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Lord Kingsland: As to Amendment No. 259AC, as the Committee must by now be aware, Part XX of the Bill deals with the provision of financial services by the professions. Clause 318 sets out the conditions which must be satisfied by a member of the profession if he intends to avoid the general prohibition against carrying on regulated activities when not authorised to do so. Clause 318(3) requires that the person concerned,
Amendments Nos. 260 to 262 amend Clause 319 in Part XX. That clause provides an exemption for the provision of financial services by members of the profession where those are not mainstream financial services and, therefore, are to be regulated (as now) by the recognised professional bodies which are described in the Bill as "designated professional bodies". Amendment No. 262 works on the same basis as the extended definition of "consumer" to include as clients beneficiaries of trusts where the professional is a trustee and provides regulated services. That gives rise to the same issues.
However, what do the Government propose to do in relation to members of the professions who do not carry out regulated activities, properly so called, at all? I am concerned here with law firms, whether UK firms or, perhaps more importantly, non-UK firms, which operate in the United Kingdom and give advice on the commercial terms of an investment transaction. For
In addition, where a law firm, or indeed an accountancy firm acting as lawyers or accountants and not as corporate finance advisers, negotiates the commercial terms of an agreement for the purchase or sale of shares or options, or the terms of a class of securities, or drafts an optional agreement, it also should not be regarded as carrying on regulated activities, and therefore would not have to seek to fall within this exemption.
As I understand it, some months ago the Treasury were invited to make it absolutely clear that these activities, which are intrinsic to the profession of a corporate finance lawyer or accountant, do not involve the giving of investment advice or the arranging of transactions in the sense meant by the Bill, or the present Financial Services Act. This is particularly important as the authority, in a recent consultation paper on the exemption provided by Part XX, expressly referred to negotiating transactions as non- mainstream financial services so, implying that this activity requires authorisation unless the exemption applies, which it cannot do in the case of non-UK law firms.
Because Parliament cannot effectively debate the terms of the Treasury's regulated activities order which spells out what activities require authorisation, it is important that the Government make clear that advising on, or negotiating the terms of an investment agreement, are not financial services requiring authorisation. They do not relate to the merits of the investment as such but to the merits of the transaction for the acquisition or disposal of the investment; and do not involve persuading people to buy or sell investments because of their investment merits but merely arrange for the negotiation and exchange or execution of documentation for the purpose of sale of investments. Under the Bill that is all currently completely unclear.
The Treasury will presumably make it clear in the regulated activities order. But we cannot allow a debate on the amendment to pass without discussion on the scope of the authorisation requirement in relation to the activities relating to the transaction rather than to the investment itself without making clear that the exemption is needed only where the member of the profession is doing something which is indeed providing investment services.
Lord Fraser of Carmyllie : It may not be subtle, but it is correct. Amendment No. 259AA is a paving amendment to allow me to introduce Amendment No. 259AB. The point is simple. At present the Bill requires that if anyone earns a commission, it must be accounted for to his client. The amendment proposes the obligation to disclose to the client such a payment in order for the client to decide whether or not he is prepared to continue with the transaction.
Lord Bach: In dealing with the group of amendments, it is right to set out the background. The noble and learned Lord, Lord Fraser of Carmyllie, is right. The Bill was amended in another place on Report to incorporate government proposals under which professional firms which, among other things, are subject to regulation by a designated professional body and which provide financial services as an incidental and complementary part of their professional practice, will not require authorisation by the FSA. One would have thought that, on balance, the professions would have been content with that change to the Bill. Reading between the lines of the speeches to the amendment, noble Lords probably are content. The problem is that it is not always the contentedness that is demonstrated when amendments are moved.
I deal, first, with the amendments moved and spoken to by the noble and learned Lord, Lord Fraser of Carmyllie. Under Clause 316(4) each designate body must co-operate with the authority by the sharing of information and in other ways in order to enable the authority to perform its functions under Part XX. The noble and learned Lord, Lord Fraser, in his Amendment No. 259YA is proposing that the authority, for the purposes of obtaining this information, apply for an order from the court which will detail the information sought, the person to whom it is to be provided and the timescale in which it should be given. Additionally, a designated professional body which complies with such an order should not be liable in any court for any damages arising from breach of contract or tort or any obligation in restitution.
We believe that the amendment is unnecessary. Recognised professional bodies under Schedule 3, paragraph 6, to the Financial Services Act 1986 are subject to an identical requirement to co-operate with the Financial Services Authority,
With regard to Amendment No. 259XA, which proposes the deletion of the words "and other ways" in subsection (4), it is important that the designated professional body's co-operation should not just be limited to the sharing of information, however wide it may be drawn, as there are other ways of co-operating. We should keep the terms of that co-operation as broad as possible in order to ensure that the provision is as effective as it can be. As I have said, the position of professional bodies in this respect will be no different from the position of professional and other bodies recognised under the 1986 Act.
We cannot easily foresee a situation where a designated professional body would request to have its designated status revoked. However, if that situation arose, the Government would need to assess whether it is appropriate to meet the professional body's request in the light of all the circumstances. There should be no obligation imposed on the Treasury to accede to a professional body's request automatically, given the complexity of issues that such a situation would no doubt create. I hope that the noble Lord will reflect on that answer. Of course, I understand that these are probing amendments dealing with a part of the Bill which has only recently come into existence.
I shall do my best to answer the broader question that he asked. I understand that no tender has yet been sought, but the duties to which he referred could not be delegated to the English Law Society. It could not be given such powers. I also understand that the authority can delegate the monitoring of authorised persons, which could include solicitors carrying on non-mainstream business. That comes under Schedule 1, paragraph 6(2), to the Bill. However, the FSA would retain ultimate responsibility. There are no powers to delegate under Part XX. I realise that that is not an entirely satisfactory answer to the issue he raised tonight. Therefore, having read Hansard, I should like to write to him with, it is to be hoped, a more full answer.
Firms which conduct mainstream financial services and whose activities are not covered by exclusions set out in the draft regulated activities order will require permission from the authority to carry out both mainstream and ancillary financial services. That is on the basis that it is in the interests of consumers that an authorised firm's overall fitness to conduct financial services be assessed in the light of its activities as a whole. However, it does not follow that the authority must necessarily apply any additional burdens in respect of the non-mainstream business of authorised professional firms. They will be expected to act in accordance with their statutory duties, including the need to have regard to considerations of proportionality and competition.
The FSA indicated in one of its consultation papers, The FSA's regulation of professional firms, published in October last year, that, with regard to the provision of non-mainstream activities, it proposes, in line with the degree of risk attaching to such business, a differentiated and, where appropriate, less burdensome regime. I do not know whether those words have any comfort for the noble Lord in relation to his amendment.
I believe that his second amendment deals with subsection (5), as opposed to subsection (7), but I do not believe that he addressed that particular point in what he said to the Committee. I ask him to consider what has been said and to withdraw the amendment tonight.
I now come to the one Front Bench opposition amendment and link that with the two remaining amendments of the noble and learned Lord, Lord Fraser. First, the noble and learned Lord, Lord Fraser, proposed Amendments Nos. 259AA and 259AB, amending Clause 318, to enable professional firms to retain commissions and other benefits resulting from the introduction of their clients to third parties. Under the clause as amended by the amendment, the professional firm would still be required to disclose the commission if the firm is to benefit from the Part XX exemption.
We are not happy with this particular amendment. Commission sharing may well be appropriate in relation to authorised professional firms. However, we believe that in relation to professional firms which carry on exempt regulated activities, it is right and proper, and that firms should be barred from retaining any commission obtained from IFAs in return for referring their clients to them. We believe that, in any event, that prohibition is in line with a professional's general obligation to act in the best interests of his client where the professional is not a mainstream provider of financial services. In such cases, the source of third-party advice should be determined solely by reference to the client's needs. We believe that that is a
I turn to Amendments Nos. 260 and 262A in the Government's name. They allow the authority to give directions in respect of the exemption to the general prohibition which is allowed to professional firms for which regulated activities are a non-mainstream activity. Amendment No. 260 brings Part XX into line with procedures set out in other parts of the Bill. It is a "tidying-up" amendment. It will require that any direction given must be published in a way best calculated to bring it to the attention of the public. It allows the authority to charge a reasonable fee for providing a copy of the direction and requires the authority to give without delay a copy of any direction to the Treasury. Those requirements will ensure consistency of procedure between directions given under Clause 319 and those given under Clauses 309 and 311, both of which are in respect of Lloyd's.
Lastly, I turn to Amendment No. 262A. This government amendment proposes that a new clause be added after Clause 323. Under this new clause, where professional firms describe themselves as professional firms carrying out exempt regulated activities or hold themselves out in a manner which indicates that they are such persons, they will be subject to a similar offence of holding out to that set out in Clause 22.
Clause 22 creates an offence of falsely describing oneself or holding oneself out as authorised or exempt in relation to a particular regulated activity. Professional firms are not subject to that offence with the result that there is currently nothing in the Bill to prevent a person holding himself out as being a member of a designated professional body nor, where a person is a member of a designated body, is there anything that prevents that person from holding himself out as being entitled to exemption under Part XX at a time when he is disqualified.
It follows that it is necessary to rectify that problem. We believe that our amendment does that. As such, it is an important, even if technical, amendment and I commend it to the Committee.
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