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Lord Grabiner: I entirely agree with what the noble Lord says. The point is that the amendment would make the position too easy; and one would simply invite litigation as an entirely unnecessary exercise.
Lord Kingsland: I have the greatest admiration for the noble Lord, Lord Grabiner, but I regard it as a shocking allegation that I, of all people, should wish to encourage litigation. On the contrary, I wish to encourage a prudent authority. I believe that an objective requirement which makes the authority look before it leaps is likely to lead to much better decision making than is a subjective requirement. That was the force that drove me to table the amendments. It was not the honeyed words of the advisers to which the noble Lord, Lord Grabiner, referred.
Lord Bach: If the Front Bench can get a word in, this is my first entry into discussions on the Bill! I believe that the same applies to the noble Earl, Lord Northesk. I do not know whether he thought of any animal analogies. I thought of shark-infested waters, but immediately put that to one side because it would not be a fitting description of any noble Lord. However, "Daniel in the lion's den" might be more suitable because a lion is more similar to a number of noble Lords.
The key to effective regulation is information. That is what this part of the Bill is about. To regulate effectively the broad range of markets and businesses for which it is responsible, and to take timely, well-considered and proportionate--that is an important word--regulatory decisions, the FSA must have access to detailed, up-to-date and relevant information. Equally, it must have effective powers to investigate possible wrong-doing in order to maintain the confidence of all players in our financial markets from the small investor to the large market professional. This is vital for maintaining the high reputation of the United Kingdom as a place in which to do financial services business.
The effectiveness of the powers in this part of the Bill is therefore central to the new, rationalised regulatory system. In keeping with our general policy of rationalising powers, Part XI of the Bill represents a careful synthesis of the different investigation powers exercised by the existing regulators. What we started with was a mixture of statutory and contractual powers--one kind of power for one kind of person doing one kind of activity, with another power for another person doing a similar sort of business.
Much of the debate in another place--it has been referred to--centred on the extent to which the FSA is required to act reasonably and to impose requirements only to the extent that they are reasonable. It was following that discussion that the Government agreed to review the use of explicit reasonableness references in the Bill more generally, with the result that we made a number of amendments to other parts of the Bill the other day. Clearly some of the more important amendments moved and spoken to today seek to introduce further explicit references to "reasonableness". I do not think that the noble Lord will be surprised to hear that we do not consider those to be as helpful or as necessary as the other amendments.
Dealing with the amendments debated, but not necessarily in order, as regards reasonableness, Amendments Nos. 234YD, 234YE and 234YF seek to reverse changes made in another place by changing the trigger for the FSA and the Secretary of State to start an investigation into particular possible contraventions. This important clause, Clause 159, covers a broad range of possible contraventions, ranging from breaches of rules by authorised persons, through market abuse, to serious criminal offences under the money-laundering regulations, the carrying
However, we concluded that that wording imposed too high a test for launching an investigation. We are talking about an investigation in this context. It is similar to, if not the exact equivalent of, the level of suspicion that a policeman must have in order to carry out an arrest and which would often be met only after some, perhaps considerable, investigation.
This is too high a test if we want to have a regulatory system that responds quickly and effectively to possible wrong-doing. We cannot have a system where the regulator must have the kind of case required to justify an arrest in other circumstances before investigations can begin. That might not matter when what is at issue is a breach of the rule by an authorised person, as the more general information gathering powers under Clause 156 would be available to build such a case.
However, the trigger is wholly unsuitable for investigating possible illegal regulated activity or financial promotion, market abuse and the other issues I raised. In such cases, there may be no alternative means for exploring the circumstances in order to build the kind of case that would be sufficient to meet the reasonable-grounds-for-suspecting trigger. We make no apologies for wanting to be sure that investigations can take place as and when the circumstances suggest that they are needed. Nothing is to be gained by having a regulator who cannot respond quickly or by encouraging wrong-doers to seek to prevent the launch of inquiries through procedural challenges in the courts.
Therefore, the Bill was amended in another place to align the trigger for these investigation powers with those currently applying to the investigations of insider dealing under Section 177 of the Financial Services Act 1986. My noble friend Lord Grabiner regaled the Committee with other examples which, perhaps to put it mildly, are telling.
We cannot accept any weakening of the powers. The FSA and the Secretary of State must have powers they can exercise on the basis of circumstances suggesting a contravention. Waiting until the existence of the kind of grounds which would in a different context be clear enough to justify an arrest means leaving things too late.
The noble Lord, Lord Kingsland, suggested that that has something to do with trying to avoid judicial review. That is not the case. As I believe my noble friend Lord Grabiner made clear, one cannot get rid of judicial review so easily. Judicial review will still exist. It is true that we do not want to encourage a situation in which every decision to launch an investigation is liable to be referred to the courts. That would severely
Amendments Nos. 234YG, 234YK and 234YM contain the phrase "on reasonable grounds" in connection with other judgments which an investigator may be called upon to make. We want investigation powers which are effective. A balance must be struck. The requirement for reasonable grounds perhaps seems more onerous than it sounds, bearing in mind that reasonable grounds for suspecting is the test which a police officer must satisfy before he can arrest a citizen.
We do not want to open up too great a scope for investigations to be tied up or frustrated. We want an investigator to be able to take a reasonable judgment about the prospects of the investigation being frustrated without a substantial risk that the investigation could then be frustrated by a subsequent challenge to the decision to withhold the notice. We want investigators looking into serious crimes such as illegal deposit-taking or insider dealing to be able to form a reasonable judgment as to the witnesses to interview without opening up the investigation to a risk of challenge.
After all, if the investigator is wrong to consider that a person can give information, he will gain no information as a result. We must not allow amendments to take place at the expense of the ability to launch investigations when appropriate, or the ability of investigators to take simple practical judgments about the proper conduct of those investigations. We believe that these three amendments go too far and, again, we would ask the noble Lord to withdraw them.
I move on because this is a large number of amendments, moved briefly by the noble Lord, Lord Kingsland. I deal next with Amendments Nos. 234YB and 237C. I shall come to the amendment of the noble Earl, Lord Northesk, when it is moved shortly. If I may, I shall call these the "statute of limitations" amendments. Amendment No. 234YB would impose a statute of limitations of six years on the period after which a person who used to be an authorised person may be required to provide regulatory information. Amendment No. 237C would impose that same six-year limit on the period during which a former controller, auditor, actuary, accountant, lawyer or employee of a person under investigation could be required to disclose information covered by banking confidence.
I want to make it clear on behalf of the Government that it is not our intention that any person who has once been authorised, or who has held some position in relation to an authorised person, should be subject to an endless stream of information requests for ever more. We considered the possibility of a cut-off period for those powers but concluded that, by its very nature, it was bound to be arbitrary. We do not believe that we can afford to introduce some arbitrary period after
What would happen if, some years down the road, concerns emerged that there had been mass mis-selling along the lines of the pensions scandal about which the House heard so much. Surely that scandal is evidence enough that there can be a very real need for information about transactions carried out many years previously, certainly more than six. In order to assess the extent of the problem, the FSA may well need to have access to information from all those who were active in the market at the time, not only those who are still authorised. The Government are committed to ensuring that the regulator will have all the powers that he needs in order to deal with any future scandals of that nature. The Committee would not expect anything less.
Therefore, we have taken forward the existing approach--it is not a novel one--to be found in Section 39(8) of the Banking Act, which applies the power to collect information to former authorised institutions under the Act. However, it would be wrong to give the impression that those powers are not properly constrained. The power under Clause 156 is circumscribed, for example, by the requirement in subsection (4) of that clause, which limits it to,
The same applies to the investigation powers. The information that the FSA can require from a former auditor, controller or employee is constrained by the purpose of the investigation. It is common sense that the longer the period since they held the position in question, the less likely it is that they will have relevant information required by the authority. However, if they have that information, why should we prevent the authority from requiring it?
I turn to Amendment No. 234YA, which I call the "without delay" amendment. It is important that the FSA can gain access to information and documents on a timely basis--obviously, the vital ingredient of effective regulation. That is why in our subsection (3) of the clause we provide that the FSA can require the information and documents "without delay". The noble Lord's amendment would require instead that all requests for information are subject to some specified period for compliance. Clearly, the intention behind the amendment is laudable. However, we maintain that it is unnecessary.
The FSA must, of course, be reasonable in its expectations of when information may be forthcoming. It is implicit in the use of the term "without delay" that what is being referred to is some unjustified or unreasonable delay. So the true meaning of Clause 156(3) does not enable the FSA to require a
The noble Lord suggests instead that there should always be a specified period which is reasonable. That would be rather more bureaucratic and would place the onus on the FSA to decide what period must reasonably be allowed for producing the information, whereas the current wording enables the provider of the information to take such time as is necessary for providing the information, so long as he does not delay in the normal sense of that word.
I turn to Amendments Nos. 234YC and 237B which deal with fiduciary duties. The Government have sympathy with the noble Lord's wish to ensure that a person who is required to give assistance under Clause 157(5) cannot be sued for breach of fiduciary duty or other obligation as a result. That is clearly right. However, we have concluded that the insertion of an explicit provision is unnecessary. Compliance with the statutory duty imposed by subsection (5) would be a defence to any allegation of breach of a fiduciary or other duty.
Moreover, Amendment No. 234YC is potentially damaging because it could cast doubt on that principle in other cases by implying that compliance with a statutory requirement could otherwise give rise to an action for breach of some other duty.
Amendment No. 237B seeks to extend the additional protection for banking confidentiality under Clause 166(6) to duties of confidence arising from acting in a fiduciary capacity. Clause 166(6) follows the model under current legislation--specifically Section 105(2A) of the Financial Services Act, as inserted by the Companies Act 1989. We are not attracted to extending this special regime in the way suggested. For one thing the term "acting in a fiduciary capacity" covers a very broad range of circumstances: for example, professional advisers such as accountants, stockbrokers and solicitors who may owe duties to their clients; company directors in relation to their shareholders; and agents and trustees. Those are all people from whom the FSA may require information. But it is necessary to draw a line somewhere. Why should it not apply to other duties of confidence? We cannot draw up special rules for them all.
We are following the existing legislation in drawing it round the relatively well-understood legal concept of banking confidentiality. That is a concept which has grown up over many years and has a clear and accustomed meaning.That is less true of fiduciary duties, particularly given that that would include constructive trusts which can arise, as the Committee heard earlier, in a wide variety of situations. There is a danger that this amendment will give rise to many different interpretations and disputes over the exercise of these powers.
I turn now to the three amendments, Nos. 234YJ, 234YL and 234YP, which would require the investigator to issue copies of a notice setting out details of the investigation to anyone subject to a requirement under Clauses 162, 163 and 164. In the case of the former two clauses, that would apply only if the person on whom the requirement was being imposed was not himself the subject of the investigation. We do not believe that the amendments are necessary. If an investigator is to require anyone to comply with statutory powers to provide information or to attend for an interview or whatever, of course that investigator must produce evidence of their powers to so require. We see no advantage in specifying that that needs to take a particular form. The Bill has been criticised in some quarters as being too long and it has been alleged that that stems from too much readiness to write into statute that which is perhaps not needed. This amendment may be an example.
To require an investigator to copy his report to the person under investigation as a matter of routine, even before the investigating authority had seen it or had had time to consider whether it should lead to any action, would be unprecedented. The investigating authority must be able to make a judgment on what action to take on the basis of the report it has commissioned. If a decision to take disciplinary action is taken, the rights of access to material will apply from the warning notice stage, subject to the necessary opportunity for the investigating authority to decide whether certain disclosures would be against the public interest, including, for example, disclosures which would unfairly identify the source of information or prejudice the source for the future or
Amendment No. 237D, to which I shall come in a moment, leads me to Amendment No. 237A, which we believe to be unnecessary. Of course it is necessary for investigators or an investigating authority to respect the confidential nature of information which has come under its possession in the course of its duties, unless disclosing it is necessary for the performance of their functions. Clause 338 provides for that already. It makes it clear that any confidential information obtained by any one of a number of primary recipients must be kept confidential. Subsections (5)(a) and (5)(c) define the FSA and the Secretary of State as primary recipients. Subsection (5)(d) does the same for persons appointed to make a report under Clause 157.
The Committee will perhaps be pleased to hear that I turn finally to Amendment No. 237D, which again raises a debate familiar from another place. We do not believe it is necessary. No warrant will be issued if the justice of the peace or sheriff is not satisfied that there has been a failure to comply with the requirement. If a reasonable period had not been allowed for compliance, no doubt the justice of the peace or the sheriff would say in a robust way that the test had not been met, so no warrant would be forthcoming. All that the amendment would achieve is to require arbitrary timescales to be set on all information requirements under this part. We do not believe that that is the best way in which to carry on.