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Lord Donaldson of Lymington: I want to speak to Clause 280 because it is the clause which provides for applications to be made for recognition by investment exchanges. A parallel clause, Clause 281, relates to clearing houses.

Anyone considering the Bill will be interested to know the conditions for the recognition of investment exchanges and clearing houses. The answer is provided in part on page 19 of consultation paper 39a. It relates to investment exchanges and states:



    Without prejudice to the generality of sub-paragraph 5(1)"

--which I do not think matters--


    "the RIE must ensure that appropriate measures are adopted to prevent market abuse"--

that is a pretty formidable task; nevertheless it states that it must adopt appropriate measures to prevent market abuse, not to make it more difficult or anything like that--


    "and financial crime, facilitate their detection and monitor their incidence".

It does not say, and I should like to know, whether it is proposed that an investment exchange or a clearing house, having adopted measures designed to prevent market abuse and financial crime, and having taken measures to facilitate their detection and to monitor their incidence, should do any more about it by way, for instance, of bringing complaints against their members. I assume that the answer is "yes". At a much earlier stage I believed that the FSA was to take this over and I am told that that caused some alarm and despondency. So the load is to be shared.

The difficulty is that market abuse may not be so described in the rules of the exchange or clearing house. Nevertheless, if one looks at Clause 109, and the rules made by the FSA under Clause 109, it will be clear that that is what it is talking about. Even if both

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bodies speak the same words, we still have the problem of double jeopardy. It would be extremely difficult to be certain that no one was prosecuted by both bodies. I know that there is power for the FSA to call in. But if the FSA calls in, the complainant finds himself in an entirely different arena. He finds himself in an arena where there is an appeal to the tribunal.

Perhaps I may remove any misapprehension about the tribunal. We had the same problem with the industrial relations legislation where there was a national industrial relations court. The incoming government of a different political persuasion naturally--I do not blame them in any way--wanted to get rid of the idea of a court and called it a "tribunal". However, the constitution was word for word the same. The draftsman simply struck out the word "court" and wrote "tribunal".

Let there be no mistake about it: this is a court. There is a direct appeal--granted, it is restricted--to the Court of Appeal. That means immediately that the court/tribunal is of co-equal status with the initial stage of the High Court, the Queen's Bench Division, or whatever.

Therefore, that is something quite different which, I dare say, the complainant would welcome. However, if it is not called in and he is left with his domestic rules, there is a real risk that the courts will intervene. They may intervene on the basis of the Human Rights Act or on their ordinary historic jurisdiction if they believe that there has been any unfairness in the work of a tribunal. They would not accept the statement, "Oh, well, the person being pursued agreed to the rules", where the rules would affect his livelihood. There are many examples where the courts have moved in in such circumstances.

I do not want the courts to become involved in these issues. Even where people try unsuccessfully to involve the courts, the reputation of the system that we are trying to set up will be damaged. Therefore, I hope that serious thought can be given to the relationship between the disciplinary powers of the investment exchanges and the clearing houses and what is to be done when one has what is, in reality, the same offence falling within the jurisdiction of both.

No doubt it will be said that each investment exchange will be required, as part of its rules, to have an internal appeal procedure, but that is different from being able to appeal to a court with a right to go on to the Court of Appeal. It is probable that as so much is going on no one has time to set out the whole story. However, if thought is being given to the issue, it would be nice to know what it is; and if no thought--or insufficient thought--is being given, it is very much needed.

Lord McIntosh of Haringey: I am grateful to the noble and learned Lord for raising these issues. He has chosen to do so under Clause 280, but has justifiably widened the issues beyond the basis of application for recognition as a recognised investment exchange.

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Raising the issue in such a way enables me to put on the record the relevant content of a letter which I wrote to him yesterday.

Lord Donaldson of Lymington: I have not received it.

Lord McIntosh of Haringey: Well, now, it was sent to him yesterday. Perhaps I may refer to the relevant parts of my letter. I wrote:


    "I do not disagree with the points made concerning the possible attitude of the courts in this area. While the disciplinary arrangements of recognised bodies have to be seen against the background of contractual relationships which they enter into with their members, I think that it is indeed possible that the courts would take the view that in certain respects these bodies are exercising public functions. This is particularly so in the light of the extension of statutory immunity to recognise bodies for the first time for things done in the discharge of their functions arising out of obligations to which they are subject under the Act, in particular the recognition requirements. I do not think, though, that any change to the Bill is necessary either for European Convention on Human Rights reasons or to achieve any changes along the lines outlined in your letter for policy reasons. In order to be recognised, and thus exempted from the general prohibition, an exchange or clearing house has to meet certain recognition requirements. These will be set out in regulations made by the Treasury, rather than the FSA, under the powers conferred by subsection (1) of Clause 279 of the Bill".

Draft regulations were published for consultation in February last year.

The noble and learned Lord asked whether recognised investment exchanges and recognised clearing houses should be required to have independent tribunals. We are giving serious thought to what the recognition requirements made by the Treasury should say about the right to refer decisions of recognised bodies to an independent tribunal, and in doing so will certainly bear in mind the points that he has made.

It will be possible for the Treasury to provide for recognition requirements which will mean that exchanges and clearing houses must have fair and independent arrangements for dealing with disciplinary proceedings. But the exchanges are also commercial private bodies, which may mean that appeal to the High Court may not be appropriate.

If I have omitted any of the points which the noble and learned Lord made--I probably have--I had better burden him again with more correspondence.

Lord Donaldson of Lymington: I thank the Minister for the letter which I am yet to receive. I am sure that it is most helpful. I am worried about one issue; everything else can be sorted out by regulations. I am worried because, as far as I can discover, there is no way in which one can move a system from the exchange or clearing house to the tribunal. Not only do I believe that it would be better if that were possible, but it would ensure a degree of consistency which might otherwise not exist. I hope that if regulations are to be made, they will require the investment exchanges and the clearing houses to treat the decisions of the tribunal as binding.

Lord McIntosh of Haringey: On 21st March, at col. 251 of Hansard, the noble and learned Lord pointed

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out that there would need to be a right of appeal from the RIE and RCH tribunals to the financial services and markets tribunal established by the Bill. That is the point he is making today--and that it would require an amendment to the Bill. I agree that if we were to make such a change, an amendment to the Bill probably would be required. However, we do not believe that it is necessary to do that in order to ensure that the RIE and RCH tribunals are fair, impartial and have the necessary degree of independence. We believe that we can achieve that through the recognition requirements--which, of course, brings us back to Clause 280.

Clause 280 agreed to.

Clause 281 agreed to.

Clause 282 [Applications: supplementary]:

Lord McIntosh of Haringey moved Amendment No. 256:


    Page 145, line 43, leave out ("additional information") and insert ("such further information as it reasonably considers necessary to enable it to determine the application").

On Question, amendment agreed to.

Clause 282, as amended, agreed to.

Clause 283 agreed to.

Clause 284 [Liability in relation to recognised body's regulatory functions]:

Lord Kingsland moved Amendment No. 256A:


    Page 146, line 33, at end insert (", reckless or negligent").

The noble Lord said: Part XVIII relates to recognised investment exchanges and clearing houses, called "recognised bodies". Clause 284(1) provides that a recognised body and its officers and staff will not be liable in damages for anything done or omitted in the discharge of that body's regulatory functions unless it is shown that the act or omission was in bad faith.

The amendment concerns the old chestnut of immunity from damages. In the first version of the Bill, the provision provided immunity from liability in damages only to the members of the relevant recognised body. However, the Government subsequently introduced amendments which extended the immunity to claims by all persons. The amendment adds the words "reckless or negligent" to the end of the provision. The next amendment adds to Clause 284(2) the words,


    "or was in breach of Community law",

as a further exclusion from the immunity provision.

Some Members of the Committee may recall that in an earlier part of the Bill giving statutory immunity to the authority itself, similar amendments were added to a similar immunity clause. Therefore, the Opposition's approach to the position of recognised bodies with respect to statutory immunity is exactly the same as it has been in relation to the authority.

So far as concerns Amendments Nos. 257B and 257C, Clause 293(1) requires the authority to make arrangements for the investigation of complaints

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about a recognised body. Amendment No. 257B would require the appointment of an independent person to investigate complaints. Amendment No. 257C would add new provisions which would allow the investigator to make recommendations to the authority on the steps, if any, which a recognised body should take to remedy a complaint which is well founded. Specified steps may include the payment by the recognised body of a specified sum to a specified person.

The Committee may recall that, with respect to recognised exchanges, originally the concept was not to give them statutory immunity. However, as I pointed out earlier, the Bill now gives it to them. In those circumstances, it is our contention that at this point it is necessary to inject into the Bill a counter-balance in the form of a genuinely independent complaints investigator who will mirror the independent complaints investigator whom we seek in relation to the authority.

We place very great importance on this amendment and we earnestly hope that the Government will feel inclined to accept it. I beg to move.

7 p.m.

Lord McIntosh of Haringey: Clause 284 gives recognised investment exchanges and clearing houses statutory immunity from liability in damages in respect of anything done or omitted in the discharge of their regulatory functions. I want to emphasise "regulatory functions" because those bodies have commercial functions and there is no immunity from them.

Amendments Nos. 256A and 256B seek to cut back on the scope of the immunity by removing it, first, in cases where the action complained of was reckless or negligent and, secondly, where the body concerned was in breach of European Community law. Of course, we considered similar amendments when we dealt with the statutory immunity of the FSA. The noble Lord, Lord Kingsland, will not be surprised to hear that I cannot accept these amendments any more than I could on the earlier occasion.

So far as concerns Amendment No. 256A, there is a balance to be struck in granting immunity. It must be sufficiently broad to enable the regulatory body to carry out its functions effectively without being inhibited by the threat of litigation. At the same time, it must not restrict unreasonably the ability of those who feel that they have been adversely affected by its actions to seek legal redress. I believe that the formula that we have proposed of allowing actions where the regulator has acted in bad faith, or where this concerns Section 6(1) of the Human Rights Act or through judicial review, strikes the right balance.

Like the FSA, the exchanges will have to take difficult regulatory decisions, sometimes very rapidly and perhaps without all the information about a situation which subsequently will be available. If they needed to be constantly alert to the possibility of an

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action alleging recklessness or negligence, that could seriously interfere with their effective functioning. They need to be able to devote their mind to the proper running of the market and not to be distracted by legal action. That is not only my view; it was the view of the Joint Committee of both Houses which considered the draft Bill.

On one level, Amendment No. 256B is simply unnecessary. The Bill does not, and cannot, override any obligations of European Community law to which the recognised bodies may be subject. Therefore, there is no need for such an amendment. As I said when we debated the FSA's immunity, the responsibility for ensuring that proper effect is given to the UK's Community obligations is one which rests primarily with the Government. Where it is necessary for regulatory bodies to take action in order to implement a directive, the Government must ensure that relevant action is taken. If they fail to do so, the United Kingdom will be in breach of its Community obligations and the Government will be the proper respondent in infraction proceedings.

That is one reason why Clause 289 gives the FSA a power to give directions to recognised bodies which are in breach of their recognition requirements. If the recognised body was in breach of European Community law, undoubtedly it would be in breach of those requirements. If it did not take action to put matters right, the FSA would be able to make use of that power. However, if for some reason the FSA was reluctant to do that, the Treasury would be able to make use of its power under Clause 389 to direct the FSA to take action in order to ensure that the UK remained in compliance with its international obligations.

Amendments Nos. 257B and 257C deal with Clause 293, which gives the FSA power to make arrangements for the investigation of complaints against authorised bodies. I can understand what lies behind the amendments but still I cannot accept them. They seek to provide in the Bill for matters that we believe should be dealt with in the regulations which we shall make after the Bill comes into force. Those regulations will set out the recognition requirements for recognised bodies.

Clause 293 requires the FSA to make arrangements for the investigation of a complaint which is relevant to the question of whether a recognised body should remain a recognised body. Therefore, if someone felt that a recognised exchange or clearing house had taken action which was not in accordance with the recognition requirements--that is, the basic rules with which exchanges and clearing houses must comply in order to become and remain recognised--he would be able to complain to the FSA. If the FSA felt that that complaint demonstrated that the body did not meet the recognition requirements, it would be able to give the body concerned directions under the powers of Clause 289 or, in an extreme case, to revoke its recognition under Clause 291.

Therefore, the clause deals with complaints of major problems within a recognised body which are

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such that the FSA might be moved to intervene. However, it does not deal (because that is not its purpose) with what might be called "day-to-day" complaints where a person does not allege that the body is not fit to continue to be recognised but, nevertheless, has what might be a legitimate grievance which, rightly, he would expect to be addressed.

Although such complaints would not call into question the continuing recognition of the body concerned, that does not mean that they are not important. Indeed, I believe that it was that type of complaint that the Joint Committee had in mind when it said that the extension of immunity should be conditional on there being an adequate complaints procedure in place in each body. We accepted that recommendation of the Joint Committee. However, rather than put any requirements for complaints procedures on the face of the Bill, we continue to believe that the better way to deal with this matter is through the recognition requirements. This refers back to the point made by the noble and learned Lord, Lord Donaldson.

The draft recognition requirements on which we consulted last year currently require recognised bodies to have in place satisfactory arrangements for the investigation of complaints in respect of the use of their facilities. In due course, we shall review those requirements before we make regulations to bring them into effect. They will ensure that the complaints arrangements which a recognised body will be required to maintain provide for adequate and independent investigation of complaints about how it has acted.


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