existing supervisory relationship with the firm concerned. When faced with a difficult and important decision whether to intervene, we expect that those responsible will want to test their options. It must be clear that the senior executives within the FSA can explore the options without denying themselves the ability then to act as necessary to protect the interests of consumers. Similarly, it is not practical or sensible in supervisory cases to require the FSA to provide access to all the material which it may have considered in the background to its decision.

The other main area in which we are rationalising procedures relates to applications to the FSA, whether they seek the FSA's approval of some change in relation to a firm or scheme or a variation in requirements which the FSA may already have imposed.

If the FSA decides to grant an application in full or decides to remove a requirement on a firm, it is clearly not necessary for the full warning notice and decision notice procedure to apply. In other cases where the decision will not be so welcome to the person concerned, we are taking the opportunity to align the warning notice/decision notice procedures throughout the Bill so that the same safeguards can apply.

The government amendments relate specifically to the exercise of the powers of intervention in relation to incoming EEA and treaty firms under Part XIII and collective investment schemes under Part XVII. Similar provisions will be introduced on Report into earlier parts of the Bill such as in relation to the exercise of the FSA's own initiative powers under Part IV. Draft texts of those amendments have been made available with the explanatory notes.

In Part XIII, Amendment No. 241H introduces a new clause setting out the procedure for exercising its power of intervention in relation to incoming firms. This clause replaces the existing Clauses 188 and 189. The clause is modelled on the procedural provisions currently adopted in Clause 314, which concerns a direction in relation to former underwriting members at Lloyd's but will itself be enhanced, first, to allow the FSA to extend the period for making representations; secondly, to provide that a decision notice must be issued if the FSA decides to refuse an application to vary or revoke a requirement; and, thirdly, to provide that a decision to refuse can be referred to the tribunal. Under this procedure the subject of the decision will enjoy standard rights to know the reasons for the decision, to make representations and to refer the matter to the tribunal.

However, it is not possible to introduce a standard clause for all procedures because of the particular circumstances relating to each of the FSA's supervisory intervention powers. In Part XVII, Amendment No. 254S introduces a similar clause in relation to authorised unit trusts which replaces the existing Clauses 252 and 255.

Amendment No. 254YE introduces a similar clause in relation to a decision to suspend the promotion of a collective investment scheme recognised by virtue of being constituted in another EEA member state. The new clause replaces the procedural provisions contained in Clause 261.

Finally, Amendment No. 255G introduces a similar clause in relation to other recognised schemes. It replaces Clauses 274 and 275.

The other government amendments are minor consequential or drafting changes to reflect the approach I have just outlined in relation to applications to the FSA.

I think the best way for me to illustrate the effect and operation of these amendments will be to consider them in the context of the helpful amendments that have been made by noble Lords on the Opposition Benches. Amendment No. 254Y concerns the emergency procedure for the FSA's powers of intervention under Clause 250 whereby the FSA may require the manager to suspend the operation of the scheme until a specified date or require the manager and the trustee to wind the scheme up by a specified date. The amendment would restrict the emergency exercise of the FSA powers in accordance with Clause 255 to cases in which it considers that urgency is desirable in order to protect the interests of participants or potential participants.

As I have already outlined, the Government propose to replace Clause 255 with a new procedure introduced by Amendment No. 254S, but the amendment helpfully raises a point of principle which is of wider application. The new clause in Amendment No. 254S replaces the existing provision in Clause 255 for dealing with urgent applications by allowing the decision to take effect on a specified date or immediately in accordance with subsection (2) if the FSA, having regard to the ground on which it is exercising its power, considers it necessary for it to take effect immediately. The grounds on which the FSA may exercise its powers under Clause 250 are that the requirements for the making of an authorisation are no longer satisfied; that the manager or trustee has contravened, or is likely to contravene, a requirement; that the manager or trustee has given the FSA false or misleading information; or that it is desirable to give a direction in order to protect the interests of participants or potential participants. The interests of participants or potential participants are likely to be a very important factor in the FSA's decision whether to exercise its powers. However, there may be other equally urgent considerations.

For example, it may be that the scheme as constituted is unlawful, so that the FSA is bound by UK law or EC directives to suspend the operation of the scheme with immediate effect even if the participants are benefiting from the illegality. The scheme may also be competing unfairly or unlawfully with other schemes and damaging the interests of their participants, or damaging the financial system generally.

We therefore think it is best to rely on the test in subsection (2) which is wider in terms of possible grounds, but narrower in the sense that the FSA must consider that immediate effect is necessary, rather than merely desirable in the interests of participants.

Subsection (4)(c) will also require the FSA to state its reasons for the determination as to when the direction should take effect so that those affected will in any event be able to make urgent representations to the FSA and if necessary to the tribunal or the court.

Amendment No. 254UA concerns the procedure under Clause 253 by which the FSA refuses to revoke or vary a direction under Clause 250. It provides that the decision notice procedure in subsection (3) applies only if the FSA has previously given a warning notice. I can quite see the concern behind this amendment, which again is of wider application, that it is unclear when the status of a continuing condition such as a refusal to act might trigger the formal decision notice part of the decision-making procedure. However, Clause 253 is also the subject of government Amendment No. 254V which rationalises the wording of subsection (3) with the warning and decision notice procedures in the rest of the Bill. The Government's amendment makes clear that subsection (3) involves a definite act by the FSA; namely, a decision to refuse to grant an application.

Amendment No. 254X concerns the procedure in Clause 254 for revoking or varying a direction under Clause 250 on the application of the scheme's manager or trustee. It would require the FSA, in granting the application, to give written notification of its decision to both the manager and the trustee, rather than just whichever one of them was the applicant. It is conceivable that the application by one of them, and the terms of the FSA's written notice in response, might contain information which is confidential to the applicant, so that it might be necessary for the FSA to notify the other party in different terms.

As the FSA already has power to do this under subsection (4), by publishing such information about the revocation or variation, in such way as it considers appropriate, I hope that Members of the Committee will not press the amendment.

Finally, Amendment No. 254KA concerns the procedure under which the FSA may refuse to approve a change of manager or trustee sought through an application under Clause 244. It would provide that, if both the trustee and manager are given a warning or decision notice, neither of them is to be treated as a third party.

The treatment and status of third parties has now been rationalised by the Government's amendments which will be debated later (Nos. 275L and 275M) so that third party rights will not now attach to notices given under Clause 245. The amendment is therefore unnecessary. I should add that subsection (5) would currently require the FSA to give a person a decision notice if, having given a warning notice, it subsequently decides to approve the proposal. However, Amendments Nos. 254H and 254K now ensure that this requirement is subsumed in the approval procedures under Clause 244(4)(a), which now require the FSA's approval to be by written notice.

I beg to oppose the Question that Clause 188 shall stand part of the Bill.

Photo of Lord Kingsland Lord Kingsland Conservative

Perhaps I may ask the Minister an orientation question. I believe that in his presentation he dealt with issues of investigations and open-ended investment companies. If not, it is getting very late indeed.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I was dealing with three kinds of business: incoming firms under Part XIII and unit trusts and recognised overseas schemes. Open-ended investment companies come later on.

Photo of Lord Kingsland Lord Kingsland Conservative

So I would be wrong in believing that the Minister sought to deal with Amendment No. 252VA in the group and that that will come later. It is on page 15.

Photo of Lord Kingsland Lord Kingsland Conservative 10:45 pm, 27th March 2000

Perhaps I may also ask about Amendment No. 275N, which relates to access to evidential material.

Photo of Lord Kingsland Lord Kingsland Conservative

Does it come later? That simplifies my task enormously. I believe, therefore, that I shall speak to only two amendments in this group; that is, Amendments Nos. 254X and 254Y. Do we agree? I must be very careful after my previous errors.

Amendment No. 254X concerns Clause 254. That clause deals with the procedure whereby the authority decides on its own initiative to revoke a direction made by it under Clause 250. Under Clause 256, either the manager or the trustee may apply to have the direction revoked or varied and, as presently drafted, Clause 254(2) provides that if the authority decides to revoke or vary the direction, it must give notice of the revocation or variation only to the person who is applying. However, both the manager and the trustee will have a valid interest in any revocation or variation. In our view, and in those circumstances, it would be more appropriate for any notice to be given to both the manager and the trustee. That is the sole purpose of Amendment No. 254X.

So far as concerns Amendment No. 254Y, Clause 255 allows the authority to give directions in urgent cases without going through the warning notice procedures. Therefore, as presently drafted, there is no qualification to the authority's power to give a decision notice under Clause 255(1). Amendment No. 254Y would qualify the authority's powers in such circumstances to cases where it is desirable in order to protect the interest of participants or potential participants.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I shall deal, first, with Amendment No. 254X. I quite see that both the manager and the trustee would need to be informed. However, I tried to make the point clearly and effectively that it is conceivable that the application by one of them and the terms of the FSA's written notice might contain information which is confidential to the applicant. Therefore, it might be necessary for the FSA to notify the other party in different terms. The FSA already has the power to do that under subsection (4) by publishing,

"such information about the revocation or variation, in such way, as it considers appropriate".

That will allow notification to be made both to the manager and to the trustee, which is what the amendment seeks, but to be made in a different way which would maintain confidentiality, which is, I hope, what the noble Lord would seek.

Amendment No. 254Y relates to the emergency procedure for the powers of intervention under Clause 250. The amendment would restrict the emergency exercise of the powers to cases in which it is considered that urgency is desirable in order to protect the interests of participants or potential participants. It is not that we disagree with that, but that we believe that it is dealt with by our Amendment No. 254S, which is the replacement for Clause 255. Again, I hope that, on reflection, the noble Lord will feel that we have covered his point.

Photo of Lord Jenkin of Roding Lord Jenkin of Roding Conservative

Perhaps I may make a remark. I started by trying to listen very carefully to what the noble Lord, Lord McIntosh, said in introducing this group of amendments. It is late and he left me behind. I read the notes, which he was kind enough to circulate to me, along with others, over the weekend. They were very condensed.

Perhaps I may put it this way. If a group of bankers or investment brokers had listened to the proceedings in this Committee over the past hour or so and had heard the noble Lord, Lord Bach, replying to the long string of amendments that had been tabled--even more so, had listened to the noble Lord, Lord McIntosh, galloping through (I hope that I am not being unkind) the explanations that he gave--quite frankly, I believe that they would have been horrified. Moreover, they would wonder how many of us understand what we are doing. I am sure that the noble Lord, Lord McIntosh, understands it. Indeed, I have been full of admiration for him. I am sure that my noble friends on the Front Bench understand it. But those of us trying to follow it on the Back-Benches are, I must confess, totally floundering.

There is enough in this group of amendments for a small Bill which would have merited half a day of discussion, taking them seriatim and recognising that they covered a whole range of different points. They may all be part of a common strategy. But we are rewriting a very large part of the Bill, late at night, in a Committee which is not well attended. How many people would be able to follow this matter?

I believe that this is a monstrous way of trying to legislate for a Bill of this sort. These amendments are being introduced late in the proceedings, long after the Bill started its passage. They will have a profound effect on the way that thousands of people carry out their professional activities in this field.

I hope that the Government will resolve not to impose on the House and on Parliament this kind of procedure and process for legislation. To pretend that we are dealing with it effectively really would be a complete fiction. It cannot be done. I feel that I must protest that we are being hustled along, amid all these complexities. We are dealing with matters in half an hour or an hour which should take half a day. I must protest.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

I do not believe that the Committee would appreciate it if I repeated the remarks which I made on the Motion that the House do resolve itself into a Committee at the beginning of this afternoon.

I fully understand the points made not only by the noble Lord, Lord Jenkin, but also by many other noble Lords. I fully appreciate the difficulties that they have and, indeed, which the Government have in dealing with opposition amendments but I do not complain about that. I fully appreciate that this is not an ideal way in which to consider legislation. I only hope that, in the end, the justification will be that the people outside to whom the noble Lord refers will feel that they have a better Bill as a result.

Clause 188 negatived.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendment No. 241H:

After Clause 188, insert the following new clause--

:TITLE3:PROCEDURE ON EXERCISE OF POWER OF INTERVENTION

(".--(1) A requirement takes effect--

(a) immediately, if the notice given under subsection (3) states that that is the case;

(b) on such date as may be specified in the notice; or

(c) if no date is specified in the notice, when the matter to which it relates is no longer open to review.

(2) A requirement may be expressed to take effect immediately (or on a specified date) only if the Authority, having regard to the ground on which it is exercising its power of intervention, considers that it is necessary for the requirement to take effect immediately (or on that date).

(3) If the Authority proposes to impose a requirement under section 187 on an incoming firm, or imposes such a requirement with immediate effect, it must give the firm written notice.

(4) The notice must--

(a) give details of the requirement;

(b) inform the firm of when the requirement takes effect;

(c) state the Authority's reasons for imposing the requirement and for its determination as to when the requirement takes effect;

(d) inform the firm that it may make representations to the Authority within such period as may be specified in the notice (whether or not it has referred the matter to the Tribunal); and

(e) inform it of its right to refer the matter to the Tribunal.

(5) The Authority may extend the period allowed under the notice for making representations.

(6) If, having considered any representations made by the firm, the Authority decides--

(a) to impose the requirement proposed, or

(b) if it has been imposed, not to rescind the requirement, it must give it written notice.

(7) If, having considered any representations made by the firm, the Authority decides--

(a) not to impose the requirement proposed,

(b) to impose a different requirement from that proposed, or

(c) to rescind a requirement which has effect, it must give it written notice.

(8) A notice given under subsection (6) must inform the firm of its right to refer the matter to the Tribunal.

(9) A notice under subsection (7)(b) must comply with subsection (4).

(10) If a notice informs a person of his right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference.").

On Question, amendment agreed to.

Clause 189 negatived.

Clauses 190 and 191 agreed to.

Clause 192 [Rescission and variation of requirements]:

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

moved Amendments Nos. 241J to 241L:

Page 99, line 3, at end insert--

("(2A) Section (Procedure on exercise of power of intervention) applies to the exercise of the power of the Authority on its own initiative to vary a requirement as it applies to the imposition of a requirement.

(2B) If the Authority proposes to refuse an application for the variation or rescission of a requirement, it must give the applicant a warning notice.").

Page 99, line 4, leave out from ("Authority") to end of line 5 and insert ("decides to refuse an application for the variation or rescission of a requirement--").

Page 99, line 6, leave out ("that person written notice of the refusal") and insert ("the applicant a decision notice").

On Question, amendments agreed to.

Clause 192, as amended, agreed to.

Clause 193 negatived.

Clauses 194 to 196 agreed to.

Schedule 15 agreed to.

Clauses 197 and 198 agreed to.

Clause 199 [Financial penalties]:

[Amendment No. 241M not moved.]

Clause 199 agreed to.

Clauses 200 and 201 agreed to.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at four minutes before eleven o'clock.