Previous Section Back to Table of Contents Lords Hansard Home Page


Lord Fraser of Carmyllie: My Lords, the first amendment that I moved was simply a drafting one.

18 Apr 2000 : Column 600

There might be some argument as to whether the subsection contains just one example or perhaps two, but it was a small risk about which I thought the Government ought to be aware. It seems to me that the removal of such words would have done nothing to restrict what the authority might be able to do. However, I shall obviously not be pressing it.

As far as concerns Clause 41(3), I believe I understood what the Minister said in his response. I shall read most carefully in Hansard the examples that he gave. Nevertheless, this still seems to me to be a point to which we may wish to return. Under subsection (2), the authority can impose a requirement on a person which will require him "to take specified action" or,


    "to refrain from taking specified action".

If the FSA does that and the person concerned says that it is outside the regulated activities, and the FSA then says that it has the right to require that of the person, whether or not it is regulated, that is precisely the area of controversy that I should have thought this House would wish to avoid the authority becoming involved in. The greatest criticism of the FSA at the present time is that it will clumsily or unnecessarily trespass into matters that are not within those areas which we all acknowledge and recognise ought to be regulated. If the measure we are discussing is to have a narrow remit, I can understand how it might emerge as an ancillary power, as it were, but it seems to me, and, I believe, to my noble friends, to be expressed in the widest possible terms. Some restriction may be desirable. But, having said that, I have no intention of pressing Amendment No. 95B either. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 41 [Imposition of requirements]:

[Amendment No. 95B not moved.]

5.30 p.m.

Clause 42 [Variation etc. at request of authorised person]:

Lord McIntosh of Haringey moved Amendments Nos. 96 and 97:


    Page 18, line 34, leave out ("of a group of") and insert ("potential").


    Page 18, line 36, leave out ("of that group of") and insert ("potential").

On Question, amendments agreed to.

[Amendment No. 98 not moved.]

Clause 43 [Variation etc. on the Authority's own initiative]:

Lord McIntosh of Haringey moved Amendment No. 99:


    Page 19, line 3, leave out subsection (1) and insert--


("(1) The Authority may exercise its power under this section in relation to an authorised person if it appears to it that--
(a) he is failing, or is likely to fail, to satisfy the threshold conditions;
(b) he has failed, during a period of at least 12 months, to carry on a regulated activity for which he has a Part IV permission; or

18 Apr 2000 : Column 601


(c) it is desirable to exercise that power in order to protect the interests of consumers or potential consumers.
(1A) The Authority's power under this section is the power to vary a Part IV permission in any of the ways mentioned in section 42(1) or to cancel it.").

On Question, amendment agreed to.

[Amendment No. 100 not moved.]

Lord McIntosh of Haringey moved Amendment No. 101:


    Page 19, line 24, at end insert--


("( ) The Authority's power under this section is referred to in this Part as its own-initiative power.").

On Question, amendment agreed to.

Clause 44 [Variation of permission on acquisition of control]:

Lord McIntosh of Haringey moved Amendment No. 102:


    Page 19, line 28, leave out ("acting under section 43") and insert ("exercising its own-initiative power").

On Question, amendment agreed to.

Clause 45 [Exercise of powers in support of overseas regulator]:

Lord McIntosh of Haringey moved Amendment No. 103:


    Page 19, line 38, leave out from ("Authority's") to ("may") in line 40 and insert ("own-initiative power").

On Question, amendment agreed to.

Clause 46 [Prohibitions and restrictions]:

Lord Kingsland moved Amendment No. 104:


    Page 21, line 15, after ("A") insert ("or contravene any other obligation or duty the institution may owe A").

The noble Lord said: My Lords, as I said at Committee stage of the Bill, Clause 46 gives the authority power to impose requirements on authorised persons and to give notice of these requirements to any institution with whom the authorised person keeps accounts. The institution does not act in breach of any contract with the authorised person if, having been instructed by the authorised person to transfer any sum or otherwise make any payment out of the authorised person's account, the institution refuses to do so in the reasonably held belief that complying with the instruction would be incompatible with a requirement imposed by the authority.

However, if the institution complies with the instruction from the authorised person, it is liable to pay to the authority an amount equal to the amount transferred. It does not seem reasonable that the institution must be automatically liable when complying with such an instruction when it appears that the requirement imposed by the authority is not an absolute requirement. Therefore, to balance the approach adopted in Clause 46, it would be reasonable to include the words, "without reasonable excuse". I beg to move.

Lord Stewartby: My Lords, I may be making the same point as my noble friend, but on reading Clause 46(5)(b) I wondered whether,

18 Apr 2000 : Column 602


    "if the institution complies with such an instruction"

that institution has had to go through the process of assessing whether complying with the instruction would or would not be incompatible with the requirement. It is not clear whether there is an assumption in Clause 46(5)(b) that it will have made such an assessment because the instruction of itself may not put the institution on notice that it ought to consider whether complying with the instruction would infringe the requirement. Perhaps that matter should be spelt out in paragraph (b).

Lord McIntosh of Haringey: My Lords, subsection (5)(a) of Clause 46 provides for notification of other institutions, such as a bank, where the person subject to an assets restriction has an account. It protects those institutions from action for breach of contract if they comply with the terms of the restriction.

Amendment No. 104 seeks to extend this protection to other obligations or duties to which the institution may be subject, such as a fiduciary duty or a duty of care. As I said in Committee, we understand fully the intention of the amendment. Subsection (5)(a) already recognises the need for a bank to be able to rely on the restriction as a defence to an allegation that it has acted in breach of such a duty. The provision is drafted in the way it is in response to comments made in our public consultation on the draft Bill. A number of people thought that the form of the provision in the draft Bill was confusing. We came forward with this wording to make clear that, after an assets requirement had been imposed, the institution would continue to hold A's property on the terms that had previously applied, except that it could legitimately forbear to make transfers in accordance with A's instructions.

In response to the comments made by the noble Lords opposite in Committee, we have considered whether the drafting should be further amended. We have consulted parliamentary counsel on that issue. It is our clear view that the amendment is unnecessary. It seems implausible that a court would hold that the institution was in breach of a fiduciary duty it may owe the authorised person, A, given the existence not only of an express prohibition or restriction on,


    "the disposal of, or other dealing with, any of A's assets",

but also an express provision that there is no breach of contract if a person refuses to do what his contract with A would otherwise have obliged him to do. We are satisfied that it is clear that a person who complies with a requirement imposed on him under statute cannot at the same time be liable to actions in the civil courts. This would fundamentally undermine the effect of the requirements for which Parliament itself has made provision.

In this particular case we have included express provision about breach of contract in order to make it clear that the terms on which the institution holds A's property are the same as those that applied before the assets requirement was imposed--with the very important exception that, so long as the assets requirement is in place, the institution is no longer obliged under its contract with A to comply with A's directions.

18 Apr 2000 : Column 603

We are doubtful of the value of trying to go further in this particular instance because we do not think that it is necessary to go beyond the specific case we have dealt with here--which is necessary for the simple mechanics of this particular requirement. We do not want to run the risk of creating doubt about the position in other areas where there may be an explicit statutory requirement but there is no express provision about civil duties and liabilities. In those cases no provision is required because those duties and liabilities are displaced by the requirements imposed under the statute. Nevertheless, as I say, we have consulted parliamentary counsel on this matter and we think that we are on safe ground here.

Amendment No. 105 concerns the liability which is imposed under subsection (5)(b) on a financial institution which acts in breach of a requirement notified to it by the authority. It would give the financial institution a defence to that liability if it could show that it had a "reasonable excuse" for having paid out or transferred any part of the account. As I said in Committee, we must remember that we are not dealing here with punishment of the institution for an offence or other misconduct, but with safeguarding assets which may be owed to consumers or to other creditors. The effect of a breach of the requirement may well be to allow the authorised person subject to the restriction to dissipate its assets in a way that puts them out of reach of the firm's customers or creditors. It is only right that an institution which has notice of the requirement should comply with it.

Clearly, there may be circumstances in which the notification has been garbled or not received, but in those circumstances no liability would attach to the institution in any event. It is difficult to imagine any other circumstances in which the institution would have a reasonable excuse for having failed to comply with a requirement. However, even if it did, we do not think that it would be right to deprive the firm's creditors and other persons to whom the assets may properly belong. And to allow, indeed encourage, institutions to look for excuses for failing to comply with requirements could seriously undermine their effectiveness. It might also expose smaller institutions to undue pressure from unscrupulous and perhaps desperate firms.

Amendment No. 106 is a drafting amendment. I do not think that the noble Lord referred to that amendment and therefore the House can be spared the pain of hearing me speak to it.

Amendment No. 106A concerns the position of a trustee appointed to hold assets pursuant to an assets requirement. Subsection (8) provides that assets will be treated as being held in accordance with such a requirement only if the authorised person has instructed the trustees to do so by written notice. The amendment, which we considered in Committee, would require that notice to come from the FSA rather than from the authorised person. Again, as we said in Committee, we can appreciate the thinking behind it, but it would cause more problems than it would solve.

18 Apr 2000 : Column 604

The obligation to transfer the assets to the trustee is imposed on the authorised person, although it must be approved by the FSA. The authorised person will have failed to comply with the requirement--and will therefore be exposing himself to possible disciplinary proceedings--if he fails to notify the trustee that those assets are held in accordance with the requirements. I think these two go together.

The noble Lord, Lord Stewartby, raised a point similar to that of the noble Lord, Lord Kingsland. The institution should be on notice that there are restrictions in dealing with A's property. This will mean that the authority will have given the institution a notice of the restriction in dealing with A's assets by virtue of Clause 46(4)(b). So it is not necessary to spell this out in subsection (5)(b).

On that basis, I hope that the noble Lord will not press the amendment.


Next Section Back to Table of Contents Lords Hansard Home Page