Financial Services and Markets Bill

– in the House of Lords at 3:25 pm on 18th May 2000.

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Clause 2 [The Authority's general duties]:

Photo of Lord Saatchi Lord Saatchi Conservative 3:34 pm, 18th May 2000

moved Amendment No. 1:

Page 1, line 19, at end insert ("; and

(c) which does not unnecessarily impair the competitive position of the United Kingdom").

Photo of Lord Saatchi Lord Saatchi Conservative

My Lords, in moving Amendment No. 1, perhaps I may speak also to Amendment No. 2. This Bill is a response to the trend towards consolidation in the financial services industry. Hence, nine regulators are to be merged into one. That is all well and good, but since the Bill arrived in your Lordships' House, a 10th regulator has been added--a German regulator. That is because there is a more powerful force behind the changes in this industry; namely, globalisation. The two amendments in this grouping reflect that aspect.

The first amendment has the modest objective of seeking to ensure that the new regulatory system under the FSA,

"does not unnecessarily impair the competitive position of the United Kingdom".

It seeks no more than what is described in a letter to The Times this morning submitted by several noted practitioners in the financial services world. They have written to urge the Government to,

"carefully weigh regulatory purity against competitive innovation, and to seek a balance between the two".

They go on to say that,

"Not to do so would be to put at risk the UK's extraordinary achievement in financial services, an industry in which the UK has retained a disproportionate share of the global market".

That lies at the root of our concerns and sets out the philosophy that, from the beginning, has guided our approach to this Bill.

The financial services industry is unique. It is Britain's largest industry. Without it, Britain would be in a state of balance of payments deficit permanently. That is why so much concern has been expressed about UK competitiveness and also reflects the second aspect of this group of amendments: the sudden appearance on the scene of a 10th regulator, the German regulator, as a result of the proposed merger of the London and Frankfurt stock exchanges.

The chairman of the proposed new merged exchange has said that this merger "has to happen". Perhaps I may quote his reasoning.

"The London Stock Exchange could not go it alone".

Perhaps, but if one accepts that as a sad fact then, as happened on Report, a number of questions must be raised about the impact of that merger on this Bill.

As a consequence of amendments introduced by the Government in your Lordships' House, the FSA is now the responsible listing authority for the London Stock Exchange. But the result of the merger is that we shall have one exchange and two regulatory regimes. We are uneasy about that situation.

The Minister has conceded that the,

"appropriate regulatory arrangements for the merged body are not clear".

The FSA has stated that it is,

"working closely with our German supervisory colleagues to arrive at a sensible regulatory outcome for iX, the new exchange".

However, will the resulting system bear any resemblance to the Bill that Parliament has been considering over the past two years? The Government state that the outcome of those talks between the regulators is,

"not a responsibility of the Government".

Who, then, will be responsible for the fair and equal regulation of Smith plc and Schmidt gmbh--two companies in the same sector quoted in Frankfurt, in euros? How will the Government ensure that a level playing field of regulation is in place for all the participants in the merged exchange? Who will address the concerns of the Treasury Select Committee in another place about regulatory arbitrage; that is, companies listing in one place or another to gain a competitive advantage? Who will answer Mr Arthur Levitt, chairman of the American Securities and Exchange Commission, who has asked:

"How they are going to apply, and the likelihood of, a common listing and common governance structure?"?

In a few moments I am sure the Minister will say that all these concerns are groundless and that the Government considered all this carefully when drafting the Bill. However, if that is the case, how odd it has been to hear the chairman of the Stock Exchange yesterday in his submission to the Select Committee of another place, where he stated:

"No representations had been made to the London Stock Exchange about this merger from the Treasury; none from the Bank of England and none even from the Financial Services Authority itself".

We have the uneasy feeling that this merger is shifting the ground underneath our feet and is in danger of making obsolete all of the epic two years' worth of parliamentary scrutiny of this Bill.

For those reasons, Amendment No. 2 is intended to address these growing concerns and to give the Government a chance further to reflect on them. First, the amendment states that the merged exchange must be "regulated to common standards" in both countries. That principle should apply both to the exchange itself and to those who are members of the exchange. Secondly, the amendment states that the treatment of market abuse, in particular the nature of the prohibition and the deterrent intended to prevent it, must be the same in both countries. Noble Lords will be well aware that both of these issues are highly relevant to the FSA's market confidence objective and so we have tabled our amendment under that heading.

If, having completed its review of the regulatory implications of the merger, the FSA does conclude that there are substantial differences in approach to market regulation and market abuse in Germany--which I have been assured is certainly the case--then this amendment would confirm that the FSA would be charged with the task of ensuring, so far as is practicable (we realise that the obligation cannot be unqualified) that a regulatory level playing field, both in relation to the operation of the market and to market abuse, is in place.

We should recognise the globalisation of markets in the Bill and reflect that in the objectives of the FSA. I beg to move.

Photo of Lord Newby Lord Newby Liberal Democrat

My Lords, I am grateful to the noble Lord, Lord Saatchi, for having raised this issue. When he first did so, a couple of weeks ago, many noble Lords, and indeed many in the City, were barely aware of the merger of the London and Frankfurt stock exchanges. It has been interesting to watch the volume of interest, comment and disunity on the issue grow with every passing day. A cloud no bigger than a man's hand has rapidly developed, like the thunderstorm earlier today. This is a major issue. It has far-reaching implications for the way in which the City, and indeed Frankfurt, operate. I suspect that there is a bumpy road to travel before the merger is consummated, if it happens.

To that extent, I share the analysis of the noble Lord, Lord Saatchi, but then our paths diverge. The problems with which we are faced in terms of the Bill stem from the fact that the merger has not yet taken place. By definition, we cannot know what form it will take. Its longer-term consequences are unclear, even to many of the players in the market. When the final structure of the new entity is clear, a view may be formed that the Bill requires amendment. The problem is that we are asked now whether it should be amended. Given the complete lack of clarity as to where the process is going, we simply cannot have the degree of certainty that would enable us to accept the amendment.

On examination of the draft amendments before the House, that view is reinforced. Frankly, Amendment No. 1 adds little to the existing provisions of Clause 2. As for Amendment No. 2, as a declaration of intent it sounds fine; however, I am at a loss to know how the FSA can ensure that the German regulator adopts measures consistent with those in the Bill--just as I am unsure how the FSA would respond if the Frankfurt regulator said, "This is the way we do it in Germany. I hope you will now amend your regulations so that they are consistent with the way in which the system operates in Frankfurt". So I fear that I cannot support either amendment.

However, this is a substantial issue. The Bill's provisions will not deal adequately with it for the longer term. I suspect that, just as some in the City have been somewhat complacent about the consequences of the merger of the two exchanges, there may be a certain complacency at the Treasury, and possibly even among Ministers, about the longer-term consequences of the merger. Therefore, although I have great sympathy with the thought behind the two amendments--and a sinking feeling that we shall be returning to financial services regulation sooner rather than later--I cannot support the amendment.

Photo of Lord Borrie Lord Borrie Labour 3:45 pm, 18th May 2000

My Lords, I congratulate the noble Lord, Lord Saatchi, on a timely intervention at the previous stage in asking us to think about the important proposed merger between the London and Frankfurt stock exchanges. It is clearly relevant to so much of the Bill's provision, although, as I think the noble Lord will accept, not to the whole of it. There are aspects of the financial markets which will be unaffected. Nevertheless, it was only right that the noble Lord should bring these matters forward at the previous stage and again now.

In somewhat light-hearted vein, I congratulate him also on ensuring that the media are well aware of his proposed amendments--the Financial Times in particular. I do not, however, congratulate him on reviving a proposal of which, frankly, many of us are rather tired. The amendment seeks, inappropriately, to elevate to subsection (1) a matter that we all recognise as important; namely, the competitiveness of London and the UK in these matters. As the noble Lord knows better than any of us, the clause recognises that the authority, in discharging its general functions, should,

"have regard to ... the international character of financial services and markets and the desirability of maintaining the competitive position of the United Kingdom".

We all agree on that, and it seems that the provision is in the right position, alongside the other matters. The noble Lord wants once again to elevate this albeit important point to become one of the principal regulatory objectives of the Bill.

Perhaps I may again contrive to bore your Lordships by citing the four regulatory objectives. Surely they are unexceptionable; they are accepted on all sides of the House. They are: market confidence; public awareness; the protection of consumers; and the reduction of financial crime. What more do we want? Of course, we all want international competitiveness to be considered, and there is provision for that in Clause 2. It must be the prime objective of the many firms that operate in London. It must be right at the top of their enterprise agenda. But we are talking about the agenda and objectives of the regulatory authority.

There may be different views on either side of the House as regards our relative keenness on regulation at all, or on having a regulatory authority such as this. But surely it is eminently appropriate that it should have public interest objectives. I have cited the four immensely appropriate public authority regulatory objectives in Clause 2, and I do not think that we want to alter the provision now. That has nothing to do with the proposed merger between London and Frankfurt.

I share the thoughts of the noble Lord, Lord Newby, in regard to Amendment No. 2. But I am not privy to the thoughts of my noble friend the Minister. Like other noble Lords, I look forward to hearing his response.

Photo of Lord Stewartby Lord Stewartby Conservative

My Lords, I was rather disappointed to hear that although the noble Lord, Lord Newby, was sympathetic to the purport of Amendment No. 2, he did not feel that he could support it. He offered two reasons, the first being that the authority would not be in a position to ensure common standards from one country to another. There is a simple answer to that. The amendment uses the expression,

"so far as is practicable".

That seems a perfectly reasonable way of dealing with the point.

The noble Lord's other reason seemed to be that these are early days; that if the Stock Exchange merger with Frankfurt goes ahead, this will be a big change and it is difficult at this stage to consider all the potential implications and, therefore, what the legislative response should be. However, I find it difficult to see how one can quarrel with the wording of the new subsection (3) (in Amendment No. 2), which has been drawn up to provide a requirement that the Financial Services Authority should do two very general and desirable things. The first is, so far as is practicable, to ensure that markets and exchanges are regulated to common standards when those markets and exchanges operate both in this country and in another; the second is to encourage overseas regulators to adopt similar measures, or measures consistent with those in the Bill, in relation to the prohibition of market abuse.

The amendment may not be perfect, although given its source--my noble friend Lord Saatchi--it is obviously of high quality. It is very important that today the amendment is not only moved but accepted by the Government. When the Bill goes back to another place it will give the Government an opportunity to table an amendment which meets the points that have been made and incorporates them into the Bill before it is enacted. If we had to wait for new regulatory legislation to follow up this matter the process would be very much longer.

In view of the tremendous effort that has been made by the Government, noble Lords and others to put the Bill into the right form, it is unlikely that the Government will be enthusiastic about introducing another regulatory Bill on this subject in the near future. I believe that if we gave the Government more time to think how to deal with the matter we would be doing them and the Treasury a favour. Without wanting to sound sycophantic, my officials in the Treasury were some of the most intelligent and conscientious people with whom I have ever had the privilege to work. I have no doubt that for some time they have been grappling with the implications of the potential merger which has arisen at a very late stage in our consideration of this Bill and which raises new and fundamental questions about how the regulatory system will operate where there are shared markets. It would assist the House and the proper formulation of this Bill, at a late stage before it becomes an Act, if the Treasury had a further opportunity to consider this new and vitally important issue. I hope that on reflection the noble Lord, Lord Newby, will be able to support this amendment and that it will find general favour in your Lordships' House this afternoon.

Photo of Lord Desai Lord Desai Labour

My Lords, I did not speak at the Report stage of the Bill. However, I detect a philosophical contradiction in Amendments Nos. 1 and 2, which have been spoken to by the noble Lord, Lord Saatchi. Amendment No. 1 and all the gloss that we have read in today's newspapers mean, more or less, that there are limits to the regulation of financial markets and there should be a hands-off attitude. Those matters which are self-regulatory ought to be left alone and the FSA should not intervene too much. Whether or not that is right, that is the gloss which has been put on the amendment. After all, as my noble friend Lord Borrie said, the competitive position has been covered in subsection (2). However, Amendment No. 2, which concerns the super-regulator, states that matters cannot be left to themselves. The logic of the amendment is that there is a need for a European financial services authority. If the noble Lord, Lord Saatchi, had said that I am sure that the noble Lord, Lord Newby, would have supported a super-European financial authority.

Given the fact that it is premature to speak of a merger and a number of matters must be sorted out, we should leave it to the markets, the stock exchanges and the financial authorities in the two countries to deal with it. Let them do their work and not complicate their lives and ours. As happens with all financial services Bills, no doubt when this legislation passes into law it will be out of date. That is in part a matter of regulating financial markets. In one, two or three years' time we shall return to the subject and have another nice Bill comprising several hundred clauses to deal with, but this is not the time to do it. I believe that that would contradict the philosophy behind Amendment No. 1.

Photo of Lord Elton Lord Elton Conservative

My Lords, the noble Lord's reference to another nice Bill of several hundred clauses caused the Minister to close his eyes for a moment. I sympathise with him.

I hope that the Minister will start by confirming or otherwise my noble friend's opening remarks about the degree of consultation on the developing situation. I hope that he will tell noble Lords that the Government have been in touch with the very important bodies which were listed. I also hope he will tell your Lordships (if the Minister can listen with his right ear to what I say) to what extent Her Majesty's Government are in touch with the German Government and their regulator's thinking about how the developing situation is to be dealt with. The noble Lord, Lord Newby, is right to say that at the moment everything is uncertain, but that is the worst possible ground for failing to prepare for whatever may happen.

The weight of my noble friend's second amendment is to give the authority an objective to achieve in the developing situation, however it may develop. The amendment requires it to ensure, as far as practicable, equality of regulation in either part of the market. The British people can expect nothing less than that the Government will do their best to ensure that those who earn their bread and butter in foreign exchange do so as nearly as possible on a level playing field. Perhaps the noble Lord will say that that is clearly expressed elsewhere in the Bill, and that is quite possible. I make no apology for not being certain about it because I have never taken part in legislation in this style before. My perception of the Bill is very much that which a porpoise has of a sailing ship. In the time available and with the resources at one's command one cannot be apprised of the whole subject. We must grasp whatever is put before us. This particular matter is exceedingly important, and I believe that we should grasp it firmly. I hope that the noble Lord, Lord Newby, will see the merit of that before the debate is over and that your Lordships will join my noble friend in pursuing the matter.

My noble friend suggests that it is as well to table an imperfect amendment in order that it can be rectified in another place. We should not proceed in that way. If it is agreed that the amendment is necessary but imperfect the proper procedure is to recommit the clause to Committee. I am aware that that is a matter for the usual channels. However, we have bodged this matter to such an extent and in such haste given its scope--the Minister may say that two years does not represent haste, but the length of time must be proportionate to the work done--that I hope what my noble friend seeks in this amendment will be achieved by one route or another.

Photo of Lord Rees Lord Rees Conservative 4:00 pm, 18th May 2000

My Lords, my noble friend Lord Saatchi has very properly taken us back to the question which he raised robustly last week on the final day of Report stage. On that occasion the Minister gave an equally robust answer. I am bound to say that his answer did not entirely satisfy me, and perhaps it did not satisfy other noble Lords. I refer to the implications of the proposed merger of the London and Frankfurt Stock Exchanges. One recognises that the merger is not yet complete and that the noble Lord, Lord Newby, has reservations. However, we do not have the luxury of time. This is the last day, at any rate in theory, on which the House is able to consider this particular Bill. We cannot wash our hands of an important question because the precise event which gives rise to this debate has not yet concluded. At least it should focus our minds on the kinds of questions that will arise when trading transactions and markets extend beyond one national area. Therefore, it is incumbent on this House at least to express a view on the general question, even if we are conscious that we cannot deal with all the detailed points that may arise if the merger goes through.

The Minister said last week that no amendments to the Bill were called for and that neither the Government nor himself as the Minister piloting the Bill would be responsible for the consequences of the merger. I am not entirely certain that that is so, but let us debate the matter on those terms. He and the Government are responsible for the Bill and for offering to the country and to us some conclusions about the implications of major operations such as those posed by the proposed merger before we wave goodbye to the Bill and it moves to another place.

I offer my sympathy to the Minister who has had to carry the burden for so long. After many wearisome weeks no doubt he and the whole House want to be certain that this Bill will provide at least some kind of practical regulatory framework. We cannot simply wash our hands and say, "Well, there are certain problems arising on the horizon and let us wait until they arrive". We should indicate to the world outside that we have focused a little on this particular question. It is not entirely an academic one. No doubt German residents are trading at the moment on the Stock Exchange and UK residents are trading on the Frankfurt Exchange. The Mannesman Vodaphone transaction focused our minds on matters that spill over national boundaries.

We have to focus a little more closely. I do not believe that we can take the rather bland view offered by the noble Lord, Lord Newby, and say, "We may have to come back to it at a later stage". At the moment the Stock Exchange is still within the jurisdiction of the FSA. If I understand the German position correctly, the Frankfurt Exchange is within the regulatory regime of Hessen and possibly of some German federal regulatory regime.

Perhaps the Government have considered the matter, but they have not taken us into their confidence. Does the Bill need to be amended in the absence of some European structure? Do not let us get involved in a debate as to how far we want to have some super European structure. But in the absence of some kind of pan-European regime on this matter, what do we do? In what area will the FSA need to develop its competence? The Minister might indicate to us the kind of points that he would like included and which he might be putting to the FSA, for all I know.

It has been an unprecedented legislative process. My noble friend Lord Elton suggests that we may have to prolong and enlarge it. I admire the rigour with which he has applied himself to the proper process. Whatever it may be, we have been subjected to cascades of government amendments and very often not long before the Sitting. I do not blame the Minister if he does not want to embark on a further exploration of a major issue and would like to shed the load for a while to his colleagues in another place. It is critically important that we attempt to ensure that the framework of the Bill is right and that it will deal adequately with activities and transactions that spill over two jurisdictions.

I appreciate that my noble friend Lord Lamont is due to mount a debate next week about the merger of the two exchanges. Alas, that is a little too late. It may be criticism of the way in which this Bill has been handled. It is very important that we form a view tonight on this question. I do not believe that it can be just brushed aside. I hope that the Minister will recognise the various difficulties when the amendments have been debated and that he will respond a little more helpfully than he did last week.

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)

My Lords, I always like to begin with as much agreement as possible. I say from the outset how much I agree with the opening remarks of the noble Lord, Lord Saatchi, as regards the importance of financial markets not just to themselves but to this country; their importance internationally and the fact, which he emphasises regularly and quite rightly, that the world does not owe us a living in that financial markets can move from one location to another if the climate is not right for them. Having said that, I am not going to go very much further in agreement with him.

I shall deal with the two amendments in turn. Amendment No. 1 is identical to the amendment which the noble Lord moved in Committee and very similar to the one which he moved at Report. There is nothing I can do to persuade myself that they are right now when I believed they were wrong then.

The purpose of the amendment is to ensure that the FSA's regulatory activities do not unnecessarily impair the competitive position of the United Kingdom. I have said it before and I shall say it again. We all agree that that is vitally important. We need checks and balances in place to ensure that the United Kingdom's competitive position is not adversely affected by too much or too little regulation. But the Bill already provides for that and does so in a way that is effective in the requirement on the FSA set out in Clause 2(3)(e), to have regard to,

"the international character of financial services and the desirability of maintaining the competitive position of the United Kingdom".

As I understand it, the reason why the noble Lord, Lord Saatchi, has been so persistent in advancing the amendment is that he believes that without it the FSA will not take competition seriously enough. At Report stage he referred to his,

"concerns that there is no proper balance in the Bill between the pursuit by the FSA of its regulatory objectives and the desirability of encouraging competition and the competitiveness of the UK. We believe that it is essential to seek to achieve that balance, notwithstanding the difficulties to which that may give rise for the FSA in performing its functions".--[Official Report, 13/4/00; col.335].

The Bill strikes this proper balance now, but that balance would be upset by the noble Lord's amendment. As I said at Committee and repeated at Report,

"Subsection (1) places a positive requirement on the FSA to take action. This is appropriate when we are talking about objectives; that is, the aims of regulation. In contrast, the need to take account of international competitiveness is something which should condition the way it goes about meeting the objectives. That is as true for competitiveness as the other matters dealt with in Clause 2(3)".--[Official Report, 16/3/00; col.1803].

I am sorry to repeat it again, but the argument is being put in comparable terms. It is not just that competitiveness is a matter which is properly dealt with as a principle in subsection (3)(e) but that it is, as I said at Report stage,

"by placing the same duties on the FSA in relation to this issue as it has in relation to the regulatory objectives themselves, the amendment introduces into the Bill a degree of ambivalence as to the relationship between those objectives and the proposed new duty. Is the proposed new duty inferior to the objectives, superior to them, or something which ranks equally alongside them? I do not know the answer, and I do not think that the FSA will know either".--[Official Report, 13/4/00; col.341].

The competitiveness principle that the Bill already contains does not simply oblige the FSA to turn its mind to competitiveness every now and again. It must have regard to it and give it due weight in taking all of its regulatory decisions. I believe that that is very clear. The amendment would create confusion.

I turn to Amendment No. 2, which has largely been the subject of the debate so far. As the noble Lord, Lord Saatchi, said, the amendment has been prompted by the proposed merger between the London Stock Exchange and the Deutsche Borse. I have listened carefully to the noble Lord's speech, but I have to say that the amendment seems to be based on a misconception of the extent of the proper role and jurisdiction of the Financial Services Authority.

I can hardly claim that we have been considering the possibility of such a merger since the early days of the Bill. I do not believe that anybody had been considering it because the matter had not been mooted. It is certainly true that the full details of the proposed exchanges have yet to be worked out and it is also true--it could hardly be otherwise--that the FSA will need to look carefully at the implications of what emerges. But the Bill provides the right regulatory framework. There are practical issues for the regulator, but they are issues that are within the framework that the Bill provides, and no amendments to the Bill are required. The noble Lord, Lord Rees, asked the right questions which I shall attempt to answer.

Let me say what I can about the plans that the exchanges have outlined. I understand that the intention is to create two pan-European equity markets. The first will be a market for blue-chip shares, based in London. It will continue to be a UK recognised investment exchange, overseen by the FSA. The second will be the proposed joint venture with NASDAQ to provide a market for growth company shares, which will operate in Frankfurt under German regulation. We are talking about two separate exchanges and, although there will need to be co-operation between the FSA and its German counterparts, there are separate regulatory jurisdictions.

That is not a unique situation. A similar arrangement already exists. The Swedish OM Group owns both the stock exchange in Stockholm, regulated by the Swedish authorities, and a derivatives exchange in London which is a UK recognised investment exchange overseen by the FSA. The FSA and the Swedish counterpart have their separate roles and the arrangements work satisfactorily.

We have no doubt that the provisions of the Bill relating to the recognition of exchanges are able to cope with structures such as the proposed international exchanges. We are confident that the recognition requirements for exchanges will be robust enough to cope with any issues that may arise by the operations outside the UK of UK-based exchanges; for example, the placing of dealing screens in foreign jurisdictions which enable traders to access the UK exchange.

On the amendment, as Clause 3 of the Bill makes clear, the purview of the FSA is the financial system operating in the UK. The key words here are "operating in the UK". The FSA is not and cannot be responsible for markets and exchanges located abroad which do not have operations in the UK. They are subject to the regulatory authorities of the jurisdiction in which they are located.

Of course, they all co-operate in the International Organisation of Securities Commissions and the Forum of European Securities Commissions, but it would be giving the FSA duties beyond its responsibilities and powers to suggest that it can ensure, even so far as is practicable, that markets and exchanges are regulated to the same standards as those in the UK. When we have debated home state and host state regulations, that has been a matter of debate throughout the consideration of the Bill.

It is not that we do not know what to do. We know that the provisions in this Bill are adequate for the challenges that may be placed on it by this or any comparable merger. We have no doubt that no amendments are required to the Bill. I urge the noble Lord, Lord Saatchi, not to press the amendment.

Photo of Lord Saatchi Lord Saatchi Conservative

My Lords, I return to what the noble Lord, Lord Borrie, said. He was interested to know why we were so persistent--I believe he said "so tiring"--on the subject of UK competitiveness. I want to explain that by trying to thread together our first amendment, our second amendment and Clause 2(3)(e) of the Bill, which he read out, relating to,

"the desirability of maintaining the competitive position of the United Kingdom".

In doing so, I can also deal with the point made by the noble Lord, Lord Desai, about a possible contradiction between the first and second amendments.

Our interest in the first amendment is illustrated precisely by the matters dealt with in the second amendment. The UK financial services industry is a modern miracle. It is unique. To my knowledge, it is the only UK industry in which Britain leads a global market. We believe that that is the strength of our position. The chairman of the London Stock Exchange, the jewel at the heart of this great industry, tells us that Britain could not go it alone. That means that there is a serious question mark over the UK's competitiveness in this industry, despite what appears to be its dominant position.

I have no doubt that what the chairman of the Stock Exchange said is true. He is explaining to us that mergers of stock exchanges will follow in the train of mergers of companies. There will probably be many of them. Sometimes such mergers will be with stock exchanges that have an easier regulatory regime and sometimes with stock exchanges that have a harder regulatory regime. In their own interests, people will pick and choose which bit suits them best. In that process, somebody will have to be responsible for ensuring that British companies are not placed at a disadvantage by the curious new situation.

That brings me to the point made about the contradiction. If there is a contradiction, let me draw out a contradiction that is in the Bill as it stands. At some stage during our debates I recall the Minister explaining that the reason why it was inappropriate to raise up the competition objective--to elevate it as the noble Lord, Lord Borrie, said--was that other regulators in other countries would consider it offensive for the FSA, with which they were dealing, to have in the Bill an objective to maintain competitiveness, or any words that suggested that it had a duty to advance the interests of the United Kingdom. That was put forward as a reason not to elevate the competition objective.

What shall we make of the contradiction of the FSA which has to have regard to,

"the desirability of maintaining the competitive position of the United Kingdom"-- as the noble Lord, Lord Borrie, says? What will it do, as the listing authority of a combined exchange of two countries, or three countries or five countries? How can it be the listing authority for the exchanges of several countries and have the aim of looking after the competitive position of the United Kingdom?

The problem is inherent in the Bill. That is the heart of what we are trying to say with these amendments. The Bill has not anticipated the major change that is taking place before our eyes. We believe that our amendments are important in order to give the Government a little more time--perhaps while the Bill is in the Commons--to think about the implications of these huge changes. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Photo of Lord Saatchi Lord Saatchi Conservative

moved Amendment No. 2:

Page 2, line 37, at end insert--

("(3) Maintaining confidence in the financial system includes ensuring so far as is practicable that markets and exchanges which operate both in the United Kingdom and in another country or territory and members of those markets and exchanges are regulated to common standards and that the overseas regulator in the relevant country or territory adopts measures consistent with those under this Act for the prevention and prohibition of market abuse in relation to those markets and exchanges.

(4) "Overseas regulator" has the same meaning as in section 190.").

Photo of Lord Saatchi Lord Saatchi Conservative

My Lords, I spoke to Amendment 2 when speaking to Amendment No. 1. I beg to move.

On Question, Whether the said amendment (No. 2) shall be agreed to?

Their Lordships divided: Contents, 128; Not-Contents, 144.

Division number 1

See full list of votes (From The Public Whip)

Resolved in the negative, and amendment disagreed to accordingly.

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) 4:28 pm, 18th May 2000

moved Amendment No. 3:

After Clause 6 insert the following new Clause--

:TITLE3:DUTY OF AUTHORITY TO FOLLOW PRINCIPLES OF GOOD GOVERNANCE

(". In managing its affairs, the Authority must have regard to such generally accepted principles of good corporate governance as it is reasonable to regard as applicable to it.").

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)

My Lords, in moving the amendment, I speak also to opposition Amendment No. 5. Since Amendment No. 4, which is not in my name, is so similar to Amendment No. 5 I wonder whether noble Lords opposite will allow me to speak to the two together. It would be slightly artificial not to do so.

Amendment No. 3 reflects the commitment I gave at Report stage to look again at four amendments tabled by noble Lords opposite and, if necessary, to return at Third Reading with government amendments needed to achieve the effects which the noble Lords opposite sought.

The impact of the amendment will be to impose a duty on the FSA to have regard to certain generally accepted principles of good corporate governance in managing its affairs. My speaking note gives the lower case for those words but I think that it is generally understood that they could equally well be upper and lower case.

The corporate governance principles in question are those which it would be reasonable to regard as applicable to the FSA. Although I understand those who may prefer the FSA to be required to have regard to all principles, such a wide duty could give rise to a risk that, given its unique role, the FSA would be attacked for not applying principles which are unsuitable or undesirable.

For that reason, we are not able to accept Amendment No. 5, which would require the authority's constitution to reflect all generally accepted principles. For example, Section 1C of the combined code deals with relations with shareholders. Clearly we should not expect, nor legislate for, the FSA to adhere to those principles in code provisions when it has no shareholders. On the other hand, the top management element is clearly applicable. Therefore, while principles such as those in Section 1C cannot apply, it is equally obvious that several current principles, including, for example, those relating to the chairman and chief executive officer, and board balance could reasonably be applied.

There is no incompatibility between the current principle relating to chairman and chief executive and our belief that the best governance structure for the FSA is to combine the roles of chairman and chief executive. As I have said on a number of occasions, we believe that combining the roles provides the best means of meeting the FSA's objectives and of ensuring clear accountability to Treasury Ministers and speed of decision-making. We recognise that other noble Lords hold a different view.

In particular, there is no incompatibility between combining the role of chairman and chief executive and provision A.2.1 of the combined code. Provision A.2.1 states in its entirety:

"A decision to combine the posts of chairman and chief executive officer in one person should be publicly justified. Whether the posts are held by different people or by the same person, there should be a strong and independent non-executive element on the board, with a recognised senior member other than the chairman to whom concerns can be conveyed. The chairman, chief executive and senior independent director should be identified in the annual report".

The FSA complies with all those requirements. Public justification appears at page 107 of the FSA's annual report. A strong and independent non-executive element on the board is provided for by statute. There is a recognised senior member other than the chairman: that is, the deputy chairman, Stewart Boyd QC. We have made clear in earlier debates the important role that we expect him to play on the board.

Finally, the chairman, chief executive and senior independent director are identified in the FSA's annual report. In other words, the FSA complies with all the safeguards recommended by the combined code for companies which combine the role of chairman and chief executive.

Another feature of the Government's amendment is that the principles of corporate governance which should apply to the FSA are not to be determined by the FSA itself but by reference to what it is reasonable to regard as applicable. That is also a feature of Amendment No. 4, tabled by the main opposition parties. We have no overriding objection to that amendment. It is not dissimilar to our own; indeed, we believe that it is already catered for by the Government's amendment, which speaks of the authority having regard to generally accepted principles "in managing its affairs".

Amendment No. 4 refers to the constitution of the authority. The terms which the FSA includes in its constitution are part and parcel of its affairs; indeed, the terms of the FSA's constitution are central to the management of its affairs. It follows that the FSA would not comply with the duty imposed on it by the Government's amendment if it failed to frame its constitution in a manner which enabled its affairs to be managed in a way which had regard to such generally accepted principles of good corporate governance as may reasonably be considered to be applicable to it.

On the basis that it does not add to our amendment, I hope that noble Lords will withdraw Amendment No. 4. I beg to move Amendment No. 3.

Photo of Lord Newby Lord Newby Liberal Democrat

My Lords, we are grateful to the Government for having put forward a new clause which attempts to deal with the concerns that we have raised at every stage of the Bill with regard to the corporate governance of the FSA. Noble Lords who have been with us through those debates will remember that two principal concerns were raised in this respect. One related to the role of the non-executive directors. We felt that in the Bill as originally drafted their role was inadequately broad and was not as broad as that of the non-executive directors in a company.

The second issue to which the noble Lord, Lord McIntosh, referred at some length relates to the question of the split between the roles of chairman and chief executive. I believe it is fair to say that there has not been a complete meeting of minds between ourselves and the Government on the substance of that point. However, we felt that the key issue required on the face of the Bill was a recognition that the principle of corporate governance--namely, the top end structure--and the question as to whether there should be a chairman and chief executive, with its presumption in the code that there would be such a split, should fall within such areas of good corporate governance as the FSA would be required to have regard to in conducting its business.

With the passage of this amendment, our view is that it will be presumed that when the current incumbent moves on there will be a separate chairman and chief executive. That will be determined at the time. However, if that does not happen, the key point of the amendment is that it will require the Government and the FSA to justify it in the way that the noble Lord mentioned. Therefore, given that the amendment encompasses the principles of top end structure--the principle of separation of powers at the top end of the FSA--we are pleased to accept the amendment.

Photo of Lord Saatchi Lord Saatchi Conservative

My Lords, I am grateful that even at this late stage the Government have seen the merit of what was proposed at earlier stages of this process by the Liberal Democrat and our Benches. I am glad also that the wording of the proposed new government amendment has been addressed more specifically in the words expressed by the Minister this afternoon. The words of the proposed new clause are a little vague. I believe that I am right in saying that the Minister confirmed this afternoon that it is reasonable to regard the principle that there should be a separate chairman and chief executive as applicable to the FSA. Certainly I have taken it that that was his meaning.

Photo of Lord Boardman Lord Boardman Conservative

I accept the principle of good corporate governance in the amendment, and I find it difficult to reconcile that to what the Minister said with regard to the role of chairman and chief executive. It has been held strongly by successive governments and by those involved in the business world that separation of the role of chairman and chief executive is a matter of importance. I know that on previous occasions the noble Lord said that that applied to commercial concerns and that it did not apply in this particular game. I believe that it applies more strongly in this game. If everyone is quite honest with themselves, the dominant factor is the presence of the current incumbent and his saying that he does not intend to accept a chief executive under him or a chairman above him. The Government have departed from the rules of good governance in endorsing that request. I like the amendment; I dislike the way in which it is proposed that it should be applied.

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)

My Lords, I am grateful to both noble Lords and, indeed, even to the noble Lord, Lord Boardman, for their response to the amendment. To be absolutely precise in answering the noble Lord, Lord Saatchi, I did not say that I accepted that the split between chairman and chief executive was appropriate; I said that in this respect the combined code of good corporate governance is applicable to the FSA. I read out in its entirety provision A.2.1, which sets out what should happen if it is judged that the roles of chairman and chief executive should be combined. But I accept--and it will always be the case--that we disagree about what should happen now. We may disagree in the future about what should happen, but at least we appear to be in agreement--I am grateful for that--that the code of conduct of good corporate governance should apply.

On Question, amendment agreed to.

[Amendments Nos. 4 and 5 not moved.]

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 6:

After Clause 9 insert the following new Clause--

:TITLE3:DUTY TO CONSIDER REPRESENTATIONS BY THE PANELS

(" .--(1) This section applies to a representation made, in accordance with arrangements made under section 7, by the Practitioner Panel or by the Consumer Panel.

(2) The Authority must consider the representation.

(3) If the Authority disagrees with a view expressed, or proposal made, in the representation, it must give the Panel a statement in writing of its reasons for disagreeing.").

Photo of Lord Bach Lord Bach Government Whip

My Lords, the two opposition parties tabled joint amendments on the first day of Report about representations made to the authority by the practitioner and consumer panels.

In response, my noble friend indicated some sympathy for certain of the points raised in debate and said that he believed that there was scope for improvements to be made to the arrangements under the Bill for giving feedback to the panels. Accordingly, he undertook to consider the matter further.

Having given the matter careful thought, we have tabled this new clause which requires the FSA to consider representations made to it by either panel in accordance with the arrangements under Clause 7 and, where the FSA disagrees with those representations, to make a written statement of its reasons for disagreeing.

We believe that this new clause adds, in a structured way, a great degree of transparency and therefore improves on the arrangements for the panels. I commend it to the House. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I think I can say that this is a rare moment for the connoisseur of the arts and mysteries of Her Majesty's Treasury to savour; because this is the second acceptance in a row of amendments tabled by the Opposition.

Perhaps I may say to your Lordships that this amendment is of even greater consequence than its predecessor because, as the Minister has said on frequent occasions, the authority has legislative powers. As a regulatory authority, its position is unique in that respect. It will make rules which it will not have to bring to your Lordships' House before they become binding. Therefore, it is right that the authority should be answerable to somebody and that somebody--or perhaps I should say, those somebodies--are the practitioner panel and the consumer panel.

I am delighted that, in circumstances where there is disagreement between the authority and those panels, the authority will have to give its reasons. I have just one question to put to the Minister. Can I be assured that, in circumstances where the authority gives such reasons, those reasons will be made public?

Photo of Lord Newby Lord Newby Liberal Democrat

My Lords, I join the noble Lord, Lord Kingsland, in thanking the Government for coming forward with an amendment which meets the concerns raised in our earlier amendments. Again, I express the hope that this new trend of flexibility which the Treasury has shown in relation to these two amendments may be a growing trend in the future.

Photo of Lord Bach Lord Bach Government Whip 4:45 pm, 18th May 2000

My Lords, the answer to the noble Lord's question is "yes". I am delighted if we have, on this occasion, managed to please the noble Lord. Perhaps in future he will look more kindly on the Treasury and not believe everything he reads about it in the quality newspapers.

On Question, amendment agreed to.

Clause 18 [Authorised persons acting without permission]:

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. 7:

Page 8, line 17, leave out subsection (2) and insert--

("(2) The contravention does not--

(a) make a person guilty of an offence;

(b) make any transaction void or unenforceable; or

(c) (subject to subsection (3)) give rise to any right of action for breach of statutory duty.

(3) In prescribed cases the contravention is actionable at the suit of a person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.").

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)

My Lords, in moving this amendment, I shall speak also to Amendments Nos. 7, 10, 12, 14, 17 to 19, 24, 61, 70, 71, 141 and 142, which is an opposition amendment to Amendment No. 141. The origin of this group of amendments goes back further than this House. On 20th July 1999, in another place, the Government undertook to reconsider the different provisions in the Bill dealing with rights of action where contraventions of requirements such as those that may be imposed under Parts IV, X and IX are concerned. Part IV is concerned with permission to carry out regulated activities, Part X with rules and guidance, and Part IX with incoming firms.

The broad aim is to reproduce the current pattern of rights of action as provided for under Sections 62 and 62A of the Financial Services Act 1986 as far as it is possible to do so given the different structure of the Bill.

Under those provisions, consumers enjoyed rights of action not only for breaches of rules, but also for breaches of requirements imposed using the intervention powers under the Act. Those types of requirement, both rules and interventions, will often correspond more correctly to permissions under Part IV and requirements imposed on incoming firms under Part IX than rules made under Part X.

The position is also complicated by the different circumstances in which rights of action may be enjoyed by non-private persons depending on the nature of a breach. That is a more complicated situation than is currently allowed for under either Clause 18, which confers no rights of action for permission breaches, and Clause 197, which confers rights of action by analogy with Clause 145 in Part X.

Our amendment to Clause 18 and the new clause after Clause 197 will therefore confer on the Treasury a power to prescribe the circumstances in which a person may have a right of action as a result of a breach of a requirement imposed under Parts IV or XIII respectively.

I should make it clear here that the default position will be that breaches of Part IV and Part XIII requirements do not attract rights of action. Only the cases that are prescribed by order will give rise to such rights. That is necessary to ensure that there is similar treatment between authorised persons who are subject to rules and requirements with similar effects. For example, some investment firms are constrained from handling client money by SRO rules. Breach of those rules attracts rights of action. That ensures that there is a possible right of action where a person handles client money when they should not, as well as when a person who is entitled to handle client money fails to follow the applicable rules. In both cases, it is right that the consumer should have a right of action if they suffer loss.

However, it is not our intention to create rights of action in respect of requirements which are equivalent to financial resources rules; for example, individual capital ratios for banks, or premium income limits for insurance companies. The effect will therefore be to make it clear that breaches of these requirements do not attract rights of action.

Part X already contains a power for the FSA to specify whether a breach of a rule by an authorised person attracts rights of action for private persons, and to specify that some classes of rules attract rights for non-private persons. The amendment to Clause 145 ensures consistency within the Bill by aligning the power with the new provisions in Clauses 18 and 197.

The amendment therefore replaces the FSA's power with a power for the Treasury to prescribe circumstances in which a right of action that would be exercisable by a private person can be exercised by a non-private person. This would, for example, enable the Treasury to reproduce Regulation 3 of the Financial Services Act 1986 (Restriction of Right of Action) Regulations 1991, which ensures that a non-private person--for example, a solicitor, who is acting in a fiduciary capacity for a private person, for example, a minor--can exercise the same rights as a private person. We did not feel that it was sufficiently clear that the current wording would enable us properly to address this sort of situation.

The amendment to Clause 69(2) makes equivalent provision for contraventions under Part V.

I turn now to Clause 397. Reviews of past business are in effect a mechanism for redress when there has been a widespread or regular failure on the part of authorised persons to comply with rules and private persons have suffered losses in respect of which authorised persons are liable to make compensation payments.

As Clause 397 stands, it would not be possible to set up a review of past business which required authorised persons to compensate non-private persons. Our amendment will allow them to do so in circumstances and capacities to be prescribed by the Treasury. This group of amendments has been brought about as a result of the Government's careful consideration of points made on different occasions by Members of the Opposition. I am grateful to them for expressing their concerns. I hope they will support these changes. Perhaps I may respond to the opposition amendment when it has been spoken to. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, apart from our own Amendment No. 142, the amendments in this group are either those with which we have no problem or those which respond to concerns we raised in Committee and on Report.

Amendment No. 142 seeks to deal with the following problem. Government Amendment No. 141 seeks to allows a non-private person acting as an intermediary, typically a fiduciary such as a trustee or agent, to bring an action for compensation under Clause 397 for widespread or regular rule contraventions even though the intermediary is not a private person.

That seems fine in principle, but in our submission the clause, as drafted, allows the intermediary to bring an action on behalf of other non-private persons. We believe that that cannot be right. Our amendment to the government amendment is to restrict the right of an intermediary to bring an action to circumstances in which it is acting solely for private persons who could bring the action themselves if they were not using the intermediary.

That was the approach adopted in the 1991 Treasury regulations which restricted the right of action for contravention of FSA rules to private investors. We think that that approach is the proper one to adopt.

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)

My Lords, I am grateful to the noble Lord, Lord Kingsland, for his support for the other amendments in the group. I am grateful, too, for his explanation of Amendment No. 142. He is right in saying that it is our intention simply to enable a person acting in a fiduciary or comparable capacity to exercise the rights that the private person would have and nothing more. But that is clear already.

The new subsection goes on to state that the loss suffered by a A--that is, the fiduciary or equivalent--is to be treated as a loss suffered by a private person,

"in relation to whom A was acting in that capacity".

So it is only fiduciaries or persons acting in some other prescribed capacity on behalf of private persons who are added by the amendment. I hope that when the time comes the noble Lord will feel able not to pursue his amendment.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I am grateful to the Minister for his explanation. His interpretation of the clause is the one I seek. However, with great respect to the noble Lord, I believe that it would provide the clarity that the legislation needs if he accepted the amendment which I have tabled. Litigants will now have to look not only at the Act but also at the Minister's speech in order to acquire the necessary clarity.

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)

My Lords, we have some time between now and Amendments No. 141 and 142. Although we are occupied with other matters we shall both continue to think about it, as will my officials. My view is that what I have said is entirely clear from the Bill and therefore the amendment, though well intentioned, is not necessary.

On Question, amendment agreed to.

Clause 19 [Restrictions on financial promotion]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 8:

Page 8, line 22, leave out ("or inducement to engage in investment activity") and insert ("to engage in investment activity or information which is intended or might reasonably be presumed to be intended to induce any person to do so").

The noble lord said: My Lords, in moving Amendment No. 8 I shall speak also to Amendments Nos. 9 and 82.

I understand that the Minister accepts that a mere factual statement would normally not be caught by Clause 19. We, in turn, accept that, in some cases, a statement of fact could be used as a way of persuading the person receiving the communication to buy or sell investments.

At a meeting I was privileged to attend last week with the Minister, I think it was agreed that the Treasury would think further about the wording which should be used to catch what was intended--namely, promotional communications. On the basis that the Government will ensure that it is made clear in the financial promotions exemption order that a mere statement of fact--for example, that British Land shares had gone up 10 per cent in the preceding week--will not be treated as an inducement unless it is intended to act as an inducement--we will withdraw our amendment.

Amendment No. 9 is repeated from Report stage because the Minister also stated, at the same meeting last week, that he will consider again whether to accept the terms of Amendment No. 9 or something similar. The amendment seems to me, at any rate, to conform with what the Treasury wishes to achieve. We entirely accept that the amendment can be introduced in the Treasury's exemption order rather than in the Bill. We would be grateful to hear what the Minister has to say about this.

Finally, I turn to Amendment No. 82. The present wording of the Bill gives rise, for the first time, to a world-wide prohibition on marketing collective investment schemes which have not been approved by the authority for marketing to the general public. In our view it is not appropriate to impose this prohibition where the local regulator allows marketing to the particular category of investor which the firm wishes to approach. This prohibition means that the only firms which cannot market the fund, in the country concerned, to investors outside the authority's permissions, which the local regulator allows to be solicited, are firms authorised under the Bill. That is wholly contrary to the Bill's principle that the UK's competitive position should be maintained.

The Minister in another place indicated, in Committee, that she accepted that it is not necessary to impose as wide a restriction on the marketing of collective investment schemes by firms which are authorised under the Bill as the prohibition on financial promotions by persons who are not authorised under the Bill at all.

I believe that the Treasury indicated, at the meeting held last week which the Minister kindly arranged, that it intends to provide an exemption from the prohibition on marketing unregulated collective investment schemes in the case of certain communications from within the UK to investors outside it; although the exact scope of the exemption has not yet been decided. On the basis that this exemption will cover our concerns and allow marketing of unregulated collective investment schemes to investors outside the UK as now, even if the FSA has not provided a specific exemption for them, we would be pleased to withdraw the amendment.

Photo of Lord Wedderburn of Charlton Lord Wedderburn of Charlton Labour

My Lords, perhaps I may ask the noble Lord a question about the first two amendments to which he spoke; that is, Amendments Nos. 8 and 9. The phrase which the noble Lord chose is that,

"which is intended", which is obviously clear,

"or might reasonably be presumed to be intended".

I do not know what that means. I would understand a second limb that said, "or might reasonably be understood to be intended". That would be a perfectly normal process, but presumption comes from somewhere else. Where is the presumption from? What kind of matter would be presumed to be intended other than that which would be understood to be intended?

Courts will obviously pay great attention to the fact that that word is used and not the normal word "understood".

Photo of Lord Kingsland Lord Kingsland Conservative 5:00 pm, 18th May 2000

My Lords, I am grateful to the noble Lord for his intervention. The object of the phrase,

"or might reasonably be presumed to be intended", is to prevent the authority from having to prove mens rea in a particular case; in other words, it refers to an inference from the facts. If the noble Lord is unhappy with the word "presumed", I shall be happy to replace it with a word that he considers more appropriate. But that is the point.

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)

My Lords, I am grateful to the noble Lord, Lord Kingsland, for taking the time to come and talk with us last week in relation to the issues behind these amendments and I can certainly confirm that in the course of that discussion we felt that the issues between us were narrowing, as has happened so often in this Bill. But that does not mean, I am afraid, that it enables me to accept his amendments; nor does it persuade me, after consideration following the meeting, that we need to make further amendments to the Bill.

Amendment No. 8 replicates an amendment at Report stage. It would delete "inducement" from the financial promotion restrictions and replace it with,

"an invitation to engage in investment activity or information which is intended or might reasonably be presumed [or understood] to be intended to induce any person to do so".

The amendment registers concerns that have been expressed throughout parliamentary proceedings on this Bill, that the language of Clause 19(1) is drawn too widely and that it requires amendment to achieve the Government's stated policy to capture promotional communications only. That is where we are generally in agreement.

I acknowledge that there are different dictionary definitions of "inducement" and one of the possibilities is to,

"bring something about or cause it to happen".

But there is a difference between the meaning that that word could be given on its own and the meaning that it will have in the particular context of this Bill.

When we met last Thursday to discuss this issue, notwithstanding the breadth of meaning ascribed to "inducement" outside the Bill, I said to the noble Lord, Lord Kingsland, that the Government do not believe that "inducement", as used in the Bill, will catch communications where the effect has been to prompt an investment decision regardless of the motivation of the communicator. We are convinced that "inducement", in its Bill usage, already incorporates an element of design or purpose on the part of the person making the communication.

When Clause 19 was amended in Committee in another place, we did not intend to move away from the idea that there must be an element of persuasion contained in the communication. If we had intended the clause to catch communications that prompted an investment activity, regardless of the communicator's intention, we would have made that clear by using a term other than "inducement".

In addition, we consider that the word "inducement" gathers some flavour from its juxtaposition with "invitation". Our intention, in relying on "invitation or inducement", has always been to capture the flavour of "old" advertising and cold calling, but without being limited to specific media implicit in those terms. That, after all, is the reason why we are making any changes at all in this Bill from the Financial Services Act 1986.

It follows that the clause as it stands will not catch communications of the type that have been put to us as giving rise to concern; for example, public announcements, exchange of draft share purchase agreements in corporate finance transactions or cases in which the recipient of a communication simply misunderstands its contents and engages in investment activity as a result. Those are not inducements.

We have considered carefully whether there would be advantage in expanding on "inducement" in the way that the amendment proposes. Inevitably, in determining whether a particular communication constitutes an inducement, much will depend on the context. Something that would not be considered an inducement in one set of circumstances could well be an inducement in another. Very often the difference will depend on the actual or perceived intent behind the communication. As we indicated, we believe that this already emerges from the word "inducement", and we do not want to compromise that.

Our objection to Amendment No. 8 is that it does not throw any light on what "inducement" actually means. In fact, it is possible that an amendment to the effect of the noble Lord's would have precisely the opposite effect to that which he intends. By making explicit mention of intention on the face of the Bill, there is a danger that the courts will take "inducement" to have the wider meaning that it may bear in other contexts outside the Bill. There is no reason to mention "intention" if one believes, as we do, that the notion of design or purpose is implicit in this context. It follows that by making explicit provision for intention, we could imply that we are using the word "inducement" in its widest sense. That could well have the effect of catching some of the things that we and noble Lords opposite do not want to catch. We consider therefore that it is best to leave the provision as it stands.

Amendment No. 9 seeks to amend subsection (3) of Clause 19 so that subsection (1), which sets out the basic prohibition, does not apply unless the communication is intended, or might reasonably be presumed to be intended, to be acted on by a person in the United Kingdom. Amendment No. 82, also proposed at Report stage, proposes a similar change to Clause 233, which relates to promotions of collective investment schemes.

Amendment No. 9 focuses on what is meant by,

"communication ... capable of having an effect in the United Kingdom", whereas Amendment No. 82 seeks to limit the prohibition to promotions which are made to persons in the UK. The noble Lord, Lord Kingsland, described them as a "world-wide ban", which contains a certain amount of hubris; as if we could impose a world-wide ban. I shall discuss those amendments together because they are related.

The Government believe that the issue of territorial scope is one which is best dealt with in subordinate legislation. For Clause 19 we have already proposed something designed to address the issue raised by Amendment No. 9 in the draft order set out in the Treasury's second consultation document on financial promotion which was issued in October last year; namely, cutting back the,

"capable of having an effect", test in subsection (3) of Clause 19. We are giving careful consideration to representations that have been made on this and other points. We propose to ensure that the prohibition only catches cases where there are risks to consumers in the United Kingdom so far as our intentional obligations allow.

In relation to Clause 233, noble Lords will recall that in Committee a new Treasury power was introduced to make exemptions. One of the main purposes of that was to enable exemptions to be made to allow outward promotions to other jurisdictions where it was appropriate to do so. We intend to do that.

In Committee, these amendments were part of the general exercise of amending Clauses 19 and 233 to ensure that the Treasury has the necessary flexibility to adjust the scope of both prohibitions, not only to take full account of technological developments, but also to deal with our international obligations. In particular, we are subject to certain EU requirements in relation to certain outward and inward promotions.

Clauses 19 and 233 now provide for a Treasury order-making power to disapply the prohibition in both clauses in relation to communications originating in specific countries or groups of countries such as EU member states. These provisions will enable us to comply with our obligations to give effect to requirements such as a home state regime for e-commerce transactions, while at the same time enabling us to give effect to obligations which arise by virtue of general EU law under the treaty. Let me say quite categorically that the Government are committed to ensuring that the financial promotion regime set out in both Clauses 19 and 233 complies with Community requirements.

With specific regard to Amendment No. 9, we maintain our belief that it is not at all clear what "acted on" means. I refer to the example we used on Report. If a communication is sent from abroad for onward transmission by an agent in the UK, is that a communication which is intended to be "acted on" by a person in the United Kingdom?

We have met on this subject. We have thought about this subject. The noble Lord has thought about this subject. We take the view that these amendments would not add to the Bill and may indeed subtract from it.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I thank the Minister for his very thorough reply. I derive some comfort from what he said about the prospect of delegated legislation with respect to the latter amendments.

As regards the main amendment to Clause 19, I continue to think that this would be better dealt with on the face of the Bill. The Minister's interpretation of that clause gave us some hope to think that statements of fact will be seen in their proper context. Although I should like to press him further, I feel that, in all the circumstances, the wisest thing for me to do would be to ask leave to withdraw this amendment.

Amendment, by leave, withdrawn.

[Amendment No. 9 not moved.]

Clause 24 [Agreements made by unauthorised persons]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 10:

Page 10, line 45, leave out ("("the purchaser")").

Photo of Lord Bach Lord Bach Government Whip

My Lords, I beg to move.

On Question, amendment agreed to.

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 11:

Page 11, line 10, leave out ("deposit-taking") and insert ("accepting deposits").

Photo of Lord Bach Lord Bach Government Whip

My Lords, in moving Amendment No. 11, I should like to speak also to Amendments Nos. 13, 15, 16, 30 to 34, 48 to 55, 75 to 79, 101 to 135, 149, 150, 168, 169 and 176 to 192. Those of your Lordships who are quicker than I will already have added those up to 78 in all. It is a rather large group and it demonstrates the difficulties that arise--incidentally, it also illustrates how the number of individual amendments can be a highly misleading guide to assessing the extent to which a Bill has been substantively amended--with a Bill of this size when a minor technical matter has to be addressed.

The two main issues which this group of amendments seeks to address are, first, to ensure that the way in which certain matters relating to insurance and deposits are described in the Bill is consistent with the structure of the Bill; and, secondly, to enable the repeal of the Insurance Companies Act 1982. Your Lordships will be happy to hear that I do not intend to go through each of the 78 amendments in turn but that I shall deal with them, as it were, by subject matter.

Under deposits, the change of references to deposit- taking in the five Amendments Nos. 11, 13, 15, 16 and 169 are--famous last words--easily explained. At the moment, the Bill refers in some places to "deposit-taking" and in others to "accepting deposits". We think it is pretty clear that these terms are intended to have the same meaning. However, by ensuring that the same term is used throughout, we remove the scope for someone to argue that accepting deposits and deposit-taking have different meanings. We have therefore standardised references to the term that most neatly meets the structure of the Bill.

Our main difficulty with the references to insurance in the Bill--I am sorry that there are so many of them--is that they all depend on definitions in the Insurance Companies Act 1982. It has always been our intention that the 1982 Act should be repealed in its entirety. Unfortunately, it has taken us a while to devise a suitable mechanism for achieving the desired result in a way that is consistent with the structure of the Bill, under which particular regulated activities will be defined off the face of the Bill.

Half a dozen of the amendments change references to "dealing" in contracts of insurance to "effecting or carrying out" such contracts. Not only does this more accurately describe the activity we are seeking to capture, but it also introduces consistency throughout the Bill and removes scope for argument about whether they were intended to mean the same, or different, things.

The next batch of 10 or so amendments removes the references to "insurance business" and inserts in their place references to,

"the effecting and carrying out of contracts of insurance".

This is because, although the concept of "insurance business" is used in the 1982 Act to identify the activities that are regulated, it does not really fit with the structure of the Bill. This simply uses a different formula to identify the activities that are regulated under the Bill; namely, "carrying on regulated activities". These amendments reflect that. Where it is necessary, in a particular provision, to refer to a business in the broader sense being maintained or transferred, the amendments describe that as,

"business which consists of the effecting or carrying out of contracts of insurance".

The next batch of amendments sets out changes needed--these account for about half the amendments in the group--to remove references to "insurance companies". "Insurance company" is a term of art borrowed from the very different regulatory structure of the Insurance Companies Act 1982. In that Act its meaning is not limited to companies: indeed, individuals and one industrial and provident society fall within that definition. It also includes any person carrying on insurance business, whether or not they are authorised to do so.

Our approach therefore has been either to refer an authorised person with permission to effect or carry out contracts of insurance, or simply to refer to an insurer which will be defined in regulations made by the Treasury in a particular context. In some cases, for example, the insolvency provisions, it will be necessary to limit the application of certain provisions to companies or to authorised persons. In other cases, a wider meaning will be necessary.

The final substantive matter dealt with in this group is the introduction of the new clause after Clause 415. This defines the concepts of "contracts of insurance", "reinsurance" and contracts of particular types of insurance by reference to Clause 20 and Schedule 2. This makes it clear that the references in the Bill are to have the same meanings as in the order. If necessary, the definitions could be amplified in secondary legislation under the provisions of Part III of Schedule 2.

The new clause also confers on the Treasury power by order to define certain other insurance-related terms: namely, "policy" and "policy-holder" and power by regulations to determine the law applicable to prescribed classes of insurance contracts.

There are also a few amendments that make very minor drafting or technical changes, many of which are intended to bring the relevant provisions into line with the changes I have already described. They include, for example, Amendment No. 101 to Clause 340, which concerns a record of authorised persons, where we have just spotted a mistake in a definition in subsection (7). When I say "just" I do not mean just now but earlier on, during the period between Report and today's proceedings. I wonder whether anyone else spotted that mistake too! The definition should have been of an "authorised unit trust scheme".

Finally, the four amendments to Clause 137 seek to ensure that the powers under that clause which relate to the creation of charges will operate properly in Scotland. As the clause stands, the word "charge" could be taken to have a different meaning here from the meaning given in Clause 109(15). Also, without the amendment in relation to Scotland, the definition would have a narrower meaning than it does for the rest of the United Kingdom. We are therefore correcting that.

As I said at the beginning, these amendments are technical and they appear to be quite insignificant, but we believe that they are necessary to ensure that the Bill works properly. I beg to move.

On Question, amendment agreed to.

Clause 25 [Agreements made through unauthorised persons]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendments Nos. 12 and 13:

Page 11, line 17, leave out ("("the purchaser")").

Page 11, line 27, leave out ("deposit-taking") and insert ("accepting deposits").

Photo of Lord Bach Lord Bach Government Whip

My Lords, I beg to move.

On Question, amendments agreed to.

Clause 26 [Agreements made unenforceable by section 24 or 25]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 14:

Page 12, line 8, leave out ("other party") and insert ("person against whom the agreement is unenforceable").

Photo of Lord Bach Lord Bach Government Whip

My Lords, I beg to move.

On Question, amendment agreed to.

Clause 27 [Deposit-taking in breach of general prohibition]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendments Nos. 15, 16 and 17 en bloc:

Page 12, line 22, leave out ("deposit-taking") and insert ("accepting deposits").

Page 12, line 35, leave out ("deposit-taking") and insert ("accepting deposits").

Page 12, line 36, leave out subsection (6).

Photo of Lord Bach Lord Bach Government Whip

My Lords, I beg to move these three amendments en bloc.

On Question, amendments agreed to.

Clause 28 [Enforceability of agreements resulting from unlawful communications]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendments Nos. 18 and 19:

Page 12, line 44, at end insert ("; and

"controlled investment" has the same meaning as in section 19").

Page 13, line 9, leave out ("an") and insert ("a controlled").

Photo of Lord Bach Lord Bach Government Whip

My Lords, I beg to move.

On Question, amendments agreed to.

Clause 34 [Persons authorised as a result of paragraph 1(1) of Schedule 5]:

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)

My Lords, in moving this amendment, I shall speak also to government Amendments Nos. 21, 22, 143, 160, opposition Amendment No. 161, and government Amendments Nos. 162 to 167 and 170 to 173.

The three amendments to Clause 34 (Amendments Nos. 20 to 22) correct the incorrect and unintended implication from the use of "it" and "its" in that clause; namely, that a person authorised as a result of paragraph 1(1) of Schedule 5 may not be a natural person. The provision covers operators, trustees and depositories of recognised collective investment schemes. The question of whether these roles can be discharged by natural persons is a matter for law of the home state concerned. So these changes are a minor, but necessary adjustment.

The Government's amendments to Schedule 3--namely, Amendments Nos. 160 onwards--are part of our response to concerns raised by the Opposition at Committee stage in this House. The changes ensure that the passporting provisions work properly and are fully compatible with European law. As the Bills stands, if an incoming EEA firm fails to go through the relevant procedures set out in paragraphs 13 and 14 of Schedule 3 before carrying on regulated activities in the United Kingdom, the enforcement of the agreements provisions of Clause 24 will apply to transactions effected in the course of carrying on this business. Likewise, Clause 25 will apply to transactions effected by an authorised person in consequence of anything said or done by the incoming firm in the course of carrying on such business.

We have given a lot of further thought to the enforcement provisions over the course of our debates and have made a number of amendments to meet concerns raised by noble Lords opposite and their colleagues in another place. We have also reconsidered their application in this context and have concluded that this is probably disproportionate and possibly discriminatory.

If an outgoing UK authorised person carries on activities covered by the relevant directive in another EEA state without having gone through the relevant procedures, the Bill will not render transactions effected by that person in the course of carrying on those activities unenforceable. To apply the enforcement of agreements provisions to incoming firms that fail to follow the proper procedures might, therefore, be discriminatory.

The similarity of approach of the opposition Amendment No. 161 suggests that the noble Lords opposite share our view, at least to some extent, that these provisions need to be disapplied. The new paragraph that we propose to insert after paragraph 15 disapplies Clauses 24 and 25 in relation to any agreement entered into by an EEA firm in the course of, or any agreement entered into by an authorised person as a result of, regulated activity carried on without the relevant procedures having been completed. The amendment also disapplies Clause 27, which deals with enforcement of deposit agreements. I apologise to your Lordships for the fact that this was omitted from the list that we supplied last week. It has been corrected and relaid, and now appears in the corrected form on the Marshalled List.

Leaving aside the point about Clause 27, the Opposition alternative is less generous in terms of the circumstances in which Clauses 24 and 25 would be disapplied. The use of the term "permitted activity" may be intended to narrow the effect of this paragraph to activities covered by the directives, rather than any regulated activity. However, the definitions of "permitted activity" in paragraphs 13 and 14 of Schedule 3 are related to the activities set out in the consent notices provided for in those paragraphs. A "permitted activity" is therefore only an activity for which notification has been received by the FSA from the home state regulator.

As this is the most significant step in the procedures as far as concerns the EEA firm and its home state regulator, narrowing the effect of the new paragraph to only those cases where that step had in fact been taken would pretty well completely neutralise the purpose of the amendment.

As regards UK firms, sub-paragraphs 18(11) and 19(9) of Schedule 3 currently provide that the FSA may make rules for UK firms not subject to the rulemaking powers under Part X which offer cross-border services without having completed the necessary procedures set out in those paragraphs. This is aimed at subsidiaries of UK credit institutions which may benefit from the extended passport under Article 18 of the Second Banking Coordination Directive, but whose activities in the UK may not be regulated activities under the Bill; for example, consumer credit lenders.

We have decided that that approach is unsatisfactory. It is not clear that a power to make rules for unauthorised persons will be effective in ensuring that the necessary notification procedures are observed, which is of course necessary in order fully to meet the requirements of that directive. So the new paragraph that we are inserting after paragraph 19 makes a failure to follow the correct notification procedure a criminal offence. This follows the existing law and removes the need to make provision for the FSA to make rules applicable to persons who would not otherwise be subject to FSA rules. Therefore, we are deleting those two sub-paragraphs.

Amendments Nos. 162 to 167 address particular concerns raised by the Opposition in Committee on 21st March; namely, that the provisions of paragraph 19 did not accurately reflect the notification procedures for provision of cross-border services under the Investment Services Directive. Therefore, these amendments explicitly align the provisions on the outward passport for cross-border services with the provisions of the Investment Services, Second Banking Coordination Directive, Third Life Insurance Directive and Third Non-life Insurance Directive.

We are also responding to an issue raised by the noble Lord, Lord Kingsland, by way of our Amendment No. 163. This will remove subparagraph 19(1)(b) which prevents a UK insurance company from commencing its cross-border activities until the FSA has made the necessary notification--in the form of a "consent notice"--to the host state regulator and has informed the company of the fact. The requirement is not provided for by the insurance directives in relation to cross-border services, although it is in relation to the establishment of a branch in another member state. Therefore, imposing it here would be incompatible with the directives. Consequently, we propose to remove subparagraphs 19(3) to (6).

Finally, our amendment to paragraph 19(7)--Amendment No. 165--clarifies that the FSA must notify a firm's host state regulator of a notice of intention by sending a copy of the notice of intention to the host state regulator within a month of its receipt by the FSA. The amendment adds a requirement that when the FSA sends the notice of intention to the host state regulator it must also give written notice to the firm. The amendment also adds the requirement that if a firm's EEA right derives from the Investment Services Directive, it must wait until it receives this written notice before it begins providing the service to which the notice of intention relates.

Our amendments to Schedule 6 address a number of issues arising in relation to paragraph 2, which establishes various conditions for authorisation that relate to the location of a person's registered and/or head office and, indeed, where he carries on business. Paragraph 2(1) proceeds on the assumption that every body corporate incorporated under the law of any part of the United Kingdom will have a registered office. That may not be the case; for example, a body incorporated by a private Act of Parliament may not have a registered office.

Paragraph 2(2) imposes threshold conditions on EEA persons which, in the case of EEA firms under Schedule 3, would give the FSA a responsibility that went beyond that allowed for the host state by the home/host state division of responsibility established by the directives. We also consider that it may be disproportionate in respect of EEA persons who are not subject to the directives, particularly treaty firms qualifying for authorisation under Schedule 4.

Thirdly, we have concluded that paragraphs 2(3) to (5) impose unnecessarily restrictive conditions on persons from non-EEA States. In particular, sub-paragraph (5) should not apply to non-UK persons. The requirement to carry on business in the UK should be the default requirement for UK nationals and not, as it is presently drafted, for unincorporated persons from other states.

To the extent that it is necessary for the FSA to impose requirements in relation to the corporate or structural arrangements of overseas firms, this can be adequately achieved through the suitability criterion under paragraph 5, which requires the FSA to be satisfied that a person's affairs are conducted soundly and prudently.

We propose to amend paragraph 2(1) of Schedule 6 so that the requirement that a body corporate incorporated under the law of any part of the United Kingdom must have both its head office and its registered office in the UK applies only to a body corporate that actually has a registered office. In the case of any other body corporate, the requirement should be that the head office must be in the United Kingdom. This is required by the single market directives.

The other sub-paragraphs, which deal with overseas persons, are omitted. Two of our amendments to paragraphs 6 and 7 are consequential changes which reflect the fact that, by virtue of the previous amendment, paragraph 2 will no longer apply to EEA or treaty firms. The final amendment is a minor drafting amendment to insert a missing "the".

To a large part, these amendments respond to points which the Opposition have raised in debate here and in another place and we are grateful to them. They also reflect some further thinking on these issues by the Government. The result is a set of amendments which serve to reduce some unnecessary burdens on overseas persons doing business, or seeking to do business, in the United Kingdom. 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) 5:30 pm, 18th May 2000

moved Amendments Nos. 21 and 22:

Page 15, line 22, leave out ("it") and insert ("he").

Page 15, line 23, leave out ("it") and insert ("he").

On Question, amendments agreed to.

Clause 50 [Determination of applications]:

[Amendment No. 23 not moved.]

Clause 69 [Actions for damages]:

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. 24:

Page 33, line 32, at end insert--

("( ) In prescribed cases, a contravention of that kind which would be actionable at the suit of a private person is actionable at the suit of a person who is not a private person, subject to the defences and other incidents applying to actions for breach of statutory duty.").

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. 25:

After Clause 86, insert the following new clause--

:TITLE3:PUBLIC CENSURE OF SPONSOR

(".--(1) Listing rules may make provision for the competent authority, if it considers that a sponsor has contravened a requirement imposed on him by rules made as a result of section 86(3)(c), to publish a statement to that effect.

(2) If the competent authority proposes to publish a statement it must give the sponsor a warning notice setting out the terms of the proposed statement.

(3) If, after considering any representations made in response to the warning notice, the competent authority decides to make the proposed statement, it must give the sponsor a decision notice setting out the terms of the statement.

(4) A sponsor to whom a decision notice is given under this section may refer the matter to the Tribunal.").

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)

My Lords, in moving Amendment No. 25 I wish to speak also to Amendments Nos. 26, 27, 28, 137, 138, 174 and 175.

The government amendments in this group are necessary to fill three gaps in the provisions of the Bill dealing with the competent authority for listing. The first covers the arrangements for sponsors where we need to ensure that the competent authority continues to have available the range of disciplinary sanctions which it possesses at present. We signalled that we would make this change during the debate in Committee. At the moment the Bill does not provide for the intermediate power publicly to censure sponsors rather than remove them from the list of approved sponsors. The new clause, introduced by Amendment No. 25, brings in such a power, and Amendments Nos. 137 and 138 make consequential changes.

It may be convenient for me to say a few words about the Opposition amendment to the proposed new clause. I see that the Opposition nod in the affirmative. The Opposition Amendment No. 26 would extend the power of public censure to cover not only breaches of rules imposing requirements on sponsors, under Clause 86(3)(c), but also to cover rules specifying,

"services which must be performed by a sponsor", under Clause 86(3)(b). I think that I understand what lies behind the amendment, but I do not believe that it is necessary.

The purpose of Clause 86(3)(b), in contrast to Clause 86(3)(c), is not to allow the competent authority to make rules which bind sponsors, but to allow it to make rules which bind issuers of listed securities, or persons seeking admission to the list. Rules of this kind would tell issuers, not sponsors, what activities they were not to perform themselves, but would need to ask a sponsor to take on their behalf. If such rules were breached, the breach would then be on the part of the issuer, not the sponsor. If this happened, the competent authority already has the power to impose sanctions on the issuer, including a public censure, if appropriate, under Clause 88. If, however, the competent authority wanted to make a rule requiring sponsors to do any particular thing, it will do so under subsection (3)(c).

The second change we are making, with Amendments Nos. 174 and 175, is to align the provisions on the legal immunity of the complaints investigator, when investigating complaints against the FSA as competent authority, with those applying when he is investigating the FSA as regulator. This will ensure that he is able to carry out any investigations without being inhibited by the fear that he may be subject to legal action.

Finally, I turn to Amendments Nos. 27 and 28. These pick up on a point raised by the noble Lord, Lord Kingsland, at Report stage, when he noted that this clause referred to a,

"significant adverse effect on competition", whereas the test used elsewhere in the Bill was one of a "significantly" adverse effect. This was, as the noble Lord quite rightly concluded, an error on the Government's part, and I am grateful to him for bringing this to our attention. These amendments are intended to correct this error. I beg to move.

[Amendment No. 26, as an amendment to Amendment No. 25, not moved.]

On Question, Amendment No. 25 agreed to.

Clause 92 [Competition scrutiny]:

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. 27 and 28:

Page 45, line 13, leave out ("significant") and insert ("significantly").

Page 45, line 24, leave out ("significant") and insert ("significantly").

On Question, amendments agreed to.

Clause 101 [Control of business transfers]:

[Amendment No. 29 not moved.]

Clause 102 [Insurance business transfer schemes]:

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. 30 to 34:

Page 50, line 29, leave out ("deal in") and insert ("effect or carry out").

Page 50, line 35, leave out ("deal in") and insert ("effect or carry out").

Page 50, line 40, leave out ("deal in") and insert ("effect or carry out").

Page 51, line 7, leave out ("reinsurance business carried on") and insert ("business which consists of the effecting or carrying out of contracts of reinsurance").

Page 51, line 28, leave out ("reinsurance business") and insert ("the effecting or carrying out of contracts of reinsurance").

On Question, amendments agreed to.

Clause 103 [Banking business transfer scheme]:

[Amendment No. 35 not moved.]

Clause 109 [Effect of order sanctioning business transfer scheme]:

[Amendment No. 36 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 Amendment No. 37:

After Clause 113, insert the following new clause--

("Modifications

:TITLE3:POWER TO MODIFY THIS PART

. The Treasury may by regulations--

(a) provide for prescribed provisions of this Part to have effect in relation to prescribed cases with such modifications as may be prescribed;

(b) make such amendments to any provision of this Part as they consider appropriate for the more effective operation of that or any other provision of this Part.").

On Question, amendment agreed to.

Clause 114 [Market abuse]:

[Amendment No. 38 not moved.]

Clause 115 [The Code]:

[Amendment No. 39 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 Amendment No. 40:

After Clause 115, insert the following new clause--

:TITLE3:PROVISIONS INCLUDED IN THE AUTHORITY'S CODE BY REFERENCE TO THE CITY CODE

(".--(1) The Authority may include in a code issued by it under section 115 ("the Authority's code") provision to the effect that in its opinion behaviour conforming with the City Code--

(a) does not amount to market abuse;

(b) does not amount to market abuse in specified circumstances;

(c) does not amount to market abuse if engaged in by a specified description of person.

(2) But the Treasury's approval is required before any such provision may be included in--

(a) the Authority's code; or

(b) a proposed code published by the Authority under section 116.

(3) "City Code" means the City Code on Takeovers and Mergers issued by the Panel on Takeovers and Mergers as it has effect at the relevant time.

(4) "Specified" means specified in the Authority's code.").

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)

My Lords, in moving Amendment No. 40 I wish to speak also, for the sake of clarity, to opposition Amendment No. 41--which is an amendment to Amendment No. 40--and to opposition Amendments Nos. 42, 63, 64 and 65.

We come now to an issue which has occupied a good deal of space in the public prints in the past few days, indeed, in the past few weeks. I hope, nevertheless, that I need not detain noble Lords too long. However, it is necessary to set out some of the background.

I have made it clear that we support the work of the Takeover Panel. We believe that it has done a good job in regulating the conduct and process of takeovers. We want it to continue to do that job in the way that it has been doing it. We also believe that it is vital that our financial markets are protected from the effects of market abuse wherever and whenever it occurs. That is why we have introduced the new market regime in the Bill.

I do not think that these aims are in conflict in any way. It is, of course, the case that market abuse, indeed serious market abuse, can occur during takeovers. Because of that it is important that proper procedures and arrangements are in place between the FSA and the Takeover Panel. We do not want unnecessary duplication or to create unnecessary uncertainty.

At the beginning of this week I wrote to noble Lords who had taken part in the earlier debates, attaching the paper which I had asked the FSA to produce after our previous debate. This sets out the progress that has been made to date on finalising procedures and agreements. As that paper makes clear, the FSA and the panel are working on three fronts: first, identifying provisions which can provide safe harbours in the FSA's code of market conduct; secondly, on an operating agreement which sets out liaison and information sharing arrangements; and, thirdly, on a policy statement on the circumstances in which the FSA would expect the Panel to lead, and the circumstances in which it might take the lead itself.

It is clear to me that this is the right way forward, as it is in the case of recognised investment exchanges which are also working with the FSA on similar arrangements to deal with possible overlap. Concern has been expressed, however, that these arrangements by themselves are not enough in the case of the Takeover Panel. Quite why the Takeover Panel is in such a special position compared with exchanges, I am not sure. But, be that as it may, the concern is, apparently, that the FSA would be forced to intervene by the courts, regardless of its stated policy that it will not seek to intervene except in exceptional circumstances.

As I said in our previous debates, fears have been grossly overstated. It is clear to us and to the FSA that the FSA could adopt a policy of not intervening where it thought that it was being dragged in for tactical reasons. It is clear that the FSA could adopt a policy of leaving it to the panel to take action where it was satisfied that the panel could deal with the mischief adequately.

It is also clear that the courts would not look kindly on parties to a bid, and on others involved in the bid, seeking to circumvent the clear position that the courts have adopted as regards judicial interference in takeovers. As I said in our earlier debate, in my view the courts would frown on any such attempt and would view favourably any effort on the part of the FSA to avoid that happening. The FSA will, of course, have to consider making exceptions to any policy it adopts--in this area as well as anywhere else--but, as long as it acts reasonably, there will be nothing to fear.

Let me make two further points. First, there is overlap now between the regulatory regime and the Takeover Panel's code, as there is between the panel's code and the criminal offences of insider dealing and market manipulation. No one has thought to frustrate takeover bids to date through these means; the only change following the introduction of the new market abuse regime will be the potential degree of overlap, not the nature of it.

Secondly, it is extremely difficult to see how involving the FSA will have any effect on the timetable of the bid. Despite this being the main concern expressed by the panel, no one has plausibly explained how this might occur. The panel has stated that it is worried about injunctions for market abuse. But such injunctions would be aimed at the abuse, not at the merits or otherwise of the bid; they would not interfere in the takeover process.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, I am grateful to the Minister for giving way. He may recall that I intervened when we discussed this matter earlier and that I asked him specifically about the issue of judicial review. He replied that he did not think that judicial review would succeed. Is not the Minister missing the point? People might apply for judicial review--it may not be successful in the courts-- and that in itself will introduce delay, which could be used tactically in order to frustrate the process of the bid. These are the kinds of tactical issues which may be used by advisers that are causing concern to the Takeover Panel and to people in the City.

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)

My Lords, it is of course possible that after the legislation has been passed someone may try that on, but the courts would get wise to that very quickly indeed. As the noble Lord, Lord Forsyth, agrees, it is hardly likely that the judicial review itself or an injunction would succeed. In any case, it is unlikely that an injunction would succeed in upsetting the timetable of the takeover bid. It would be an injunction on the abuse, not one which brought to a halt the process of the takeover bid.

I presume that that is why, as far as I am aware, no one has ever pressed the FSA to seek injunctions under Section 61 of the Financial Services Act alleging possible breach of the market manipulation offence. The fear of the noble Lord, Lord Forsyth, is one which could have been expressed at any time since the passing of the Financial Services Act 1986. The ability to seek an injunction is available under Section 61 of that Act; it has never been sought.

I move now to government Amendment No. 40.

Photo of Lord Pearson of Rannoch Lord Pearson of Rannoch Conservative

My Lords, before the Minister moves away from that point, is there not a new factor in this argument? The Government have virtually signed up to the takeover directive, which therefore leaves the Luxembourg court lying in the background of the process that the Minister said has not yet taken place. May that not be a further encouragement to the kind of route suggested by my noble friend Lord Forsyth?

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)

My Lords, I made it clear in my opening remarks that the Government support the work of the Takeover Panel and we believe that it has done a good job in regulating the conduct and process of takeovers. We want it to continue doing that job. Whatever action may be taken by the European Union could, of course, affect British legislation, regardless of whether this or any other amendment were included in the Bill. It has no effect on the provisions we are now making.

Amendment No. 40 seeks to establish a proper relationship between the Takeover Panel and the FSA. We have to do that because the Takeover Panel is at the moment acting legally by any standards and with the full support of government.

Perhaps I may now turn to government Amendment No. 40. We have reflected further on the points made by noble Lords in the previous debate. We have looked carefully to see whether anything could properly be added to the Bill to deal with the concerns that have been raised. I certainly share the concerns of the noble Lord, Lord Newby, about the dangers of duplication and the issue of fairness; that people who comply with one set of rules should not be pursued under another set of rules. As he said, it is difficult to see an argument for pursuing someone who has complied with the City code in the circumstances in which the safe harbour provisions already exist in relation to the market abuse code.

While we continue to believe that administrative arrangements will prove robust, we have decided to introduce a new clause (Amendment No. 40) which will allow the FSA to place provision in its code of market conduct to the effect that,

"behaviour conforming with the City Code...does not amount to market abuse".

The amendment allows the FSA to specify conditions of limitations, as do the amendments tabled by the noble Lords, Lord Saatchi, Lord Kingsland, Lord Newby and Lord Sharman. Our amendment is different from those tabled by those noble Lords in two important respects. First, our amendment provides that the FSA has to have the Treasury's approval before it can include such provisions in its code of market conduct. If the FSA were to include such a provision, it would effectively be handing over control of safe harbours in this important area to the Takeover Panel. We believe that it is right that the Treasury should be involved in such a decision by the FSA--a body for which it is answerable in Parliament--to delegate the responsibility which Parliament has given it in this area to a non-statutory regulator; that is, the Takeover Panel. Treasury Ministers will, of course, be answerable in Parliament for any decisions they make.

The second and most important difference is that, unlike Amendment No. 63, the provision allows the FSA to promote a safe harbour for behaviour in conformity with the City code and not in conformity with whatever the panel may say. If one follows through the definition in subsection (6), the way in which Amendment No. 63 would work is to allow the FSA to provide a safe harbour which is, in the opinion of the panel--and this includes any revised opinion; any changes in the opinion formed by the panel--

"in conformity with the City Code...as applied by the Panel and as amended from time to time by the Panel.

This means that in the area of takeovers, market abuse is whatever the panel at any time says that it is. I have received a letter from Mr Drayton, the director general of the panel--I believe other noble Lords have also received it--in which he describes this as,

"an amusing way of characterising the safe harbour proposal".

Unlike Mr Drayton, I do not find this amusing at all.

In the letter he prefers slightly different wording, but all he is doing is dressing up the stark fact that if the definition in this amendment were ever to find its way onto the statute books, abuse in this area would be what the panel says it is. I am astonished that any noble Lord should contemplate that. What a fuss there would be if we had said that market abuse was whatever the FSA says it is, but in this area at least the FSA can change its mind on a case-by-case basis without consulting or being accountable to anyone.

I thought that the noble Lords, Lord Saatchi and Lord Kingsland, had realised this in tabling Amendment No. 64, which, although substantially the same as Amendment No. 63, does not provide that abuse is whatever the panel says it is but is in line with the approach in our amendment.

I have been asked to confirm whether "conformity with the City Code" in our amendment means "in conformity with the City code as applied by the panel". The answer to that is "yes". The City code is the code which is drafted and applied by the panel, and no one else. The very nature of the code and the way in which it is operated in practice means that the question of whether behaviour conforms with the City code will depend to a considerable extent on the panel and its interpretation of the code. But "in conformity with the City code" does not mean that the FSA will be unable to take action unless the panel says it can. That gets us into the kind of territory covered by other opposition amendments which we cannot support. This, as I explained, would allow the panel to say what is and is not market abuse on a case-by-case basis. The safe harbours for behaviour which conforms with exchange rules will not work like this, and no one has suggested that they should.

The FSA will be the body to which Parliament has entrusted the operation of the market abuse regime. It is only right that it should take the initial view on whether action should be taken against a person under Part VIII of the Bill. Given what I have said about the nature of the code and the panel's role in interpreting and applying it, I would naturally expect the FSA to take the panel's view before it decided whether behaviour fell within the safe harbour which the government amendment would enable it to provide. It would be foolish if it did not. In what I would expect to be a very rare event--namely, where the FSA and the panel disagreed on what "in conformity with the code" meant--it would be open, under our amendment, for the FSA, as the primary regulator, to take action. But let us not forget the background in which it could take action.

First, the person accused could call the panel to give evidence that his behaviour was in conformity with the City code. That would clearly carry a great deal of weight. Furthermore, the test of whether market abuse has taken place rests on the view of the regular user of the market as to whether expected standards have been met. Clearly, the panel's views will be important in determining that question. As a result, it is clear that any disputes between the panel and the FSA on whether behaviour was or was not in conformity with the City code would be very rare. But where such a dispute did arise, it is right that the question should be capable of being tested before the tribunal to be established under the Bill. I would expect the tribunal and, if the matter came before them, the higher courts, to attach due weight to the panel's views in accordance with established case law. None of this needs interfere with the timetable of the Bill, which is the crucial issue as the panel sees it.

I hope noble Lords will agree that our amendment strikes the right balance here, given the concerns that have been expressed and which I have not, despite my best efforts, managed to convince all noble Lords are unfounded. The amendment provides what I might call a "safety valve" and in that respect is entirely in line with Amendment No. 63. I said at the beginning that I hoped I would not detain your Lordships too long. I have detained your Lordships too long. I have much more to say about the various opposition amendments, but it is probably better if I do not say it until they have been moved. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative

moved, as an amendment to Amendment No. 40, Amendment No. 41:

Line 4, after ("with") insert ("one or more specified rules or notes in").

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 42 and 63 to 65. I have no intention of wearying the House by going over ground already covered in Committee and on Report. The purpose of our amendments is twofold: first, to provide that conforming with the City code as applied by the Takeover Panel is a safe harbour for the purposes of Clause 117(1) of the Bill; secondly, to provide that:

"Except at the request or with the consent of the Panel, the Authority may not during the course of an offer exercise its powers under the Act in respect of behaviour which it considers may amount to market abuse".

We believe that, without such ring-fencing on the face of the Bill, the authority will, irrespective of its wishes--at this point I should like to draw the Minister's attention to the intervention of my noble friend Lord Forsyth--be compelled, in each and every takeover bid, to stand in the shoes of the panel, and second-guess its every move, in order to meet its market abuse responsibilities under the Bill.

In particular, we do not believe that a mere policy statement by the FSA will furnish the necessary ring-fencing. Any self-denying ordinance by the authority will be susceptible to judicial review in the courts on the grounds both of illegal delegation and illegal fettering. In short, failure to accept our amendments would destroy the panel as we know it, one of the City's greatest assets and a key to so much of its success.

I am pleased to say that, yesterday, the Minister tabled a government amendment seeking to grapple with the first, and only the first, of our two anxieties--that is to say, the provision of a safe harbour. The Minister has explained his amendment to your Lordships. From the point of view of the Opposition, it allays some but not all of our fears. In particular, we could not accept the current drafting of subsection (1) of the proposed new clause. Subsection (1) reads:

"The Authority may include in a code issued by it under section 115 ... provision to the effect that in its opinion behaviour conforming with the City Code--

(a) does not amount to market abuse;

(b) does not amount to market abuse in specified circumstances;

(c) does not amount to market abuse if engaged in by a specified description of person".

That is all right as far as it goes; but the clause will not provide the safe harbour that we believe is necessary unless the amendment also embraces the interpretation that the panel places on the code in any particular set of circumstances.

These concerns could be met in one of two ways: either by the addition after the expression "City Code" of the words "as applied by the Takeover Panel"--by that I mean, as applied by the Takeover Panel in any particular set of circumstances--or, alternatively, by excising the words after "behaviour" and inserting the expression which appears in subsection (6) of our Amendment No. 63:

"behaviour of a person ... which in the opinion of the Panel conforms with the responsibilities imposed on that person by the City Code".

We believe that one or other of those expressions must appear on the face of the government amendment if we are to accept it.

I know that the noble Lord cannot make anything in the nature of a manuscript amendment in your Lordships' House today; but an undertaking that such words would be incorporated in an amendment in another place would be satisfactory to the Opposition.

As regards our other concern, the Minister has directed the attention of your Lordships' House to our Amendments Nos. 64 and 65. Yesterday we tabled Amendment No. 42, which is intended to meet some of the criticisms that the Minister has laid at the door of Amendments Nos. 64 and 65. The effect of the amendment is to establish a jurisdictional boundary between the authority and the panel during the course of a bid.

The amendment would leave the authority completely free to pursue market abuse once the bid had been completed; and therefore would not fetter in any way its ability to take disciplinary action thereafter. The amendment would enable the panel, meanwhile, to get on with the regulation of bids without the parties to a potential takeover having the opportunity tactically to involve the authority and, through that involvement, the courts as well.

Amendment No. 42 comes before Amendment No. 65 in the order of voting. If the Minister is unable to accept Amendment No. 42, I must give him notice that we shall move that amendment. In the meantime, I beg to move Amendment No. 41.

Photo of Lord Newby Lord Newby Liberal Democrat 6:00 pm, 18th May 2000

My Lords, we are discussing two separate but related issues in this group of amendments; namely, what have been referred to as the "safe harbour" and the "gatekeeper" provisions. I shall deal first with the safe harbour provisions, without reiterating the arguments for including such measures in the Bill. We were pleased that eventually the Government produced Amendment No. 40. It demonstrates a recognition on the part of the Government that a provision in respect of safe harbours was required on the face of the Bill in order to clarify the matter. That has been discussed by many noble Lords at all stages of the Bill.

The remaining key issue, referred to by the noble Lord, Lord Kingsland, and where I share his view that there is a lack of clarity in the amendment as currently drafted, is the question of who shall interpret the City code. The noble Lord's suggestion is to insert a form of words that makes it absolutely clear that the interpreter of the City code is indeed the Takeover Panel--it is its code--rather than the FSA. That is important and I hope that, when the Minister concludes the debate on this amendment, he will be able to give an assurance to that effect.

As regards the other element of this debate, that of the "gatekeeper" argument, in the debate on Report I argued that it represented an undesirable fettering of the role of a principal and primary regulatory body to include such a gatekeeper provision. I remain of that view. The key argument that has been advanced in favour of the gatekeeper provision is that made by the noble Lord, Lord Forsyth, and--most energetically over recent weeks--by the Takeover Panel. The argument states that there will be a high degree of tactical use of judicial review in order to gain a short-term tactical advantage, with no particular anticipation of success as regards the judicial review. If it were ever heard, it would take place only long after the merger had either succeeded or failed.

I have tried to weigh what, on the one hand, seems to me to be the important principle that the FSA should remain unfettered in its powers against the argument, on the other hand, that the whole conduct of mergers will be undermined by the repeated use of judicial review proceedings. Having read the voluminous correspondence that has emanated from all sides of this debate, I still remain unpersuaded of the argument set out in Amendment No. 42. I am not happy with the notion that the FSA will have to sit on its hands until a takeover is concluded and I am not convinced that we shall see the degree of judicial proceedings anticipated and feared by the panel, the noble Lord, Lord Forsyth, and others. For those reasons, we on these Benches shall not support Amendment No. 42.

Photo of Lord Donaldson of Lymington Lord Donaldson of Lymington Crossbench

My Lords, I take it that it has been generally agreed that, as a general proposition, in principle the views of the FSA on these matters should prevail over those of the Takeover Panel. However, the exceptional circumstance that gives rise to the problem is when the bid is in progress. Then the City panel necessarily, although not always, may have to take instant decisions. It will of course expect all the parties involved in the bid to comply with those instant decisions rather than acting contrary to them. In that situation, I agree that the courts would follow their ordinary practice, but it is important to outline briefly what happens in a case of judicial review.

An application for leave to apply for judicial review is made. In theory, until it has been dealt with by the courts, an application has no effect whatever. But in a sense that is theoretical. I shall explain why. Turning to a different field, that of local authority actions--an area with which, when I dealt with judicial reviews, I was much concerned--I would have been extremely put out if, having received an application for judicial review, the local authority proceeded to act in a way which made any decision by the court on judicial review entirely nugatory.

However, as a lawyer, I would have to admit that a local authority would be entitled to do exactly that. Of course, if I had learnt that an authority was acting in that way, I would have slapped an injunction on it--but that is another matter. My principal point is simply this: people may not realise that they are able--metaphorically speaking--to raise two fingers to the courts at the stage at which all that has happened is that an application for leave to apply has been made. If the court does not like it, it is for the court to make an order to hold the ring until the application can be dealt with. But people do not think in those terms; perhaps it is a good thing that they do not. The authority of the court is thought to be asserted from the moment someone applies to the court, but that is not the case and that is where the problem lies.

I should have thought that it would be perfectly possible for the FSA, when producing its code in conjunction with the City code, to cope with that situation quite simply. In whatever circumstances, but most likely during a current takeover bid, it could say that, subject to the undoubted right of the City panel to alter the rules as circumstances change during the course of the bid--I am sure that in practice that does happen--the FSA will treat the actions of those concerned as not amounting to market abuse. That would obtain during the course of the bid. However, once the bid had been cleared, the FSA will approach the Takeover Panel and say something along the lines of, "We cannot accept this. You must alter the code".

It is very likely that the Takeover Panel will agree with the FSA, because all parties have the same objectives in mind. However, if the Takeover Panel did not agree, the FSA must have the last word on the matter. The FSA would declare that if in the future anyone complied with that particular aspect of the City code, they would do so at their peril because the FSA regarded that element as being capable of being construed as market abuse.

This situation is akin to the line taken by the courts in Datafin where we would not interfere during the course of the bid--in the sense that we would give no injunctive relief. However, afterwards, we might very well say that we did not think that this was right and if anyone tried it again, we would intervene. I suggest that that is exactly what the FSA should do under government Amendment No. 40. Provisions should be put in place to enable people to use a safe harbour, provided that they are complying with the City code, but without prejudice to the next round, when neither they nor anyone else would be able to do so.

Photo of Lord Forsyth of Drumlean Lord Forsyth of Drumlean Conservative

My Lords, I do not propose to detain noble Lords. Suffice it to say that the contributions made by my noble friend Lord Kingsland and the noble and learned Lord, Lord Donaldson, reflect very much what I wish to say.

Perhaps I may make two points. First, I thank the Minister for bringing forward Amendment No. 40. It demonstrates that the Minister is trying to respond to the points that have been made. That said, the amendment has a serious weakness in terms of meeting the anxieties expressed in that it does not make clear who will determine whether the City code has been complied with. Unless it is the panel, clearly we are no further forward. I hope that the Minister will reflect on the points that were made by my noble friend and give an undertaking that he is prepared to change the wording to make it clear that compliance with the City code will be a matter determined by the panel in this context.

The second point that I should like to put to the Minister, in the politest possible way, is that the Government have been at great pains to tell everyone how much they respect the Takeover Panel, how good it is and what an important institution it is. As I came into the Chamber, I was handed a page of briefing from the Takeover Panel stating that:

"Unless the Bill is amended, there will be significant damage to the quality of takeover regulation in the UK. This in turn will damage the reputation of the UK financial markets for integrity and efficiency".

That is a very strong statement, coming from a body which the Government say that they respect and which, unlike members of the Government, has years of experience in this area. I do not think that any government can afford to ignore statements of this kind in this rather cavalier way. Therefore, I hope that the Minister will listen to these points.

Subsection (2) of Amendment No. 40 gives the game away. Perhaps I have missed something--I know that it is the practice throughout the Bill--but when we were in government we did not introduce clauses referring to government departments; they referred to Ministers. Subsection (2) states,

"But the Treasury's approval is required before any such provision may be included".

Had I been responsible for the Bill, the reference would have been to the Chancellor of the Exchequer. We really are seeing the game being given away and that this is being run by officials in the Treasury rather than Ministers. There is an extraordinary appearance of Banquo's ghost here. We have been assured throughout proceedings on the Bill that the principle at stake is that there should be one responsible authority. Suddenly, we find in the proposed amendment that the Treasury is the hidden hand to which the authority will have to go for approval.

I say in the friendliest possible way to the Government: please listen to the points that have been made. My noble friend has proposed a solution. It is important that our markets are seen to have integrity and to be efficient. That is in the interests of shareholders--that means every pensioner in this country with a private pension. For a Bill that purports to be concerned about ensuring market efficiency and integrity, it is extraordinary that we have arrived at this stage with these kinds of statements being made by people with no axe to grind other than the good name of the City of London.

Photo of Lord Borrie Lord Borrie Labour 6:15 pm, 18th May 2000

My Lords, concern has been apparent throughout our debates on this topic at various stages that the powers of the Takeover Panel and the reputation that it has built up over more than 30 years should be preserved in a new environment. We value it for the great benefits that it has achieved and we do not want them to be adversely affected by anything in the Bill.

With respect, one of the difficulties that the Opposition have had in putting forward amendments is that one of the great benefits of the Takeover Panel is that it is not a statutory body. It is a self-regulatory body, devised and deriving its composition from a number of City institutions and, as I said, it has given great value. But any amendments in this or any other Bill referring to the Takeover Panel involve the panel in a statutory role and statutory functions. A responsible legislative Chamber must accept that when such a body is, as it were, inserted into legislation, that is done without any controls over its composition, formation, procedure and so forth.

The Opposition have rightly been concerned about the detailed composition, function, objectives and concerns of the Financial Services Authority. I have no doubt that they are concerned about those matters in relation to the Takeover Panel, but Parliament is not concerned with it. Therefore, there is something of a dilemma in slotting in the Takeover Panel and giving it certain powers under the Bill, without having any say in how it works or how it is composed.

The reason I mention this is that there has been a measure of agreement about wanting to preserve the Takeover Panel's role during the offer period. In so doing, both the Government and the Opposition have been faced with the question of how to slot the panel in, how to devise a way in which the panel is not lost to life, is not coming to an end after 30 years but has a continuing and valid role. That can possibly be achieved by legislation, but we must make sure that we get it right. This is not the only way of getting it right. It could be done by means of agreement, practice or concordat between the Financial Services Authority, which is a statutory body, and the Takeover Panel.

The noble Lord, Lord Newby, said that we were concerned with two matters: the first is the safe harbour provision that we want to devise, so that if people comply with the provision in the code they will not be guilty of market abuse; the second is the gatekeeper provision. In regard to the safe harbour provision, there has been a measure of support, although not necessarily enthusiastic, for the Government's Amendment No. 40. The main difference of approach seems to lie in who is to have the final say--not who is to have any say, but the final say--as to what constitutes market abuse. The Bill contains definitions of market abuse, and over the years the Financial Services Authority has developed practice and precedents in regard to market abuse. However, we have no say over the composition and procedures of the Takeover Panel. Surely the final determination must be that of the statutory body; namely, the Financial Services Authority.

If the authority has a desire to preserve an understanding of the role of the Takeover Panel, surely it will do the kind of things that were indicated by my noble friend the Minister at the beginning of this debate; namely, to be constantly in touch, to take advice, and because the Takeover Panel has a great deal of experience of bids it will certainly start life in its relationship with the new Financial Services Authority as providing a powerful viewpoint which the FSA would fully understand it would do well to accept. But there is a difference in saying that it is the opinion of the Takeover Panel--this is the opinion of the Opposition in Amendment No. 63--that is all-pervasive and prevailing. It seems to me that that is not suitable. To put it shortly, the opinion of the panel is valuable and highly relevant, but it should not be conclusive. The conclusive view should be that of the Financial Services Authority.

On the gatekeeper provision, noble Lords opposite are right to express concern and regret that there is no government amendment dealing with the matter. I expressed concern in Committee that one does not want a position whereby the authority is in any way fettering its discretion, which could subject it to judicial review. I make no apology for repeating that the FSA is a statutory authority and the Takeover Panel, while it has many advantages, is not. It is inappropriate to insert into the Bill the word "request", which appears in the Opposition amendment, so that the authority can deal with matters only at the request of the panel, because the FSA is accountable and responsible at the end of the day.

Given the view expressed by everyone in this House about the value of the Takeover Panel, I have no fears about the FSA wading in during the course of a bid when the panel with its 30 years' experience is already there. We are to have a new regime and it is important to devise a convention, concordat or agreement--I do not know the appropriate word--to ensure that the excellent practice, the value of which we have all seen, continues and that there is deference by the authority, as it were, to the panel with all its experience. But we must not write this into the Bill when we have no control over the composition and procedures of the Takeover Panel, or anything else to do with that body. Let us ensure that the authority that is set up under the Bill devises codes of practice or concordats with the Takeover Panel.

Photo of Lord Boardman Lord Boardman Conservative

My Lords, in our debates on this particular subject we tend to lose sight of the achievements of the Takeover Panel. The noble Lord, Lord Borrie, and other noble Lords have referred to the achievements of the panel. Its strengths which are now attacked by the government amendment are two-fold. The first, which I describe with some reluctance since I qualified as a lawyer, is that the panel proceeds without the advocacy of lawyers. Secondly, the panel has a code of conduct which, unlike statutory regulation that people seek to get round, everyone feels honour bound to try to observe. As a result, under the chairmanship of the noble and learned Lord, Lord Shawcross, and successive chairmen the Take-over Panel has been made up of experienced businessmen who come to decisions which have been challenged in the courts on only two occasions. As the noble and learned Lord, Lord Donaldson, said, on those occasions the Law Lords dealt with the matter briefly, effectively and sensibly. Otherwise, the Takeover Panel has resolved a great number of issues.

The government amendment would destroy the very virtues which have made the Takeover Panel so effective. It would give rise to the involvement of lawyers, injunctions and a whole variety of matters which have been avoided in the past. My noble friend's amendment enables the panel, as far as possible, to proceed effectively in the way that it has done in the past. The panel comprises distinguished and experienced City men and women who know what is going on and can ensure that there is fairness and avoid litigation and all the costs that that involves. I hope noble Lords accept my noble friend's amendment and recognise the weaknesses in the government amendment which invites the trouble that so far we have managed to avoid.

Photo of Lord Elton Lord Elton Conservative

My Lords, I merely wish to add one reminder to your Lordships in considering the present situation. A takeover battle is not like a game of chess; it is a game of tennis. One cannot have the umpire on the centre court ringing up for a second opinion. It is necessary to have an authority during a takeover battle. No one seeks to deny the FSA the final word, in the way that the noble and learned Lord, Lord Donaldson, said could happen. But if the FSA is to be given the final word in a takeover battle when the panel is already involved the result is bound to be chaos and the thing will not work.

Photo of Lord Stewartby Lord Stewartby Conservative

My Lords, I rise briefly to support Amendment No. 42. It appeared that the Minister sought to argue that, on the basis of the new clause, the final decision would not rest with the authority. It would. It is only during the course of an offer that its activities are constrained. I said at Report stage it was a pity that noble Lords had not received a fuller explanation of the thinking of the Government and the authority on this matter at an earlier stage so that noble Lords could avoid having to deal with it at the last minute. When I said that the matter had been under discussion for a long time the noble Lord told me that the panel had raised its concerns only recently. I am advised by the panel that it first made known its concerns to the Treasury and the FSA as long ago as March 1998. It is better to have before us the working paper as to the nature of the discussions between the Treasury, the authority and panel, but it is still in an unformulated state.

The noble Lord, Lord Borrie, again emphasised that the final decision on this issue should rest with the authority, not a non-statutory body like the panel. That is exactly what new Clause 42 does.

Photo of Lord Borrie Lord Borrie Labour

My Lords, I apologise for interrupting the noble Lord. If I did say that I did not mean that the authority should have the final decision. I meant that the matter should not be dealt with on the face of the Bill as the noble Lord suggested, for the reasons that I sought to elaborate, but that, instead, the result he sought could be achieved by agreement between the statutory and non-statutory bodies.

Photo of Lord Stewartby Lord Stewartby Conservative

My Lords, I am grateful to the noble Lord for that explanation of his argument. It would be helpful if there was an agreement between the parties that the authority would not exercise its powers during the course of an offer. That would not remove its final responsibility. However, no undertaking has been received from the authority, nor is there an assurance from the Government at this stage, that such a self-denying ordinance is in prospect. Therefore, I hope that the House accepts the very powerful case made by the noble and learned Lord, Lord Donaldson, that on practical grounds we should follow the course suggested in Amendment No. 42.

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)

My Lords, procedurally we are debating Amendment No. 41 as an amendment to Amendment No. 40. Therefore, on behalf of the Government Front Bench I shall reply to Amendment No. 41 as an amendment to Amendment No. 40. It will then be open to the noble Lord to decide what to do about that amendment and, in due course, Amendment No. 42. Perhaps I may first put to rest the mind of the noble Lord, Lord Forsyth. The noble Lord believes that there is something sinister about the reference to the Treasury. If he looks back at the legislation for which he was responsible he will discover that it was always called "the Treasury". The Treasury is defined in the Interpretation Act as "the Lords Commissioners of the Treasury". The Lords Commissioners include the Prime Minister and the Chancellor but not any Treasury officials. I am sure that if necessary the noble Lord, Lord Renton, can convince his noble friend of that.

My first duty is to refer to Amendment No. 41 as an amendment to Amendment No. 40. I shall in due course refer to Amendment No. 42 which we have been told is to be pressed to a Division. Finally, I seek to persuade your Lordships that Amendment No. 40, with or without Amendment No. 41, is worthy of the support of the House.

Amendment No. 41 would provide the additional words,

"one or more specified rules or notes in" [the code].

I do not believe that that adds anything. The new clause already allows the FSA to include the provision that behaviour conforming to the City code does not amount to market abuse in specified circumstances. That will allow the FSA to state that behaviour of a kind specified in rule X and/or rule Y does not constitute market abuse. I believe that that covers the point. I do not feel strongly about it except that I am not sure of the status of notes in the code and whether they are part of it or are simply good practice. In that case the amendment would be objectionable. As I have said, I do not feel very strongly about it.

I feel extremely strongly about Amendment No. 42. That would not give the FSA any discretion at all. It would provide that it could not take any action during a bid situation, using any of the powers under any part of the Act--not just market abuse powers, but powers, for example, to take action against authorised persons because of fitness and "properness" issues except with the consent of the panel. That goes much further than anything we have had before and much further than anything that noble Lords have produced in amendments. It provides a statutory carve-out for a non-statutory body. That cannot be acceptable.

As regards Amendment No. 40, there have been some very useful and valuable contributions to the debate. I refer to that of the noble and learned Lord, Lord Donaldson. He asked for a safety valve. Our amendment provides the kind of safety valve that he described. As he said, it would not prejudice the next round. The issue of whether there had been a breach of the City code in the context of the safe harbour, which the amendment provides, will ultimately be a matter for the tribunal and the courts. We would expect the issue to arise rarely, but when it does, as is the case when exchange rules are breached, it will be for the tribunal to decide.

Photo of Lord Donaldson of Lymington Lord Donaldson of Lymington Crossbench

My Lords, I supported Amendment No. 40. Although support for Amendment No. 42 has been attributed to me, I believe that all that is necessary could be achieved under Amendment No. 40.

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)

My Lords, I am most grateful to the noble and learned Lord. His name has been taken in vain by a number of speakers on the Benches opposite in the false assumption that he was supporting them.

As regards the basic issue of gatekeepers and safe harbours, I believe that what the noble Lord, Lord Newby, wants, and I am sure that what we want, is a safe harbour and not a gatekeeper. I believe that we agree on that. The problem with Amendment No. 63, to which the noble Lord put his name, is that it lets the gatekeeper into the safe harbour through a back route. Perhaps I am going too far ahead in the Marshalled List. The point is that our Amendment No. 40, for which I am delighted to have the support of the noble and learned Lord, Lord Donaldson, preserves the distinction. I entirely understand this dislike of the noble Lord, Lord Newby, for the gatekeeper role, and I share it. Inserting words of the kind suggested into subsection (4), as suggested in Amendment No. 41, would give the panel a quasi-gatekeeper role. The FSA would be unable to act unless it consulted the panel. In a case where it disagreed, it would be the panel's view which prevailed. That could be the case whether or not a bid was in process.

The only other substantive point made by noble Lords is the argument that somehow the role of the FSA in Amendment No. 40 could bring a takeover bid to a halt or enable it to be halted for undesirable reasons. I believe that that has now been fully answered by the analogy with the courts which the noble and learned Lord, Lord Donaldson, gave. An injunction would be against abuse and not against the continuation of the takeover. The fears which have been expressed by the Takeover Panel are entirely unjustified. There is nothing stopping the panel taking instant decisions. If judicial review proceedings are brought, I cannot see what difference that can make to the process of the bid. The issue is only whether or not market abuse has occurred. That would not call a halt to the bid. There is no conceivable reason why it should.

I repeat the point that I was asked to make earlier on, whether "in conformity with the City code" in our amendment means "as applied by the panel". The answer is "yes" in the sense that the City code is the code which is drafted and applied by the panel. There can be no other answer. If I am wrong and it can be shown that I am wrong, my honourable and right honourable friends in another place will look at that issue again. I cannot see how in commonsense language that is not the case.

My objection in principle to Amendment No. 42, which is the worst of all the amendments before us, is to the suggestion that it is entirely open to a non-statutory body, the Takeover Panel, to determine on a case-by-case basis, without any responsibility towards tribunals or the courts, what is or what is not market abuse. The market abuse procedures which The market abuse procedures which have been accepted by this House as being the right way to extend the powers of financial services regulations would be shot through if it were possible for a non-statutory, non-accountable body to determine how it should be interpreted on a case-by-case basis. Since the fears expressed by noble Lords opposite and by the Takeover Panel have not been substantiated, I ask your Lordships to accept Amendment No. 40 and I ask the noble Lord, Lord Saatchi, to withdraw Amendment No. 41.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I thank the Minister for his reply. As regards Amendment No. 42, the Minister has made his position absolutely clear. When the moment comes to deal with it, the Opposition will move the amendment and test the opinion of the House. In the circumstances we shall withdraw Amendment No. 41.

As regards Amendment No. 40, it is essential that the Minster adds at the end of the expression "with the City Code" the words "as applied by the Takeover Panel" to make it absolutely clear that, in any particular set of circumstances, it is the interpretation of the code by the panel that is covered by the safe harbour. Any other approach would mean that, in future, nobody involved in a takeover bid would have any confidence in the guidance given by the Takeover Panel.

Therefore, if we are to support the amendment, what we are seeking is nothing less than an express undertaking by the Minister to your Lordships that in another place the expression,

"as applied by the Takeover Panel" will be added after the expression, "with the City Code". If he is not prepared to give that undertaking, we shall oppose Amendment No. 40. I beg leave to withdraw Amendment No. 41.

[Amendment No. 41, as an amendment to Amendment No. 40, by leave, withdrawn.]

On Question, Whether the said amendment (No. 40) shall be agreed to?

Their Lordships divided: Contents, 118; Not-Contents, 167.

Division number 2

See full list of votes (From The Public Whip)

Resolved in the negative, and amendment disagreed to accordingly.

[Amendment No. 42 not moved.]

Clause 118 [Power to impose penalties in cases of market abuse]:

Photo of Lord Bach Lord Bach Government Whip 6:49 pm, 18th May 2000

moved Amendment No. 43:

Page 61, line 12, leave out ("amount to market abuse") and insert ("fall within paragraph (a) or (b) of subsection (1)").

Photo of Lord Bach Lord Bach Government Whip

My Lords, in moving the amendment, I speak also to Amendments Nos. 44 and 140. These amendments make important improvements to the protections in the market abuse regime in Clause 118 aligning them with the protections introduced into the restitution provisions on Report. They also correct an omission from the defences introduced on Report from the offences of misleading statements and practices in Clause 390 ensuring that the protection they provide can apply in a wider range of circumstances. I am sure they will be welcomed by noble Lords.

Following amendments made in Committee, Clause 118 now applies protections against the imposition of penalties or the making of a public statement where a person has reasonable grounds for believing that his behaviour was not market abuse or takes reasonable precaution to avoid engaging in market abuse. These are in line with amendments put down by noble Lords opposite and were welcomed by the House.

On Report we introduced these same protections into the provisions concerning restitution for market abuse. At the same time we also applied the protections so far as concerns restitution to those who require or encourage another to engage in abuse as part of the improvements to those provisions with respect to requirers and encouragers.

Amendments Nos. 43 and 44, amending Clause 118, simply bring the same protections into play in the market abuse penalty regime for those who require or encourage others to engage in market abuse. I am sure this will be welcomed by noble Lords.

Amendment No. 140 to Clause 390 simply extends the protection for behaviour in compliance with control of information rules and price stabilisation rules to the full range of actions covered by Clause 390(1)(a); namely, the making of promises and forecasts as well as the making of statements. I beg to move.

On Question, amendment agreed to.

Photo of Lord Carter Lord Carter Chief Whip (House of Lords), HM Household, Lords Chief Whip (HM Household)

My Lords, if I may interrupt business, it seems that there is general agreement that we can probably finish the groups before us by eight o'clock. I suggest that we do so, and that we take the Unstarred Question at eight o'clock. I shall be grateful if the House can complete this business by eight o'clock so that noble Lords waiting for the Unstarred Question do not have to wait too long.

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 44:

Page 61, line 14, leave out ("engaging in market abuse") and insert ("behaving in a way which fell within paragraph (a) or (b) of that subsection").

On Question, amendment agreed to.

Clause 129 [Legal assistance scheme]:

[Amendment No. 45 not moved.]

Clause 133 [General rule-making power]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 46:

Page 68, line 15, leave out from ("to,") to end of line 16.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I return to a subject raised on Report. The Minister may recall that on behalf of a number of organisations, but in particular the Association of British Insurers, I was concerned that the words "may be adversely affected by" would extend a wide definition of "consumer". My amendment deletes the words "may be adversely affected by" and inserts new sub-paragraph (c) clarifying that we are referring to persons,

"who have rights or interests which may be adversely affected by the use of any such services by persons acting on their behalf or in a fiduciary capacity in relation to them".

I hope that with that clarification we return to what I think the Government originally intended: a tighter definition of the word "consumer".

In moving the amendment, I hope that I have also explained Amendments No. 47 and 86 to 89 which are consequential on the amendment. I beg to move.

Photo of Lord Bach Lord Bach Government Whip

My Lords, I am grateful to the noble Lord for tabling the amendments. We have at several stages of the Bill had debates on the meaning of the word "consumer" as it is defined for the purposes of the Bill. It has taken a bit of time to arrive at a definition that incorporates all the appropriate persons without leaving out a category of person that the authority should properly be expected to protect.

I believe that these amendments, and the corresponding amendments that define "client" for the purposes of Clause 321, now strike the right balance. I am bound to say that it is most unlikely we would ever be able to achieve absolute precision in the definition, however long we worked at it and however long the relevant provision in the Bill were to become. However, I think that we are now so close to the point we are striving to reach that we should adopt the definition proposed by these amendments.

I am therefore pleased to advise your Lordships' House that the Government accept all the amendments in this group and we are grateful to the noble Lord, Lord Hunt of Wirral.

On Question, amendment agreed to.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 47:

Page 68, line 17, at end insert ("; or

(c) who have rights or interests which may be adversely affected by the use of any such services by persons acting on their behalf or in a fiduciary capacity in relation to them.").

On Question, amendment agreed to.

Clause 136 [Insurance business rules]:

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. 48 and 49:

Page 69, line 16, leave out ("deal in") and insert ("effect or carry out").

Page 69, line 20, leave out ("long-term insurance business") and insert ("business which consists of the effecting or carrying out of contracts of long-term insurance").

On Question, amendments agreed to.

Clause 137 [Insurance business: regulations supplementing Authority's rules]:

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. 50 to 55:

Page 69, line 35, leave out ("deal in") and insert ("effect or carry out").

Page 69, line 39, leave out ("deal in") and insert ("effect or carry out").

Page 70, line 3, leave out from ("of") to end of line 4 and insert ("charges").

Page 70, line 5, leave out from ("making") to ("created") in line 6 and insert ("charges").

Page 70, line 8, leave out from ("circumstances") to end of line and insert ("charges").

Page 70, line 12, at end insert--

("(6) "Charges" includes mortgages (or in Scotland securities over property).").

On Question, amendments agreed to.

Clause 142 [Control of information]:

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 56:

Page 72, leave out lines 19 to 21 and insert ("about the disclosure and use of information held by an authorised person ("A").").

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)

My Lords, in moving Amendment No. 56 I speak also to government Amendments Nos. 58 and 60. Perhaps noble Lords opposite will allow me to speak now to their Amendment Nos. 57, 59 and 62 if that is convenient.

The Bill was amended at Report stage on 9th May, conferring on the authority the power to make control of information rules with regard to authorised persons.

The Government have discussed Clause 142 with the City Liaison Group with regard to outstanding concerns in relation to the operation of this clause. Having considered carefully the group's concerns (specifically with regard to the scope of the rule-making power), the Government are proposing three amendments to Clause 142 which, we hope, will tackle the issues raised.

Amendment No. 56 will enable the authority to make rules specifying circumstances in which a person may withhold information, or decide not to use information, which he would otherwise have to disclose or use for his customer's benefit. This means that if the authorised person maintains arrangements that conform with the rules (broadly speaking, if they maintain Chinese walls), then he will not be subject to certain obligations that would otherwise apply. This brings the clause into closer alignment with the power set out in the Financial Services Act, allowing the authority to make rules similar in effect to rules adopted under that Act.

Amendment No. 58 amplifies the sort of rules that can be made about disclosure and use of information. It should be stressed that subsection (2), as amended, is not designed to restrict the application of subsection (1). The purpose behind subsection (2), as amended, is to indicate how the rule-making power may be exercised with regard to an authorised person's fiduciary obligations towards his client.

With regard to the deletion of the current subsection (2), the Government consider that in view of the other changes made to this subsection there is no need to make specific provision for rules which,

"require A to restrict or prevent the passing of information within his business".

We believe that the power to make these rules is implicit in the broad power set out in subsection (1) of Clause 142 as amplified by subsection (2) as amended. I should stress again that the purpose of Clause 142 is to enable the authority to make rules that are similar in effect to rules currently adopted under the Financial Services Act. The Government believe that this clause effects this purpose.

Amendment No. 60 deletes subsections (3) and (4) so as to ensure that Chinese walls are effective in relation to dealings by an authorised person with different departments in his client's firm which might also be operating a Chinese wall. I commend the government amendments to the House.

Perhaps I may turn, by agreement, to Opposition Amendments Nos. 57 and 59. We believe that our amendments to Clause 142 already deal with the concerns raised in those amendments. Given that Clause 142(1) will allow the authority to make rules about the use and disclosure of information held by an authorised person, it is implicit in that power that the authority will be able to make rules which may take the form of "enabling" or "requiring" rules. I repeat that the purpose behind Clause 142 is to allow the authority to make rules that are similar in effect to rules currently adopted under the Financial Services Act. It should be noted that the relevant provision in that Act provides for both enabling and requiring rules. In the light of my remarks, I hope that noble Lords will see fit not to move their amendments.

So far as their Amendment No. 62 is concerned, on Report I stressed that the Government believe that the courts would be unlikely to hold that someone could successfully sue an authorised person for breach of fiduciary duties where the authorised person had complied with FSA rules made under Parliament's delegated legislative powers. We maintain that there is no need for a specific defence in Clause 142.

In addition, the new clause makes express provision for rules compliance, which will have certain consequences. The Bill states that in specified circumstances an authorised person may withhold information which he would otherwise have to disclose and may decide not to use information to benefit certain persons when he would otherwise have to use it to their benefit. These provisions are aimed specifically at displacing the fiduciary duties that would otherwise arise. If the Bill states that information can be withheld or not used in certain circumstances, then in those circumstances it can be withheld or not used. Nothing else is needed to achieve that result.

There is a very real danger than an express civil liability defence in Clause 142 will have implications in relation to the effect of compliance with authority rules in other areas of the Bill. In the light of the fact that we have achieved the same effect in a way that safely negotiates round those dangers, I urge noble Lords not to move this amendment. I beg to move Amendment No. 56.

On Question, amendment agreed to.

[Amendment No. 57 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 Amendment No. 58:

Page 72, line 24, leave out from ("have") to end of line 26 and insert ("to disclose to a person ("B") for or with whom A does business in the course of carrying on any regulated or other activity;

(b) specify circumstances in which A may withhold information which he would otherwise have to disclose to B;

(c) require A not to use for the benefit of B information A holds which A would otherwise have to use in that way;

(d) specify circumstances in which A may decide not to use for the benefit of B information A holds which A would otherwise have to use in that way.").

On Question, amendment agreed to.

[Amendment No. 59 not moved.]

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 60:

Page 72, line 27, leave out subsections (3) and (4).

On Question, amendment agreed to.

Clause 145 [Actions for damages]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment Nos. 61:

Page 74, line 21, leave out from beginning to ("subject") in line 23 and insert ("In prescribed cases, a contravention of a rule which would be actionable at the suit of a private person is actionable at the suit of a person who is not a private person,").

On Question, amendment agreed to.

[Amendment No. 62 not moved.]

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 63:

After Clause 153, insert the following new clause--

:TITLE3:("CHAPTER IIA")

:TITLE3:POLICIES RELATING TO TAKEOVER REGULATION

:TITLE3:MARKET ABUSE: BEHAVIOUR CONFORMING WITH CITY CODE

.--(1) Subject to subsections (2) and (3), the Authority is authorised to include in the code issued under section 115 a statement that behaviour of a person which is in conformity with the City Code does not amount to market abuse.

(2) Subsection (1) does not apply in respect of behaviour which satisfies the condition in subsection 114(2)(a).

(3) A statement made under subsection (1) may include such conditions and limitations as the Authority considers appropriate, including conditions and limitations specifying the behaviour and the persons covered by the statement.

(4) The Authority may at any time alter or replace any statement made under subsection (1).

(5) If a person behaves in a way which fulfils the requirements of any statement included pursuant to subsection (1) in the code issued under section 115, that behaviour of his is to be taken, for the purposes of this Act, as not amounting to market abuse.

(6) In this section--

"behaviour of a person which is in conformity with the City Code" means behaviour of a person which in the opinion of the Panel conforms with the responsibilities imposed on that person by the City Code;

"the opinion of the Panel" includes any revised opinion formed by the Panel as a result of any further consideration;

"City Code" means the City Code on Takeovers and Mergers issued by the Panel as applied by the Panel and as amended from time to time by the Panel;

"the Panel" means the Panel on Takeovers and Mergers.").

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, I beg to move.

On Question, Whether the said amendment (No. 63) shall be agreed to?

Their Lordships divided: Contents, 144; Not-Contents, 106.

Division number 3

See full list of votes (From The Public Whip)

Resolved in the affirmative, and amendment agreed to accordingly.

[Amendments Nos. 64 and 65 not moved.]

Clause 163 [Appointment of persons to carry out investigations in particular cases]:

Photo of Lord Bach Lord Bach Government Whip 7:12 pm, 18th May 2000

moved Amendment No. 66:

Page 85, line 23, leave out from ("under") to end of line 27 and insert ("prescribed regulations relating to money laundering;").

Photo of Lord Bach Lord Bach Government Whip

My Lords, this amendment is a technical change which should make subsection (4)(b) of Clause 163 a little clearer. At present this gives the FSA the power to investigate:

"an offence under any [other] enactment ... which the FSA has power to prosecute ... but it would not otherwise have power to investigate".

That refers in effect to money laundering offences under the regulations to be prescribed under Clause 395(1)(b). Those are the only offences which would be covered by Clause 163(4)(b). The amendment therefore replaces subsection (4)(b) with a direct reference to prescribed money laundering offences.

This technical change will also remove a potential doubt as to the fact that it enables the FSA to mount investigations into possible money laundering offences in Scotland. It is clearly important that the FSA should be able to conduct investigations into such suspected offences regardless of where in the UK they may have been perpetrated. I beg to move.

On Question, amendment agreed to.

Clause 169 [Admissibility of statements made to investigators]:

Photo of Lord Kingsland Lord Kingsland Conservative

moved Amendment No. 67:

Page 89, line 23, leave out ("a") and insert ("that").

On Question, amendment agreed to.

[Amendment No. 68 not moved.]

Clause 180 [Conditions attached to approval]:

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)

My Lords, I understand that this amendment was to be debated with opposition Amendment No. 23, which was not moved. However, since it is purely formal, I beg to move.

On Question, amendment agreed to.

Clause 197 [Actions for damages]:

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. 71:

After Clause 197, insert the following new clause--

:TITLE3:CONTRAVENTION OF REQUIREMENT IMPOSED UNDER THIS PART

(".--(1) Contravention of a requirement imposed by the Authority under this Part does not--

(a) make a person guilty of an offence;

(b) make any transaction void or unenforceable; or

(c) (subject to subsection (2)) give rise to any right of action for breach of statutory duty.

(2) In prescribed cases the contravention is actionable at the suit of a person who suffers loss as a result of the contravention, subject to the defences and other incidents applying to actions for breach of statutory duty.").

On Question, amendment agreed to.

Clause 208 [The compensation scheme]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 72:

Page 111, line 26, leave out ("qualified for authorisation under Schedule 3 at that time") and insert (", at that time--

(a) qualified for authorisation under Schedule 3, and

(b) fell within a prescribed category,").

Photo of Lord Bach Lord Bach Government Whip

My Lords, perhaps I may deal first with the government amendments in this group; namely, Amendments Nos. 72, 73 and 80. These amendments allow a more precise definition of the extent to which EEA firms can, like UK firms, be required to join the compensation scheme, The scheme is designed to provide a safety-net of protection for consumers where authorised firms carrying on regulated activities find themselves unable to meet their liabilities and it would therefore be wrong to allow EEA firms authorised by virtue of Schedule 3 to opt out of providing this protection.

The issue was raised by an opposition spokesman in another place, the honourable Howard Flight, who said that the compensation scheme should apply to all operators in the marketplace, with compulsory membership.

There are questions of EC law here, and the Treasury has had to consider carefully how best to ensure that the requirements of Part XV of the Bill meet our obligations under EC directives. The Investor Compensation Directive and the Deposit Guarantee Directive provide that EEA firms that participate in deposit and investor compensation schemes in their home state cannot be required to join the UK scheme.

Clause 208(10) therefore provides that firms authorised by virtue of their passport rights under Schedule 3 need not participate under the scheme unless they elect to do so under Clause 209(5). They may elect to participate where the UK scheme offers higher levels of compensation than their home state scheme--taking out "top-up cover" under the new scheme will enable them to compete on a level playing field with UK firms.

As things stand, however, those provisions go wider than intended because they apply to all passported firms, whether or not they are covered by directive requirements. That could lead to gaps in the protection provided by the compensation scheme, particularly in the area of insurance, where there is no requirement on other member states to put in place their own compensation arrangements. I can tell noble Lords that, in fact, there are some member states that have no such protection for insurance policyholders. That is why the existing arrangements under the Policyholder Protection Acts require incoming firms to participate in the UK scheme. These amendments will allow such protection to continue under the new compensation scheme.

The amendments to Clauses 208 and 209 will allow the Treasury to prescribe which passported firms are given a choice whether to join the scheme. The effect of the changes proposed will be to enable the Treasury to require all passported firms not covered by EC directives to join the scheme in the same way that UK firms will be required to join. The amendments allow the Treasury to deal with this matter in regulations because the requirements imposed by EC directives may change over time. It is therefore necessary to ensure that the Bill allows sufficient flexibility for detailed changes to be made in order to ensure that we continue to fulfil our obligation under EC law.

The amendment to Clause 219 is consequential on these changes to Clauses 208 and 209. Clause 219 enables the scheme manager to inspect certain documents held by the Official Receiver. The amendment to Clause 219 enables the Treasury to prescribe the extent to which that provision applies to EEA firms.

As part of this group of amendments, the noble Lord, Lord Hunt of Wirral, has tabled an amendment. Perhaps he will forgive me if I speak to it at this stage.

When we considered Part XV on Report, the noble Lord raised a technical concern about what is now Clause 210(1) in connection with reinsurance. My noble friend asked his officials to pursue this point with the Association of British Insurers and the FSA in the run-up to today's deliberations. We have also had a constructive exchange with the noble Lord opposite on this matter.

The upshot of those discussions is that the Treasury now agrees that there could be circumstances in which the scheme might wish to pay compensation to insurance company policyholders. That would bring Clause 210 into play. It is therefore desirable to amend the Bill to make clear that the assignment of a policyholder's rights to the scheme manager is not intended to cast doubt on the ability of insurance companies to claim under relevant reinsurance contracts. The noble Lord's amendment would have that effect. For the second time today, already, the Government are happy to accept his amendment.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I thank the Minister for his generous words and for acknowledging the importance of the point I was able to make on behalf of the Association of British Insurers. I am grateful to him for having removed the necessity for my making any speech at all by indicating in advance that he is willing to accept my amendment, which I shall move at the appropriate moment.

On Question, amendment agreed to.

Clause 209 [General]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 73:

Page 112, line 20, after ("3") insert (", and

(b) falls within a prescribed category,").

On Question, amendment agreed to.

Clause 210 [Rights of the scheme in relevant person's insolvency.]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendment No. 74:

Page 112, leave out lines 35 to 37 and insert--

("( ) as to the effect of a payment of compensation under the scheme in relation to rights or obligations arising out of the claim against a relevant person in respect of which the payment was made;").

On Question, amendment agreed to.

Clause 211 [Continuity of long-term insurance policies]:

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. 75 and 76:

Page 113, line 34, leave out ("carry on long-term insurance business") and insert ("have permission to effect or carry out contracts of long-term insurance").

Page 113, line 39, leave out from first ("of") to ("to") in line 40 and insert ("a relevant long-term insurer's business so far as it consists of the carrying out of contracts of long-term insurance, or of any part of that business,").

On Question, amendments agreed to.

Clause 212 [Insurers in financial difficulties]:

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. 77 to 79:

Page 114, line 18, leave out ("carry on insurance business") and insert ("have permission to effect or carry out contracts of insurance").

Page 114, line 22, leave out from first ("of") to ("to") in line 23 and insert ("a relevant insurer's business so far as it consists of the carrying out of contracts of insurance, or of any part of that business,").

Page 114, line 25, leave out ("insurance business") and insert ("to effect or carry out contracts of insurance").

On Question, amendments agreed to.

Clause 219 [Scheme manager's power to inspect documents held by Official Receiver etc.]:

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. 80:

Page 118, line 9, leave out ("qualified for authorisation under Schedule 3 at that time") and insert (", at that time--

(a) qualified for authorisation under Schedule 3, and

(b) fell within a prescribed category,").

On Question, amendment agreed to.

Clause 224 [Awards]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 81:

Page 121, line 23, leave out from ("for") to ("of") in line 26 and insert ("--

(a) financial loss; or

(b) any other loss, or any damage,").

Photo of Lord Bach Lord Bach Government Whip

My Lords, this amendment deals with Clause 224(3). Several noble and learned Lords around the House voiced concerns during Report stage that this provision might be open to misinterpretation. We undertook to consider carefully whether anything could be done by way of clarification.

The purpose of Clause 224(3) has always been simply to refer to types of loss or damage. It was never our intention that the ombudsman should be required to try to construct hypothetical contracts, nor to award compensation according to whether or not there had been a breach of an actual contract. Indeed, such an approach would cut straight across the principle set out in Clause 223 that the ombudsman should settle cases on the basis of what is fair and reasonable in all circumstances. We have always wanted that to be clear.

The amendment is intended to put matters beyond doubt. It recasts subsection (3) so that the reference to awards of a kind a court could make for breach of contract is replaced by a more straightforward distinction between financial loss and other loss or damage of a specified kind.

The amendment is similar to the one we considered on Report. The difference is that it preserves the requirement that awards for non-financial loss or damage, covered by paragraph (b), must be specified in rules made by the FSA. That is to ensure clarity and certainty for those affected by the scheme and is a long-standing feature of this provision which we believe is widely accepted.

One final point which perhaps I may mention relates to future losses. The noble Lord, Lord Hunt of Wirral, mentioned on Report the question of whether the expression "financial loss" in the amendment to which he spoke could be taken to refer to future losses. Financial loss in this context is intended to mean loss which is susceptible of measurement in money or, to put it another way, capable of calculation in economic terms. It is intended to include future losses of earnings or profits. Those losses which, by their nature, cannot be assigned a monetary value by other than artificial means--for example, mental distress, pain and suffering--fall under paragraph (b).

I congratulate the noble Lord, on the day of this first test match, on a hat trick. I beg to move.

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, I rise to point out that my ability to succeed in a hat trick is only made possible by the fact that I was the privileged Lord to speak on behalf of the four musketeers--namely, the noble Lords, Borrie, Donaldson, Phillips and myself--in putting forward these points. I did so with strong support. I did so, also, with the intention that we should preserve the best of the existing schemes, namely the simplicity, informality and speed with which these matters are dealt with, while at the same time not erring towards situations which might need interpretation by the courts.

Perhaps I may ask the Minister: presumably the power to make money awards is not limited by the powers of the courts--I believe that was very much what he was explaining to us--and that future loss includes uncrystallised future losses? I believe he has made that clear. However, obviously I shall reflect on the points he has made. I very much welcome the amendment.

On Question, amendment agreed to.

Clause 233 [Restrictions on promotion]:

[Amendment No. 82 not moved.]

Clause 293 [Directions and revocation: procedure]:

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)

My Lords, in moving Amendment No. 83, I shall speak also to Amendment No. 84. I can deal with Amendment No. 83 quickly. It is simply a drafting amendment removing some unnecessary words. Amendment No. 84 is more important.

On the final day of Report stage, I referred to the proposal by the noble and learned Lord, Lord Donaldson, that the Bill should be amended to ensure that the tribunal's jurisdiction could, if necessary, be extended to cover disciplinary proceedings of recognised bodies in the area of market abuse. I said that we intended to table an amendment at Third Reading to deal with this.

That is what the present new clause does. The noble and learned Lord, Lord Donaldson, has kindly taken time to write to me and, to use the words of his letter,

"I concur and have nothing to add".

If a person who is a member of a recognised investment exchange or recognised clearing house engages in behaviour which amounts to market abuse under Clause 114, it is likely that this will also constitute a breach of the rules of the recognised body concerned. Rather than taking market abuse proceedings, the FSA might leave this to be dealt with as an internal disciplinary matter.

In many cases, the recognised bodies might be best placed to take such action, as the bodies closest to the markets. That is right, but when it is the case, the person disciplined would not have the right to refer the matter to an independent tribunal as he would if it had been dealt with by the FSA under Clause 114. The problem with this is that it is conceivable that inconsistency might develop over time between the way such cases are dealt with by recognised bodies as compared with the tribunal. It might; I am not saying that it will but there is a possibility. Subsection (2) allows the Treasury to make an order enabling disciplinary cases to be referred to the tribunal, should that possibility arise.

Subsection (2)(b) deals with a different possibility. We are confident that all the provisions of the Bill are consistent with the provisions of the Human Rights Act 1998 and the European Convention on Human Rights. But it is possible that at some point in the future, developments in the courts' jurisprudence on these matters might require us to provide for an appeal from the internal disciplinary procedures of recognised bodies in market abuse cases to a body such as the tribunal established by the Bill. Subsection (2)(b) would allow the Treasury to make an order allowing for such issues to be referred to the tribunal.

We are taking a power which will enable the Treasury to provide for exchange and clearing house disciplinary cases involving market abuse to be considered by the tribunal in certain circumstances. We do not have any plans to use this power, but if we did we would consult widely, including in particular with the recognised exchanges and clearing houses themselves. 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) 7:30 pm, 18th May 2000

moved Amendment No. 84:

After Clause 294, insert the following new clause--

:TITLE3:EXTENSION OF FUNCTIONS OF TRIBUNAL

(".--(1) If the Treasury are satisfied that the condition mentioned in subsection (2) is satisfied, they may by order confer functions on the Tribunal with respect to disciplinary proceedings--

(a) of one or more investment exchanges in relation to which a recognition order under section 285 is in force or of such investment exchanges generally, or

(b) of one or more clearing houses in relation to which a recognition order under that section is in force or of such clearing houses generally.

(2) The condition is that it is desirable to exercise the power conferred under subsection (1) with a view to ensuring that--

(a) decisions taken in disciplinary proceedings with respect to which functions are to be conferred on the Tribunal are consistent with--

(i) decisions of the Tribunal in cases arising under Part VIII; and

(ii) decisions taken in other disciplinary proceedings with respect to which the Tribunal has functions as a result of an order under this section; or

(b) the disciplinary proceedings are in accordance with the Convention rights.

(3) An order under this section may modify or exclude any provision made by or under this Act with respect to proceedings before the Tribunal.

(4) "Disciplinary proceedings" means proceedings under the rules of an investment exchange or clearing house in relation to market abuse by persons subject to the rules.

(5) "The Convention rights" has the meaning given in section 1 of the Human Rights Act 1998.").

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. 85:

After Clause 316, insert the following new clause--

("Transfers of business done at Lloyds

:TITLE3:TRANSFER SCHEMES

. The Treasury may by order provide for the application of any provision of Part VII (with or without modification) in relation to schemes for the transfer of the whole or any part of the business carried on by one or more members of the Society or former underwriting members.").

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)

My Lords, this amendment should have been debated with Amendment No. 49, which was not moved. But since it is entirely uncontroversial, I beg to move.

On Question, amendment agreed to.

Clause 321 [Directions in relation to the general prohibition]:

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

moved Amendments Nos. 86 to 89:

Page 175, line 15, after ("rights") insert ("or interests").

Page 175, line 16, leave out ("or which may be adversely affected by,").

Page 175, line 16, at end insert ("any").

Page 175, line 17, at end insert ("; or

(c) persons who have rights or interests which may be adversely affected by the use of any such services by persons acting on their behalf or in a fiduciary capacity in relation to them.").

Photo of Lord Hunt of Wirral Lord Hunt of Wirral Conservative

My Lords, with the leave of the House I shall move Amendments Nos. 86 to 89 en bloc. I beg to move.

On Question, amendments agreed to.

Clause 327 [The Friendly Societies Commission]:

Photo of Lord Bach Lord Bach Government Whip

moved Amendment No. 90:

Page 178, line 30, after ("in") insert ("or determined in accordance with").

Photo of Lord Bach Lord Bach Government Whip

My Lords, in moving Amendment No. 90, I shall speak also to Amendments Nos. 91 to 100, 145 to 148, 151 to 156, 158 and 193 to 209. This is another quite large group of amendments and covers a number of different topics including mutual societies, repeals, consequentials, transitional arrangements and territorial extent of the Bill. However, they are connected to one another in that they all deal with amendments that have to be made to existing legislation as a result of the reforms introduced by the Bill.

Dealing with mutuals first, some of the amendments before us in this group are the result of a review of the proposals for the future arrangements for the registration and regulation of mutual societies. This is an area where the Treasury has been making good progress in preparing for the next stages and indeed has already been consulting industry representatives on the changes and repeals it proposes to make using the powers under the Bill.

The amendments to the clauses in Part XXI of the Bill--Amendments Nos. 90 to 100--reflect the potential shortcomings of the powers which have been identified during the process of preparing early drafts of the relevant orders. To give a specific example, the current bodies--the Friendly Societies Commission, the Building Societies Commission and the Registrar of Friendly Societies--are under statutory obligations to produce annual reports on the performance of their functions under the relevant Acts. We believe that after their respective functions have been transferred, in most cases to the authority, that those bodies should produce a final report before the order bringing about their demise comes into force. As the current powers are expressed, they appear to require a specific date to be named in the order. But it may well be that we would wish to define the dissolution date by reference to the day on which the relevant report is deposited with the Treasury.

The majority of the amendments to the schedules contained in this group correct and supplement certain modifications and repeals that we proposed to make to the relevant legislation. As they stand, the schedules reflect the early thinking on the changes that would be needed and, as I said, the Treasury has been developing more complete proposals in discussion with the industry.

In any case, the Bill does not tell the whole story. In addition to making orders under Part XXI for the transfer of functions of the Building Societies Commission, the Friendly Societies Commission and the Registrar of Friendly Societies, and in addition to repeals and amendments which are consequential on those orders, the Treasury will also use the powers under Clause 418 to make a number of further repeals and modifications which are consequential on the Bill. The Government believe that this approach will make the changes more coherent and intelligible to those affected by the reforms. So the schedules focus on amendments that are not simply consequential on the Bill.

We considered an example of such a change at Report stage when the Government brought forward amendments that will give incorporated friendly societies greater commercial freedoms to form and own subsidiaries. In addition, a number of the new amendments now being made to Schedule 18, which are echoed in Schedule 22, will remove certain restrictions on credit unions under the Credit Unions Act 1979. Those changes are possible because of the regulatory powers that will be available to the authority when credit unions become authorised persons under the Bill. To digress briefly, this deregulation for credit unions is another area where the Treasury is taking positive, practical steps in support of the wider government policy of seeking to tackle financial exclusion.

Moving to repeals and the other amendments, Amendment No. 145 inserts a new clause after Clause 408. I hope this will satisfy the noble Lord, Lord Elton, who asked about the Insurance Broker Registration Act 1977 on the last day of Committee, and the noble Lord, Lord Hunt of Wirral, who asked about the Industrial Assurance Acts on the last day of Report. In response to their amendments I gave a commitment that the Government would bring forward appropriate amendments to the Bill that would deliver the necessary repeals. This clause, with the relevant additions to Schedule 22 by Amendments Nos. 202 and 203, are in line with the Government's commitment.

In relation to the Channel Islands and the Isle of Man, the new clause after Clause 422 is connected. The Industrial Assurance Acts extend to the Isle of Man and the Channel Islands. We will need to consider with the relevant authorities what repeals and savings will need to be made to the legislation as it affects the islands. It is also the case that certain of the legislation relating to mutuals also extends to those islands. The powers under this clause, exercisable by Order in Council, will enable the Government to ensure that any relevant transfers of functions from the Registry of Friendly Societies have effect in the islands. The powers will also permit any more substantive amendments that are to be made to have effect in the islands, to the extent that that is appropriate.

In relation to consequential powers, we are also seeking a number of amendments to Clause 418. That clause confers powers on the Treasury by order to make such incidental, consequential, transitional or supplemental provision as they consider necessary or expedient, though of course only for the purposes set out in subsection (1).

First, we propose by Amendments Nos. 151 and 152 that the power should also be exercisable by other departments. I will not return at great length to a debate of insurance terminology--we have dealt with that already today. But the fact is that "insurance company" is a term that features in other legislation such as the Companies Act. Conferring the power on Ministers of the Crown will ensure that the Secretary of State could call upon the power in Clause 418 to introduce an appropriate definition of insurance company to the Companies Acts, or perhaps replace the reference to insurance company with something more appropriate. This amendment leads to a consequential change in Clause 420 to ensure that the exercise of this power continues to be by way of statutory instrument.

Amendment No. 153 concerns a technical point. The clause currently only works for,

"provisions of the Bill, or giving full effect to it".

It might be that the consequential amendments may be needed in the light of provisions made under the Bill; that is to say, in secondary legislation.

Amendments Nos. 154 and 155 simply clarify that the power in Clause 418 includes the power to repeal legislation (or revoke it in the case of a Northern Ireland Order) and to provide for the dissolution of relevant statutory bodies. The main candidates for dissolution are in fact already expressly dealt with in the Bill in Part XXI and the new clause after Clause 408, to which I have just spoken. However, until we have fully uncovered every provision we cannot be certain that the list is comprehensive. Of greater concern would be if the definition of regulated activities were extended in the future, with the result that the functions of other bodies were effectively subsumed into the FSA.

Finally, there are a few amendments to Schedules 20 and 22, to which I have not yet spoken. These remove certain amendments we were proposing to make to other legislation, to substitute definitions that cross-refer to banking, insurance and financial services legislation. Unfortunately, they did not work well. For example, substituting "bank" with,

"authorised person with permission to accept the deposits", for the purposes of the Income and Corporation Taxes Act 1988 had the effect of abolishing the special tax treatment of building societies and credit unions. That was never our intention, but I make the point because they are perfect examples of why we need to extend the powers under Clause 418 to be exercisable by Ministers of the Crown.

To conclude, the amendments in this group are for the most part a mixture of minor drafting points and points of technical detail, but some also provide for a degree of deregulation. They improve the Bill and the regulatory arrangements for societies. I hope that your Lordships will support them. I beg to move Amendment No. 90.

On Question, amendment agreed to.

Clause 328 [The Registry of Friendly Societies]:

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. 91 to 94:

Page 178, line 38, after ("Societies") insert (", or of an assistant registrar of friendly societies for the central registration area,").

Page 178, line 40, leave out ("functions of the Registrar") and insert ("of their functions").

Page 179, line 11, at end insert--

("( ) the office of assistant registrar of friendly societies for the central registration area,").

Page 179, line 14, after ("in") insert (", or determined in accordance with,").

On Question, amendments agreed to.

Clause 329 [The Building Societies 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 Amendment No. 95:

Page 179, line 24, after ("in") insert (", or determined in accordance with,").

On Question, amendment agreed to.

Clause 330 [The Building Societies Investor Protection Board]:

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. 96:

Page 179, line 28, after ("in") insert (", or determined in accordance with,").

On Question, amendment agreed to.

Clause 332 [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. 97 to 100:

Page 180, line 9, at end insert--

("( ) for the transfer of any functions of a member of the body, or servant or agent of the body or person, whose functions are transferred by the order;").

Page 180, line 29, at end insert--

("( ) for the carrying on and completion by or under the authority of such person as may be specified in the order of any proceedings, investigations or other matters commenced, before the order takes effect, by or under the authority of the person whose office, or the body which, ceases to exist as a result of the order;").

Page 180, line 32, leave out ("or the substitution of the Treasury") and insert (", the Treasury or such other body as may be specified in the order").

Page 180, line 34, at end insert--

("( ) On or after the making of an order under any of sections 327 to 331 ("the original order"), the Treasury may by order make any incidental, supplemental, consequential or transitional provision which they had power to include in the original order.").

On Question, amendments agreed to.

Clause 340 [The record of authorised persons etc.]:

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. 101:

Page 185, line 29, after ("trust"") insert ("scheme"").

On Question, amendment agreed to.

Clause 348 [Interpretation of this Part]:

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. 102:

Page 191, line 1, at end insert--

("( ) In this Part "insurer" has such meaning as may be specified in an order made by the Treasury.").

On Question, amendment agreed to.

Clause 353 [Insurance companies]:

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. 103 and 104:

Page 192, line 31, leave out ("insurance companies") and insert ("insurers").

Page 192, line 35, leave out ("insurance companies") and insert ("insurers").

On Question, amendments agreed to.

Clause 358 [Authority's powers to participate in proceedings]:

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. 105:

Page 194, line 24, leave out from ("an") to end of line 25 and insert ("insurer effecting or carrying out contracts of long-term insurance").

On Question, amendment agreed to.

Clause 359 [Insurance companies carrying on long-term business]:

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. 106 to 111:

Page 195, line 3, leave out from ("An") to ("may") in line 4 and insert ("insurer effecting or carrying out contracts of long-term insurance").

Page 195, line 6, leave out ("a company") and insert ("an insurer").

Page 195, line 8, leave out first ("company") and insert ("insurer").

Page 195, line 8, leave out second ("company") and insert ("insurer").

Page 195, line 23, leave out ("company") and insert ("insurer").

Page 195, line 28, leave out from ("an") to end of line and insert ("insurer effecting or carrying out contracts of long-term insurance").

On Question, amendments agreed to.

Clause 362 [Insurance companies: service of petition etc. on Authority]:

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. 112 and 113:

Page 196, line 21, leave out from first ("an") to ("the") and insert ("authorised person with permission to effect or carry out contracts of insurance,").

Page 196, line 25, leave out from first ("an") to first ("the") in line 26 and insert ("authorised person with permission to effect or carry out contracts of insurance,").

On Question, amendments agreed to.

Clause 369 [Continuation of long-term business while in liquidation]:

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. 114 to 126:

Page 199, line 40, leave out from beginning to end of line 1 on page 200 and insert ("insurer which effects or carries out contracts of long-term insurance").

Page 200, line 3, leave out from beginning to ("with") and insert ("insurer's business so far as it consists of carrying out the insurer's contracts of long-term insurance").

Page 200, line 4, leave out from ("to") to end of line 5 and insert ("a person who may lawfully carry out those contracts").

Page 200, line 11, leave out from first ("the") to ("require") and insert ("insurer attributable to contracts of long-term insurance effected by it").

Page 200, line 12, leave out ("of the business").

Page 200, line 13, leave out ("of the business").

Page 200, line 22, leave out from ("contracts") to end of line 23 and insert ("of long-term insurance effected by the insurer").

Page 200, line 27, leave out from first ("the") to end of line and insert ("insurer's business so far as it consists of carrying out its contracts of long-term insurance").

Page 200, line 29, after ("that") insert ("part of the insurer's").

Page 200, line 30, leave out from ("contracts") to second ("that") in line 31 and insert ("of long-term insurance effected by the insurer").

Page 200, line 31, leave out ("its").

Page 200, line 31, at end insert ("of that part of the insurer's business").

Page 200, line 36, leave out ("company") and insert ("insurer").

On Question, amendments agreed to.

Clause 370 [Reducing the value of contracts instead of winding up]:

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. 127 and 128:

Page 200, line 40, leave out ("insurance company") and insert ("insurer").

Page 200, line 43, leave out ("company's") and insert ("insurer's").

On Question, amendments agreed to.

Clause 371 [Treatment of assets on winding up]:

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. 129 to 132:

Page 201, line 4, leave out ("insurance company") and insert ("insurer").

Page 201, line 6, leave out ("type of business of the company") and insert ("part of the insurer's business").

Page 201, line 7, after ("that") insert ("part of the insurer's").

Page 201, line 9, leave out ("type of business of the company") and insert ("part of the insurer's business").

On Question, amendments agreed to.

Clause 372 [Winding-up rules]:

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. 133 to 135:

Page 201, line 12, leave out ("insurance company") and insert ("insurer").

Page 201, line 16, leave out ("insurance companies) and insert ("insurers").

Page 201, line 23, leave out ("company") and insert ("insurer").

On Question, amendments agreed to.

Clause 383 [Final notice]:

[Amendment No. 136 not moved.]

Clause 385 [Application of sections 386 and 387]:

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. 137 to 139:

Page 210, line 37, after (" 86(4)(b),") insert ("(Public censure of sponsor)(2),").

Page 210, line 41, after (" 86(6)(b),") insert ("(Public censure of sponsor)(3),").

Page 210, line 41, leave out (" 195(5)(a),").

On Question, amendments agreed to.

Clause 390 [Misleading statements and practices]:

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. 140:

Page 215, line 19, after ("statement") insert (", promise or forecast").

On Question, amendment agreed to.

Clause 397 [Schemes for reviewing past business]:

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. 141:

Page 219, line 34, at end insert--

("( ) The Treasury may prescribe circumstances in which loss suffered by a person ("A") acting in a fiduciary or other prescribed capacity is to be treated, for the purposes of an authorised scheme, as suffered by a private person in relation to whom A was acting in that capacity.").

Photo of Lord Elton Lord Elton Conservative

My Lords, Amendment No. 141 has been moved. Amendment No. 142 appears on the Marshalled List as an amendment to Amendment No. 141. Does the noble Lord wish to move Amendment No. 142?

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, not moved.

[Amendment No. 142, as an amendment to Amendment No. 141, not moved.]

Photo of Lord Elton Lord Elton Conservative

My Lords, the question is that Amendment No. 141 shall be agreed to.

Photo of Lord Donaldson of Lymington Lord Donaldson of Lymington Crossbench

My Lords, I wished to say "no" or "not content", but I got lost! Is it open to me to say a word on Amendment No. 141? Then may I speak on that? If it is a fact that Amendment No. 142 has been lost "in the wash", that is a pity because Amendment No. 141 is open to misconstruction. The problem arises out of the word "treated". "Treated" can be regarded as "deemed" and, if so regarded, then it means, for instance, that a trustee for a limited liability company, or somebody who is not considered to be a private person--which incidentally has yet to be defined by the Treasury--might be treated under this amendment as a loss being suffered by a private person. It is perhaps a tiresome construction and a slightly unnatural one but I would have agreed, had I been able to, with Amendment No. 142, which would have got rid of any latent ambiguity. Indeed, had it been moved and gone through on the nod, a great deal of time would have been saved.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, if I may respond to what the noble and learned Lord, Lord Donaldson, has just said, I think I spoke to Amendment No. 142 earlier, sharing his concerns about it. The noble Lord the Minister responded in his usual fashion--and there it 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)

My Lords, "my usual fashion" was obviously entirely convincing to the noble Lord, Lord Kingsland, but not quite so convincing to the noble and learned Lord, Lord Donaldson. Amendment No. 142 has gone, and I do not think I can do very much about Amendment No. 141 except to undertake to write to both noble Lords about the issue and see whether I can put their minds at rest.

On Question, amendment agreed to.

Clause 402 [Gibraltar]:

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. 143:

Page 222, line 22, leave out ("Authority") and insert ("Treasury").

On Question, amendment agreed to.

Clause 407 [Service of notices]:

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. 144:

Page 225, line 17, leave out ("or other document to be given") and insert (", direction or document of any kind to be given or authorises the imposition of a requirement").

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. 145:

After Clause 408, insert the following new clause--

:TITLE3:("Removal of certain unnecessary provisions

:TITLE3:PROVISIONS RELATING TO INDUSTRIAL ASSURANCE AND CERTAIN OTHER ENACTMENTS

.--(1) The following enactments are to cease to have effect--

(a) the Industrial Assurance Act 1923;

(b) the Industrial Assurance and Friendly Societies Act 1948;

(c) the Insurance Brokers (Registration) Act 1977.

(2) The Industrial Assurance (Northern Ireland) Order 1979 is revoked.

(3) The following bodies are to cease to exist--

(a) the Insurance Brokers Registration Council;

(b) the Policyholders Protection Board;

(c) the Deposit Protection Board;

(d) the Board of Banking Supervision.

(4) If the Treasury consider that, as a consequence of any provision of this section, it is appropriate to do so, they may by order make any provision of a kind that they could make under this Act (and in particular any provision of a kind mentioned in section 332) with respect to anything done by or under any provision of Part XXI.

(5) Subsection (4) is not to be read as affecting in any way any other power conferred on the Treasury by this Act.").

On Question, amendment agreed to.

Clause 411 [Carrying on regulated activities by way of business]:

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. 146:

Page 229, line 22, leave out (" 420(2)") and insert (" 420(3)").

On Question, amendment agreed to.

Clause 412 [Parent and subsidiary undertaking]:

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. 149:

After Clause 415, insert the following new clause--

:TITLE3:INSURANCE

(" .--(1) In this Act, references to--

(a) contracts of insurance,

(b) reinsurance,

(c) contracts of long-term insurance,

(d) contracts of general insurance, are to read with section 20 and Schedule 2.

(2) In this Act "policy" and "policyholder", in relation to a contract of insurance, have such meaning as the Treasury may by order specify.

(3) The law applicable to a contract of insurance, the effecting of which constitutes the carrying on of a regulated activity, is to be determined, if it is of a prescribed description, in accordance with regulations made by the Treasury.").

On Question, amendment agreed to.

Clause 416 [Expressions relating to insurance]:

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. 151 to 155:

Page 232, line 31, leave out ("The Treasury") and insert ("A Minister of the Crown").

Page 232, line 32, leave out ("they consider") and insert ("he considers").

Page 232, line 34, leave out ("of its provisions or for giving full effect to it") and insert ("provision made by or under this Act or for giving full effect to this Act or any such provision").

Page 232, line 40, at end insert--

("( ) for applying (with or without modifications) or amending, repealing or revoking any provision of or made under an Act passed before this Act or in the same Session;

( ) dissolving any body corporate established by any Act passed, or instrument made, before the passing of this Act;").

Page 232, line 42, after ("repeal") insert ("or revocation").

On Question, amendments agreed to.

Clause 420 [Regulations and orders]:

Photo of Lord Newby Lord Newby Liberal Democrat

moved Amendment No. 157:

After Clause 420, insert the following new clause--

:TITLE3:PUBLICATION OF DRAFT REGULATIONS AND ORDERS

(" .--(1) The Treasury must publish a draft of any regulations or orders proposed to be made under this Act in the way appearing to them to be best calculated to bring it to the attention of the persons likely to be affected by the proposed regulations or order.

(2) The draft must be accompanied by--

(a) an explanation of the purpose of the proposed regulations or order; and

(b) notice that representations about the proposals may be made to the Treasury within a specified time.

(3) Before making the proposed regulations or order, the Treasury must publish an account in general terms of--

(a) the representations made to them in accordance with subsection (2)(b); and

(b) their response to them.

(4) If the regulations or order made by the Treasury differ from the draft published under subsection (1) in a way which is, in the opinion of the Treasury, significant, the Treasury must (in addition to complying with subsection (3)) publish details of the differences.

(5) Subsections (1) to (4) do not apply if the Treasury consider that the delay involved in complying with them would be prejudicial to the interests of consumers.").

Photo of Lord Newby Lord Newby Liberal Democrat

My Lords, it is with some relief that I stand to move this amendment. Barring some appalling disaster, this will be the last time I shall speak on this Bill, unless something comes back from the other place. This amendment, like the first amendments that were moved what seems like many moons ago, relates to the openness and transparency with which the FSA should do its business. This is a very straightforward amendment and it requires the Treasury, when publishing a draft of regulations or orders, to make sure that the people who are likely to be affected by them have drawn to their attention the fact that the draft is accompanied by an explanation. Having received any representations, the Treasury should publish an account in general terms of the representations that have been made to them, and giving their responses.

In our view, this is completely in line with the government amendment which was agreed earlier today in respect of the consumer and the practitioner panels. In terms of publishing reasons it seems to us to be good practice, and we hope very much that the Government will feel able to accept the proposals put forward. I beg to move.

Photo of Lord Kingsland Lord Kingsland Conservative

My Lords, this is probably the fourth or fifth time this particular amendment has been tabled. We have persisted with it because we think it is important and we have not been satisfied with the assurances given in your Lordships' House concerning the Treasury's policy on consultation.

The assurances have been unsatisfactory because they have been couched in terms that the "Treasury would normally consult", thus giving no comfort that the Treasury will adopt a disciplined approach to consultation. Secondly, and more importantly, what is lacking from the Treasury's consultation is any procedure for providing feedback on the comments and representations made. A common complaint in relation to the Treasury's consultations on the Bill is that the Treasury has not responded to representations. This has resulted in considerable frustration on the part of those who go to a great deal of trouble to make what are usually--dare I say it?--helpful and constructive comments.

If the Treasury regards the consultation exercise as useful to it then I would say, with great respect, that it should encourage it. This amendment does no more than set out what the Treasury should be doing in any event. One change we have made to the drafting of the amendment is to refer in subsection (1) to "persons likely to be affected" rather than, as previously, to "the public". In our view, this is helpful in cutting down the scope of the consultation exercise.

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)

My Lords, we have indeed debated this matter on more than one previous occasion and I am sorry that the assurances we gave at the time do not appear to be satisfactory. Cabinet Office guidelines require departments to consult "where appropriate"--I know the noble Lord, Lord Kingsland, does not like that phrase, but I will explain why it is necessary--and to produce regulatory impact assessments before making any new legislation that imposes burdens. The Treasury--and this I can undertake--will always make sure that it complies with Cabinet Office guidelines. However, it does not follow that it would be appropriate for the Bill to impose rigid consultation requirements on the Treasury. The Government are directly accountable to both Houses of Parliament; Parliament scrutinises and questions what the Government do. It is certainly open to Parliament to consider whether there has been appropriate consultation on secondary legislation made under this or any other Bill.

There is nothing unusual in the procedures for making secondary legislation under the Bill. It is necessary for the Treasury to make a number of orders and sets of regulations under the Bill, but that is simply a reflection of the complexity of financial regulation and of the need for such regulation to be able to adapt effectively to developments in financial markets and services. The Delegated Powers and Deregulation Committee has considered the Bill carefully, and we have accepted every one of the recommendations that it has made since the Bill came to this House.

The logic of the amendment seems to be that all departments should be under a duty to consult on all secondary legislation all the time. That is unnecessary; indeed, it would intrude on the right of Parliament to decide for itself about the legislation that it wishes to approve. Government departments should consult where it is appropriate to do so.

The purpose of consultation in this context is to inform and improve the quality of the legislation that Parliament is asked to consider. Where consultation could achieve that aim, we would consult. However, perhaps I may give noble Lords an example of where it would not be appropriate. Clause 423 requires the Treasury to make commencement orders to bring the separate provisions of the Bill, once enacted, into force. These are highly technical orders, which simply give effect to the legislation that Parliament has enacted. The subject matter is so entirely a matter of pure technical detail that they are not even subject to parliamentary procedure. It would be odd if we were to subject these commencement orders to statutory consultation procedures; but that is what the amendment would do.

I hope that most noble Lords will be able to acknowledge that, in practice, the Treasury has a good record of consultation. Indeed, I read from a list--which I could not bear to finish because it was so long--setting out the advisory bodies that the FSA has established and the way in which it carries out its consultation. This Bill has been the subject of an unprecedented level of consultation. We are still in the process of consultation on literally dozens of items of secondary legislation arising out of this Bill. Of course, we value the dialogue and the views of people who respond to our consultation. We intend to continue with that approach.

Perhaps I may reassure noble Lords that we shall continue to take a consultative approach. We shall bring draft regulations and orders to the attention of those individuals or bodies with a material interest in them. We shall also fully consider the comments that we receive. Throughout the time that the Bill has been developing, the Treasury has published feedback statements summarising responses to formal consultation exercises and providing feedback on the points raised. We shall certainly continue to do so.

As to publication, we often give feedback either directly to the persons concerned or in subsequent press notices, or other publications; or, indeed, in many cases, on the Treasury's website, which is a very effective form of publication of this kind. The Treasury has issued a progress report in response to consultation on the Bill. I believe our record to be so good on these matters that further assurances beyond those that I have given would really be unnecessary or "otiose", if I may use the word for the last time.

Photo of Lord Newby Lord Newby Liberal Democrat

My Lords, I shall resist talking about the word "otiose" because I am not sure whether we should allow the noble Lord to use it for the last time in these circumstances. Indeed, I do not believe that these requirements would be otiose.

The Treasury is moving into the modern world in a number of respects. First, it uses the web much more successfully and extensively than it ever did; and, secondly, it consults more than it ever did previously. I am disappointed that the Minister has not felt able to accept this amendment because it seems to us to be a sensible one. However, in view of the increased assurances that we have received at each stage of the Bill's proceedings, I must express my thanks to the Minister for having moved as far as he has been able to. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 422 [Northern Ireland]:

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. 158:

Page 235, line 10, at end insert--

("(2) Except where Her Majesty by Order in Council provides otherwise, the extent of any amendment or repeal made by or under this Act is the same as the extent of the provision amended or repealed.

(3) Her Majesty may by Order in Council provide for any provision of or made under this Act relating to a matter which is the subject of other legislation which extends to any of the Channel Islands or the Isle of Man to extend there with such modifications (if any) as may be specified in the Order").

On Question, amendment agreed to.

Schedule 1 [The Financial Services Authority]:

[Amendment No. 159 not moved.]

Schedule 3 [EEA Passport Rights]:

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. 160:

Page 251, line 6, at end insert--

:TITLE3:("Effect of carrying on regulated activity when not qualified for authorisation

.--(1) This paragraph applies to an EEA firm which is not qualified for authorisation under paragraph 12.

(2) Section 24 does not apply to an agreement entered into by the firm.

(3) Section 25 does not apply to an agreement in relation to which the firm is a third party for the purposes of that section.

(4) Section 27 does not apply to an agreement in relation to which the firm is the deposit-taker.").

On Question, amendment agreed to.

[Amendment No. 161 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. 162 to 167:

Page 252, line 16, leave out sub-paragraph (11).

Page 252, line 41, leave out from ("specified") to end of line 46.

Page 253, line 1, leave out sub-paragraphs (3) to (6).

Page 253, line 17, leave out from ("must") to end of line 20 and insert (", within one month of receiving a notice of intention, send a copy of it to the host state regulator.

(7A) When the Authority sends the copy under sub-paragraph (7), it must give written notice to the firm concerned.

(7B) If the firm concerned's EEA right derives from the investment services directive, it must not provide the services to which its notice of intention relates until it has received written notice from the Authority under sub-paragraph (7A).").

Page 253, line 21, leave out sub-paragraph (9).

Page 253, line 24, at end insert--

:TITLE3:("Offence relating to exercise of passport rights")

.--(1) If a UK firm which is not an authorised person contravenes the prohibition imposed by--

(a) sub-paragraph (1) of paragraph 18, or

(b) sub-paragraph (1) or (7B) of paragraph 19, it is guilty of an offence.

(2) A firm guilty of an offence under sub-paragraph (1) is liable--

(a) on summary conviction, to a fine not exceeding the statutory maximum; or

(b) on conviction on indictment, to a fine.

(3) In proceedings for an offence under sub-paragraph (1), it is a defence for the firm to show that it took all reasonable precautions and exercised all due diligence to avoid committing the offence.").

On Question, amendments agreed to.

Schedule 6 [Threshold Conditions]:

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. 168 to 173:

Page 256, line 26, leave out ("insurance contracts") and insert ("contracts of insurance").

Page 256, line 29, leave out ("deposit-taking,") and insert ("accepting deposits,").

Page 256, line 34, leave out from ("Kingdom") to end of line 5 on page 257 and insert ("--

(a) its head office, and

(b) if it has a registered office, that office, must be in the United Kingdom.

(2) If the person concerned has its head office in the United Kingdom but is not a body corporate, it must carry on business in the United Kingdom.").

Page 258, line 5, after ("1") insert ("and 3").

Page 258, line 11, after ("1") insert ("and 3").

Page 258, line 13, at beginning insert ("the").

On Question, amendments agreed to.

Schedule 7 [The Authority as Competent Authority for Part VI]:

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. 174 to 175:

Page 259, line 22, after ("if") insert ("--

(a) sub-paragraph (1) of").

Page 259, line 23, at end insert ("; and

(b) for the words from the beginning to "(a)" in sub-paragraph (3) of that paragraph, there were substituted "Sub-paragraph (2) does not apply".").

On Question, amendments agreed to.

Schedule 12 [Transfer schemes: certificates]:

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. 176 to 192:

Page 269, line 21, leave out ("long-term insurance business") and insert ("business which consists of the effecting or carrying out of contracts of long-term insurance").

Page 269, line 29, leave out ("general insurance business") and insert ("business which consists of the effecting or carrying out of contracts of general insurance").

Page 269, line 36, leave out ("given").

Page 269, line 44, leave out ("insurance companies") and insert ("persons who effect or carry out contracts of insurance").

Page 270, line 9, leave out ("insurance company,") and insert ("insurer,").

Page 270, line 10, after ("responsible") insert ("in Switzerland").

Page 270, line 10, leave out ("insurance companies in Switzerland") and insert ("persons who effect or carry out contracts of insurance").

Page 270, line 16, leave out ("insurance company" means a company") and insert ("insurer" means a body").

Page 270, line 19, leave out ("general insurance contracts") and insert ("contracts of general insurance").

Page 270, line 20, leave out ("reinsurance business") and insert ("the effecting or carrying out of contracts of reinsurance").

Page 270, line 29, leave out ("insurance companies") and insert ("persons who effect or carry out contracts of insurance").

Page 270, line 36, leave out ("insurance companies") and insert ("persons who effect or carry out contracts of insurance").

Page 271, line 1, leave out ("insurance business") and insert ("contracts of insurance").

Page 272, line 16, leave out ("insurance company") and insert ("insurer").

Page 272, line 25, leave out ("insurance company"") and insert ("insurer"").

Page 272, line 27, leave out ("general insurance business") and insert ("a regulated activity consisting of the effecting of contracts of general insurance").

Page 272, line 30, leave out ("long-term insurance business") and insert ("a regulated activity consisting of the effecting of contracts of long-term insurance").

On Question, amendments agreed to.

Schedule 18 [Mutuals]:

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. 193 to 198:

Page 285, line 36, at end insert--

(" . In section 37 (restrictions on combinations of business), omit subsections (1), (1A) and (7A) to (9).").

Page 285, line 37, leave out ("37") and insert ("38").

Page 287, line 39, leave out paragraph 17.

Page 288, line 10, at end insert--

(" . In section 6 (minimum and maximum number of members), omit subsections (2) to (6).

. In section 11 (loans), omit subsections (2) and (6).

. Omit sections 11B (loans approved by credit unions), 11C (grant of certificates of approval) and 11D (withdrawal of certificates of approval).").

Page 288, line 13, leave out paragraphs (a) and (b) and insert ("omit subsections (2), (3), (5) and (6)").

Page 288, line 14, at end insert--

(" . In section 28 (offences), omit subsection (2).").

On Question, amendments agreed to.

Schedule 20 [Minor and Consequential Amendments]:

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. 199 to 201:

Page 290, line 3, leave out paragraph 1.

Page 291, line 3, leave out sub-paragraphs (5) to (7).

Page 291, line 36, leave out sub-paragraph (9).

On Question, amendments agreed to.

Schedule 22 [Repeals]:

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. 202 to 209:

Page 293, line 38, at end insert--

("1923 c. 8. The Industrial Assurance Act 1923. The whole Act.
1948 c. 39. The Industrial Assurance and Friendly Societies Act 1948. The whole Act.")

Page 294, line 11, at end insert--

("1977 c. 46. The Insurance Brokers (Registration) Act 1977. The whole Act.")

Page 294, line 12, column 3, at beginning insert--

("Section 6(2) to (6). Section 11(2) and (6). Sections 11B, 11C and 11D.")

Page 294, line 13, column 3, leave out from ("14,") to end of line 16 and insert ("subsections (2), (3), (5) and (6)").

Page 294, line 16, column 3, at end insert--

("Section 28(2).")

Page 294, line 18, column 3, leave out ("Part V.").

Page 294, column 3, leave out lines 29 to 31.

Page 294, line 36, column 3, after ("to") insert--

("36. In section 37, subsections (1), (1A) and (7A) to (9). Sections 38 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)

My Lords, perhaps I may say something here that should have been included in a previous speaking note. I should like to express my gratitude to the current Deputy Speaker, the noble Lord, Lord Elton, for encouraging us to include the repeal of the Insurance Brokers (Registration) Act 1977 Act (Amendment No. 203) in this grouping. I beg to move.

On Question, amendments agreed to.

Photo of Lord Saatchi Lord Saatchi Conservative

My Lords, perhaps I may crave the indulgence of the House for a few minutes. I should like to put a few brief comments on the record. I should like, first, to thank the Minister for the way in which he has presided over this very long and complicated process. It seems to me that he has shown an extraordinary grasp of the complicated issues in the Bill. Indeed, I shall never forget the moment when my noble friend Lord Onslow asked the noble Lord to explain exactly what he meant after he had read out a particularly complicated brief on an extremely difficult clause; and he did. He did so in simple plain language; it was a stellar performance.

The Minister has been tremendously courteous and very forgiving of the procedural stumbles that we on this side of the House have often made; and that applies particularly to me. We have greatly appreciated the breezy and cheerful way in which he has been able to reject our proposals, on the grounds either that they were unnecessary or that they were wrong. However, he has always done so with great good cheer, and that has taken the sting out of his rejections. I am really most grateful to the noble Lord; indeed, I have learnt a tremendous amount from observing his performance on this Bill. I should add that I hope that his cold gets better very soon.

I should also like to thank the noble Lord, Lord Newby, because we struck up an excellent relationship at the beginning of the proceedings on the Bill. We seemed to approach certain key issues, such as corporate governance and the Takeover Panel, from a similar point of view. I am most grateful to the noble Lord for the many deep and long conversations that we have had on such issues.

I must, however, also thank our team of Back-Benchers, although they are not present in the Chamber this evening. Nevertheless, I hope that they will read my tribute to them in Hansard. They have been a wonderful volunteer army and we have been a merry band of brothers. I have had the great privilege of learning from some of the most skilful and charming people with whom I have ever had the pleasure to work. They have been at the front of the stage, but there were three people backstage whose names I should like to bring to the attention of the House. I have in mind our two lead lawyers, Charles Abrams and Richard Slater, and our researcher, Alex Hartley. Without the three of them, there is no possibility that my noble friend Lord Kingsland and I would have been able to make even a dent in this Bill. I am most grateful to all of them and thank them sincerely.

Photo of Lord Newby Lord Newby Liberal Democrat

My Lords, I had not intended to speak again, but as the relationship between myself and the noble Lord, Lord Saatchi, has been made so much of, I cannot help but reciprocate. I echo the thanks expressed to the Minister and his team for the huge amount of time and effort they have expended in dealing with questions that we have put to them. I also thank officials in the FSA and the director and officials of the Takeover Panel, who have been extremely assiduous. I also, of course, thank my colleagues, not least my noble friend Lord Sharman, who has been a great source of information and help to me.

It has, indeed, been a pleasure working with the noble Lord, Lord Saatchi. I am not absolutely sure whether it will be possible to develop this relationship with regard to other matters. However, we on these Benches have greatly appreciated the close working relationship we have had with the noble Lord and his noble friend.

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)

My Lords, I do not believe in making Bill do now pass speeches. However, two contributions have been made which have revealed the subterranean links between the Conservative Party and the Liberal Democrat Party. I always suspected that those links existed but I have never heard them so clearly expressed. I believe that that serious mistake will have to be corrected in some form or another. Nevertheless, I pay tribute to the noble Lord, Lord Newby, to the noble Lord, Lord Saatchi, who did the glamorous bit, and to the noble Lord, Lord Kingsland, who did the work! Above all, I pay tribute to the Treasury team who have been responsible for this Bill. We have been involved with it for only a couple of months; they have been involved with it for two years. If we express relief at seeing the Bill pass out of our hands, we can imagine how they must feel. They have done a fantastic job.

On Question, Bill passed, and returned to the Commons with amendments.