We move on to part 36, which deals with transparency obligations. It replaces three clauses in the original Bill; the Government introduced it in the Lords because those previous clauses were ambiguous. It now accurately implements the transparency directive 2004/109/EC, which harmonises transparency requirements in relation to information about issuers whose securities were admitted to trading on a regulated market, and amending directive 2001/34/EC.
We propose two technical amendments, which were suggested by the Law Society. Amendment No. 422 would amend the definition of voter information in proposed new section 89B(2). The current definition puts “in respect of voting shares” before “means”, which does not fit well with the use of the expression in proposed new sections 89A(3), 89B(3) and (4), and 89C(3) and (4), where the words “in respect of voting shares” are not used.
In proposed new section 89B(3) and (4), the expression “voteholder information” is followed by the words “relating to a person”, and in proposed new section 89C(3) and (4), it is followed by the words
“relating to the proportion of voting rights held by an issuer in respect of voting shares in the issuer”.
The drafting of those provisions would be improved if the definition suggested in the amendment were adopted and the necessary consequential amendments made.
In amendment No. 430, we suggest that the words “a person” in proposed new section 89C(5) should be replaced by the word “an issuer”.
The amendments are technical. We believe that they deserve consideration for purposes of clarification.
The amendments are technical, and I shall address them in turn. Amendment No. 422 would change the definition of “voteholder information” in proposed new section 89B(2) by deleting the words
“relating to the proportion of voting right held by a person in respect of the shares” and inserting
“means information relating to the proportion of voting rights held by a person in respect of voting shares.”
The amendment would clarify the definition of information on the proportion of voting rights held to ensure that it related to voting rights in voting shares rather than, for example, in non-voting shares. It would be an unnecessary addition, because it is already clear that the only shares capable of being referred to in the clause are voting shares. That is made clear from the reference to “the shares” at the end of proposed new section 89B(2), which refers back to “voting shares” referred to earlier in that subsection. In our view, therefore, the amendment is not required.
Amendment No. 430 would substitute the term “issuer” for the term “person” in proposed new section 89C(5). Subsection (5) defines a “notifiable change” in the proportion of voting rights held for the purposes of subsection (4), which, in turn, sets out the circumstances in which the transparency rules may require
“notification of voteholder information relating to the proportion of voting rights held by an issuer” in respect of the issuer’s own shares. Thus, the provision deals with a narrow and specialised area of rules governing disclosure when an issuer owns some of its own shares.
Proposed new section 89C(5) uses the more general term “person” when defining by whom the voting rights must be held. That word achieves the desired purpose of covering the classes of issuer referred to in proposed new section 89C(4). Moreover, it does so more succinctly than would be the case by repeating the words in that proposed section, which are
“voting rights held by an issuer in respect of voting shares in the issuer”.
Amendment No. 430, which would replace the words “a person” with “the issuer”, would leave the clause no more complete, as the provisions relate not to all issuers, but only to an issuer in respect of voting shares in the issuer. The amendment is therefore not required.
We welcome scrutiny to improve technical drafting and have considered the amendments carefully, but it is clear that they are not necessary to achieve the desired purpose. I hope that, with that explanation, the hon. Gentleman will agree not to press them.
‘(2) The effectiveness for the purposes of section 155 of the Financial Services and Markets Act 2000 (consultation on proposed rules) of things done by the Financial Services Authority before this section comes into force with a view to making transparency rules (as defined in the provisions to be inserted in that Act by subsection (1) above) is not affected by the fact that those provisions were not then in force.’.
The amendment is necessary to ensure that the Government can meet their obligation to implement the transparency directive by 20 January 2007. The UK is doing so through provisions in the Bill and through the transparency rules to be made by the Financial Services Authority under powers contained in those provisions. Such rules must come into force by 20 January 2007.
The FSA has its own statutory consultative process for making rules, contained in section 155 of the Financial Services and Markets Act 2000, so the only way for it to meet that deadline is by consulting on the proposals at the same time as the Bill is proceeding through Parliament. It is in fact doing so now. However, under the provisions of the Bill that give the FSA the power to make transparency rules, it is unclear whether its current consultation meets the requirements of the 2000 Act. That is not because the consultation is technically deficient in any way, but because the Bill does not make it clear that a consultation taking place before it comes into force is valid.
Serious consequences would arise if the provisions were not amended. Either the necessary rules would not be made until the consultation process was repeated after the Act came into force, or the status of any rules that were made would be open to question. In the former case, rules made under a process starting after Royal Assent would necessarily not be made in time for the directive to be enforced by 20 January next year. As a result, we would breach our obligations under the directive and the European Community treaty.
In the latter case, the FSA rules governing the disclosure of periodic financial information and shareholdings in companies trading on a regulated market in the UK could be open to challenge as being ultra vires. If the rules were found to be invalid, that would impose material costs on stakeholders and, in particular, provide a defence against any attempt by the FSA to enforce the rules. Again, the Government would be in breach of their EU obligations and the Commission could start infraction proceedings against the UK. I therefore hope that, following that very good explanation, hon. Members will agree to the amendment.
I understand where the Government are coming from and I do not disagree with the principle of the proposal. Would it not be slightly more elegant to make regulations rather than include in the Bill a holding position that will remain for ever more?
The hon. Gentleman asks an interesting question. On the whole, hon. Members do not like regulations because they feel that their ability to question the Government and hold them to account is more limited. We need the amendment because the implications were not realised earlier. I believe that that answers the hon. Gentleman’s question, which is one of how we wish Members of Parliament to have oversight. On the whole, people prefer such provisions to be in Bills, although we could have done it either way.
I thought that the Minister’s point—she can clarify this—was that because of timing problems, provisions are overlapping, and the measure is therefore a failsafe to ensure that the consultation is taken on board. I appreciate that and I am not saying that the Government are wrong, but why should the provision be left in the Bill after it has all happened? Why cannot this be done by regulation, which would fall away, leaving the law, rather than merely a necessary holding procedure, in the Bill?
I accept that we could have done this the other way—it might have been neater—but we have chosen to do it this way, for the reasons I gave. I agree that this will be in the Bill afterwards.
The explanatory notes say that three main categories of obligation are imposed under the directive: companies should treat the holders of shares equally, companies should make public information on their financial position and holders of votes should notify companies when the number of votes reaches a specified proportion of the total. The amount specified under the Companies Act 1985 is 3 per cent. Will that rule remain or be changed?
I note that section 89E(3) of the 2000 Act contains some overlap between the takeover panel notifications and the notifications required by the directive. Will the Minister explain how subsection (3) will resolve that issue?