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Lord Kingsland: I am sorry if I spoke to that amendment out of turn. I had the impression that it was part of the group that I had previously dealt with. I am obviously not going to press this amendment, but I think the point that lies behind the amendment is a point that has lain behind a number of other amendments to the systems of codes, rules, guidance, principles and so forth. What the Opposition are seeking is as certain an environment as possible for authorised persons operating in markets.

In that respect, I believe that there is room for improvement in the Bill. I am not particularly concerned about how it is achieved--whether it is achieved by greater precision of principles or allowing guidance to have greater weight in terms of protecting an individual or even giving him a safe haven. The method used is not the most important part. The most important part is that the overall framework should provide a suitable degree of certainty; so that the market can remain confidently innovative without in any way being fraudulent or corrupt. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments No. 237G and 237H not moved.]

Clause 169 agreed to.

Clauses 170 to 172 agreed to.

Clause 173 [Notification]:

Lord McIntosh of Haringey moved Amendments Nos. 238 and 239:



    Page 88, line 12, leave out ("considers reasonable") and insert ("reasonably considers necessary in order to enable it to determine what action it is to take in response to the notice").

The noble Lord said: These amendments were debated with Amendment No. 155. I beg to move.

On Question, amendments agreed to.

Clause 173, as amended, agreed to.

Clauses 174 to 176 agreed to.

Clause 177 [Objection to acquisition of control]:

Lord McIntosh of Haringey moved Amendment No. 240:


    Page 89, line 28, leave out from ("of") to ("would") in line 30 and insert ("consumers").

The noble Lord said: This amendment was debated with Amendment No. 62. I beg to move.

On Question, amendment agreed to.

Lord McIntosh of Haringey moved Amendment No. 241:


    Page 89, line 44, at end insert--


("( ) "Consumers" means persons who are consumers for the purposes of section 129.").

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The noble Lord said: I should have moved Amendment No. 241 with Amendment No. 240. I beg to move.

On Question, amendment agreed to.

Clause 177, as amended, agreed to.

Clauses 178 to 180 agreed to.

Clause 181 [Notification]:

[Amendments Nos. 241A to 241E not moved.]

Clause 181 agreed to.

Clause 182 [Offences under this Part]:

[Amendment No. 241F not moved.]

Clause 182 agreed to.

Clauses 183 and 184 agreed to.

Clause 185 [General grounds on which powers of investigation are exercisable]:

Lord McIntosh of Haringey moved Amendment No. 241G:


    Page 94, line 28, leave out ("in relation to a regulated activity carried on by the firm").

The noble Lord said: This amendment concerns the FSA's powers of intervention in respect of an incoming firm; in other words, a treaty or EEA firm which is exercising its treaty or passport rights to carry out a regulated activity in the United Kingdom in accordance with Schedules 3 and 4.

Clause 185 provides that the FSA may exercise its power of intervention in respect of an incoming firm if it contravenes a requirement or knowingly or recklessly gives the FSA false or misleading information. The FSA can also exercise its power of intervention if it is desirable in order to protect the interests of consumers. However, the current clause limits that power to protecting the interests of consumers in relation to a regulated activity carried on by the firm. That limitation would prevent the FSA from taking steps to protect consumers generally from systemic risks which may be posed by the firm, rather than just to protect the firm's own customers in relation to regulated activities carried on by it.

For example, the FSA might have concerns about the impact of an incoming dealer or hedge fund, which could go wider than considering just the firm's own customers in relation to a regulated activity, which might themselves be wholesale firms. Those concerns could extend to the customers of those firms also.

A similar restriction is to be found in subsection (1)(c) of Clause 42, which provides for the exercise of the FSA's own initiative power where it appears to it to be desirable to vary a Part IV permission in order to protect the interests of consumers or potential consumers in relation to a regulated activity covered by the permission.

It is the Government's intention to introduce further amendments on Report to remove the limitation in that clause also, and to align these grounds on the basis of consumers and potential consumers generally. I beg to move.

Lord Kingsland: This is a tidying-up amendment of which we approve.

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On Question, amendment agreed to.

Clause 185, as amended, agreed to.

Clauses 186 and 187 agreed to.

Clause 188 [Procedure]:

On Question, Whether Clause 188 shall stand part of the Bill.

Lord McIntosh of Haringey: I gave notice of my intention to oppose the Question that Clause 188 stand part of the Bill. That notice is the introduction to a horribly long list of amendments on the groupings list which I shall not weary the Committee by repeating. Amendment No. 254A, an opposition amendment, appears to have crept into the group by mistake. I apologise for that. I shall expect noble Lords to speak to it when we come to that point on the Marshalled List.

Perhaps I may now speak to the amendments. This is the first of a series of groups of amendments which take forward the rationalisation of the decision-making procedures. The amendments may seem rather daunting. These are important changes and have taken some time to work through. I recognise that Members of the Committee may wish to subject these aspects of the Bill to further scrutiny on Report.

As I explained to the noble Lord, Lord Saatchi, in my letter to him on 22nd March, which was copied to all Members of the Committee who have taken part in these debates to date, we have been acutely conscious of the need to give your Lordships as much opportunity as possible to study the changes and to debate them. It is for that reason that we have brought forward these amendments in the manner that we have. We have made them available at the earliest opportunity in order that noble Lords can see and debate the overall effect of the changes.

As well as the amendments that we have tabled, we have made available the texts of the amendments that we propose to table on Report. In other words, these are the amendments to parts of the Bill that have already been dealt with in Committee. There may be some further refinements to be made on Report, perhaps reflecting points raised today.

In the light of what was said by the noble Lord, Lord Saatchi, and others at the outset of this Committee stage this afternoon, I appreciate the particular point that was raised; namely, that the co-ordinates of these draft amendments are to the Bill as printed in Committee. I undertake to provide a concordance very rapidly between those amendments and the Bill as amended in Committee, which will be produced at the end of this week or the beginning of next week, so that noble Lords who have taken the time to study the draft amendments will see how they fit into the debate on Report.

Lord Saatchi: I thank the Minister very much for dealing with a large part of our concern.

Lord McIntosh of Haringey: I am grateful for that response.

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These rather technical amendments to Parts XIII and XVII of the Bill--quite technical and complex parts in their own right--should assist in understanding the critical changes to the decision-making procedures which we shall come to debate when we reach Part XXVI of the Bill.

Perhaps I may outline the overall intention of the changes that we seek to make, which are twofold. First, we seek to enhance the rights of persons who are subject to disciplinary-type action, including market abuse and the other powers to impose penalties or make public statements about misconduct, or whose livelihoods are threatened by a proposal to cancel permission under Part IV, or to withdraw approval or issue a prohibition order under Part V. Secondly, we seek to ensure that these protections, which considerably enhance those that exist currently, apply only where appropriate and not generally to routine supervisory actions. We do not want a regulatory system that is too hamstrung by its procedures to respond in a timely fashion to market developments.

I remind the noble Lord, Lord Kingsland, of the distinction that I drew earlier in Committee between routine supervisory decisions and those decisions which, by their nature, remove or damage a person's ability to pursue his business. It is not the case, as the noble Lord appeared to suggest last week, that we are insensitive to the potential effect of a range of regulatory decisions on the livelihoods of financial services professionals. We attempt to strike a careful balance between the need for effective regulation and the legitimate expectations of those involved in the industry. While it is simply not appropriate to deal with the generality of supervisory-type decisions as if they were disciplinary actions, we recognise that there is a class of decision which implies the permanent or long-term removal of the ability of a person to pursue his current line of business. As I have indicated, this includes those cases where the FSA proposes to cancel an authorised person's permission under Part IV, or to withdraw approval or issue a prohibition order under Part V. The full disciplinary procedures will apply in those cases.

I deal briefly with the procedures for these disciplinary-type decisions. The FSA's disciplinary procedures have rightly attracted considerable interest at every stage in the consideration of this Bill. In response to concerns, the Government have stressed the importance of the new, independent first instance tribunal. However, the Government have also built in a number of further administrative safeguards, some of which draw on the procedural provisions which apply to the criminal law--for example, those contained in the Criminal Procedure and Investigations Act 1996. Some noble Lords may remember that with the same pain as I recall.

In disciplinary-type cases, Part XXVI will require the FSA to give persons, including third parties who may be affected by the decision, the right to make representations and refer matters to the tribunal. Persons affected will be given access to the FSA's material, including evidence which it considers might undermine the decision. The FSA will be required to

27 Mar 2000 : Column 625

set up procedures which ensure that the person who prepares the FSA's case is not also involved in the FSA's decision. The FSA will not be able to implement the decision until the person's remedies, such as his right to refer the matter to the tribunal, have been exhausted.

However, it would not be right or effective to require the FSA to treat all its decisions as if it were conducting something akin to a criminal prosecution. That would introduce an unnecessary level of formality into the FSA's day-to-day supervisory relationship with the firms that it regulates; and it would add substantially and unnecessarily to the costs of FSA supervision, which could adversely affect the competitive position of the United Kingdom. It is the Government's policy that the FSA should apply light touch regulation where possible and effective consumer protection where necessary. For example, the FSA's supervisory functions may require it to act swiftly in an emergency so that decisions have to be taken by an appropriately senior person within the FSA, notwithstanding that he may have been involved in some way in gathering the evidence or have an existing supervisory relationship with the firm concerned. When faced with a difficult and important decision whether to intervene, we expect that those responsible will want to test their options. It must be clear that the senior executives within the FSA can explore the options without denying themselves the ability then to act as necessary to protect the interests of consumers. Similarly, it is not practical or sensible in supervisory cases to require the FSA to provide access to all the material which it may have considered in the background to its decision.

The other main area in which we are rationalising procedures relates to applications to the FSA, whether they seek the FSA's approval of some change in relation to a firm or scheme or a variation in requirements which the FSA may already have imposed.

If the FSA decides to grant an application in full or decides to remove a requirement on a firm, it is clearly not necessary for the full warning notice and decision notice procedure to apply. In other cases where the decision will not be so welcome to the person concerned, we are taking the opportunity to align the warning notice/decision notice procedures throughout the Bill so that the same safeguards can apply.

The government amendments relate specifically to the exercise of the powers of intervention in relation to incoming EEA and treaty firms under Part XIII and collective investment schemes under Part XVII. Similar provisions will be introduced on Report into earlier parts of the Bill such as in relation to the exercise of the FSA's own initiative powers under Part IV. Draft texts of those amendments have been made available with the explanatory notes.

In Part XIII, Amendment No. 241H introduces a new clause setting out the procedure for exercising its power of intervention in relation to incoming firms. This clause replaces the existing Clauses 188 and 189. The clause is modelled on the procedural provisions currently adopted in Clause 314, which concerns a

27 Mar 2000 : Column 626

direction in relation to former underwriting members at Lloyd's but will itself be enhanced, first, to allow the FSA to extend the period for making representations; secondly, to provide that a decision notice must be issued if the FSA decides to refuse an application to vary or revoke a requirement; and, thirdly, to provide that a decision to refuse can be referred to the tribunal. Under this procedure the subject of the decision will enjoy standard rights to know the reasons for the decision, to make representations and to refer the matter to the tribunal.

However, it is not possible to introduce a standard clause for all procedures because of the particular circumstances relating to each of the FSA's supervisory intervention powers. In Part XVII, Amendment No. 254S introduces a similar clause in relation to authorised unit trusts which replaces the existing Clauses 252 and 255.

Amendment No. 254YE introduces a similar clause in relation to a decision to suspend the promotion of a collective investment scheme recognised by virtue of being constituted in another EEA member state. The new clause replaces the procedural provisions contained in Clause 261.

Finally, Amendment No. 255G introduces a similar clause in relation to other recognised schemes. It replaces Clauses 274 and 275.

The other government amendments are minor consequential or drafting changes to reflect the approach I have just outlined in relation to applications to the FSA.

I think the best way for me to illustrate the effect and operation of these amendments will be to consider them in the context of the helpful amendments that have been made by noble Lords on the Opposition Benches. Amendment No. 254Y concerns the emergency procedure for the FSA's powers of intervention under Clause 250 whereby the FSA may require the manager to suspend the operation of the scheme until a specified date or require the manager and the trustee to wind the scheme up by a specified date. The amendment would restrict the emergency exercise of the FSA powers in accordance with Clause 255 to cases in which it considers that urgency is desirable in order to protect the interests of participants or potential participants.

As I have already outlined, the Government propose to replace Clause 255 with a new procedure introduced by Amendment No. 254S, but the amendment helpfully raises a point of principle which is of wider application. The new clause in Amendment No. 254S replaces the existing provision in Clause 255 for dealing with urgent applications by allowing the decision to take effect on a specified date or immediately in accordance with subsection (2) if the FSA, having regard to the ground on which it is exercising its power, considers it necessary for it to take effect immediately. The grounds on which the FSA may exercise its powers under Clause 250 are that the requirements for the making of an authorisation are no longer satisfied; that the manager or trustee has contravened, or is likely to contravene, a requirement;

27 Mar 2000 : Column 627

that the manager or trustee has given the FSA false or misleading information; or that it is desirable to give a direction in order to protect the interests of participants or potential participants. The interests of participants or potential participants are likely to be a very important factor in the FSA's decision whether to exercise its powers. However, there may be other equally urgent considerations.

For example, it may be that the scheme as constituted is unlawful, so that the FSA is bound by UK law or EC directives to suspend the operation of the scheme with immediate effect even if the participants are benefiting from the illegality. The scheme may also be competing unfairly or unlawfully with other schemes and damaging the interests of their participants, or damaging the financial system generally.

We therefore think it is best to rely on the test in subsection (2) which is wider in terms of possible grounds, but narrower in the sense that the FSA must consider that immediate effect is necessary, rather than merely desirable in the interests of participants.

Subsection (4)(c) will also require the FSA to state its reasons for the determination as to when the direction should take effect so that those affected will in any event be able to make urgent representations to the FSA and if necessary to the tribunal or the court.

Amendment No. 254UA concerns the procedure under Clause 253 by which the FSA refuses to revoke or vary a direction under Clause 250. It provides that the decision notice procedure in subsection (3) applies only if the FSA has previously given a warning notice. I can quite see the concern behind this amendment, which again is of wider application, that it is unclear when the status of a continuing condition such as a refusal to act might trigger the formal decision notice part of the decision-making procedure. However, Clause 253 is also the subject of government Amendment No. 254V which rationalises the wording of subsection (3) with the warning and decision notice procedures in the rest of the Bill. The Government's amendment makes clear that subsection (3) involves a definite act by the FSA; namely, a decision to refuse to grant an application.

Amendment No. 254X concerns the procedure in Clause 254 for revoking or varying a direction under Clause 250 on the application of the scheme's manager or trustee. It would require the FSA, in granting the application, to give written notification of its decision to both the manager and the trustee, rather than just whichever one of them was the applicant. It is conceivable that the application by one of them, and the terms of the FSA's written notice in response, might contain information which is confidential to the applicant, so that it might be necessary for the FSA to notify the other party in different terms.

As the FSA already has power to do this under subsection (4), by publishing such information about the revocation or variation, in such way as it considers appropriate, I hope that Members of the Committee will not press the amendment.

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Finally, Amendment No. 254KA concerns the procedure under which the FSA may refuse to approve a change of manager or trustee sought through an application under Clause 244. It would provide that, if both the trustee and manager are given a warning or decision notice, neither of them is to be treated as a third party.

The treatment and status of third parties has now been rationalised by the Government's amendments which will be debated later (Nos. 275L and 275M) so that third party rights will not now attach to notices given under Clause 245. The amendment is therefore unnecessary. I should add that subsection (5) would currently require the FSA to give a person a decision notice if, having given a warning notice, it subsequently decides to approve the proposal. However, Amendments Nos. 254H and 254K now ensure that this requirement is subsumed in the approval procedures under Clause 244(4)(a), which now require the FSA's approval to be by written notice.

I beg to oppose the Question that Clause 188 shall stand part of the Bill.


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