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Lord Kingsland: My Lords, I thank the Minister for his response. In view of later government amendments, I was rather surprised to hear what the noble Lord said about Amendment No. 133B. However, I shall reflect on what he has said and, if necessary, reintroduce the amendment at Third Reading; likewise with respect to the noble Lord's remarks on Amendment No. 133E.
As regards Amendment No. 133F, here we have probably arrived at a point of deadlock. So, when we reach that amendment, I shall seek to test the opinion of the House. I beg leave to withdraw the amendment.
The noble and learned Lord said: My Lords, I have tabled three amendments that seek to amend Clause 116. It may be surprising, in view of what I have hitherto argued, but essentially they seek to restrict what should be included within the code. Thus, if my amendments were accepted, the code would not allow for a specification or description of behaviour that in the opinion of the authority amounted to market abuse. All that the code would contain would be descriptions of behaviour that in the opinion of the authority did not amount to market abuse, or factors that in the opinion of the authority should be taken into account in determining what behaviour did not amount to market abuse.
It seems to me--it follows from what the Minister said--that in the context of market abuse, the code provides for nothing more than a safe harbour; that is, if the code says that something is not market abuse, it does not matter what a reasonable regular user of the market thinks about the conduct. Under Clause 118, if the code says that certain behaviour is not market abuse, that is the end of it. Therefore, one is wholly safe, provided that what one does is within the code.
What surprises me about the Government's approach is that I believe it to be equally appropriate that the code should contain descriptions of behaviour that in the opinion of the authority amount to market abuse. In previous debates, I have indicated a special context in which I believe that that is particularly applicable; namely, where, following informal consultation with the FSA, an approach to marketing or new financial products is brought to its attention and it decides whether it is acceptable or unacceptable. If the FSA decides that that is unacceptable to someone who works in that sector, that behaviour should be capable of amounting to market abuse. However, given the way in which this part of the Bill is constructed, the matter is not as clear cut as that. If one looks at Clause 118(2), one finds that,
Confronted with that provision, lawyers will believe that all their Sundays have come at a single moment. One must consider the view of the reasonable regular user of the market and, in some fashion, weigh that against what is provided for in the context of the code. The code is not to be definitive or overriding, but in some obscure way it is only to be "relied on". It is not unreasonable to envisage circumstances in which it is impossible to arrive at a clear, simple, unanimous view of what the reasonable regular user of the market would regard as acceptable. The problem is infinitely compounded if one must then look at what is in the code and decide whether one must rely on it.
My only concern in this matter, in the best interests of the financial services sector, is to achieve the greatest possible degree of certainty. I believe that, far from bringing about that desirable result, exactly the opposite is achieved because of the way that the provisions have been put together. I understand that already lawyers in the City have concluded that if the code says that something is market abuse, the arrangements will prove to be wholly unworkable. They boast about it. At an earlier stage the noble Lord asked that those people should be named. I have no intention of naming them; I shall not allow them a greater professional advantage than they might otherwise enjoy. But the Minister should understand that there are those who have already reflected on the provisions and concluded that they are unworkable. I want to ensure that they are workable.
I repeat the primary point. I am not so much concerned about those marketing arrangements which are already well established where the regular reasonable user can offer an opinion, but those where the situation is completely innovative, either in market technique or product. In those circumstances, the FSA will be in future in a far better position to come to a conclusion and say, "If you carry through such behaviour it is unacceptable". On the other hand, if it is acceptable, that is a safe harbour.
I want a framework of certainty and clarity; otherwise I am concerned that we shall achieve neither and the relationship between the two provisions will be such a muddle that it will be a happy market for lawyers but will do nothing to enhance the reputation of the United Kingdom financial services sector.
Clause 116 places a duty on the FSA to prepare and issue a code which will help people to get a better understanding of what behaviour is abusive and what is not. This is called the code of market conduct.
Perhaps I may give the analogy of the Highway Code. The Highway Code gives people a better idea of what it means to drive with or without due care and attention. What it does not do is provide a template on which a decision can be made on whether in an individual case a charge should be brought of driving without due care and attention, or whether there should or should not be a conviction in the courts on that charge. The Highway Code provides assistance but not a definitive answer in any individual case; and it is not intended to do so.
There has been plenty of consultation on the code. The FSA is engaged in an extensive consultation exercise on a draft code, Consultation Document 10. It is revising the code with the help of a practitioners group and a group of exchange and clearing house representatives.
Amendment No. 133BA makes a drafting change which would cast doubt on what the code could contain. At present the code is not limited to specifying things described in subsection (2). So it would be possible for the code to set out the general background which might assist people in understanding the descriptions it contained, or contain descriptions of particular situations in which people should take extra care about what they do.
Amendment No. 133BB deletes subsection (2)(a). I presume that the intention is that the code should not be able to specify descriptions of behaviour which amount to market abuse. I think that the effect would be to reduce the certainty people are looking for from the code. They would have to fall back solely on the provisions contained in Clause 115 in coming to a judgment about whether their behaviour was likely to be abusive. People would be less clear than they otherwise would be about whether the FSA would be likely to take action against them.
One of the main issues raised on the market abuse provisions during consultation and the Joint Committee scrutiny was the need for certainty. The effect of the amendment would be to reduce that. The third amendment, Amendment No. 133BC, would
Of course the code cannot set out all the situations in which behaviour does not amount to market abuse. That would be impossible. The result would be that by not saying whether certain behaviour was abusive, or whether certain factors might be relevant in deciding whether abuse had taken place, people would only have certainty where the FSA had said that something was not abuse.
That is not the way in which the code should be drafted in order to provide guidance. No one has suggested in consultation that it should be drafted in the way in which the noble and learned Lord proposes, and I hope that he will not press his amendment.
Lord Fraser of Carmyllie: My Lords, I am a little surprised that the noble Lord has not grasped the technique I have deployed in the three amendments. It is the tried and tested one of looking at what I regard as an enfeebled set of provisions and suggesting their deletion--although I should wish to see them strengthened--in the hope that the Minister might be in a position to explain to me that I am wrong and that they are not as enfeebled and useless as I regard them to be.
I have said at least four times today that I believe that the FSA, particularly in regard to certain developments in the market, should be in a position to say, "That innovation is potentially abusive and we will set out in our code that if anyone pursues it he will suffer penalty". I am still completely at loss to understand why the Government are so resistant to that.
When the Minister, in a somewhat condescending fashion, referred me to the Highway Code, it did not seem to be an entirely apt comparison. If within that code the FSA says, "This behaviour is not market abuse. It matters not what any reasonable regular user of the market regards it as being", that is a total and complete safe haven for the individual who embarks on that behaviour.