Joint Committee on Financial Services and Markets Second Report


The Joint Committee on Financial Services and Markets has agreed to the following Report:—


Parts V, VI and XII in relation to the European Convention on Human Rights


1. In our First Report,[1] we raised concerns about the compatibility of parts of the Government's draft Financial Services and Markets Bill with the European Convention on Human Rights (ECHR). We have been instructed by the two Houses[2] to report again on these matters, in respect of three parts of the draft Bill: Parts V and XII, giving the Financial Services Authority (FSA) powers of discipline and enforcement over approved persons (i.e. individuals working in positions of responsibility in financial services) and authorised persons (mostly financial service businesses); and Part VI, giving the FSA powers against market abuse.

2. The main concern about these parts of the draft Bill expressed in our First Report was as follows. The regimes which they put in place are expressed as civil justice regimes. However we found it to be arguable, and in the case of Part VI strongly arguable, that the courts would find them to be of the nature of criminal justice for ECHR purposes. The ECHR sets standards for all judicial proceedings; but for criminal proceedings it requires a set of extra safeguards—notably privilege against self-incrimination, a right to free legal assistance where appropriate, and a high degree of clarity as to what behaviour is forbidden. We found Parts V, VI and XII of the draft Bill to be lacking in these respects. This would lay proceedings under those Parts open to challenge in the courts,[3] and might even result in the legislation being declared incompatible with the Convention.

3. We recommended that the Government should publish its reasoned view on these matters as soon as possible, and it did so on 14th May.[4] Its position with regard to FSA disciplinary proceedings for authorised and approved persons (Parts V and XII) is unchanged: it considers that the courts will treat these as civil proceedings in ECHR terms. However it now recognises a real possibility that proceedings for a fine for market abuse (under Part VI) might be classified as criminal. It has therefore decided to provide additional safeguards for the person proceeded against: compelled statements will not be able to be used against the person who made them, and subsidised legal assistance will be available where appropriate. The Government also proposes measures to give greater certainty, though it considers that the provisions in the draft Bill are sufficient for ECHR purposes in this respect.

4. We welcome the Government's willingness to listen and respond to argument on these matters. It seems to us to be a powerful vindication of pre-legislative scrutiny, and it will make for more informed debate on the Bill. We especially commend the Government for its response to concerns about the market abuse regime. The additional safeguards may make it harder for the FSA to launch proceedings. However they will make it more likely that proceedings launched will withstand challenge on human rights grounds; and they will increase the confidence of the regulated community that they will receive fair treatment. Rough justice may get results in the short term; but in the long run it breeds disaffection and resentment, and is not sustainable.

5. Running through our deliberations has been the need to strike a balance between the competing demands of fairness and effectiveness. As Lord Steyn, one of the Lords of Appeal in Ordinary ("Law Lords"), puts it,[5] "the new regulatory system must be just and must protect Convention rights, order to serve the interests of the public it must be effective". With regard to disciplinary proceedings, the Government's position is pragmatic, and in principle we agree with this approach. Writing into the Bill the full panoply of criminal justice safeguards for every disciplinary action, however minor, would imperil the effectiveness of the whole regulatory regime. We remain concerned, however, that incorporating none of them, even for actions where severe penalties are at stake, entails a risk of defeat in court. We discuss below ways in which this risk might be reduced.

6. We are instructed to report by 27th May; our proceedings have therefore been very limited. We have taken oral evidence from the Economic Secretary to the Treasury, Patricia Hewitt MP, and her legal advisers, Sydney Kentridge QC and James Eadie; and we have received a small amount of written evidence.[6] We are grateful to all our witnesses, who have necessarily had to respond swiftly and at very short notice. We record again our thanks to our Specialist Advisers: Dr Eilís Ferran of Cambridge University, Professor David Llewellyn of Loughborough University, and Professor Alan Page of Dundee University.

7. The Annex contains revised versions of Tables I-III from our First Report, which analyse the various forms of enforcement power conferred on the FSA by Parts V, VI and XII of the draft Bill.

1  HL Paper 50, HC 328, published 29th April. Our original terms of reference were "to report on the consultative document on the draft financial services and markets bill presented by Her Majesty's Command on 21st December 1998 and any further draft of the bill which may be laid upon the Table of both Houses by a Minister of the Crown". Back

2  House of Commons 27th April, House of Lords 28th April. Back

3  The UK courts already have regard to ECHR principles, which to a great extent reflect long-standing principles of UK law; and a party who has exhausted his remedies in the UK may appeal to the European Court of Human Rights in Strasbourg. After the commencement of the Human Rights Act 1998, which, the Government has recently announced, will be on 2nd October 2000, the UK courts will be able to apply the ECHR directly. Back

4  Evidence, p 1. Back

5  Appendix 3. Back

6  See Appendices 1 to 9. Back

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