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I am also very much aware of the circumstances in which the courts have construed "may" as "shall" and other circumstances where they have construed "shall" as "may". My conclusion, however, is that this is a circumstance where the courts would construe "may" as "may".
The noble Lord has indicated that it is the intention of the Financial Services Authority to issue just such a code. I would regard that as very desirable and, for the present purposes, sufficient. I beg leave to withdraw the amendment.
The noble Lord said: My Lords, I understand that this amendment is coupled with Amendments Nos. 115CA and 133CA. Two of them relate to the issue of standard of proof and one relates to the issue of publication of findings in a national newspaper. They also tie in with other amendments that I shall wish to speak to later this evening.
They are all related to the issue which has been of some concern to me: that of market abuse and what exactly the Financial Services Authority is doing if it decides to pursue the matter of market abuse, impose penalties or make findings of misconduct.
When I was on the Joint Committee chaired by the noble Lord, Lord Burns--barring the clear expression of view given to us by the noble and learned Lord, Lord Hobhouse, that everything we were looking at was effectively criminal--I thought that I had a fairly clear understanding of what was contained within market abuse. In summary, it was this: that at one end of a continuum it was clearly civil in nature and, at the other end, it was almost undoubtedly criminal.
It would not be difficult to envisage circumstances when the criminal end of it would apply, where there had been conduct which might otherwise have been prosecuted as insider training but for the reluctance of prosecuting authorities to take that course because of the history of failure experienced in recent years.
What has always struck me as a difficulty, however--and no one has yet answered it for me--is whether at the point when one looks at behaviour that might be regarded as market abuse, before setting out to prosecute it, one can determine that it is civil or indeed criminal in character. In some circumstances it might appear to some to be a quarrel of an academic nature but, given the presence in our law--certainly north of the Border and shortly to be incorporated into English law--of the human rights legislation, it seems to me that we should be absolutely clear on what is the character of market abuse. We should certainly not attach to it any procedure or other characteristics that would allow any finding of market abuse or any conviction to be subjected to challenge in the courts thereafter.
One way of ensuring that that happened to the least possible degree would be to indicate that the appropriate test to be applied in those cases--whether civil or criminal--is that the burden of proof to be applied is that of beyond reasonable doubt.
If, looking at it in retrospect, the conclusion were that it was essentially criminal in character, that finding would be less likely to be challenged if the test applied throughout had been that of beyond reasonable doubt. In any event, it seems to me that in disciplinary proceedings of this sort such a test is appropriate.
My purpose in putting down these amendments is to explore further whether there is an appreciation of the concerns that I and others have, and whether the Government regard the approach that I have suggested as being at least part of a technique which could be applied to ensure that the risk of challenge was reduced as much as possible.
My second amendment, Amendment No. 115BA, relates to the publication of statements of misconduct in a national newspaper. In a way, it is of secondary importance. I would envisage in such circumstances, if there were findings of misconduct, provision would be made for publication in one form or another. Whether a national newspaper remains the most appropriate way in which to do that nowadays, I do not know.
I would wish for some reassurance, however, that, where there were such proceedings and where penalties were imposed, this was not done behind closed doors but in accord with principles of openness and transparency, which I understand the FSA, and those who support the broad new regulatory regime to be introduced, would regard as being important. I beg to move.
Lord Boardman: My Lords, I support this amendment. It is right that the authority, in reaching a decision, should do so beyond reasonable doubt. Beyond reasonable doubt is a judgment which is applied to so many cases, from murder downwards. It should be clearly on the statute in this case and those words should be inserted. It does nothing to detract from the Government's approach to this Bill.
With regard to the second amendment, I think that it would be helpful to say "publish in a national newspaper". The present wording leaves the matter open. One can publish in all sorts of forms, even by putting leaflets through everyone's letterbox. This amendment removes any doubt.
Lord Kingsland: My Lords, I wish to speak briefly to Amendments Nos. 115C and 122A. Amendment No. 115C is intended to seek clarification that to be knowingly concerned in a contravention under Clause 65(2)(b) means that the person knows that the relevant authorised person is contravening a requirement imposed on the authorised person by or under the Act.
Amendments Nos. 115BA and 133CA would both have the effect of requiring the FSA to prove disciplinary matters under Clause 65, or market abuse under Clause 119, to the criminal standard of proof of "beyond all reasonable doubt". I shall not enter into the wider issues (to which the noble and learned Lord, Lord Fraser, referred) of the extent to which these matters are criminal or civil. The noble Lord, Lord Boardman, referred to a body reaching a decision. But that is not the case here. In this case, the FSA is exercising a statutory discretion rather than reaching a decision. It is not so appropriate to be talking of standards of proof when a body is exercising a statutory discretion. The real point is that it should exercise its powers rationally.
I agree entirely that the FSA should be required to be satisfied of the facts before taking the action, but the present clauses achieve that. As the Bill stands, the FSA must reach a view as to whether it believes that a person has committed a disciplinary infraction or engaged in market abuse. It will therefore impose a penalty. It must issue a warning notice allowing that person to make representations and then, if it decides to proceed, it must issue a decision notice which will trigger the relevant person's right to take the matter to the independent tribunal.
The tribunal provides not only a safeguard but a strong incentive for the FSA to take the right decision at the start. If the case is referred to the tribunal, it will be subject to the appropriate civil standard of proof. As the former Economic Secretary to the Treasury, Patricia Hewitt, made clear to the Joint Committee--she was supported by learned witnesses; for example, Sir Sydney Kentridge--that is a sliding scale which takes account of the seriousness of the behaviour or failing alleged by the FSA. The more serious the behaviour, the higher the standard which will be applied. I believe that the noble and learned Lord, Lord Fraser, as a member of the Joint Committee, will well recall that debate and will recognise that that was the nature of the evidence given to the committee and which the committee acknowledged.
We are dealing with important provisions and it is right that they should be properly analysed and debated. But as it stands, the Bill delivers a balanced and appropriate package of measures with sufficient checks and balances. I hope that that will persuade the noble and learned Lord, Lord Fraser, not to press his amendments.
I deal now with the amendments which are concerned with Clauses 65 and 89, which give the FSA certain disciplinary powers in the event that rules or requirements are breached, and those concerned with Clause 119, which gives the FSA the power to impose penalties in cases of market abuse.
I deal with Amendments Nos. 115C and 122A in the name of the noble Lord, Lord Kingsland. Clauses 65 and 89 both refer to people--approved persons or directors respectively--being knowingly concerned in breaches by the firm of the relevant rules or requirements. Those amendments seek to define the concept of someone being "knowingly concerned" but
It would, of course, be wrong to seek to impose penalties or to use other disciplinary powers against individuals where the person concerned had no knowledge of the action leading to the breach of rule or requirement. That would be draconian. It would also be a pointless sanction since such a case could not act as a deterrent because the person upon whom it was imposed would not have known anything about the action leading to the breach and so would hardly have been in a position to avoid it. That is why the Bill requires the individual to be "knowingly concerned" in the contravention before any action can be taken.
There is existing jurisprudence on the "knowingly concerned" test. The test requires the individual to be aware of the facts which give rise to the breach of the rule in question by the firm and aware too of his own involvement in that factual situation. But it does not have to be shown that the individual was aware of the legal rules which were contravened because ignorance of the law is rightly no defence.
The effect of the amendments would appear to be to require that the person involved not only knew about the action in question but must also have known that it involved a breach of a requirement or rule. If we adopted that approach, it could mean that we ended up in a position where people could avoid sanctions for breaches of rules or requirements simply by making sure that they kept themselves in the dark about what those rules or requirements are.
It is important to remember that we are talking about approved persons or directors--people holding responsible and important positions within the financial services industry who should make it their business to know the rules relevant to their sphere of activity and to ensure that systems are in place to avoid breaches. To give such people an incentive to remain ignorant of the rules does not seem to be either sensible or desirable.
I do not believe that it is the intention, but it seems to us also that the amendments would make it less clear than it currently is that the individual must also be shown to have been aware of his own involvement in the particular factual situation. The amendments might risk making individuals liable whenever they knew that something was being done wrongly by the firm, even when they were not aware that they were themselves involved in that wrongdoing. That might place too high a burden on individuals.
I assure the House that the concept of someone being "knowingly concerned" is not new. It is contained in the Financial Services Act 1986. It has been used by the FSA in proceedings that have been brought in the past. There is existing jurisprudence on
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