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Lord Elton: As a listener to the debate, I had regarded the words that my noble friend seeks to insert into the clause as being some remedy for the presence of the word "deliberately" earlier in the paragraph. Can the Minister assure us that a failure through negligence by a person conducting this business is equally culpable under some other part of the Bill? Or is it that ignorance of the law is a defence, uniquely, in this position?

Lord McIntosh of Haringey: As I said, the law that applies is the law of constructive trusteeship. I would not dare to try to interpret that law. There is a great deal of case law on the subject; the issue is not a new one. I hope that the noble Lord will allow me to write to him on the subject.

Lord Elton: With eager pleasure.

Lord Kingsland: I shall avoid entering into that debate. The Minister is clearly in the frame of the mind where he says to the Opposition, "We entirely agree with the motive behind your amendment but, on the wording of the Bill, it is unnecessary". I shall reflect on his response. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord McIntosh of Haringey moved Amendment No. 230C:


The noble Lord said: I spoke to this amendment with Amendment No. 226D. I beg to move.

On Question, amendment agreed to.

Clause 131, as amended, agreed to.

Clauses 132 to 134 agreed to.

Clause 135 [Endorsement of codes etc. issued by other bodies]:

Lord McIntosh of Haringey moved Amendment No. 230D:


    Page 63, line 14, at end insert--


("(2A) At any time when endorsing rules are in force, and if asked to do so by the Panel, the Authority may exercise its powers under Part IV or section 65 as if failure to comply with an endorsed provision was a ground entitling the Authority to exercise those powers.").

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The noble Lord said: In moving Amendment No. 230D, I shall speak also to Amendments Nos. 230E and 230F.

These are three technical amendments to Clause 135 in the light of discussions between the Treasury and the takeover panel. The clause confers a power on the authority to make rules endorsing the City code on takeovers and mergers (the takeover code) and the substantial acquisition rules, which I gather are known as "SARs". Generally, these endorsing rules cover areas where the FSA would not be able to make rules--that is, in relation to conduct during public takeovers. The effect of this clause is that the authority may exercise its disciplinary powers over authorised persons for a breach of the endorsed provisions of the takeover code or SARs, if the takeover panel has requested it to do so.

Amendment No. 230D proposes that a new subsection be introduced after subsection (2) enabling the authority to exercise its disciplinary powers under Part IV or Section 65 in circumstances equivalent to those set out in subsection (3). This will specifically enable the panel to invoke the authority's disciplinary powers with regard to approved persons in addition to its powers referred to in subsection (3). Amendment No. 230E, which proposes to delete the reference to Part IV in subsection (3), is consequential upon this new amendment.

Amendment No. 230F proposes that a new subsection be introduced after subsection (3) making it clear that a failure to comply with a requirement imposed, or ruling given, under an endorsed provision is to be treated as a failure to comply with the endorsed provision under which that requirement was imposed or ruling was given. This will ensure that proper account is taken of the exercise of the panel's discretion under the City code.

As I say, these are technical amendments. There is a much more important issue in relation to the takeover code which I have discussed with its representatives. I suggest that it would be more appropriate to deal with that when we come to the Opposition's proposed new clause which it seeks to have inserted after Clause 389. I beg to move.

6.15 p.m.

Lord Elton: I have a small question for the Minister. I apologise for not giving him notice of it, but it is probably very simple to answer.

It is apparent from Clause 135 what happens when the takeover panel makes a rule and the authority decides to endorse it. What happens to the endorsement when the takeover panel decides to withdraw a rule? There seems to be a machinery for putting endorsements in place; I take it that there is a machinery for removing them. I dare say that it is only the size of the Bill and the limited time that has prevented me from finding it, but I do not know where it is.

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Lord McIntosh of Haringey: When these powers are being put into place, the issue is to make sure that there is not a gap--in other words, there is no period during which no rules are being applied. When a rule is withdrawn or repealed, that problem does not arise because no disciplinary action is called for.

Lord Kingsland: We are perfectly content to endorse these amendments. As the Minister is well aware, we have other concerns about the relationship between the takeover panel and the authority. We raise these concerns in Amendments Nos. 276E and 276F.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendments Nos. 230E and 230F:


    Page 63, line 16, leave out ("IV,").


    Page 63, line 18, at end insert--


("( ) For the purposes of subsections (2A) and (3), a failure to comply with a requirement imposed, or ruling given, under an endorsed provision is to be treated as a failure to comply with the endorsed provision under which that requirement was imposed or ruling was given.").

On Question, amendments agreed to.

Clause 135, as amended, agreed to.

Clauses 136 to 138 agreed to.

Clause 139 [Modification or waiver of rules]:

Lord McIntosh of Haringey moved Amendment No. 230G:


    Page 65, line 6, leave out paragraph (d).

The noble Lord said: I spoke to this amendment with Amendment No. 226D. I beg to move.

On Question, amendment agreed to.

The Deputy Chairman of Committees (Baroness Gardner of Parkes): In calling Amendment No. 230H, I should say that if this amendment is agreed to I cannot call Amendments Nos. 230J and 230K.

Lord Kingsland moved Amendment No. 230H:


    Page 65, line 18, leave out from ("may") to ("the") in line 22 and insert ("only give a direction if it is satisfied that").

The noble Lord said: In moving Amendment No. 230H, I shall speak also to Amendment No. 231A, as the grouping requires.

Lord McIntosh of Haringey: The noble Lord will have to speak also to starred Amendments Nos. 230J and 230K because they will be pre-empted if this amendment is agreed to. He will have to make up his mind which amendment he is going to go for.

Lord Kingsland: I am most grateful to the Minister for pointing that out. I may need to sit down, reflect and stand up again before I move on to his agenda.

Amendment No. 230H relates to Clause 139. It is an important provision in the Bill which allows the authority to direct that all or any of the regulatory rules set out in Clause 139(1) are not to apply to an authorised person. It also allows the authority to direct

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that the rules can apply to such a person with such modifications as may be specified in a direction to be made by the authority. However, as I understand it, under Clause 139(4) the authority's power to give such a direction is qualified by two conditions. The first is that the authority must be satisfied that,


    "compliance by the authorised person with the rules, or with the rules as unmodified, would be unduly burdensome or would not achieve the purpose for which the rules were made".

The second qualification is that the authority must be satisfied that:


    "the direction would not result in undue risk to persons whose interests the rules are intended to protect".

The first qualification is a severe limitation on the ability of the authority to make use of the power of modification. It is likely that circumstances where rules would be unduly burdensome or would not achieve the purpose for which the rules were made would be rather rare. It is in a case such as this where some flexibility would be most desirable. This amendment seeks to remove the first qualification, with the result that Clause 139(4) provides that the authority may only give a direction if it is satisfied that the direction would not result in undue risk to persons whose interests the rules are intended to protect.

It is also worth noting that there are further safeguards in that under Clause 139(5) "a direction may be given subject to conditions", and the authority may also, under Clause 139(6), publish the direction in a way most suitable for bringing the direction to the attention of those most likely to be affected by it.

I turn to Amendment No. 231A which relates to Clause 148. Clause 148 relates to guidance. This amendment would ensure that an authorised person who acts in accordance with guidance is treated as satisfying the requirements of the relevant rule. The purpose of the amendment, principally, is not to forestall the authority bringing an action itself, but to prevent investors claiming that a firm has none the less contravened the rule and accordingly has brought an action for damages under Clause 141.

The issue of guidance is extremely important for the Opposition. As the Minister will be aware, one of the most important uncertainties in the field of action of the firm in the City is regulatory uncertainty. We believe that this uncertainty would be substantially reduced by a rule that stated that if an authorised person acted consistently with guidance it would make that person immune, not only from action by the FSA but also by action from a private party.

We recognise that the Minister might be reluctant to give us such a sweeping exemption. However, there is another way that this problem can be largely, if not entirely, met. That is by the authority being prepared to give specific guidance in instances where it is asked for. For example, a financial institution may, in innovatory mode, have a new way of approaching a problem which would create business not only for itself, but for the United Kingdom abroad.

If the financial institution comes to the authority and says, "I am not sure whether this complies", surely it must be in the interest of the authority to give clear

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guidance on whether it complies or not? What possible reason could the authority have for denying help in these circumstances? Yet, as I understand it, in another place, the Government was most reluctant to provide guidance in these circumstances.

Earlier on in Committee stage I made the statement that there seemed to me to be circumstances in which regulatory risk was a bigger risk for an operator in the City than the risk provided by the markets in which that operator conducted his business. I well remember a groan emitting from the Government benches.

This is the correct context in which to make that point again. The Government have a clear opportunity to make a statement now that if an authorised firm, operating in the market, complies with general guidance, it will be immune from suit. Or, alternatively, that to provide for an authorised firm that seeks the authority's help to decide whether or not what it is about to do might breach the law, the Government will introduce a clause in the Bill which requires the authority, within a reasonable time, to react positively to such a request. I beg to move.


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