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Lord Phillips of Sudbury: My Lords, this order is complicated and technical but it is of great importance within the charity sector. I should declare an interest as a solicitor whose firm acts for a number of the charities which will be affected by this order, and in particular the Charities Aid Foundation.

Over the years, some of the charities concerned have established common investment funds for the reasons clearly set out by the noble Lord, Lord McIntosh. Some of them now take the view that the removal of exemption from the trustees of the existing common investment funds will place the funds concerned in a problematic position. Some have decided that the better course is not to restructure so as to comply with the Financial Services Act under the aegis of IMRO but rather to set up OEICs (open-ended investment companies). For various reasons which it is not appropriate to explain here, some charities are of the opinion that the OEICs offer better scope and prospects for their investors.

As the noble Lord pointed out, the common investment fund is a particularly advantageous beast for small charities with relatively small funds. Such charities would otherwise not receive wholesale rates and would not have the advantage of best management. Secondly--this is really the point of my intervention--the fund is of particular advantage to those charities which have only a narrow constitutional right of investment; that is, a right of investment confined to the provisions of the Trustee Investments Act 1961 as amended.

As many of your Lordships will know, the statutory limitation requires that at least a quarter of the portfolio of the charities within the 1961 Act has to be invested in what are called "narrow range investments", which are generally thought to be disadvantageous in the modern investment world.

The problem is that OEICs do not have the particular advantage currently enjoyed by the common investment fund which, in effect, allows charities with whatever investment powers to invest in them without restriction. That will not be true of OEICs. Therefore, those common investment funds which wish to transmogrify into OEICs rather than restructure so as to comply with the new regime, might well find themselves caught between the devil and the deep blue sea.

The Government have, quite rightly, listened to representations and provided a six-month transitional period. However, the likelihood is that that will not be long enough to see the existing trustee investment legislation changed so as to allow small charities with limited investment powers to transfer their funds from the existing common investment funds into OEICs.

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There is in existence a Trustee Bill drafted by the Law Commission and largely promoted by the Association of Charitable Foundations. That Bill overcomes this technical problem, which, in effect, if passed will eliminate the 25 per cent narrow range band of investments.

I apologise for winding so gradually up to the question. I did so because otherwise it would make absolutely no sense to the uninitiated. I am not sure that it makes much sense now. Can the Minister give any guidance and assistance to those within the charity sector who are now having to make up their minds as to what to do? Plainly, those that want to transfer to OEICs would much prefer to be able to do so in one fell swoop. They would prefer to move from the common investment funds they now are into the OEICs they wish to become.

The worst of all worlds would be a situation where the new Trustee Bill is not brought before Parliament in time for it to pass into law within the six-month transitional period. It would thus leave those concerned having to obtain the new certification under the new regime. That is an extremely expensive and laborious business. It is expensive not only to the charities and hence to those who invest in them, but also to IMRO. There are a number of novelties in this group of investment funds which may want to become registered under the new regime.

Can the Minister give an assurance that the Government will consider bringing before Parliament, very soon, the Law Commission's Trustee Bill? That, in turn, would enable the trustee investment regime to be altered early enough to avoid the interregnum which would otherwise have to exist and which would cause cost, expense and inconvenience to all concerned.

Finally, perhaps I may make an observation on a separate, drafting point. Paragraph 1(2)(c) defines the pooling scheme fund. It states at the end that it is only a pooling scheme fund under this order where the property concerned is transferred into that fund by or on behalf of a charity whose trustees are the trustees appointed to manage the fund.

My question is simple. Is that wording intended to restrict the charity trustees referred to from appointing professional investment managers, as is the current practice? I am sure it is not. It would be wholly counter-productive to prevent the charity trustees of such pooling schemes from being able to appoint investment managers. However, given some of the past uncertainties, it would help if the Minister were able to say that my interpretation--namely, that they can appoint investment managers--is correct.

Baroness Seccombe: My Lords, we on these Benches believe that this order is not controversial and has been widely circulated. We are therefore content to support it.

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Lord McIntosh of Haringey: My Lords, I am grateful to both noble Lords who have spoken. The noble Lord, Lord Phillips, declared an interest, and I suppose that I should have declared an indirect, non-financial interest as my wife is a trustee of the Charities Aid Foundation and, until three years ago, was trustee of the two common investment funds which it operates. She is no longer, since it restricted the trusteeship of those funds.

The noble Lord, Lord Phillips, from his great knowledge of this area, raises a number of interesting points. I am sorry to have to say at the outset that there is no slot for the Law Commission's Trustee Bill at the moment. But the Lord Chancellor is keen on pushing forward Law Commission Bills, as the noble Lord will recognise, and I hope that we shall be able to get it on to the statute book, after due parliamentary consideration, as soon as possible.

The noble Lord, Lord Phillips, raised specific questions about the transitional arrangements and those common investment funds which choose to go in the direction of being open-ended investment companies rather than adopting the restructuring, as will most of the funds. Nothing in the order affects the ability of organisations to establish open-ended investment companies. The order follows extensive discussion with those who have been involved. The policy was announced in September 1998 and those who wanted to do so should have made a start on it before now. Including the 13-month period between September 1998 and now, and the transitional period provided in the order, all those involved will have had between 14 and 20 months to prepare for it. If there are any specific difficulties which the noble Lord would like to draw to our attention, I am sure that we shall take account of them.

Lord Phillips of Sudbury: My Lords, I thank the Minister for giving way. It is a bit tough to say that they should have been preparing their OEICs during the consultation period. There was great uncertainty as to what would emerge from the consultation and only since the way the cookie is crumbling has become clear have OEICs become the preferred alternative.

Lord McIntosh of Haringey: My Lords, I understand that point. But since the order, as it emerges, is very much in line with what those who were consulted wanted, they could have anticipated to some extent that they would get what they wanted; we are not entirely unreasonable people. However, as I say, if there are specific difficulties, I am sure that the noble Lord will draw them to our attention.

The noble Lord made a second point about the trustees of pooling funds. I am happy to confirm that nothing in the draft order affects the ability of trustees of pooling funds to appoint investment managers. I hope therefore that the House will see fit to approve the order.

Baroness Seccombe: My Lords, as other noble Lords who have spoken declared an interest, perhaps I should do so also. I am chairman of the trustees

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of Nuffield Hospital Pension Fund. I do not know whether or not that is relevant, but I felt I ought to make that declaration.

Lord McIntosh of Haringey: My Lords, unless they use a common investment fund, it is not a relevant declaration. However, I am grateful to the noble Baroness.

On Question, Motion agreed to.

Insurance Brokers (Registration) Act 1977 (Amendment) Order 1999

2.39 p.m.

Lord McIntosh of Haringey rose to move, That the draft order laid before the House on 19th October be approved [28th Report from the Joint Committee].

The noble Lord said: My Lords, the purpose of this order is to amend the schedule to the Insurance Brokers (Registration) Act 1977. That schedule prescribes the number of members of the Insurance Brokers Registration Council and how they are to be chosen. When the Act was passed, it was anticipated that the original provisions might be changed, and there are powers to amend those provisions.

Why is it necessary to amend the schedule? The House will be aware that the Government are currently making progress through Standing Committee in the other place with the Financial Services and Markets Bill. The thrust of that Bill is to create a single statutory regulator for the financial services sector. Last year, before the Bill was introduced and having consulted interested parties, the Government decided that, as regards the distribution of general insurance as opposed to long-term life insurance, statutory regulation might not be appropriate. It is a matter of balancing the costs and rigidities of statutory regulation against the requirements of consumers for adequate protection. The Government's view, and that of many who replied to the consultation, is that the case for statutory regulation was not proved.

However, there is genuine concern about the need for high standards of business conduct and propriety among those businesses which distribute general insurance. The former Economic Secretary to the Treasury, Helen Liddell, announced in July 1998 that the Treasury would look to the insurance industry and general insurance intermediaries to work together and devise an effective non-statutory means of promoting high standards of conduct. Progress in forming a general insurance standards council has been very encouraging so far. It is hoped that all those businesses which have gained financially from the distribution of general insurance will respond positively to the challenge of self-discipline.

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We intend to repeal the existing statutory regulation in the field of general insurance distribution; that is, we propose to take powers in the Financial Services and Markets Bill to repeal the Insurance Brokers (Registration) Act 1977, which sets up a council, charges it with carrying out certain functions and provides that those persons who wish to trade as insurance brokers (whether sole traders, partnerships or bodies corporate) must register or be enrolled by the council. Registered brokers must abide by rules set out by the council, which include a code of conduct, provisions regarding professional indemnity insurance and requirements as to financial adequacy, accounts and statements.

It is an offence to trade as an insurance broker without being registered. The costs incurred by the council are met from fees and there is no public funding. However, until the Act is repealed, the council remains answerable for the discharge of its statutory functions. Given the expectation of its being wound up, it is reasonable that the approach of the council should now be one of active care and maintenance. The changes proposed are intended to help the council conduct affairs in that fashion.

As I said, the schedule to the Act prescribes the size of the council, the number of its members and how they are to be chosen. The proposals in the order, which the House is now considering, will reduce the size of the council from 17 members to 10--six members of the current council who have been elected and four nominated by the Treasury--who will then serve until the council is wound up. However, as a contingency measure, the proposals also allow the Treasury, at the request of the council, to fill a casual vacancy should the council decide, in the light of its current situation, that to hold an election to fill such a vacancy would be wasteful of resources.

The Treasury will then make a further order, which will be subject to annulment--in other words, to the negative procedure--to replace the existing requirements as to elected members of the council with simpler requirements. It seems unlikely that the new election scheme will be activated, but the Treasury wishes to provide for that to happen just in case winding-up takes longer than expected. The original intention was that a majority of members of the council should be elected from the broker community. These proposals are designed to ensure that that intention is respected.

Finally, I should like to assure the House that, in accordance with the existing schedule--much of which will remain in place--the council has been consulted on this draft and on the other order to which I referred. I am pleased to tell the House that council and Treasury officials have worked closely together in developing these proposals. I beg to move.

Moved, That the draft order laid before the House on 19th October be approved [28th Report from the Joint Committee].--(Lord McIntosh of Haringey.)

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