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Lord McIntosh of Haringey: I shall speak first to Amendments Nos. 237F to 237H and 241A to 241F. We are broadly in agreement on the objectives of these amendments. We are keen that we do not go too far down a chain of causation, and that it is only the step which results in the acquisition of control that should need to be notified. It is also important that it should be made clear that the acquisition of control cannot proceed without approval.

When I looked at these amendments I had two thoughts. First, they appeared to be drafting amendments. They seemed to say the same thing as the Bill, but rather more elegantly than the Bill says it. I shall no doubt get into terrible trouble for saying that. I understand now that there may be points of substance in the difference in drafting. We believe that the text of the Bill is correct as it stands. However, I wish to think about the points that have been made by the noble Lord and, if necessary, consult further with our lawyers to make sure that no amendment is required. I should not like to think that we had turned down something which either constitutes more elegant drafting or which makes more clearly a substantive point that we wish to make. I hope that on that basis the noble Lord will not press the amendment.

Amendments Nos. 254L, 254M, 254YL and 254YM are also matters to which we have given much thought. The term "controller" has been defined--and has been included in the Bill rather late--in order to set thresholds for the point at which a person comes under the obligation to notify the FSA of their control. The term is defined in strict terms in Clause 397.

Clauses 247 and 265 do not set out a strict threshold test for the exercise of the FSA's powers to authorise or order the end of authorisation of a collective investment scheme. They are concerned with the matters which may be taken into account when the FSA is revoking an authorisation order for a collective investment scheme or when deciding whether an operator of an individually recognised overseas scheme and its trustees or depositories are fit and proper persons.

It would be absurd if, when making an assessment, the FSA could take into account the fact of a 10 per cent holding but not that of a 9.5 per cent holding. That would be the result of replacing "any person exercising influence" with the stricter term "controller", which is what these amendments would do. The amendments would introduce an artificial restraint on the FSA in the proper conduct of its duties. I hope that the noble Lord will not press these amendments.

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Amendment No. 278A is also interesting. The noble Lord explained it clearly. I am sympathetic to the point that he raises. I agree that there may be a degree of unnecessary double counting of shares and voting rights in the Bill as currently drafted. The noble Lord referred to a particular merchant bank and to a particular example. As I do not know which merchant bank he is talking about, I should be grateful if he will write to me about it and we can discuss the matter more effectively than we can across the Floor of the Chamber.

The amendment as drafted would breach the European directives--Article 11 of the Second Banking Directive and Article 9 of the Investment Services Directive--which state that a holding of voting rights or capital must be notified. The point raised by the amendment does not stand alone; it is one of several issues thrown up by the definition of "associate" in Part XII of the Bill.

There could be a similar difficulty in relation to provisional agreements between buyers and sellers of shares. We are considering the point that has been raised. As I say, we shall be glad to discuss the example that the noble Lord has mentioned. However, we recognise that there may be a need in the context of Part XII to take other steps to cut back on the existing procedures.

The noble Lord told the Committee that the DTI has advised that there is no need to aggregate nominee holdings for the purpose of the major shareholdings directive. The difficulty did not arise with the major shareholdings directive but with the investment services directive and the second banking directive, to which I have referred. They apply the requirements to holdings of shares or voting rights, and both count equally for these purposes. I hope that there will be no conflict between one directive and another, otherwise we shall get into deeper waters than we can deal with in the Committee.

Our aim is to strike the right balance between giving full effect to the requirements of the directives while not going too far the other way and imposing unnecessary, onerous requirements on people. This is a difficult exercise. We are currently trying to find a ready solution to the point that has been raised that is compatible with the directives. One approach we are considering is to introduce a power to exempt particular circumstances from the requirement to notify. But clearly further thought is required on these matters. On the basis of my response, I hope that the noble Lord will not press these amendments.

Lord Walker of Worcester: When the Minister said that he thought the amendments would add elegance to the Bill, I thought that he would immediately accept them. Anything that can add elegance to this Bill is something to be welcomed.

In reality, my noble friend made a very important point, which needs clarifying. I hope that if the Government do not take action we will return to it at Report stage.

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Lord McIntosh of Haringey: I did not reject the amendment on the ground of inelegance, nor did I put that forward as being the only consideration. I hate to say it, but in many ways this is a very beautiful Bill. It uses common language to give precision in a way that I have not encountered before in legislation. I am rather proud to be involved in it in that respect.

But my arguments against the amendment were not about the elegance or inelegance of the language but about compliance with European directives.

Lord Walker of Worcester: I can only say that, in all the legislation with which I was involved in the previous government, no Bill was beautiful if it needed several hundred government amendments.

Lord Kingsland: The Minister's emollient observations have had a suitably disarming effect on the Opposition Front Bench. It is the first occasion during the Committee stage of the Bill that I have been offered by the Minister what I would call "the Lord Hunt of Wirral facility"--that is to say, the offer to talk to me in private before the next phase. I feel particularly flattered that I have at last reached the point where I have been put on the same pedestal.

Lord McIntosh of Haringey: My door has been open throughout. It is always open.

Lord Kingsland: I like to wait for an invitation.

Lord McIntosh of Haringey: The invitation is now suitably made in public.

Lord Kingsland: I notice that I did not speak to Amendment No. 241M. Perhaps I might rather unconventionally do this now so that when we get to Amendment No. 241M I shall not have to speak to it again. I hope that the Minister will tolerate that because the amendment should be part of this group.

Part XIV of the Bill deals with disciplinary measures in the event of a contravention by an authorised person of a requirement imposed on him by or under the Bill. The authority has two basic disciplinary measures: the first is that the authority may publish a statement to the effect that it considers that an authorised person has contravened a requirement--the so-called naming and shaming measure in Clause 198; the second is that the authority may impose a financial penalty, and here the Committee has to look at Clause 199 to understand the details of that.

I understand that it has been a source of controversy that the regulators under the current regime have imposed substantial penalties on authorised persons, not only for breaches of business conduct rules but also for breaches of the FSA's statement of principles. As the Committee is aware, the statement of principles is drafted in very wide and general terms. For example, the first principle is that a firm should observe high standards of integrity and fair dealing. The second principle is that a firm should act with due skill, care and diligence. Because of the very wide scope of those

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principles, the regulators have found it relatively easy to establish breaches, and they have not hesitated to impose substantial fines in cases of those breaches.

In most of the cases of breaches of the principles a better remedy, I would submit, is the naming and shaming remedy in Clause 198. Therefore, Amendment No. 241M provides that:


    "The Authority may not in respect of any contravention of a statement of principle or code of practice with respect to the conduct expected of an authorised person ... require a person to pay a penalty under this section".

Lord Bach: I am not sure that Amendment No. 241M has been taken in the right order, but I am quite happy to reply to it briefly, if that would be to the convenience of the Committee. It does stand on its own in that sense.

As the noble Lord has explained, the effect of the amendment would be that an authorised person would not be required to pay a financial penalty in respect of a contravention of a statement of principle or code of practice. My honourable friend the Financial Secretary to the Treasury dealt with this amendment in some detail in another place. The only place in the Bill where statements of principle or codes of practice are provided for is Part V, which applies to approved persons rather than authorised persons. Part VIII of course applies for the market abuse code. Financial penalties for market abuse are provided for under that part, not Part XIV. In addition, a penalty under Part VIII is for committing market abuses defined in Clause 109, rather than for a breach of the code as such.

The principles for business are in fact not, in the terminology of the Bill, statements of principle, but are rules under Part X, albeit ones that are set at a very high level of generality. People certainly could be disciplined for a breach of them in the normal way. Most of the cases expected by the FSA will involve breaches of detailed rules and only some cases on the basis of the principles alone. As its use would be rare, it would not be sensible to remove the authority's ability to take action for breach of rules, even high level rules like the principles for business. Detailed rules are never going to be able to cover every eventuality, particularly in innovative markets. If an authorised person does breach a high level rule in a way which is not foreseen in more detailed rules, his conduct may just the same harm the interests of consumers. We believe it is right that the regulators should be able to take appropriate action. Without this option, the authority would inevitably, in the interests of protecting consumers, draw up more and more detailed rule books; a regime which was more highly prescriptive would serve only to increase costs and deter business. We do not want that. Nor do we believe it is what the industry wants either.

A Joint Committee under the noble Lord, Lord Burns, considered this issue at some length and came to the conclusion that strengthening the role of guidance was a better way to meet legitimate demand for greater certainty than writing more rules. The principles for business will be elaborated on by a body

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of rules, evidential provisions and guidance. The FSA make clear in its response to consultation paper 17 the importance of ensuring that the application of the principles of business is reasonably predictable. We agree with that. On that basis I hope that the noble Lord will consider withdrawing his amendment.


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