 House of Commons |
Session 2009 - 10 Publications on the internet Financial Services Bill |
Financial Services Bill |
The Committee consisted of the following Members:Chris Stanton, Eliot Wilson,
Committee Clerks † attended
the Committee Public Bill CommitteeTuesday 15 December 2009(Afternoon)[Mr. Roger Gale in the Chair]Financial Services Bill4.4
pm
The
Chairman: I apologise for the delay, which was entirely my
fault. I remind hon. Members that the deadline for tabling amendments
to be considered on Tuesday 5 January is 4.30 pm on Wednesday 30
December. It will be possible to table amendments during the
recess.
Clause 16Performance
of controlled function without
approval Amendment
proposed (this day): 14, in clause 16, page 20,
line 7, leave out ‘P’ and insert
‘the authorised person’.—(Mr.
Hoban.) Question
again proposed, That the amendment be
made.
The
Chairman: I remind the Committee that with this we are
discussing the following: amendment 15, in
clause 16, page 20, line 8, leave
out ‘P’ and insert ‘the authorised
person’. Amendment
1, in
clause 16, page 20, line 10, leave
out from ‘P’ to end of line 14 and insert
‘either (a) (i) did not know,
and (ii) could not reasonably
be expected to have
known, that P was at
that time performing a controlled function without approval,
or (b) was instructed to
undertake these activities by an authorised person or where the
authorised person was a company director or officer, who was an
approved
person.’. Amendment
16, in
clause 16, page 20, line 24, after
‘the’, insert
‘authorised’. Amendment
17, in
clause 16, page 20, line 34, leave
out second ‘a’ and insert ‘an
authorised’. Amendment
18, in
clause 16, page 20, line 37, leave
out second ‘a’ and insert ‘an
authorised’. Amendment
19, in
clause 16, page 20, line 40, leave
out second ‘a’ and insert ‘an
authorised’.
The
Economic Secretary to the Treasury (Ian Pearson): It is a
pleasure to serve under your chairmanship, Mr. Gale, for
this afternoon sitting of the Financial Services Bill
Committee. This
morning I was stressing the importance of credible deterrents. The
Government recognise that the enforcement powers that allow the
Financial Services Authority to penalise individuals must be carefully
framed to ensure that they are proportionate and fair. As I shall set
out in a moment, I am confident that the clause provides sufficient
checks and balances to ensure that penalties on individuals are
appropriate and proportionate.
As I am sure
the Committee is already aware, certain roles in authorised firms can
be performed only by individuals who have been approved by the FSA.
Such roles are known as controlled functions and apply to
director-level or significant management functions, and also to certain
customer-related roles. The FSA approves an individual to perform such
functions if he or she is determined to be fit and proper—that
is, if the FSA is satisfied with the person’s honesty, integrity
and competence, among several other
criteria. Amendments
14 to 19 seek to make a firm responsible for paying the fine if one of
its employees performs a controlled function without approval. That
would take the onus and responsibility away from the individual to
ensure his or her own approval, and place it wholly on the firm.
However, the power to fine a firm if it fails to take reasonable care
to ensure that controlled functions are performed only by approved
persons already exists. It is set out in sections 59 and 206 of the
Financial Services and Markets Act 2000. In that respect, the proposed
amendments are
unnecessary. In
addition, the amendments would remove responsibility from the
individual employee; it would remove any incentive for the individual
voluntarily to initiate the approvals process with his or her firm if
only the firm could be punished for
non-compliance. The
FSA wants and needs to improve compliance with the approved persons
regime to ensure that all who undertake key functions are properly
vetted, and are found to be fit and proper to undertake those
functions. As I said, many of the controlled functions include senior
management roles, and it is right that the FSA should satisfy itself
that the individual in question has the ability and necessary
credentials to undertake the relevant
function. Credible
deterrents need to target individuals and firms. Both need to be
discouraged from bypassing the rules, but currently the only
enforcement action the FSA can take against individuals who perform
such a role without approval is to prohibit them from working in the
industry, and even then only if they are not considered to be fit and
proper. There is no power to fine such
individuals. That
is why the Government have proposed to give the FSA the power to fine
an individual who has performed a controlled function without the
necessary approval. In effect, the proposal closes a loophole whereby
one way of avoiding a possible financial penalty is simply not to be
approved for the relevant
activity. Let
me turn to amendment 1. I understand that the intention of the hon.
Member for Fareham is to provide added defence for the individual.
However, the amendment would create an almost limitless loophole
whereby an individual, in order to escape a fine, need only conspire
with their firm to have an e-mail chain telling them what to do. I
understand the purpose behind the amendment, but I do not think that
that is the right thing to
do. I
appreciate the hon. Gentleman’s desire to protect employees who
find themselves performing a controlled function without approval in a
situation where they may feel that they have no choice but to do that,
but someone performing a controlled function is playing a key role
within a firm. The role is important enough to warrant the checks that
come with approval, and we
think that individuals with such significant roles should have matching
levels of responsibility. What we need is not passive employees who
know that responsibility can easily be shirked in favour of the firm.
That would not improve
compliance. Of
course, we need to make sure that the sanctions are targeted
appropriately, and I would like to draw the Committee’s
attention to the safeguard built into the clause to ensure that the FSA
cannot be unduly severe. The new power cannot be used against
individuals who did not know, or could not reasonably be expected to
have known, that they were performing a controlled function without
approval. We are not trying to catch out individuals who act in good
faith.
The ultimate
purpose of the clause is to discourage individuals from performing a
controlled function without approval by threatening them with a
disciplinary sanction. Such a measure will improve compliance and
enable greater FSA scrutiny of persons who are carrying out controlled
functions. If we were to allow the individual to escape all
responsibility, or to limit the scope of the power to such an extent
that it became almost inapplicable, we would not meet our objectives. I
therefore urge the Committee to resist the
amendments.
When we get
to the clause stand part debate, I would like to try to probe a bit
further the issue of who will be affected by the provisions. Various
comments have been made to me about the sort of people who will be
caught by the measure. I take the Minister’s point that
amendment 1 may be too loose and may leave too many loopholes. He
suggested that some safeguards were in place to protect an individual
in such a situation. I am trying to distinguish between those people
who deliberately set up a structure that allows them to fall outside
the scope of clause 16, and those who inadvertently fall within it. I
take the Minister’s point that that could give rise to some
artificial arrangements.
The Minister
makes a fair point about where responsibility lies. Should we ask
individuals to take more responsibility for their actions within a firm
and to understand what the regulators expect of them? Whether there is
a legitimate reason to be concerned will depend on how the rules are
applied by the FSA. Having given the FSA new powers in the Bill, we
look forward to hearing what safeguards it builds in when it starts to
consult on the application of those powers. I am happy to accept the
Minister’s reassurance that adequate safeguards are built in, so
I ask the Committee’s leave to withdraw my
amendment. Amendment,
by leave,
withdrawn.
Mr.
Hoban: I beg to move amendment 6, in
clause 16, page 20, line 25, leave out
‘four years’ and insert ‘one
year’. This
is a brief probing amendment. Clause 16 defines the limitation period
as the period within which, from the date that misconduct takes place,
the FSA can take action against an individual who undertook controlled
functions without approval. What I want to know is: why four years? It
seems a long period of time, but it is not the six years that applies
under the statute of limitations. Why is four years the right period of
time?
Should that period be longer? Or should it be—as I suggest in my
amendment—a year, to give the FSA greater focus in looking out
for such people and in trying to tackle the issues more quickly, so
that the matter does not hang over an individual for what appears to be
quite a long period?
Ian
Pearson: I appreciate the probing nature of the amendment.
It might be helpful if I put clause 16 and the amendment into context
by drawing the Committee’s attention to clause 17, which relates
to the amount of time available to the FSA to initiate disciplinary
proceedings against persons who appear to the FSA to be guilty of
misconduct. Currently, the FSA has two years before it must start
proceedings against individuals that it believes are guilty of
misconduct. We want to extend that to four years, and have made an
amendment to that effect through clause 17, which we will hopefully
come on to discuss in a
moment. A
four-year limitation period is an appropriate time for the FSA to
investigate individuals, whether they are suspected of misconduct or of
performing a controlled function without approval. Let me explain why.
The starting point for the provisions is that we should ensure that the
FSA has enough time to prepare a case against an individual suspected
of breaching the rules. There are a number of ways in which such
individuals might take advantage of the current period of two years to
prevent the FSA from conducting an investigation. For example, it has
been known for individuals to be deliberately obstructive in order to
run down the clock, hoping to escape sanction as a result. In the case
of individuals performing control functions without approval, that
could involve delaying the provision of information needed by the FSA
to ascertain what type of role the person was undertaking, and that is
clearly
wrong. 4.15
pm Equally,
a person could launch judicial review proceedings against the FSA
asking a court to review the commencement of an investigation. The
clock would continue to tick during such an appeal, and that would
severely limit the FSA’s ability to carry out an investigation
within the required time when the judicial review had finished. A
sufficient period is therefore vital to allow the FSA enough time to
deal with complex cases. While it could mean that complex cases take
longer, it is important to allow such time to ensure that the FSA can
effectively and thoroughly investigate incidences of wrongdoing and
impose appropriate
penalties. I
hope that the examples of judicial review, deliberately withholding
information and playing it long have helped to convince the hon. Member
for Fareham of my argument. I could probably cite examples of potential
criminal cases that would take precedence, as a result of which the
FSA’s work would only start to take place after it had been
decided whether or not to prosecute. For those reasons, it is
reasonable to have a period longer than two years at the moment. It is
a matter of judgment whether the period is three, four or five
years—and our judgment is that four years seems appropriate. It
will address directly some of the problems that I have outlined in my
brief
contribution.
Mr.
Hoban: I thank the Minister for his response. He has
advanced an interesting argument. It relates to subsections (4) and (5)
of proposed new section 63A.
We have a limitation period of four years from the first day on which
the authority knew that the person concerned had performed a controlled
function without approval. The Minister put forward a good reason why a
four-year period should apply and explained how someone might seek to
frustrate it. In circumstances where the police had identified an
offence, perhaps the hon. Member for Wolverhampton, South-West, who is
a lawyer and has perhaps dealt with such matters in criminal cases,
knows whether they are restricted to a four-year period. The offence
would surely have been started. There was a motion of investigation by
the FSA that it should not necessarily be a limitation period at all,
given that that is how one might seek to frustrate the period. It is
arguing that counter case that a year is not long
enough. Rob
Marris (Wolverhampton, South-West) (Lab): I am not an
expert criminal lawyer, but I refer the hon. Gentleman to proposed new
section 63A(4), where the clock can be stopped by the issue of a
warning notice. The FSA could do that. I am slightly concerned that a
four-year limitation period could become an excuse for the FSA to do
nothing for years, because there would be no sword of Damocles over it.
It would simply need to issue a warning notice, and that would stop the
clock.
|
| |
| ©Parliamentary copyright 2009 | Prepared 16 December 2009 |