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Lord Kingsland: This seems to be the world of Alice in Wonderland. The authority issues guidance to the authorised community; a member of the authorised community faithfully follows it; and as a result of doing so he exposes himself not only to an action by a private party but also to the authority itself, even though it is what the authority has told the authorised party to do. That cannot be right.

Lord McIntosh of Haringey: We are talking about a waiver here. The amendments would provide that a person who has complied with guidance would be let off an action for breach of statutory duty. It is the other way round.

Lord Kingsland: I am talking about my Amendment No. 231A and the shelter the guidance ought to give someone if he complies with it. I adopt wholly the speech of the noble and learned Lord, Lord Donaldson, in that respect. As he said, the authority has huge discretionary powers. If it chooses to exercise its discretionary power in a certain way and the authorised party follows the exercise of that discretionary power, that party ought not to be vulnerable.

Lord McIntosh of Haringey: I must agree to disagree. I shall think about the noble Lord's point and, without any commitment, I shall attempt to resolve the matter so that there is not a misunderstanding between us and write to him between now and Report stage.

Lord Donaldson of Lymington: While the Minister is thinking about these matters, will he think also about a confusion that has been creeping in to the discussion? I refer to the difference between "guidance" and "waiver". Noble Lords have spoken as though a waiver made by a rule-making authority were an indication that someone could by-pass the rules. I do not think that that is quite the right analysis. It is a rule-making authority that will give the waiver--perhaps "waiver" is the wrong word. The authority will modify the rule in that case, rather as the Takeover Panel has always done.

Lord McIntosh of Haringey: I have been waking up at a quarter-to-four in the morning thinking about these matters. I shall go on doing so, and I shall write to the noble and learned Lord.

Lord Kingsland: With respect to the Minister, the noble and learned Lord's intervention is pertinent. On what other basis were the amendments grouped?

Lord McIntosh of Haringey: It was the noble Lord, Lord Kingsland, who agreed to the grouping. We

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thought that we had grouped them together because they all dealt with conditions under which waivers could be applied.

Perhaps I may say a further word about guidance. The noble Lord, Lord Kingsland, raised this matter when we were talking about market abuse. He spoke about SEC no-action letters. No-action letters are non-binding. So long as a person has acted within current written guidance issued to him in the circumstances contemplated by the guidance the FSA will not take regulatory action against him. That was reflected in the September 1999 policy statement, to which I have already referred, on the FSA's approach to giving guidance and waivers to firms.

Similarly, where matters are referred to the tribunal, the authority's chances of successfully bringing an enforcement action in relation to a person who has fully complied with guidance must be seen as pretty low. In criminal proceedings, Clause 22 of the Bill provides that it is a defence for an accused to show in relation to an alleged false claim to be authorised or exempt that,

    "he took all reasonable precautions and exercised all due diligence".

Under Clause 23, in relation to an alleged breach of the financial promotion prohibition it is a defence for the accused to show,

    "that he took all reasonable precautions and exercised all due diligence to avoid committing the offence".

Both defences may well focus on reliance on FSA guidance.

But the Bill does not just provide for FSA guidance. Clause 139 provides the FSA with waiver powers in relation to all or any of the rules specified in Clause 139. Once a waiver has been given, the FSA will not be able to take action for breach of a particular rule if someone has acted in accordance with the waiver. This supplements the guidance provisions under the Bill, ensuring that authorised persons are treated fairly.

In simple terms, a "waiver" means that the rule is disapplied or modified; and that has binding effect. "Guidance" is the interpretation of a rule to assist the firm; and that is not binding. We shall have to think about the different words, some of which, I admit, are not used in their normal common parlance sense. As I say, I shall wake up in the early hours of the morning, and when I have done so I shall write to all noble Lords who have taken part in the debates.

Lord Kingsland: Meanwhile, I shall console the Minister by begging leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 230J and 230K not moved.]

Clause 139, as amended, agreed to.

Clause 140 agreed to.

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Clause 141 [Actions for damages]:

Lord McIntosh of Haringey moved Amendment No. 231:

    Page 66, line 35, after ("include") insert ("--

(a) listing rules; or

The noble Lord said: I spoke to this amendment with Amendment No. 180. I beg to move.

On Question, amendment agreed to.

[Amendment No. 231XA not moved.]

Clause 141, as amended, agreed to.

Clauses 142 to 145 agreed to.

Clause 146 [Consultation]:

Lord Saatchi moved Amendment No. 231YA:

    Page 68, line 6, after ("2;") insert--

("( ) a statement of the extent to which the Authority has taken into account the matters in section 2(3) in making the proposed rules;").

The noble Lord said: In moving this amendment, I shall speak also to Amendment No. 231ZA. The Committee will note that, in addressing Amendment No. 231YA, I shall follow the path of the noble Baroness, Lady Turner, in wanting to see spelt out on the face of the Bill for the absence of doubt a matter that I in my case and the noble Baroness in her case think is of great importance.

The background to the amendment is that Clause 146 requires the FSA to carry out a consultation exercise where it proposes to make any rules. The consultation procedure is defined in the clause. First, a draft copy of the rules must be published; then, together with the rules, there will also be published a cost-benefit analysis and certain other items referred to in subsection (2).

The amendment adds a further item to the list in Clause 146(2) of items that would be published with a draft copy of the rules. The additional item that we propose is a statement showing the extent to which the FSA has taken into account the provision in Clause 146(3) in making the proposed rules. Members of the Committee will remember that Clause 2(3) requires the FSA, when discharging its general functions--which include the function of making rules--to have regard to the matters described in Clause 2(3). Among those provisions it is stated that the global nature of the financial services market and the desirability of maintaining the competitive position of the UK should be considered and regard should be paid to them. Therefore, the purpose of the amendment is to require the FSA to focus on its obligations under Clause 2(3) by producing the form of statement described in the amendment.

Amendment No. 231ZA deals with the point that the FSA's obligation to consult on the rules referred to in Clause 146 presently applies only to new rules made after the coming into force of the legislation. However, the Government are expected to introduce a series of transitional provisions which will "grandfather" a significant number of existing rules which will be carried forward under a new regime. If that is so, the

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cost-benefit analysis requirement will not apply to those grandfather rules. Therefore, the purpose of our amendment is to require the FSA to review all the rules made by it within a proposed period of three years after they have been made to determine whether they indeed serve the purpose for which they were made in the first place.

If the FSA concludes that the rules should be changed in a way which is in its opinion "significant", the FSA will be obliged to make new rules to which the consultation provisions of Clause 146 will apply. However, where the FSA concludes that the rules should be approved in the form then in force, or in a form which does not differ very much from those rules, it will nevertheless be obliged to carry out a consultation exercise on the rules and issue a cost-benefit analysis.

The effect of our amendments is that the FSA will be under a continuous obligation to review its rules, carry out consultation exercises and issue cost-benefit analyses, with the result that no rules will exist which are not kept up to date and tested on a regular basis against the discipline of a cost-benefit analysis.

Members on these Benches have referred on many occasions to the importance that we attach to people's concerns that the Bill has the potential to create bureaucracy and stifle competition. That is why the amendments are important to us. They mean that competition will be raised to a higher level, as we have sought to do in other parts of the Bill, and that redundant rules will die an early and timely death. I beg to move.

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