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Lord Kingsland moved Amendment No. 157QA:


The noble Lord said: My Lords, in moving Amendment No. 157QA, I shall speak also to Amendments Nos. 172A, 173A, 174A, and 175A to 175C.

Amendment No. 157QA is a small amendment to Clause 147 and seeks to remove the words, "made by the Authority", which feature after the word "rule". The reason is simple. The word "rule" is defined by Clause 407(1) as,


    "a rule made by the Authority under this Act".

Therefore, it would seem that the words, "made by the Authority" in Clause 147(1) are--dare I say it?--otiose.

Amendment No. 173A to Clause 322, seeks to insert the words,


    "or retain with the consent of",

after the word "to" at page 171, line 37. As your Lordships are well aware, Part XX of the Bill deals with the provision of financial services by members of the profession. Clause 322 sets out the conditions which must be satisfied by a member of a profession if he is to avoid the general prohibition against carrying on regulated activities when not authorised to do so. If that exemption is to have some use, it must be possible to satisfy the conditions.

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Our concern relates to Clause 322(3) and the requirement that the person concerned,


    "must not receive from a person other than his client any pecuniary reward or other advantage, for which he does not account to his client, arising out of his carrying on of any of the activities".

The words,


    "any pecuniary reward or other advantage",

are very widely drawn and would cover virtually any benefit; for example, they could cover the payment of a person's bill by a third party. How will all that work in the context of partnerships, particularly large ones which carry on a wide range of services?

Amendment No. 173A is a small attempt to assist firms to be able to satisfy the condition in Clause 322(3) by providing that the condition can be satisfied if the client consents to the retention by the relevant person of the pecuniary reward or advantage.

Amendment No. 172A is a government amendment relating to the exemption in Part XX for members of regulated professions who are carrying on regulated activities which are incidental to the carrying on of professional services. The amendment, as we understand it, limits the exempt or regulated activities to activities exempted by Part XX, which is welcome.

Amendment No. 175A seeks to amend Clause 322. Here the Part XX exemption applies only if the regulated activities carried on by the professional are all exempted by Part XX. The amendment recognises that the professional may be an exempt person for other reasons--typically where he is an appointed representative--and allows the Part XX exemption to apply even where he carries on regulated activities outside Part XX, if he carries them on as an exempt person. That amendment is also welcome. Amendment No. 175B seeks to amend Clause 327. It is consequential on Amendment No. 175A and is also completely acceptable.

I am pleasantly surprised to observe that Amendment No. 175C was tabled by us. In Committee, the Minister may recollect that I raised the question of whether the Treasury would be required to make it clear, in its regulated activities order, that merely advising on the legal implications of an investment transaction--typically an agreement for the acquisition of shares--and arranging for the documentation to be entered into, including negotiating its terms, should not be treated as investment advice or arranging deals for the purposes of authorisation. Amendment No. 175C provides for that exemption and, I readily admit, is in the nature of a probing amendment, enabling me to make this point again as the Minister will be only too well aware that there was no response from the Government in Committee.

The need for this exemption applies to all corporate financial legal advisers, but is particularly important in the case of non-UK law firms. Most of such firms, and in particular American, Australian and Canadian firms, and firms from continental Europe, establish their London offices to advise on corporate finance transactions, rights issues, placings and bond issues.

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None of those firms can take shelter under the Part XX exemption because they are not subject to regulation by the Law Society. That is why it is so important to make it clear that, as I believe is the law anyway, those activities which relate to the transaction in which an investment is bought or sold rather than to the investment itself, are not regulated activities.

It should be clear that activities which relate to investments, but are certainly not investment activities requiring authorisation under the Bill, do not need to be restricted in the way required by Part XX or to be subject to regulation by the Law Society and indirect oversight by the authority. I beg to move.

6 p.m.

Lord McIntosh of Haringey: My Lords, let me start with Amendment No. 157QA, which seeks to ensure that a person will not be guilty of an offence by reason of a contravention of a rule, regardless of which body authorised the rule. In particular, the intention is to ensure that a professional firm which seeks to benefit from the regime under Part XX of the Bill does not commit an offence if it carries on or holds itself out as carrying on an activity other than one which it may carry on under rules made as a result of Clause 327(3).

Any provision which had the effect intended would undermine an important effect of Clause 322(5). This subsection provides that a professional firm, seeking to benefit from the Part XX exemption, will need to ensure that it does not carry on, or hold itself out as carrying on, a regulated activity other than one which rules made as a result of Clause 327(3) allow it to carry on.

The noble Lord, Lord Kingsland, made the point about US law firms. I have the relevant copy of Hansard in front of me. I believe I answered the point then, but I shall certainly attempt to answer it now. Part XX exemption is available to members of designated professional bodies only. As it is not a legal requirement that US law firms--I suppose that that is true of Australian and Canadian firms, although I am not familiar with that issue--should register with the Law Society of England and Wales in order to provide professional services in the United Kingdom, it is unlikely that US law firms will be members of a designated professional body and so they will be unable to benefit from Part XX exemption. Therefore, if they wish to conduct a regulated activity which is excluded under the Regulated Activities Order, they will need to be authorised by the FSA.

As regards investment business, which is what I believe the noble Lord, Lord Kingsland, was speaking about, there is no current intention that the position under the Regulated Activities Order should be any different from the position under the Financial Services Act. It is difficult to see why US law firms should require authorisation under the Bill if they do not require it now under the Financial Services Act. If there are concerns on that score they can be considered in the context of our proposals for the Regulated Activities Order. I suggest that they do not need to be covered on the face of the Bill.

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I return Amendment No. 157QA. I said on 18th April at Report stage that, where a breach of Clause 322(5) prohibition occurs, it is important that the offending firm be subject to the authorisation offences set out in Clause 21. That also applies to "holding out". We cannot risk professional firms giving the impression that they are free to operate outside the regime for which Part XX of the Bill makes provision. The Opposition's amendment is clearly intended to counter these effects.

It is important to recognise that professional firms are being treated no differently from other firms which conduct regulated activities, but which are not authorised by the FSA. I hope that the noble Lord will not pursue that amendment.

I turn now to government Amendments Nos. 172A, 174A, 175A and 175B. I was grateful for the support for Amendments Nos. 175A and 175B. These are four amendments to Part XX of the Bill to allow professionals who are carrying out exempt regulated activities also to be exempt persons under the Bill. These are raised in response to concerns recently expressed by the Institute of Chartered Accountants. It is a new issue which has been brought to our attention; namely, that a professional firm carrying out exempt regulated activities under Part XX will be prevented from taking advantage as an exempt person of the exemption set out in Clause 37. We have concluded that Part XX should not have the effect, in keeping with our overall approach throughout the Bill, to provide for a proportionate regulatory regime while maintaining a suitable degree of consumer protection. So we are amending Clause 322 so that a professional firm carrying out exempt regulated activities under Part XX of the Bill will not be held to be in breach of the prohibition. We propose to amend Clause 322(7) so that where a professional firm carries on exempt regulated activities under Part XX, it may also carry on activities as an exempt person at the same time.

We are also amending Clause 327 so that the professional body rule-making requirement does not extend to regulated activities conducted by professional firms as exempt persons under the Bill. As the noble Lord, Lord Kingsland, recognised, the final amendment is a technical one to the definition of "exempt regulated activities".

I turn now to the opposition Amendments Nos. 173A and 175C. The protection of consumers requires specific criteria to be met. One of these is that professional firms should not receive any benefit as a result of carrying on a regulated activity other than from clients. That is in line with a professional's general obligation to act in the best interests of his client. A professional, in considering what should be the source of any third party advice to his client, should refer solely to what his client needs.

Amendment No. 173A would allow professional firms to benefit from a commission-sharing arrangement with an independent financial adviser, when the client consents. I am sure that professional firms will always want to be seen acting in their client's best interests. However, this amendment will raise

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doubts about whether a client is being best served where, for example, he is steered towards an independent financial adviser who has a commission-sharing arrangement with the professional concerned rather than with one who does not. I do not believe that that is desirable.

Amendment No. 175C raises an important issue; namely, what should be the status of professionals under the new regime when providing advice on, or negotiating the terms of, an investment agreement on behalf of their clients. The noble Lord, Lord Kingsland, raised this matter at Committee stage. There is a debate on which investments and activities should be regulated. That relates to Clause 20 of the Bill and, more specifically, the Regulated Activities Order.

I hope that the House will be reassured by the fact that the draft order, which we circulated in February last year, proposes a number of exemptions which will benefit professionals as well other financial services providers. There will be a chance to debate the draft Regulated Activities Order as it is subject to the affirmative resolution. We shall clarify in due course whether the activities covered by the amendment fall within any or all of these exclusions. In the meantime I hope that it will be recognised that providing an exemption that benefits professionals solely as regards specific regulated activities will put professional firms at a competitive advantage over other financial services providers and could impact heavily on consumers. We cannot support that amendment either.


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