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Lord Saatchi: That is true, on the definitions of "market abuse" that are contained in the Bill. I believe that it is nevertheless relevant to consider what they said. Our argument is that we are not convinced that what has been put there to deal with those points has achieved that which was required. In other words, the problem remains that the scope of the application of
The second aspect to which I wish to draw the Committee's attention was described in detail by my noble friend Lord Kingsland. It concerns the matter of intent. My noble friend Lord Kingsland described the views in America of this type of offence. He described the degree of intent required to establish a violation of the anti-fraud provisions of the United States Securities Exchange Act. He specifically drew attention to the standard regarding Section 10(b) and Rule 10(b)(5). He showed that several elements need to be satisfied to establish a violation of those provisions in America, of which one is the degree of intent required to establish a violation.
It is true, as he pointed out, that the US Supreme Court has held that the SSE, the federal agency charged with enforcing all federal securities laws, must establish that a defendant acted with a mental state embracing an intent to deceive, manipulate or defraud. Securities legislation enacted in America in 1995 requires plaintiffs in securities fraud actions to,
Lord McIntosh of Haringey: I am very interested in the suggestion that the Opposition Front Bench should be restrained! I am not sure whether it was really congratulation on the part of the noble Lord, Lord Peyton, but it was certainly welcomed by the noble Lord, Lord Saatchi.
Before I deal with the government amendments and respond to the others in the group, perhaps it would be helpful to say something about the market abuse regime in general. Legislative provision to deal with it has built up as the Bill has progressed. Too often we have lost sight of the big picture by quibbling over hard cases, albeit not this evening. The aim of the market abuse regime is to enhance the protection of financial markets in the UK. It is vital that those markets are
We all have an interest in making sure that these markets continue to work well. At present we protect the markets in two ways: through the criminal law and through the regulatory regime. But there is a gap in the protection. The criminal offences of market manipulation and insider dealing cover all market participants but only a narrow range of very serious behaviour. This is right. These are serious criminal offences which carry a maximum gaol sentence of seven years. On the other hand, the regulatory regime covers a wider range of behaviour but extends only to members of the regulated community. Rather than extend the criminal law to close this gap, as the noble Lord, Lord Kingsland, appears to suggest, we have decided that a more proportionate response is to extend the regulator's reach to cover those who abuse the markets, regulated or unregulated. The new regime will thus complement, not replace, the existing criminal offences.
Lord Kingsland: It is true that the Joint Committee said that. However, it also recommended, as a result of its analysis of ECHR, that a defendant in market abuse proceedings should have all the protections provided by the criminal law. The noble Lord refers to market abuse in the context of the Bill, but the Joint Committee had in mind market abuse in the context of its recommendations relating to the convention.
Lord McIntosh of Haringey: I do not regard them as minor amendments, but they do not provide what the noble Lord appears to seek; namely, an extension of the criminal law rather than a civil market abuse regime.
I say to the noble Lord, Lord Saatchi, that, true enough, the Joint Committee made a number of recommendations to improve certainty in this area. We believe that we have met those concerns by the changes made in Committee in another place and the amendments that we propose today which will also improve this part of the Bill.
I turn to the group of amendments which relate to intent, which are basically Amendments No. 209A and 211A. In order to be abuse, behaviour must get through a series of tests. It must be behaviour which occurs in relation to qualifying investments traded on a market to which Clause 109 applies (subsection (1)); it must be behaviour of a type that comes within subsection (2) which, broadly speaking, is behaviour based on unavailable information (subsection (2)(a)); it must be behaviour which is likely to mislead the market (subsection (2)(b)) or behaviour which distorts, or is likely to distort, the market (subsection (2)(c)); and, finally, it must be behaviour which falls below certain expected standards. I shall return to the objectivity of those standards in a moment.
The effect of these amendments would be to make it impossible to take action where behaviour misled or distorted the market unless the FSA could prove that the behaviour was intended, or might reasonably be presumed to be intended, to have the relevant effect. Noble Lords opposite have moved a long way from the position taken by the Opposition in another place. I did not hear them say so, but that is the position. In another place the Opposition tried to make it a general requirement that only where it could be proved that someone intended to abuse the market could a penalty be imposed. They have now accepted, at least in part, our argument that markets can be damaged even when people do not intend to do so. They have not proposed an "intent" test in Clause 109(1)(c), and have left untouched the test on misuse of information in Clause 109(2)(a).
The Joint Committee, which examined this part of the Bill in considerable depth, acknowledged the force of our arguments against requiring proof of intent. I believe that my noble friend Lord Grabiner has made that point with exceptional clarity. The Joint Committee recommended that we introduce greater certainty by providing a safe harbour for behaviour that complies with the FSA's code of market conduct. The Committee will be aware that from the outset the Bill has required the FSA to consult on and publish a code of market conduct, the purpose of which is to give people more certainty about what kinds of things are or are not abusive. Following the Joint Committee's first report, we announced that we would make compliance with things expressly permitted by the code a complete defence to the charge of market abuse. That went further than the Joint Committee's recommendation. Therefore, I cannot accept the amendments relating to intent. We propose to strengthen the protection afforded by the Bill to those who reasonably believe that what they did was not abusive--I shall deal with that when I speak to the government amendments--but intent should not be a necessary feature of a non-criminal regime that is designed to protect markets.
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