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As regards Amendment No. 152, on page 22, line 4 of the Bill, after the word "instruction", it seeks to insert "without reasonable excuse". Clause 46 gives the authority power to impose requirements on authorised
However, if the institution complies with the instruction from the authorised person, it is liable to pay to the authority an amount equal to the amount transferred. It does not seem reasonable that the institution must be automatically liable when complying with such an instruction when it appears that the requirement imposed by the authority is not an absolute requirement. Therefore, to balance the approach adopted in Clause 46(5)(a) it would be reasonable to include the words "without reasonable excuse".
I can deal with Amendment No. 153 much more telegraphically. The amendment relates to page 21, line 15, where the expression "the liquidator" is left out and the expression "a liquidator of A" is inserted. It is a drafting amendment. Clause 46(7) refers to a "liquidator" but does not specify whose liquidator is being referred to. It is probably a liquidator of A, and hence the amendment.
Clause 46(8) dictates the circumstances in which assets are treated as held by a person as a trustee, and so are subject to the assets requirement referred to in subsection (3). In another place, the Government argued on Report--as indeed they had in Committee--that if, as we had originally suggested, both A and the authority could notify the trustee, they both would do so and so would confuse the trustee. However, we want the authority to be included as a party notifying the trustee because otherwise, if A decides not to notify, as is quite likely, the asset requirement will not apply and investors will lose out. To avoid the Treasury's justification for refusing our amendment, therefore, we should provide that it is only the authority that notifies the trustee.
In this context, I should mention that the European Court of Human Rights has just agreed in two cases that it would make the trial unfair if any evidence was not given to a defendant, even if the evidence was subject to a public interest immunity certificate. The important thing is that disciplinary proceedings are probably within Article 6(1) of the European Convention on Human Rights, and, indeed, the Treasury confirmed in its submission to the Burns committee in May 1999 that it thought that that was the case. Article 6(1) requires that the hearing should be "fair"; and therefore these protections would apply in the case of disciplinary proceedings, at least before the tribunal. I beg to move.
Lord McIntosh of Haringey: I should say first that, since the side headings to clauses are not part of the Bill, I think the side heading to Clause 46 is misleading. The clause relates to assets management, not prohibitions and restrictions more generally.
However, I am grateful for these helpful amendments, which seek to clarify the effects of assets requirements imposed by the authority under Clause 46. The FSA may impose requirements on authorised persons either restricting the use or disposal of their own assets or requiring the transfer of their assets or investors' assets to an approved trustee. These restrictions might be imposed if the FSA has concerns about the authorised person's solvency or suspects fraudulent behaviour and the FSA wishes to safeguard the position of consumers.
The clause provides for notification to other institutions, such as a bank where the person subject to restriction has an account. It protects those institutions from actions for breach of contract if they comply with the terms of the restriction.
Amendment No. 151 seeks to extend that protection to other obligations or duties to which the institution may be subject, such as a fiduciary duty or a duty of care. We fully agree with the intention of the amendment in that the bank needs to be able to rely on the restriction as a defence to an allegation that it has acted in breach of such a duty.
I also think it is desirable that the implications should be clear, so that there is no doubt in the minds of the financial institution, the firm or of any third party as to whether the protection extends beyond contractual duties. It should not be necessary for the parties to have to obtain legal advice before complying. On the other hand, this amendment is arguably unnecessary because the existence of such a restriction would normally be recognised as a defence in equity or in tort in any event.
So I should like to consult parliamentary counsel on the exact drafting of this provision. For example, we might not want the terms of a restriction to override, say, the terms of a binding statutory obligation or duty. However, I undertake that we will consider this amendment further and, if appropriate, table an amendment on Report.
Amendment No. 152 concerns the liability which is imposed under subsection (5)(a) on a financial institution which acts in breach of a requirement notified to it by the authority. It would give the financial institution a defence to that liability if it could show that it had a "reasonable excuse" for having paid out or transferred any part of the account.
Again, I can see the intention behind the amendment. However, it is important to remember that we are not dealing here with punishment of the institution for an offence, but with safeguarding assets which may be owed to consumers or to other creditors. The effect of a breach of the requirement may well be to allow the firm subject to the restriction to dissipate its assets in a way that puts them out of reach of the firm's customers or creditors.
In such circumstances it is only right that an institution which has notice of the requirement should comply with it. Clearly there may be circumstances in which the notification has been garbled or not received, but in those circumstances no liability would attach to the institution in any event.
It is difficult to imagine any other circumstances in which the institution would have a reasonable excuse for having failed to comply with a requirement. However, even if it did, we do not think that it would be right to deprive the firm's creditors or other persons to whom the assets may properly belong. To allow institutions to look for excuses for failing to comply with requirements could seriously undermine the effectiveness of the requirements and would expose smaller institutions to undue pressure from unscrupulous and perhaps desperate firms.
Amendment No. 153, which the noble Lord dealt with in telegraphic form, is a drafting amendment. I appreciate the thinking and probably the grammatical correctness, but I do not think that there is any real doubt that the liquidator referred to must be the liquidator of the authorised person, A, and so I would ask that the amendment is not moved.
Amendment No. 154 concerns the position of a trustee appointed to hold assets pursuant to an assets requirement. Subsection (8) provides that assets will only be treated as being held in accordance with such a requirement if the authorised person has instructed the trustee to do so by written notice.
The amendment would require that notice to come from the FSA rather than the authorised person. I can see why it might be desirable in a few cases for the authority to be able to back up this notification, but I think this would cause more problems than it would solve. The requirement to transfer the assets to a trustee is imposed on the authorised person, and although the FSA must approve the trustee that the authorised person selects, it is the authorised person's obligation to transfer his assets to the trustee. He will not have complied with the requirement if he fails to notify the trustee that those assets are to be held in accordance with the requirement.
The proposed amendment raises all kinds of issues of principle and practice about the relationship between the FSA, the authorised person and the trustee. Transferring property without the co-operation of the owner of the property would be controversial. Courts can do it, but, even before the Human Rights Act, a person's right to quiet enjoyment of property has been taken very seriously.
At this point, perhaps I may say a word about the ECHR judgment to which the noble Lord, Lord Kingsland, referred. He was correct in what he said about a defendant's rights, and the arrangements under the Bill--notably for the independent tribunal--protect those rights. The SFA's actions in respect of authorised persons are generally civil, so it is not necessary in such cases to provide the criminal protections for market abuse that we have included in the Bill.
If the assets are in an authorised person's possession, then it is no use the authority telling the trustee that he must hold assets that he does not have on trust. The only way the assets will get to the trustee is by directing the authorised person to get them there. The proposal that the authority should be able to instruct the trustee that he should hold property on trust always overlooks this case.
If a third party actually has assets that belong to the authorised person in his possession, then, if it is an institution at which he holds an account, a restriction under Clause 46(3)(a) can be imposed and that person cannot deal with the assets. This limited interference with third parties reflects the special role played by banks in holding and transferring assets.
But in any other case, giving the FSA power to tell the third party what to do is not only an interference with the authorised person's enjoyment of property but a significant imposition on the third party. If the third party does not want to hold the assets on trust, the FSA would then have to go around trying to find a home for them and transferring them from one person to another on the way; or it would have to be given power over third parties to tell them that they have to have the assets and do what they are told (and what would happen if they disobeyed).
When a person becomes a trustee he is generally under an obligation to deal with property in accordance with the instructions of the owner. To interpose the FSA into this relationship would completely distort the relationship of trustee and beneficiary, and run the risk of souring the relationship. I should be surprised if there was not a lobby out there ready to make the case of what a great commercial disadvantage this would be to the trustee.
Under the current provision these questions are avoided. The FSA has powers over authorised persons who have voluntarily accepted the authority's jurisdiction over them by entering the field of financial services. The authority can direct them to do things. It can take action against them if they do not. In practically all cases it ought to be able to achieve the intended result.
The small number of cases in which this might not work or is inconvenient is part of the balance between an effective system and an intrusive one. So far, the FSA has little or no power over third parties. It does not have power to interfere with ownership of property over the head of the owner. I believe that it should stay that way.
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