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Lord Ezra: I thank the Minister for going into such detail. However, I must admit that at one stage I was becoming a little confused as to whether the noble Lord was talking about "unauthorised" or "an authorised" investment manager. I shall consult Hansard tomorrow to ascertain which one he was referring to at various stages. I am glad that the Government regard it as an important issue.

As regards the first two amendments, I am rather sorry that the Government do not accept the fact that there could be some benefit in having greater compatibility with the definition of "investment functions" in the Financial Services Act. However, having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 29 agreed to.

Clause 30 [Power of investment and delegation]:

Lord Haskel moved Amendment No. 122:


Page 15, line 10, at end insert (", provided that this power is exercised, in relation to all matters affecting the fund, to the same degree of care and diligence as an ordinary prudent person would exercise in dealing with the property of another for whom the person felt morally bound to provide and by using such additional knowledge and skill as the trustees possess or ought to possess by reason of their profession, business or calling").

The noble Lord said: We have now reached the part of the Bill which deals with investment. It is notable that the Bill does not set out a standard by which the conduct of trustees can be assessed by the regulator so far as concerns investment. The Bill suggests that trustees should deal with assets as if they were their own. But if you are dealing with your own property you can be reckless or negligent as the whim takes you. Your only responsibility is to yourself. If you are dealing with other people's property, I believe the standard of care should be higher because there is a greater duty of care.

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This amendment sets out to impose this higher duty of care as the standard demanded from trustees. One can frivolously bet with one's own money on a horse or on a commodity price, but a trustee should be careful about doing this with other people's money. This amendment clearly sets this out and I understand that it has the support of the Law Society. The wording of this amendment allows a certain amount of discretion according to the trustees' professional skills and ability or calling. This wording is now more commonly used in Australia, in the United States and in Ontario. The wording is more suited to modern investment needs and practices and gets away from the old excessively rigid ones. I beg to move.

The Earl of Buckinghamshire: I should like to support the noble Lord, Lord Haskel, in this amendment. I think that trustees have always had to act as prudent men in this area but I believe there is a need to make what is implicit explicit. I think this amendment is helpful in achieving that objective. Like the noble Lord, Lord Haskel, I, too, am aware that wording like this appears elsewhere in the world. It has been taken, for example, from the United States and the ERISA legislation. I certainly commend it to my noble friend the Minister.

Lord Renton: I agree with the purpose of the amendment and it is perfectly clear that trustees should have such duty. However, the difficulty is that they have already got such duty. This is the kind of duty which time and again has been laid down by the courts in the exercise by trustees of their duties, including their duties with regard to investment. Therefore although the amendment certainly has some merit—looked at as it reads—I very much doubt whether we need to add to the law because it is already part of the law.

Lord Mackay of Ardbrecknish: The standard of care required from trustees when they exercise their investment powers is a complex area involving highly developed equitable principles of law. We were initially attracted to the idea of introducing into the Bill such a standard. But after careful consideration, we have concluded that it would not be appropriate for three important reasons.

First, as my noble friend Lord Renton just mentioned, there is a well developed standard of care required from trustees in making investments under existing trust case law. This will continue to apply and develop. It is not, therefore, necessary for the Bill to introduce a statutory standard of care as set out in the amendment. Secondly, whilst I think we all recognise the PLRC's excellent attempt to encapsulate the principles of case law in this area, the legal advice I have obtained is that such consolidation would result in the statutory standard being applicable to all cases. This carries the danger that the law would become fossilised.

Lastly, the existing standard of care will be reinforced by the provisions in Clause 31, which require trustees to prepare and maintain a written statement of the principles which will govern their decisions about investments. In completing this statement, trustees will

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need to think clearly and consider all of the circumstances affecting the scheme before deciding the most appropriate investment strategy.

I am suggesting to the Committee that this amendment is unnecessary because its purpose is already achieved. Indeed in some ways it could be counter-productive as regards fossilising existing trust case law. I hope, in the light of my explanation, the noble Lord will feel able to withdraw the amendment.

Lord Haskel: Certainly investing the fund's money is probably the most important task of trustees. As the Minister said, the rules governing it are complex. My feeling is, why not make it explicit if the rules are complex? However, if it ossifies —I believe the Minister said that—the regulations, I think we ought to look into that. With that in mind, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 123:


Page 15, line 12, leave out from ("manager") to ("any") in line 14 and insert ("to whom subsection (2A) applies").

The noble Lord said: In moving Amendment No. 123 I wish to speak at the same time to Amendments Nos. 124 and 125. These three amendments clarify to whom trustees may delegate investment decisions. As drafted the clause could be seen to be preventing trustees from delegating fund management to EC institutions which are eligible to carry on investment business in the United Kingdom. This was never the intention and could place the United Kingdom in breach of EC obligations. I beg to move.

Lord Dean of Harptree: I welcome these amendments. I am advised that they deal with overseas managers but that they do not in fact safeguard the position as regards property investment. I realise this is a complicated issue and my noble friend the Minister may not be able to give a definitive answer at this stage. However, it seems to me that there is a case for protection under this clause to be afforded to trustees who delegate property investment to properly qualified managers. I would be grateful if my noble friend the Minister would consider that point, possibly not this evening as I realise it is a complex matter. However, it seems to me that it is a point which is not covered at the present moment in the clause or the amendments and that it requires consideration.

Lord Renton: Before my noble friend sits down, can he say whether he uses the word "property" in this context to mean landed property and only that—land and buildings in fact?

Lord Dean of Harptree: I mean all sorts of property.

Lord Lucas: My noble friend is quite right that these amendments do not in any way cover property, either as narrowly or as broadly defined. If my noble friend reads Hansard tomorrow and the answer that my noble friend Lord Mackay gave to the noble Lord, Lord Ezra, on his Amendment No. 121A, and those grouped with it, he will find set out there—I hope—the answer which he requires.

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On Question, amendment agreed to.

[Amendment No. 123A not moved.]

Lord Ezra moved Amendment No. 123B:


Page 15, line 16, after ("investments") insert:
("(aa) may delegate such discretion to a person who is not a person to whom subsection (2B) applies, where the purpose of the delegation is solely to enable that person to delegate that discretion to a fund manager who is a person to whom subsection (2B) applies,").

The noble Lord said: I would like to move Amendment No. 123B with which Amendments Nos. 124B and 125A have been grouped. These amendments provide for sub-delegation of investment functions in the limited circumstances where the immediate delegate is not covered by the Financial Services Act but the sub-delegate is. Some pension schemes collaborate in setting up a common investment fund; for example, where an employer has several schemes, or for different companies in a group. Having a common investment fund increases operational flexibility and reduces investment management costs.

Legally, the scheme trustees delegate their investment functions to those of the common investment fund who are not usually authorised persons for the purposes of the Financial Services Act because they do not need to be for the activities that they undertake. As it stands, the Bill does not appear to contemplate sub-delegation in these circumstances. The amendments are intended to make sure that the trustees of schemes that have joined together in a common investment fund are not prevented from still doing so. I beg to move.


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