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Lord Goldsmith: My Lords, I do not want to detain your Lordships for too long. My sight of the Takeover Panel has principally come from my work as a barrister practising to some extent in a field where the Takeover Panel operates. As the noble Lord, Lord Boardman, has said, that has not included my being allowed to appear in front of the Takeover Panel. I hope that that sort of custom will not be allowed to extend to other bodies.
As a result of having seen the way the Takeover Panel operates, I recognise that it is an effective and most important part of the operation of the financial community. Therefore, having taken note of the concerns expressed by the panel, I have had concerns about whether, without some degree of clarification of the ambit and the respective areas in which the two bodies will operate, it may undermine the operation of the panel.
I am not sure that some of the concerns are necessarily expressed correctly; there may be more fear than there needs to be. However, I share the concerns of others who would have liked to see some agreement reached by which the respective functions of the two bodies would be clarified.
I agree with the noble Lord, Lord Newby. I do not see immediately enormous harm in Amendment No. 157YA. Under Clauses 116 and 118 the Bill already recognises that the authority may state in a code that certain behaviour described by it will not amount to market abuse. Under Clause 118 someone who behaves in the way described will be protected from a charge of market abuse. It might be said that it is already open to the authority, therefore, to issue a code in which, if it is of that opinion, it states that conduct which complies with the City code would not amount to market abuse.
If the authority is able to do that under the Bill as drafted, it might be argued that it is unnecessary to add this provision. On the other hand, it would send a clear message that that kind of behaviour would not amount to market abuse; and that would be helpful. As drafted, the amendment does not require the authority to reach that view; it gives it the power to state that in a code, and subject to such limitations as the authority thinks fit.
I have more difficulty with the second amendment. I understand the argument raised by the Minister in Committee: that this would appear to give a non-statutory body the power to tell a statutory body what to do. I understand the objections to that course.
I shall listen carefully to what the Minister is able to say about the discussions to which he referred in Committee and to which reference has been made by other noble Lords today. I hope that at Third Reading some agreement will be forthcoming which will clarify the differences.
Lord McIntosh of Haringey: My Lords, it is clear that there is a great deal of common ground on the issue. That common ground was expressed most clearly by the noble Lord, Lord Saatchi, in introducing the amendments and by the noble Lord, Lord Newby. We all agree that the Takeover Panel does a good job in overseeing the procedures and practices of parties to takeovers. We have agreed that it is widely respected. That goes back for many years. We want the panel to continue to do that job in the effective way it has done so to date.
We agree also that there is some overlap between some of the things the panel does and the territory covered by the new market abuse regime. However, equally clearly, that can be dealt with in the same way as other overlaps--for example, between the market abuse regime, the rules of recognised investment exchanges and clearing houses and between the FSA's role as prosecutor and that of the other prosecutors.
There is nothing inherently special about the position of the panel compared with exchanges that makes us feel that a different approach is warranted here. This is not a new concern. Overlaps exist at present between regulatory rules and some criminal offences and the rules of the Takeover Panel, exchanges and other regulatory bodies.
Where issues arise, they are dealt with at present through policy statements, practical arrangements, liaison and information sharing. There has been no difficulty about that to date; and I see no reason why there should be particular difficulty. However the panel--perhaps I may say to the noble Lord, Lord Stewartby, that it raised these issues only in the past few months, and not during the early stages of the Bill--fears that the fact that the new market abuse regime is a statutory regime will change matters. It fears that because the regime is statutory it will be easier for aggrieved parties in a hostile takeover to seek to involve the FSA in an effort to frustrate the takeover. Those parties, the argument runs, will find it easier than now, with regulation currently being largely on a contractual basis, to seek judicial review in circumstances in which the FSA decides not to respond to a request that it should consider exercising its powers under Part VIII of the Bill at a time when a takeover is in progress.
I was interested to hear the explanation of the noble and learned Lord, Lord Donaldson, of judicial engineering in the Datafin case. The attitude of courts to the Takeover Panel and the takeover code is well known. They have not said that they will never intervene while a bid is in progress. They have indicated that the circumstances in which they would be prepared to do so would be very rare indeed. With great respect to the noble and learned Lord, I think that is the solution for the Takeover Panel. I believe that it is possible to do that. It is open to the FSA to adopt a similar attitude to that which the courts have adopted without running the risk of fettering its discretion in an unacceptable and irreversible way, and that is what the second amendment in particular does.
Lord Forsyth of Drumlean: My Lords, I am handicapped because I am not a lawyer. However, can the Minister deal with this specific point? If the FSA were to act as he suggested--that is, not to intervene--the argument runs that it would then be vulnerable to an action for judicial review because it had not examined the circumstances of a particular case. That would lead to delay and the kind of problems which have been described.
The point I make here is that the policy that the noble and learned Lord, Lord Donaldson, called masterly inactivity is as open to the FSA as to the courts. The fact that it cannot run the risk of fettering its discretion does not mean that it cannot refuse to intervene in tactical matters, and say so in advance. It would be wrong if parties to a bid and others involved in it could circumvent the clear position which the courts have adopted through the back door of the new regime in Part VIII of the Bill. The courts would not look kindly on any attempt and would look favourably on any effort by the FSA to avoid that happening.
The effects of Amendments Nos. 157YA and 157ZA would be, first, to allow the FSA to provide effectively that in the area of takeovers market abuse is whatever the Takeover Panel says it is; and, secondly, to allow the FSA to adopt a policy that it will intervene only in certain areas of market abuse where the panel invites it to do so. Thirdly, they appear to attempt to avoid the panel being in any way publicly or legally accountable for anything it did or failed to do in the course of discharging the wide-ranging functions that the amendments would by implication bestow on it.
These are serious charges about both amendments. However, I want to emphasise that the two amendments are conceptually different propositions. Amendment No. 157YA is concerned with the status of the City code and the question whether compliance with it constitutes market abuse. On the last occasion,
Returning to the point raised by the noble Lord, Lord Forsyth, the issue is not whether it would be subject to judicial review if it fettered its discretion; it would be reneging on the duties which will be given to it by statute in the course of the Bill.
Amendment No. 157ZA is concerned with the circumstances in which the FSA can take action where an abuse which has contravened the code occurs. It is about who takes decisions, and not, like Amendment No. 157YA, about whether the behaviour is abusive.
My concerns as a matter of principle are obvious. If the FSA agreed to "turn on" these provisions, as it would in the first line of the second amendment, the effect would be to give the Takeover Panel, a non-statutory body which is not subject to accountability or transparency arrangements comparable to those of the FSA, powers over the FSA which neither the Treasury nor Parliament has. Treasury Ministers cannot tell the FSA when something is abuse or when it is not. The definition of abuse is provided for on the face of the Bill in Part VIII.
Let us remember what we are doing in this Bill. We are setting up the FSA as the single statutory regulator of the financial services industry. What it does is conditioned by the objectives and principles which Parliament is giving it, among them the protection of consumers and the maintenance of market confidence. In the area of market abuse, we are giving it new powers to protect the financial markets, extending its reach to cover both regulated and unregulated persons. Together with that, it has statutory investigation powers enabling it to compel people to answer questions.
The Takeover Panel, however good a job it does in regulating the conduct and process of takeover powers--and we are all agreed about that--is a very different body. It is not subject to the statutory checks and balances; for example, it is not subject to consultation requirements, cost-benefit analyses, annual reports, independent complaints investigations and so on.
There are good reasons for maintaining the current non-statutory approach to the regulation of takeovers. We want the process to be as quick and efficient as possible. But where market abuse is concerned, the last word should rest with the body to which Parliament is giving the job of tackling the problem. Only in this way will we ensure that there is consistency and coherence in the regime.
We have to remember that interests other than those of shareholders in the various parties to a takeover are at stake. There is the interest of other market participants and the market as a whole, where concerns of fairness and efficiency are at the heart of what we are doing.
Furthermore, there will be times when it is appropriate for the FSA to take action against market abuse during a takeover. The amendments recognise that--there is no disagreement about it--as has the panel in its talks with us. Examples might be where the abuse was very serious and affected companies other than those involved in the takeover or where a party to a takeover did not comply with a panel ruling.
Given that all sides acknowledge that there will be occasions when it is appropriate for the FSA to take action under its market abuse powers, the key question is who should take that decision. I believe firmly that the decision in a particular case should rest with the statutory regulator which Parliament has charged with the responsibility of tackling market abuse across the board.
I cannot accept that it is right for the FSA to be able to adopt a policy of only ever exercising its market abuse powers where a takeover is involved on the say-so of the panel. Apart from the point of principle, as a practical matter it would not be desirable for the FSA to be able to take action only at the request of the panel. The panel may not always be in possession of the facts because it does not have the direct statutory investigation powers.
However, I have been properly challenged about what the practical solution to the problem will be. I believe that it has to be, and would be if the amendments were carried, administrative arrangements; in other words, agreement between the Treasury, the FSA and the panel. As is well known, the Treasury has been brokering meetings between the panel and the FSA and I want to report on what has happened during those meetings.
There are three important factors. We have made a great deal of progress, although we have not yet completed the process. The first is a policy statement setting out the FSA's general policy in relation to takeovers. While the FSA cannot adopt a policy of never intervening regardless of the circumstances--any more than the courts can--as that would be unlawfully fettering its discretion, it can adopt a policy of not intervening generally where it feels that the panel can take adequate action. We are assured by the FSA that it will do so. That is my answer to the question posed by the noble Lord, Lord Saatchi.
I now return to the question asked by the noble Lord, Lord Forsyth. The FSA can adopt general policies to which it must be prepared to make exceptions. If the case in question does not warrant an exception being made to the general policy, a judicial review will not succeed. Of course proceedings for review may be brought, as they may be brought against the panel, but in a case such as the one I have mentioned it is unlikely that the courts will grant the necessary leave for an application to be made.
The discussions could involve a general policy of the FSA not intervening in response to a request which it believes has been made for tactical reasons and not because of the concern that serious abuse has taken place. Again, that is in answer to the concerns expressed by noble Lords opposite. That is the first front.
The FSA is currently working with the panel on a statement which will provide as much clarity as possible on the kinds of cases in which it would seek to intervene. These will be the more serious and urgent cases involving widespread abuse which goes across sectors or involves other parties than the parties to the takeover. The FSA's intention is that the statement of policy will address issues of timing, a delay in the exercise of certain powers and whether to impose a penalty until after the completion of the bid process.
The second front is the code of market conduct provided for in Clause 116. The FSA is required to produce a code which gives appropriate guidance to those determining whether or not behaviour amounts to market abuse. The FSA is working with the panel, as it is with recognised bodies, to identify rules which are capable of providing such a safe harbour.
I was asked particularly by the noble Lords, Lord Newby and Lord Elton, why there appeared to be no urgency in the process. There certainly is urgency in the process. There are strong incentives for both the main parties in the negotiations to make rapid progress against a background of uncertainty as to whether the Bill would be amended. I believe that if the House is established in the view that an amendment on the face of the Bill is not the best way forward, that will help progress to be made in the negotiations. I will ask the FSA to produce a position paper before next Thursday--before the Third Reading of the Bill--for circulation to all noble Lords who have shown an interest in the matter. As I have said, the FSA is currently working on a policy statement, operating agreement and code of market conduct for safe harbours.
I am sure that those arrangements are the right way forward and provide a satisfactory solution to the problem. Under those circumstances, I cannot agree that the amendments, which are separate and not consequential on each other, would be helpful in the negotiations or would help us to reach the agreed conclusion which is necessary for both the Takeover Panel and the FSA, and I ask the House to reject them.
Lord Saatchi: My Lords, I am grateful to my noble friends Lord Forsyth, Lord Boardman, Lord Elton and Lord Stewartby for supporting the amendments and also to the noble Lord, Lord Goldsmith, for supporting Amendment No. 157YA.
The summary of what the Minister said is that we are promised a position paper from the FSA before next Thursday. That appears to be the action that will follow from today's short debate. However, as some of my noble friends said, that is not what we are looking for at all. We are looking for a view from the Government about how they will resolve a pressing problem--which was pointedly described by the noble Lord, Lord Newby--that we have before us two
In, I believe, a most important intervention, the noble and learned Lord, Lord Donaldson, said that such an agreement could not be achieved because too many circumstances were involved. I believe that he said that he preferred our amendment which (he said in a striking phrase) gave the FSA the power to apply with "masterly inactivity". I believe that that is why he preferred our amendment to any possible agreement. However, either by way of an agreement brokered by the Treasury or by way of agreeing to these amendments, the Government will surely offer the House at Third Reading more than the position paper from the FSA.
The Treasury is responsible for the situation that we are about to enter. I hope that one way or another it will find a solution before Third Reading, either via our amendment or via an agreement. As an inducement to the Treasury to try to find such an agreement, I hope that it will reflect on the fact that if it does not, then--perish the thought!--the decision might be taken by votes in your Lordships' House. In the meantime, I beg leave to withdraw the amendment.