Memorandum from Herbert Smith
1. Herbert Smith are pleased that both the Joint
Committee and the Treasury recognise the importance of addressing
the European Convention on Human Rights ("the Convention")
issues relating to the Bill. As we have previously indicated,
it is essential that this is done. It would be very damaging to
the FSA and to the London Markets were there to be a successful
Convention challenge to the main aspects of the new legislation.
2. We are pleased that the Treasury agrees that
the market abuse regime is criminal rather than civil for Convention
purposes. We therefore agree that Clause 104(5) of the draft Bill
should be amended to cover market abuse proceedings as well as
3. We do not consider that the provisions in
the Bill defining market abuse fully meet the Article 7 requirement
for certainty and consider that a clearer statutory definition
should be given. This is also the view of the Joint Committee,
see paragraph 263 of the Joint Committee's First Report.
4. In Paragraph 16 the Treasury states that
the Government is considering whether to introduce explicit protections
for people who take reasonable steps to make sure that they do
not breach the primary provisions. The concept of taking reasonable
steps not to breach something which is not clearly defined but
which is worded very generally is a very difficult one. We look
forward to receiving further clarification on what is meant. In
the meantime, our view remains that the relevant test should involve
showing an intent to abuse.
Paragraph 16 goes on to say that the Government
proposes to clarify the Bill in that the market abuse regime will
only apply to market participants. In our view it is right to
exclude from the regime manufacturers, suppliers and physical
users of commodities and there may be other classes who should
be excluded. We look forward to clarification on this and, in
particular, how "market participants" is defined.
5. There are genuine concerns that the proposed
disciplinary regime would be categorised as criminal for Convention
purposes. We note that the Government may be proposing to exclude
the use of compelled evidence from civil proceedings that could
lead to a fine, see paragraph 7 of the Memorandum from Lord Lester
of Herne Hill. It is not yet clear whether what is being proposed
would involve bringing disciplinary proceedings within Clause
104(5) of the Bill. No doubt this will be clarified.
6. In our evidence to the Joint Committee we
expressed the view that granting statutory immunity to the FSA
would be in beach of the Convention, see Osman-v-UK . We
share the concerns expressed by Lord Lester in his Memorandum
at paragraph 16 and hope that this will be addressed by the Government.
21 May 1999