Joint Committee on Financial Services and Markets Second Report


Joint Memorandum from the British Bankers' Association and the Association of British Insurers


  1.1 The Association of British Insurers and the British Bankers' Association welcome the invitation of the Joint Committee to comment on the Treasury Memorandum on Human Rights Issues raised by the draft Financial Services and Markets Bill. The comments below are made in the light of the Treasury Memorandum and of the comments made by the Economic Secretary to the Treasury and Counsel in evidence to the Joint Committee on 19 May.

  1.2 The proposals set out by the Treasury provide safeguards for those suspected of market abuse and are a welcome step towards allaying our concerns that the draft Bill could be incompatible with the European Convention on Human Rights (ECHR). We believe that the FSA should provide equivalent safeguards for those involved in internal disciplinary proceedings to ensure that a challenge on human rights grounds cannot be sustained, a possibility which would bring the FSA's authority into disrepute.

  1.3 It will still, however, be important to draw a distinction between criminal proceedings, the exercise of the FSA's market abuse fining power and the internal disciplinary process so that the last, in particular, does not become overly legalistic in a way which inhibits the FSA's ability to regulate effectively by making it incapable of delivering speedy decisions at an acceptable cost.


  2.1 The new civil power to fine for market abuse is additional to the existing criminal offences of insider dealing and market manipulation. We note that the Treasury recognises there is a possibility that the market abuse fining power may be classified as criminal for Convention purposes and are pleased to see that the Treasury is proposing changes to the Bill to ensure compliance with the ECHR.

  2.2 We welcome the intention to explore providing subsidised legal assistance in appropriate cases. It is not entirely clear from the Treasury's Memorandum whether such assistance will be available in both market abuse and disciplinary actions and we would welcome confirmation that it is the intention to cover all hearings before the Tribunal.

  2.3 We also welcome the intention that compliance with the Code of Market Conduct will be an absolute defence against proceedings for breach of the market abuse legislation. We would encourage the Government also to introduce explicit protection for people who take reasonable steps not to breach the primary provisions, which, as noted in the Progress Report (13.7), do not by themselves provide sufficient certainty as to the application of the regime.

   We would also encourage the FSA to provide the same assurance that those who have complied with specific rules, codes and guidance will not be pursued for alleged breaches of the FSA's Principles for authorised and approved persons.

  2.4 There is as yet no definition proposed for "market participant", although there was discussion at the hearing on 19 May of the scope of the definition. In particular, the extent to which off-market activity is intended to be caught needs to be clarified, as does the concept of abuse by inaction set out in Clause 58(b) of the draft Bill. As organisations representing major investors and traders, we recognise the importance of maintaining the high reputation of the markets and protecting legitimate activities. Therefore, provided adequate safeguards against abuse of the regime are in place, we would welcome a definition sufficiently wide to encompass all active market participants.


  3.1 We note the Government view that the disciplinary provisions of the Bill are likely to be classified as the determination of civil rights and obligations for the purposes of the Bill. In our view, the arguments put forward by the Government put too much weight on the restricted community involved and do not take into account the way in which a disciplinary fine on an individual can effectively deprive them of the ability to earn a living in their chosen field. Whatever the eventual classification of this regime, we consider that the disciplinary regime adopted by the FSA should be compatible with basic standards of fairness and with the ECHR.

  3.2 Proceedings under the discipline provisions are essentially administrative in nature, and it is important that the process should be accessible in terms of both process and cost. Individuals may need more protection than large firms. The challenge faced by the FSA is to put in place a process that meets both the requirements for certainty and simplicity. One possibility would be to require the Treasury to provide guidance on the fairness of the FSA processes.

  3.3 The penalties imposed should be proportionate both to the nature of the offence and the circumstances of the accused. We welcome the clarification that non-payment of a fine will not punishable by imprisonment.

  3.4 We further note that the use of compelled evidence under the disciplinary regime is unclear. If disciplinary proceedings are considered to be civil in nature, compelled evidence will be admissible at the stage of consideration by the Enforcement Committee. If the Tribunal is considering a criminal case, the Treasury Memorandum makes it clear that such evidence is inadmissible. However, if a disciplinary case is referred to the Tribunal, operating as an Administrative Tribunal, it is unclear whether compelled evidence could be used. Clearly, if it is not admissible, there will be a strong incentive for those accused of disciplinary offences to take cases to the Tribunal, which will reduce the likelihood of settlement at earlier stages, and add to the cost and time involved in the process.

21 May 1999

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