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Lord Clinton-Davis: My Lords, before the noble Lord continues, I should like to challenge him about that. There is an overwhelming case on this issue. It is not a Bill which will be challenged, in my respectful submission. The noble and learned Lord made a powerful case, for pragmatic reasons, for early enactment of the legislation. Why do the Government wait? There is surely no problem about it?

Lord Inglewood: My Lords, the case which has been made is one which the Department of Trade and Industry fully recognises. But it would be improper of me to identify to the House an issue which had not been finally determined. However, noble Lords can rest assured that this is a matter on which we are progressing with all the vigour that we can.

The noble and learned Lord also referred to the Vienna Sale of Goods Convention and possible ratification. I can confirm that Her Majesty's Government continue to take an active part in the business of the convention. We shall look most carefully at the reasons which the noble and learned Lord has advanced this evening and bear them in mind in forming our future plans.

Hearing the noble and learned Lord, Lord Mustill, explain the present implications of Section 16 of the 1979 Act, one may wonder why there have been no previous attempts to change the existing position. I think that the stumbling block has always been the vexed question of the division of assets in the event of an insolvency or liquidation. The solution which the Law Commissions propose is, however, one which has the support of interested parties and, it is agreed, strikes an acceptable balance between competing interests.

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This Bill is non-controversial. The policy and balance contained in it have obtained the support of commercial parties and I commend the work of the two Law Commissions which has resulted in the Bill which is now before us. I also thank the noble and learned Lord, Lord Mustill, the noble and learned Lord, Lord Steyn, and other noble Lords, for taking it forward. I trust that with your Lordships' agreement we shall be able to speed this Bill on its way to the statute book.

Lord Mustill: My Lords, I am most grateful to noble Lords for their comments on the Bill. I am particularly grateful to the noble Lord, Lord Inglewood, for expressing the support of the Government for it. It is valuable work and the support of the Government is most heartening to our trading community. The gracious observations of the noble Lord, Lord Clinton-Davis, are most welcome. The support which he happily gives to measures of law reform such as this—even if they are modest in scope and unspectacular in aspect—is a valuable contribution to the movement for practical law reform.

I am also glad to acknowledge the words of my noble and learned friend Lord Steyn, which come from a source of great authority. It is a particular pleasure to acknowledge his contribution because it takes the form of a maiden speech. That speech, if I may say so, manifests the depth of perspective, firmness of opinion and cogency of expression which one would anticipate from my noble and learned friend. In offering my sincere congratulations on his speech, I express not only the hope, which I am confident your Lordships will share, that this House will often hear from him again, but also that the opinions there expressed will attract the notice of the Government and stimulate consideration of further steps along the road beyond the single step which the House is being asked to take today. For the moment, however, I need do no more than commend the Bill to the House.

On Question, Bill read a second time, and committed to a Committee of the Whole House.

Financial Services (Amendment) Bill [H.L.]

9.9 p.m.

Lord Haskel: My Lords, I beg to move that this Bill be now read a second time.

The purpose of the amendment to the Financial Services Act 1986 is to allow the Secretary of State, at his discretion and if he thinks it is in the public interest, to publish any information or report he may receive after an investigation. The amendment would apply to Section 179 of the Act, which deals with investigations into insider dealing.

To a large extent, the right to appoint competent inspectors and the powers which the inspectors have were modelled on the Companies Act 1985, Sections 432 to 437. Those sections allow the Secretary of State to appoint inspectors to investigate very serious matters dealing with company fraud, unlawful trading or misconduct towards shareholders. The only difference is that, after an investigation under the Companies Act, the

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Secretary of State may, at his discretion, publish all or part of the report. Under the Financial Services Act, he does not have that right.

Looking at the wording of Sections 177 and 178 of the Financial Services Act, it is obvious that they were to a large extent modelled on the wording of Sections 432 to 437 of the Companies Act. There seems to be no obvious reason why the results of an investigation into insider dealing under the Financial Services Act should be clothed in secrecy, whereas the results of investigations under the Companies Act can be published. The matters being investigated can be equally serious.

At this point, let me say that I consider insider dealing to be a very serious offence. It is not a "victimless" crime, as some have suggested. It is, however, a very difficult crime to prove because of its very nature and the secrecy with which it is surrounded by the perpetrators. Therefore, if there is a prima facie case, the Secretary of State is allowed to appoint inspectors who have extensive powers. Those powers are also contained in Sections 177 and 178 of the Financial Services Act 1986.

Of course, this omission could just be a simple error. Those sections of the Financial Services Act were not fully debated and the omission could have just passed unnoticed. If it is an omission, then the Bill will rectify it. If the omission is intentional, then it is mistaken. I believe it is mistaken because it leads to injustice, to trial by the media; it encourages people to try the same trick again and leaves the regulators in ignorance. It also hides the truth.

When the investigations are ordered, the intention is that they are carried out in secret. Evidence is taken under oath and witnesses are not told why they are being questioned. The investigators are usually eminent professionals. In theory, there should be total secrecy. In practice, news leaks out, particularly if those involved are newsworthy, as happened in the Lonrho case, the Maxwell case and the Archer case. Because there is meant to be secrecy, points of fact cannot be confirmed and facts can be invented. Let me give an example. In the case of the noble Lord, Lord Archer, and the Anglia Television shares, many people were convinced that there had been insider dealing because of the fact that a fax was sent by Anglia to the home of the noble Lord, Lord Archer, and Lady Archer with details of a board meeting. No such fax was ever sent. It was pure invention by a journalist and the newspaper printed a retraction some days later. As a matter of courtesy, I wrote to the noble Lord, Lord Archer, about the Bill and he replied that he hoped to get to your Lordships' House to support the Bill. Unfortunately, he does not seem to be here.

It seems that the only way to deal with the speculation and invention is for the Secretary of State to make a clear-cut statement. Just leaving the matter in limbo allows people to draw their own conclusions of guilt or innocence, just because the process of investigation has taken place. If the public then remain ignorant of the outcome of the investigation, there is a clear case of injustice, because surely the purpose of an investigation is to discover the truth. If the investigation becomes public, the Government's very reluctance to make a statement makes it impossible for those investigated to clear their name. Equally, those who have been the victims of insider

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dealing will feel left up in the air and only a statement will tell them if they have just cause to feel aggrieved or not. They need to know the truth.

As well as avoiding trial by media and public frustration and dissatisfaction, there is another reason for publishing. Often these investigations cover a grey area which was not anticipated by lawmakers or regulators. The bid for Northern Electric by Trafalgar House is an example. Publishing the results of an investigation will throw light into this grey area and clarify a possible area of sharp practice. At the very least the publicity will ensure that somebody else does not try the same trick again, and regulators will be alerted to watch out in future. These are the obvious advantages of openness and transparency. There will also be some benefits to the public for the costs incurred.

I believe in fairness in the regulation of financial services as in all other sectors of business and industry. There should also be public accountability and protection of the public interest. By having the right to publish a report, the Secretary of State can ensure that there is fairness both to those being investigated and to those who are victims of insider dealing. The right to publish also enables the Secretary of State to act in the public interest by opening the matter to scrutiny and inspection. Publishing is an act of natural justice; it is an act of being in touch with public opinion.

With the permission of the House, I wish to apologise for the absence of my noble friend Lord Williams of Mostyn, who has unavoidably been called away.

I commend this Bill as a small contribution to openness and fairness in the nation's business life. I beg to move.

Moved, That the Bill be now read a second time.—(Lord Haskel.)

9.16 p.m.

Lord Clinton-Davis: My Lords, my noble friend Lord Haskel has done the House, and indeed the country, a service by identifying this particular area of the law which gives rise to a clear anomaly which requires rectification. As he explained, the Bill simply enables the Secretary of State for Trade and Industry to publish a report under Section 179 of the Financial Services Act where, in effect, he deems it appropriate and in the public interest so to do. It places such reports on a comparable basis to those issued pursuant to the Companies Act 1985. It does not oblige the Secretary of State to publish; it simply gives him an opportunity to do so—an opportunity that is substantially denied to him under the Financial Services Act, save in the limited circumstances upon which I shall touch in a moment.

As my noble friend pointed out, minds were concentrated on this point as a result of the Government's extraordinary, confusing, inconsistent, self-defeating and somewhat discreditable behaviour, and indeed unclear conduct, in relation to the allegations of insider dealing in Anglia Television shares last July. It was not a moment when the DTI could claim that it had covered itself with glory. When I refer to the DTI, I mean Ministers at the DTI. After all, they themselves broke the law. I hope,

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therefore, that this evening we shall not hear too much about the Government's respect for the law. I shall refer to that point in recapitulating the position briefly.

On 8th July last year, a series of announcements were made concerning this case by the DTI's press office. That morning—I read it in the newspaper and I pursued it then —a press release was issued indicating that the noble Lord, Lord Archer of Weston-super-Mare had been involved in an inquiry into allegations of insider dealing. It was a preliminary inquiry, not a final report. Within hours, it was alleged by the department that Anglia Television had itself named the noble Lord, Lord Archer, as having been involved in the inquiry.

Following vehement denials by Anglia Television of having divulged any such information, the DTI retracted the charge. It then insisted that it had been impelled to issue the statement because a representative of a newspaper had telephoned the DTI's press office and said, "This is the information that we have received. Can you confirm that it is correct?" Instead of saying—as I and my services have done on not dissimilar occasions when I was responsible for company investigations during the Labour Government—that the law proscribes any such publication and that if the newspaper concerned chose to publish the information, it would face prosecution, the DTI simply capitulated; and it must have capitulated on the basis of ministerial decision.

So I now invite the House to consider the absurd reasons that were given for that decision. In answer to a Question that I raised in the House on 22nd July last, the noble Earl, Lord Ferrers, said:


    "The simple fact of this case—and all these matters are deeply unpleasant"—

you can say that again—


    "—is that representatives of the newspaper telephoned the press office and said, 'This is the information we have received. Can you confirm that it is correct?' If we confirm it, it becomes unpleasant; if we equivocate, it is the equivalent of a cover-up, with all the row that ensues thereafter. That is the reason it was considered appropriate in the public interest to confirm the fact".—[Official Report, 22/7/94; col. 471.]

There is not a word there about saying that if the newspaper published, it could and would be subject to prosecution.

When I raised with the noble Earl that specific point, he replied that,


    "it is not the responsibility of the Department of Trade and its press department to inform people whether or not they are committing a criminal offence".

What an extra ordinary proposition that is. The Government will say next that it is not the job of the police to warn a member of the public that in certain circumstances he might be committing a criminal offence. The Department of Trade and Industry is in a regulatory and supervisory role here. Of course it is its duty to say, if an offence appears likely to be committed, that the most stringent, draconian measures will be taken to uphold the law. I hope that tonight the Minister will not be put in the position of saying that this Government have regard for the law, because they do not. They were found out on that occasion.

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The truth is that the law does not permit names to be published. The Government themselves broke the law. No name should have been revealed. If the Government take issue with me on that point, I shall ask under what statutory authority they acted in revealing the noble Lord's name on that occasion.

The reason for the rule is that a preliminary inquiry, whether under the Financial Services Act or the Companies Act, makes no findings of impropriety. At that stage the persons involved have had no opportunity to put their case. So it follows that to divulge names is grossly unfair. In that case, the Government achieved the worst of all worlds.

There is power, as my noble friend pointed out, that under the Financial Services Act a report can be published following a full inquiry by inspectors in very limited circumstances; namely, by obtaining the consent of the parties to the inquiry. Yet, in this case, where the Government themselves had departed from the rules of confidentiality at the early stage to which I referred the DTI made no attempt to ascertain from the noble Lord, Lord Archer, whether he would have consented to publication. However, I have reason to believe that he would have had no objection to that course being followed. So why did the Secretary of State not make that simple inquiry? What did he have to hide?

The Government say that, taken in its generality, it would be wrong to depart from a precedent that they themselves had established. I believe it to be a doubtful precedent. My noble friend argued earlier that the question of publication of reports is not an issue which was debated in either House of Parliament. Perhaps that was an omission, but I do not believe it to be so. It casts strong doubts on the Government's claim that they welcome transparency. It is the very converse of transparency. Yet what has happened in this case, and no doubt in others, involves a leading politician in this country and a Member of this House. The public's anxieties about what happened will have no chance of being allayed if the Government stand where they have stood for months on this matter.

What arguments can be canvassed against the Bill? First, let me underline the point made by my noble friend that the issue of publication of reports under the Financial Services Act, as I said before, was not canvassed. I should like to know why the Government are so determined that it should not be canvassed now.

The Financial Services Act deals exclusively with insider dealing, which is a serious criminal offence, as my noble friend said. It is therefore different, some would say, from reports issued following Companies Act investigations. Is that really the case or is it not a misleading proposition? It is certainly a proposition that I have heard argued. Inquiries under the 1985 Companies Act can investigate aberrant behaviour of companies, directors and other officers of companies which may or may not be criminal. Obviously, if a report or interim report leads to prosecution it is usually the case, though not always, that publication would not precede prosecution.

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The second argument sometimes adduced is that Companies Act inquiries are also concerned with recommendations to fill gaps in the law revealed by the case and the report in question. Surely the same must apply to the Financial Services Act.

The third argument that I have heard used is that it is wrong to publish information pursuant to a Financial Services Act inquiry because it might assail the integrity of an individual when no prosecution follows. Of course, that is not consistent with what the Government permitted in the case concerning Anglia TV and, indeed, in another case in 1988. In any event, the argument does not hold water; exactly the same may be said of a report issued under the 1985 Companies Act.

As has been said before, the scope of the Bill is limited. It does not compel publication; it does not force the hand of the Secretary of State; it does not automatically remove confidentiality. It enables the Secretary of State to publish where he considers it appropriate and in the public interest so to do. That is fair; it is equitable. It accords with the public interest in a way that is ignored by the present law. If that is not done, what will happen is what happened in the case involving the noble Lord, Lord Archer; we will have a flurry of speculation, rumour and gossip which is really the enemy of a good political society.

Transparency is usually better than secrecy—though there may be circumstances, I concede entirely, where the Secretary of State may say that he cannot publish in certain circumstances. He would then be accountable to the House instead of the present situation where he hides behind this veil of secrecy and says, "I have no power to do it". In fact, the Prime Minister, in answer to Questions on this matter, did not even recognise that there was a power, in certain circumstances, to publish even under the inadequate provisions of the Financial Services Act.

I believe it to be in the interests of the City that we should remove this anomaly. It is in the interests of good government to do so. I conclude on this note: one of the matters that the Government insisted on, as I read out from the Official Report of 22nd July, is that they had to break the law themselves because they were afraid of allegations of a cover up. That is precisely the view the public will take about the Government's behaviour in this instance. Here we have an opportunity in this House and, I trust, in another place, to deal with the situation properly. I hope that the Minister will come forward with a positive response.

9.29 p.m.

Lord Inglewood: My Lords, I have listened with great interest to the debate that has taken place this evening. I congratulate the noble Lord, Lord Haskel, on bringing the Bill forward and I thank the noble Lord and the noble Lord, Lord Clinton-Davis, for drawing this important matter to the attention of the House.

I must say at the outset that if the Bill were to become law it would, in the Government's view, hinder rather than assist the process of detection and prosecution of insider dealing offences.

I should like to begin with the existing law and procedures. Section 177 of the Financial Services Act 1986 provides that, if it appears to the Secretary of State

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that there are circumstances suggesting that an offence under the insider dealing legislation may have been committed, he may appoint inspectors,


    "to carry out such investigations as are requisite to establish whether or not any such contravention has occurred".

The appointed inspectors have powers to require any person who they believe has relevant information to produce documents and to give evidence to them. The primary purpose of the reports such inspectors produce is to enable the Secretary of State to consider whether to institute a criminal investigation or to pass the information to those bodies responsible for considering regulatory action. Accordingly, they typically detail the facts as they have found them. They express opinions on such matters as the state of knowledge and possible motives of those investigated and they offer an opinion on whether offences have been committed.

As the noble Lord, Lord Haskel, himself pointed out, the wording of the Bill relies heavily on the wording of Section 437(3) of the Companies Act 1985 governing the disclosure and publication of reports of company inspections under Section 432. In fact the role of the Companies Act inspectors is quite different from that of Financial Services Act inspectors appointed to investigate possible insider dealing. Financial Services Act inspectors are charged with uncovering whether or not an offence may have been committed and by whom. By contrast the task of Companies Act inspectors is to investigate and report on "the affairs of a company" rather than the activities of particular individuals. The task of Companies Act inspectors is to uncover and report the facts in cases where there may have been considerable public and shareholder concern. Their primary function is thus to set out the relevant facts in a report which can be published. It is not their job specifically to consider whether criminal offences may have been committed. Indeed, where the work of Companies Act inspectors reveals possible offences, the legislation provides that the Secretary of State may pass information that they provide to him to an appropriate prosecution authority and direct the inspectors to take no further action.

There was no doubt in your Lordships' minds about the need for different disclosure regimes for insider dealing and Companies Act inspections when the Financial Services Bill was considered in the House in July 1986. I should particularly like to refer to the comments of my noble friend Lord Lucas of Chilworth, reported in Hansard on 29th July 1986, where he specifically addressed himself to this matter. Talking about the inspector, he said that his reports would not be published. Indeed, concern was expressed then that the Bill might not contain sufficient safeguards for individuals who might be damaged by such reports. The House sought and received an assurance from the then Minister that the inspectors' task would be to establish facts in a straightforward way and that their reports would never be published.

There were good reasons for opposing publication of such reports then and those reasons still apply today. First, it would make it more difficult for the inspectors to obtain evidence that an offence had been committed.

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Although inspectors have compulsory powers to require co-operation from any person they consider may be able to give information concerning the case, witnesses would be less forthcoming in their responses to questions if they knew that publication of the report was an option. Secondly, it would delay the progress of inspections considerably.


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