Joint Committee on The Draft Corruption Bill Written Evidence


APPENDIX 10

Memorandum from Financial Services and Markets Legislation City Liaison Group (DCB 14)

DEFINITION OF OFFENCES IN THE DRAFT CORRUPTION BILL: REMUNERATION IN THE FINANCIAL SERVICES INDUSTRY—TREATMENT OF COMMISSION PAYMENTS

  1.  The CBI has drawn to our attention that a Joint Committee has been established by the two Houses of Parliament to consider the draft Corruption Bill.

  2.  On behalf, therefore, of the Financial Services and Markets Legislation City Liaison Group—an informal alliance of major City trade associations and law firms which works jointly on new legislation which affects the financial services industry—I am writing to draw the Committee's attention to some serious concerns about the implications for the remuneration arrangements which prevail in the financial services industry that stem from the way the offences to be established under the proposed legislation are currently drafted. The reasons for our concerns are set out in the attached letter which we have just submitted to the Home Office. You will see that we believe that the serious problem with the draft legislation which we have detected appears to be inadvertent: the Home Office's explanatory notes state that the regulatory impact will be negligible and, for that reason, have not undertaken an RIA.

  3.  Please do not hesitate to contact me if you think that it would be helpful to receive further information on this issue at this stage or if the Committee would wish members of the Group to attend a hearing in due course.

DRAFT CORRUPTION BILL

  1.  I am writing to you on behalf of the Financial Services and Markets Legislation City Liaison Group, an informal alliance of major City trade associations and law firms which works jointly on new legislation which affects the financial services industry. The Group's members are listed above.

  2.  We understand that the Investment Management Association—one of the Group's members—has already contacted the Treasury, Home Office and Financial Services Authority about its concern that the offences to be established under the proposed legislation as currently drafted could apply to forms of commission payment which are a standard form of remuneration in the financial services industry (for example, typically insurance brokers or financial advisors are remunerated by commissions from the insurance company when policies for customers or personal pensions have been arranged). The purposes of this letter are twofold therefore: to confirm that the members of the City Liaison Group share the IMA's concerns, and to seek a meeting with the Home Office to discuss the preparation of additional exceptions to avoid the problem which the IMA has highlighted.

  3.  The difficulty stems from the way the new offences in the draft Bill are currently framed. Because these are concerned with whether advantages have been conferred or obtained, they do not require a specific element of dishonesty, or even breach of the agent's duties to his principal. As a result, in cases where agents are remunerated by way of commissions, or other consideration, rather than being paid by the principal—as is common in the financial services industry—to be certain that an offence was not being committed the parties involved would have to be satisfied that the agent's conduct was not determined primarily in return for the commission and, if this was uncertain, then it would be necessary to rely on the consent exception. But in order to use this exception, the person remunerating the agent would have to establish either that the principal knew all the material facts (which could include the amount of the commission) and consented, or that he would have consented had he known those facts (Clause 7). Clearly, this may be very difficult to establish.

  4.  Arguably, even more complex issues can arise for the recipient of the commission, in particular because it may be necessary to establish his belief about the state of mind of the person providing the benefit (Clause 9).

  5.  We do not believe that the draft legislation has been designed to apply to the commission arrangements that prevail in financial services—not least because that outcome would appear to make the criminal law more strict than the focused regulatory requirements to which financial services firms are subject and also because the explanatory notes state that the regulatory impact will be negligible so that an RIA is unnecessary—hence our request for a meeting. We hope that it will be possible to discuss the issues soon.

  6.  I am copying this to Paul Stephenson, Paul Kirkman at HM Treasury, Andrew Whittaker at the FSA, Martin Thomas at the Bank of England and Secretary to the Financial Markets Law Committee and to Claire Little, Secretary to the Joint Committee on the draft Bill.

April 2003





 
previous page contents next page

House of Lords home page Parliament home page House of Commons home page search page enquiries index

© Parliamentary copyright 2003
Prepared 31 July 2003