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Lord Elton: Perhaps I may intervene because this matter reads across to a letter which the noble Lord, Lord McIntosh, was kind enough to write to me in which he says that,


legal semantics will no doubt explain how a trustee can be either reckless or negligent and still be honest--


    "before liability as constructive trustee is incurred.


    There is nothing elsewhere in the Bill to make such an institution liable for negligence. An authorised person who placed their clients money on trust might well have a case for action for negligence".

However, it is the client--I am reading the noble Lord's words. If they seem surprising, I shall read them again.

Lord McIntosh of Haringey: I express concern only because the letter did not refer to recognised investment exchanges; it referred to constructive trusteeship.

Lord Elton: I stand corrected. However, I am trying to address a principle. If I come by the side door, I apologise. What puzzles me is that I believed that the

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Bill set out to provide a complete umbrella over the financial services industry and to protect all the customers or clients of the financial services industry by regulating practitioners in that industry. But here, as my noble friend pointed out, there is a large area where the penalties are not provided to extend that protection to those who may suffer as a result of the negligence or recklessness of the authorised persons.

It seems to me that that runs against the grain of the Bill itself. Before the Minister answers my noble friend in detail, perhaps he will reassure me that that is not against the philosophy of the Bill and that, by some means, clients are still protected and will not have to seek more expensive recourse outside the provisions of the Bill than the Bill itself provides.

Lord McIntosh of Haringey: I thought that that is what I said when I answered the noble Lord, Lord Kingsland, in detail. After all, the existence of a recognised investment exchange or a clearing house is, in a sense, a privilege because, although the FSA is responsible, as the noble Lord, Lord Elton said, for the whole of the financial services market, nevertheless, it delegates some of its responsibilities under certain circumstances to recognised investment exchanges and clearing houses.

It must then ensure--and I thought I spent quite a long time showing how it did so--that there are adequate procedures for the protection of the consumers of the products of those recognised investment exchanges and clearing houses. I made it clear that our view is that they should not be on the face of the Bill but should appear in recognition requirements. I made it clear that we have already published draft recognition requirements to bring that into effect and that, following consultation, we were proposing to bring into effect suitable recognition requirements to cover all those points after the Bill comes into force.

Lord Donaldson of Lymington: I support the Government's reluctance, indeed, refusal, to alter the immunity provisions as contained in the Bill. Members of the Committee must remember that this is a field where there is a lot of money swilling about. While the ordinary man in the street will hesitate, unless he is a lunatic, to start litigating as a tactical manoeuvre, in the financial markets, that is not unknown and the sums of money are so great that there may be very little disincentive for doing so.

Lord Kingsland: The Minister will not be surprised to learn that I am less than happy with his response in relation to all the amendments. Therefore, I have a choice between pressing the point on statutory immunity or pressing the point in relation to an independent investigator. My approach will be to ask leave to withdraw Amendment No. 256A and I shall not press, when we reach them, Amendments Nos. 256B and 257B but I give notice that when we arrive at the point on the Marshalled List, I shall test the opinion of the Committee on Amendment No. 257C relating to the independent investigator.

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There is one other observation that I want to make on the Minister's reply; that is, on the question of European Community law. He said that our amendment on European Community law was not necessary because the state's international responsibility is engaged. But, in fact, I think I am right in saying that the authority, because of its regulatory responsibilities, will be classified in European law as an emanation of the state. There may be circumstances in which individuals will have directly effective rights against the authority. Therefore, the question of immunity in respect of those rights may be important.

Therefore, for clarity--and it may be a matter to which we shall return on Report--I believe that the Government should make the concession for which I have asked in Amendment No. 256B.

7.15 p.m.

Lord McIntosh of Haringey: Before the noble Lord withdraws Amendment No. 256A, I am grateful to him for his notification about Amendment No. 257C. I should say, for the benefit of anybody who may have difficulty with this amendment, that the provisions which we make to deal with the problem raised by the amendment are not provisions which are made now. They were made last year in the draft regulations. Those draft regulations have been the subject of consultation. There has been no dissent from the view expressed that the draft regulations were the right place for that, and I have made clear our determination, or the FSA's determination, to enforce those draft regulations after the Bill is passed.

In case there is any doubt on the matter, the issues covered by Amendment No. 257C are fully covered and have always been fully covered by our provisions.

Lord Kingsland: I hear what the noble Lord says. Of course, those arrangements will not be on the face of the Bill. It is our view that this matter is of such central importance to the matter of checks and balances within the Bill that to have it contained in secondary legislation is not enough. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 256B not moved.]

On Question, Whether Clause 284 shall stand part of the Bill?

Lord Taverne: On the question of whether Clause 284 shall stand part, there is one brief point that I want to make. This clause extends the immunity to recognised bodies. The fact that that immunity is extended in that way rather reinforces the point made by my noble friend Lord Sharman at col. 1781 on the first day in Committee, in which he moved an amendment which proposed that the immunity should be extended to any person who is, or is acting as, a member, officer, member of staff or in the capacity of an agent of the authority.

Indeed, he pointed out that paragraph 6(2) of Schedule 1 provides that:

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    "Those arrangements may provide for functions to be performed on behalf of the Authority by any body or person who, in its opinion, is competent to perform them".

It seems to me that that strengthens the case for extending the immunity to agents. I hope that the Government will bear that in mind when they reconsider the amendment moved by my noble friend.

Lord McIntosh of Haringey: I am grateful to the noble Lord, Lord Taverne, for raising that matter. If he refers back, as I thought he was doing, to earlier debates, he will find that we have covered rather fully in debate the points which he raised; that is, both the difference between the regulatory and commercial functions of exchanges. I have forgotten what the second issue was. I was interrupted by my noble friend the Chief Whip, as so often happens, and I momentarily lost attention. I shall read carefully in Hansard what the noble Lord said. If there is any response that it would be helpful to give, I shall give it to him in writing.

Clause 284 agreed to.

Clauses 285 to 289 agreed to.

Clause 290 [Variation of recognition order in relation to recognised nominee]:

Lord McIntosh of Haringey moved Amendment No. 257:


    Page 150, line 2, after first ("it") insert ("reasonably").

On Question, amendment agreed to.

Clause 290, as amended, agreed to.

Clause 291 agreed to.

Clause 292 [Directions and revocation: procedure]:

Lord Kingsland moved Amendment No. 257A:


    Page 151, line 12, at end insert--


("( ) During the period for making representations, the recognised body shall be given access to the information and documents which the Authority has relied on in deciding on its proposed action.").

The noble Lord said: As Members of the Committee are well aware, Clause 292 sets out the procedures before the authority. The authority may give a direction under Clause 289 or may make a revocation order under Clause 291(2). The usual decision notice procedure has not been included in Clause 289. The amendment includes one of the protections provided by that procedure; that is to say, during the period in which representations can be made to the authority. It specifies that the authority should give access to the information and documents upon which it has relied in deciding on its proposed action.

I am at a loss to understand why the procedure has been excluded. In my submission, if someone is under suspicion and an investigation is made and a decision taken to penalise that person, there should be a period between that decision and the imposition of the penalty itself during which the person concerned has access to the documents upon which the decision to

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penalise has been based, because he may well be able to give a satisfactory answer. That is the basis upon which the amendment has been tabled. I beg to move.


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