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Financial Services and Markets Bill

9 p.m.

House again in Committee.

Clause 110 [The Code]:

[Amendment No. 215 not moved.]

Clause 110 agreed to.

Clauses 111 and 112 agreed to.

Clause 113 [Power to impose penalties in cases of market abuse]:

Lord Kingsland moved Amendment No. 215A:

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 219A, 220A, 221A and 222A. These amendments really flow from the amendments that we tabled to Clause 109. The Committee will recall that, when I introduced our

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amendments to Clause 109, I said that our approach to that clause through our amendments sought to inject intention into the offence of market abuse, as well as to require the FSA to bring any proceedings for market abuse in the courts, along the lines of practice in the United States.

In pursuit of that policy, Amendment No. 215A seeks to ensure that, if the authority decides to bring market abuse proceedings, it does so on an application to the court. That is followed through in other amendments in this group: Amendment No. 220A seeks to insert the words, "apply to the court"; Amendment No. 221A would require the authority to,

    "apply to the court to impose";

and Amendment No. 222A would require the authority to,

    "apply to the court to impose a penalty on a person under section 113",

and so on. I beg to move.

Lord Donaldson of Lymington: At the risk of causing indigestion, I shall return to a matter upon which I would have elaborated earlier but for the fact that I realised I would be drummed out for interfering with noble Lords' dinner break. I really do not understand how the Minister can say that the Government have decided to pursue a "civil" regime on the grounds, as far as I can understand it, that we are now talking about lesser offences. The question of whether something is civil or criminal has nothing whatever to do with the enormity of the offence. Indeed, I only have to mention parking fines in that respect. They are a criminal offence, even if the average motorist does not realise it. There are many criminal offences that are of trifling importance; they are regulatory in character, but they are criminal. There is no question of mens rea or anything else arising.

The Government have not imposed on outsiders--that is, unauthorised persons--a duty, for example, in negligence. They have simply said that there is a requirement by society in this respect. That is criminal on any test. At least, I have never heard of any other test that could be applied to make it civil. In a sense, it does not matter and I accept that fact, but I fear that we shall have problems with the Strasbourg Court. I believe that it will say that it is criminal and that, therefore, we must have a criminal standard of proof and a criminal presumption of innocence.

Indeed, I think it will go further. I received a most helpful letter from the Minister suggesting that none of the safeguards that have been built into the Bill in relation to disciplinary activities by the FSA will necessarily apply to the exchanges and clearing houses because, as he says, you do not have to join them. They are, in effect, clubs. That really will not do. I am sure that it will not do for the Strasbourg Court. If I want to deal in cocoa, metal or whatever, I must join such organisations.

We cannot realistically have a situation where, for example, someone who is not an "authorised person" but who acted in conjunction with an "authorised person" who is a member of an exchange is charged

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with an offence of market abuse. In those circumstances, of course, the FSA would call it in because you cannot have two sets of proceedings going on together. But is it seriously suggested that the exchange proceedings are non-criminal and that the non-exchange proceedings are criminal? That just does not make any sense whatever.

One goes on from there to ask what safeguards must be built in for what one might describe as the domestic tribunals. In my book, you have to build in exactly the same safeguards as you build in in relation to the FSA--I say exactly, but mutatis mutandis--you cannot just leave it at that. I have recently sat on a tribunal for a clearing house. I have little doubt that I would be declared to be unacceptable by the Strasbourg Court because I am appointed for only a single case. I understand its point of view but I do not have to agree with it. It would undoubtedly take the view that anyone who is appointed for a single case cannot be independent, particularly if that person is paid, as he may wonder whether he will get the next case. I am bound to say that it is a matter of indifference to me for reasons of age and so forth, but I can well see that that will be said.

I feel strongly that once you go down the criminal route, as you have to do--it is no good the Government saying they are not doing that; they are, whether they like it or not--you then have to build in all the necessary precautions which are part of that. I discussed this matter with the noble and learned Lord, Lord Fraser of Carmyllie. My view was that the FSA had to appoint all these tribunals for the subordinate exchanges because that was the only way to achieve independence, and those have to be fairly long-term appointments. He said that he had talked to the FSA about this matter and it had thrown up its hands in horror at the prospect. If it was horrified at the prospect on the basis that it would have to be done charge by charge, I can understand that, but long term I think that that must be the case.

I know that I am going outside the scope of the amendments but I think that it is better to get it all off my chest now. The Government must also consider what the attitude of the Human Rights Court--a very peculiar body, as the noble Lord, Lord Kingsland, and I are agreed--will be when someone who is being prosecuted by the FSA can go to the entirely independent tribunal but someone who is being prosecuted by what I call a domestic tribunal cannot. That cannot be right.

Again, I think that serious consideration will have to be given to providing rights of appeal from what I call the domestic tribunals to the tribunal. The only thing that worries me about that is that I think that that might require an amendment to the Bill. Most of the other things can be done by the FSA requiring them to be done as the price of recognition, but I am not sure that what I have just mentioned can be done in relation to giving a right of appeal to the tribunal because it may go to the tribunal's jurisdiction, and it may be necessary to amend the Bill. But no doubt the Minister will give a little thought to that matter,

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although his thought processes will be clogged up by the fact that he is convinced that this is a civil matter, which it is not.

Lord McIntosh of Haringey: I think that it would be better if I respond to the amendment before I approach the wider issues raised by the noble and learned Lord, Lord Donaldson.

The effect of these amendments would be that a penalty for market abuse could be imposed by the court only following an application made by the FSA. That would mean that the FSA would no longer itself be able to impose a fine in uncontested cases. It would also mean that there was no role for the tribunal in a case in which a person wished to contest a decision on the part of the FSA to impose a penalty. In all cases, the FSA would have to apply to the court if a penalty was to be imposed. I can see why this might appear superficially attractive, given that market abuse covers both regulated and unregulated persons. However, I do not think that there would be anything to gain from it.

If a person is willing to concede that his behaviour was abusive and is willing to pay a penalty, it seems unduly burdensome to require the FSA to apply to the court before a penalty can be imposed. If a person wishes to contest a decision to the FSA to impose a penalty on him, then the Bill, as it stands, provides ample safeguards. The tribunal to be established under the Bill is a first instance tribunal, able to look at all the facts and consider all the merits of the case.

The tribunal will ensure that people enjoy their right to a full and fair hearing under Article 6 of the European Convention on Human Rights, with which it will be fully compliant. It will have a broad degree of discretion and the powers to overturn or correct the FSA's decisions as necessary. It will be entirely independent of the FSA. Indeed, it will be run as part of the Court Service and its members appointed by the Lord Chancellor.

There is, therefore, no reason of principle or convenience to insist that a penalty can be imposed only through the medium of the courts following an application to them by the FSA. Indeed, there are positive advantages to the approach which the Bill adopts in contested cases because the tribunal will be concerned only with financial services cases. The noble and learned Lord, Lord Donaldson, may not wish to be reminded of the industrial relations court, but of course one of its benefits--

Lord Donaldson of Lymington: I thoroughly enjoyed it!

Lord McIntosh of Haringey: I am sure that the noble and learned Lord did. One of the reasons was that it was a specialist tribunal dealing with industrial relations. The noble and learned Lord and his colleagues were dedicated to it for a very considerable period of time. That is exactly the position with the financial services tribunal. The Lord Chancellor will be able to appoint people with appropriate knowledge and experience and by dint of hearing cases referred to

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it, the tribunal will, like the industrial relations court, build up a considerable body of expertise in financial services. The tribunal, being concerned solely with referrals from the FSA, will also provide a quick and relatively inexpensive route for cases to be heard.

The fact that market abuse cases can be very serious does not mean that the tribunal is not the appropriate body. It will also hear referrals of FSA decisions to de-authorise firms or to prohibit individuals from being employed in the industry. These are big and equally important decisions.

I do not know whether I can go back to the debate about the civil or criminal regimes. It is very good that the noble and learned Lord has had the opportunity to set his views on the record. I know from what he said earlier that he agrees with the noble and learned Lord, Lord Hobhouse, but it has to be said that many people do not. The Joint Committee took the view that it was proper for the market abuse regime to be set up as a civil regime to complement the criminal law. I know that the noble and learned Lord and the noble Lord, Lord Kingsland, do not agree, but it is the Government's view. They have done so on proper, professional legal advice.

9.15 p.m.

Lord Donaldson of Lymington: I make it clear that I do not agree with the noble Lord, Lord Kingsland. Despite the fact that I believe this matter falls under criminal law, it does not follow that one ought to refer it to the courts. In my view it is a criminal tribunal.

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