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Lord Borrie had given notice of his intention to move Amendment No. 206:



("(6A) No penalty imposed by the Authority under this section may exceed 10% of the aggregate turnover of the licence holder and any affiliate or related undertaking of the licence holder (determined in accordance with such provisions as may be specified in an order made by the Secretary of State).
(6B) In this section--
"affiliate" means any holding company (which has the meaning set out in sections 736, 736A and 736B of the Companies Act 1985) of the licence holder, any subsidiary (which has the meaning set out in sections 736, 736A and 736B of the Companies Act 1985) of the licence holder or any subsidiary of a holding company of the licence holder; and
"related undertaking" means any undertaking (which has the meaning set out in section 259 of the Companies Act 1985) in which the licence holder has a participating interest (which has the meaning set out in section 260 of the Companies Act 1985).").

The noble Lord said: I want to thank the noble Lord, Lord Kingsland, for his questioning but helpful comments and to thank my noble friend the Minister for his considerate response.

[Amendment No. 206 not moved.]

[Amendment No. 207 not moved.]

Lord McIntosh of Haringey moved Amendments Nos. 208 and 209:


    Page 56, line 45, leave out ("that subsection") and insert ("section 58 of the Utilities Act 2000").


    Page 57, line 18, leave out from ("failure") to end of line 21 and insert ("later than the end of the period of 12 months from the time of the contravention or failure, unless before the end of that period--


(a) the notice under section 27A(2) relating to the penalty is served on the licence holder under section 27A(6), or
(b) a notice relating to the contravention or failure is served on the licence holder under section 28(2).").

On Question, amendments agreed to.

[Amendments Nos. 210 to 215 not moved.]

Lord McIntosh of Haringey moved Amendment No. 216:


    Page 59, line 20, at end insert--


("( ) In section 28(1) of the 1989 Act (power to require information, etc.), for the words from "the Director" in the first place they appear, to "42B below" there is substituted "the Authority that a licence holder--
(a) may be contravening, or may have contravened, any relevant condition or requirement; or

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(b) may be failing, or may have failed, to achieve any standard of performance prescribed under section 39 or 39A,
the Authority may, for any purpose connected with such of its functions under section 25 or 27A to 27F".").

On Question, amendment agreed to.

Clause 58, as amended, agreed to.

Clause 94 [Financial penalties]:

[Amendments Nos. 217 to 220 not moved.]

Lord McIntosh of Haringey moved Amendments Nos. 221 and 222:


    Page 96, line 9, leave out ("that subsection") and insert ("section 94 of the Utilities Act 2000").


    Page 96, line 30, leave out from ("failure") to end of line 33 and insert ("later than the end of the period of 12 months from the time of the contravention or failure, unless before the end of that period--


(a) the notice under section 30A(2) relating to the penalty is served on the licence holder under section 30A(6), or
(b) a notice relating to the contravention or failure is served on the licence holder under section 38(1).").

On Question, amendments agreed to.

[Amendments Nos. 223 to 228 not moved.]

Lord McIntosh of Haringey moved Amendment No. 229:


    Page 99, line 2, at end insert--


("( ) In section 38(1) of the 1986 Act (power to require information, etc.)--
(a) for "Director" in each place where it appears, there is substituted "Authority";
(b) after "requirement" there is inserted "or may be failing, or may have failed, to achieve any standard of performance prescribed under section 33A or 33AA,";
(c) for the words from "his functions" to "signed by him" there is substituted "its functions under section 28 or 30A to 30F in relation to that matter, by notice in writing";
(d) for "him" there is substituted "it".").

On Question, amendment agreed to.

Clause 94, as amended, agreed to.

Clause 59 [Licence enforcement]:

Lord McIntosh of Haringey moved Amendment No. 230:


    Page 59, line 28, leave out ("and (4)") and insert (", (4) and (6)").

On Question, amendment agreed to.

Clause 59, as amended, agreed to.

Baroness Amos: I beg to move that the House do now resume. In moving the Motion, I suggest that the Committee stage begin again not before 8.55 p.m.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

21 Jun 2000 : Column 338

Local Authority (Stocks and Bonds) (Amendment) Regulations 2000 Uncertified Securities (Amendment) Regulations 2000

7.55 p.m.

Lord McIntosh of Haringey rose to move, That the draft regulations laid before the House on 12th May be approved [19th Report from the Joint Committee].

The noble Lord said: My Lords, the two instruments before us are part of a series of four that are necessary to enable the full merger between CREST, the computer system that settles transactions in equities and corporate bonds, and the Central Gilts Office (CGO), the computer system that settles transactions in gilts and other public sector securities. The merger was one of the key recommendations of the Bank of England's Securities Settlement Priorities Review and was widely endorsed by the financial markets because of the efficiency gains, the reduction in systemic risk and the improvement in the UK's competitive position which it is expected to bring.

In view of this widespread support and the highly technical nature of much of the legislation, I do not propose to detain the House with either a lengthy apologia for the merger or a detailed exposition of every bit of the regulations. However, there are a couple of points where the House may welcome a slightly fuller explanation.

The first of these relates to the new Regulation 36A of the Uncertificated Securities Regulation which is intended to clarify the meaning of "actual notice" for the purpose of the regulations as a whole. To understand the background to this regulation, it is necessary to understand that CREST operates what is known as an "assured payments" mechanism. This means that securities are transferred only if the requisite payment is guaranteed and, equally, payments are only made if the securities are transferred. A group of major banks--the settlement banks--plays a key part in this process by undertaking on behalf of their customers to make assured payments for security transfers. In other words, they will provide intra-day credit. To insure against risk, a settlement bank will normally take a floating charge over a customer's securities, supported by a power of attorney under which it is able to direct CREST to transfer the securities from the customer's account to its own account in certain closely defined circumstances.

The settlement banks have put it to the Government that they may be at a disadvantage using a power of attorney in CREST as compared with someone using a power of attorney outside CREST. They have suggested that the Uncertificated Securities Regulations would be interpreted as imposing more limitations on the actions of CRESTCo, which operates the CREST system.

The Government believe it unlikely that the courts would interpret the regulations in this restrictive way. However, it is important to clarify this as far as possible and this is done by the proposed amendment

21 Jun 2000 : Column 339

made by Regulation 36A. This says that if there is a dispute between a customer and a settlement bank as to whether the customer's obligation has been discharged, and hence as to whether the power of attorney is still in force, it will be up to the parties involved to resolve the matter and to submit notice to CRESTCo. CRESTCo itself will be under no obligation to make further investigations and will be entitled to rely on the settlement bank's instructions.

The second area where the House may welcome some explanation concerns the new Regulation 36B of the Uncertificated Securities Regulations. This provides that issuers of securities whose terms of issue specify that they may only be held in uncertificated form do not have to comply with the provisions in the regulations which relate to holdings in certificated form.

The main purpose of this regulation is to clarify the ability under the regulations to settle what are known as CREST depositary interests. These are English law securities issued by CRESTCo which represent interests in foreign securities held by it in overseas central securities depositories. They are in effect a mechanism which enables CRESTCo to settle foreign securities and for UK investors to buy and sell such securities through the CREST system.

Because CREST depositary interests are a rather specialised type of security, the Government believe that it is appropriate to exempt them from those provisions of the regulations which could require them to maintain a record of the units held in certificated form and to have procedures from converting from one form to another. That means that the investors will not need to fill in a stock transfer form in order to transfer them and will not have the option of receiving a share certificate.

That is not quite so much a departure from current practice as it may appear because complete dematerialisation is already a feature of the gilts market and will remain so in the future. As the House will have noted, the new regulation exempts certain specific public sector securities from the relevant provisions of the regulations as well. Because of that, and because of the need to ensure consistency of treatment, the Government consider it appropriate for any security whose terms of issue specify that it may be held only in dematerialised form to be similarly exempt. That will clarify the ability of corporate issuers to issue new securities in completely dematerialised form and thus to have the same freedom that hitherto only the Government have had.

Before I finish, perhaps I should say a brief word about the Local Authority (Stocks and Bonds) (Amendment) Regulations. These are entirely technical in nature and are intended to allow stocks issued under the Local Authority (Stocks and Bonds) Regulations 1974 to transfer through the CREST system after the merger. They are being dealt with under the affirmative resolution procedure because the power to amend them by the more usual negative resolution procedure was removed by statute in 1988.

21 Jun 2000 : Column 340

I apologise for detaining the House but inevitably these are long and complicated issues. I hope that I have highlighted those which may be of general interest. I beg to move.

Moved, That the draft regulations laid before the House on 12th May be approved [19th Report from the Joint Committee].--(Lord McIntosh of Haringey.)


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