HC Deb 22 April 1977 vol 930 cc567-604
Mr. Moate

I beg to move Amendment No. 2, in page 2, line 7, at end insert 'or'.

Mr. Speaker

With this we may take the following amendments:

No. 3, in page 2, line 10, at end insert 'or'.

No. 4, in page 2, line 14, at end insert 'or'.

No. 5, in page 2, line 18, at end insert 'or'.

No. 7, in page 2, line 21, at end insert 'or'.

No. 9, in page 2, line 26, at end insert 'or'.

Mr. Moate

This is what I call the "or" batch of amendments, and I have tabled them in a genuine state of puzzlement. I did not believe that the Bill could be defective in this respect, and I might be wrong. However, if I am right in saying that the Bill should be amended as I propose, I should appreciate that assurance.

If I am wrong, and if the Bill is correct as it stands, I confess that I am mystified, because what we are setting up is a series of qualifications, to be attained by an individual, that I should have thought were well-nigh impossible of achievement.

Mr. John Page

Will it help my hon. Friend if I say that I am advised that the sense is not changed by the inclusion of the word "or"? My hon. Friend's proposal brings the clause into line with Clause 4, and to my lay reader's mind this proposal is attractive and valuable. I shall be delighted to accept the amendments as they stand, because they appear to make the Bill easier to read and more attractive to the lay reader.

Mr. Moate

I am delighted to hear that, although I am rather amazed that at one fell swoop one can get six amendments accepted. My hon. Friend and I might disagree about certain features of the Bill, but I should like to record the fact that throughout all the negotiations he has been immensely courteous and helpful, to the extent that he has been permitted to do so by his opinions on these matters.

I am grateful to my hon. Friend for saying that he is prepared to accept the amendments. I hope that the Minister will agree to their being included in the Bill and that the House can be persuaded that the amendments are correct. Because of what my hon. Friend has said I shall restrict my remarks and be fairly brief, but I think that I should put on record why these matters are important.

Clause 3 is the heart of the measure. It sets out a series of qualifications that a man has to meet to get on the register. It lays down eight criteria. In addition, a man has to establish that he is of good character. We shall come to that later. Furthermore, in certain cases he may have to prove that he has adequate practical experience. That is in four separate cases. In addition, if he is in practice there is a general need to establish that his finances are sound and that he has met the general code of conduct about indemnity, and so on. The Bill says that all eight criteria have to be met.

My hon. Friend says that the meaning of the Bill is not altered by the amendments. I submit that it is totally altered, because Clause 3 provides that a person shall be entitled to be registered in the register if he satisfies the Council—(a) that he holds a qualification under Clause 6 and (b) that he holds a qualification obtained under different circumstances. The first qualification under paragraph (a) is a United Kingdom qualification, while that in paragraph (b) is an overseas one. One can hardly demand that a man has a United Kingdom qualification and an overseas one, yet that is what the Bill says quite categorically. There should be an "or" between the two.

Mr. John Page

I think I am right in saying that all the paragraphs are qualified by the word "or" in line 30. It is like saying "meat, fish, eggs, bacon".

Mr. Moate

I am fascinated by my hon. Friend's interpretation of the draftsmanship, but we have paragraphs (a) to (h) containing eight separate criteria.

Mr. Clinton Davis

I agree with the hon. Member for Harrow, West (Mr. Page). I hope that it will not be necessary to go on making heavy weather of this. The matter was intended to be as the hon. Member for Faversham (Mr. Moate) is now suggesting it should be. That he is clarifying the position is only helpful, and I hope that we can move on.

Mr. Moate

I am grateful to the Minister for accepting what I have said. I am grateful, also, for my hon. Friend's assurance, but it is necessary to secure the approval of the House to the amendments. I think it has now been established that the amendments are technically necessary, and in view of my hon. Friend's assurance I hope that the House will agree to their being made. I presume that separate approval will be required for each amendment.

Amendment agreed to.

Mr. Speaker

With the leave of the House, I shall put the questions on Amendments Nos. 3, 4 and 5 together.

Amendments made: No. 3, in page 2, line 10 at end insert 'or'.

No. 4, in line 14 at end insert 'or'.

No. 5, in line 18 at end insert 'or'—[Mr. Moate.]

12 noon.

Mr. Moate

I beg to move Amendment No. 6, in page 2, line 21, at end insert 'or by an authorised insurer'.

Mr. Speaker

With this we may take the following amendment:

No. 8, in page 2, line 26, at end insert 'or by an authorised insurer'.

Mr. Moate

These words might seem fairly modest and insignificant, but I submit that they are of great importance and, in some respects, are fundamental to the Bill.

The importance of these words can be seen by considering how the clause would read if amended as I propose. I propose, for example, that paragraph (e), which reads that he has been employed for a period of not less than five years by the person carrying on business as mentioned in paragraph (c) above should have added to it 'or by an authorised insurer'. A person who has been employed by an authorised insurer should be on an equal footing with someone who has been employed by an insurance broker.

The term "insurance broker" is not defined in the Bill, but the term "authorised insurer" is defined in Clause 30 as a person permitted under the Insurance Companies Act 1974 or the Insurance Companies (Northern Ireland) Order 1976 to carry on liability insurance business or pecuniary loss insurance business". With my amendments, people employed by insurance companies will get the same treatment as those employed by brokers.

One of the points of disagreement between my hon. Friend the Member for Harrow, West (Mr. Page) and myself over many weeks has been the question whether a person employed by a company should get the same treatment. I had hoped that we were making progress on this, and I think that he felt at one stage that he had met the point.

Clause 3 was introduced in Committee as a new clause in response to arguments, and this is our first opportunity to amend it in any detail. In order to try to meet objections, my hon. Friend moved that a person should have … knowledge and practical experience of insurance business which is comparable to that of a person who has carried on business as an insurance broker for a period of five years". An insurance company employee should be automatically as entitled as an employee of a broker to be registered.

My hon. Friend has referred to comparable experience as a qualification. I am grateful for that concession, but I do not believe that the term "comparable" should be put in an Act of Parliament, because it is a matter of opinion. Nor does it give the fair treatment to the insurance company employee which I believe should be given.

There have been other arguments whether accountants or solicitors, or their employees, who might deal with insurance extensively should be regarded as having comparable experience. My hon. Friend might have regarded the word "comparable" as relevant to such people. He might have a point, but that is not an adequate word to cover the rights of employees of insurance companies.

I hope that the amendment will ensure that justice is given to all those people—probably up to 200,000—employed by insurance companies. As I have said before, many leading insurance brokers started as insurance company employees. Many individual brokers began as life assurance or general insurance inspectors. No one required them to pass tests in order to become insurance brokers.

It is not up to us to say who is a good or a bad insurance inspector. My hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) said in Committee, I believe, that some inspectors would be welcomed as brokers while others would not. It is not up to the Council to decide who is good or bad as an inspector or a broker; that must be left to the test of the market. If a man is bad, he will not get the business.

All that the Bill should provide is that such a man has met certain criteria, that he has experience or qualifications, or a combination of both, and that his business is financially sound and he is insured against professional indemnity, Plenty of brokers are good or bad, and many of their employees who may meet these criteria will be inferior to insurance company employees. There are good barristers and solicitors and bad ones, but they succeed or fail on the basis of their work with the public. The Law Society does not say whether a person is a good or bad solicitor; it acts only when he has infringed the code of conduct.

I hope that at this late stage my hon. Friend will finally concede this case. Although the rôle of the broker and that of the insurance company are totally distinct. broking and underwriting are intertwined and interdependent. There is a far greater interchangeability and sharing of knowledge between the two than is generally appreciated. I hope that this far greater freedom of establishment will be allowed to insurance people who have the knowledge to practise as brokers. I argue that most people in insurance companies have that knowledge.

Insurance broking is an outstanding example of individual enterprise in serving the public. The broker is often an individual company man who has used that freedom to establish himself as a broker. It would be a sad day if Parliament prevented people from doing so.

I am rather surprised that the Minister, who is a skilled lawyer, seems ready to accept a word like "comparable" in an Act of Parliament. Perhaps he will surprise me by saying that he does not like the word. I should have thought that he would agree that it was bad law when a statute contained so many words that are matters of opinion. I think particularly of "adequate" and "practical experience". Who defines "adequate"? The Bill does not. Even a Statutory Instrument can hardly do so. This will be a matter of opinion for the Council when it is considering registration.

Nor does the Bill define "practical experience" and the Statutory Instrument will not; again, it will be up to the Council. Will this phrase include work in the accounting department of an insurance broker or will it include only experience within the insurance broking and the insurance company worlds? As a further complexity, what is "comparable" to adequate practical experience? I am surprised that the Minister's legal mind should find this terminology acceptable.

It would be far better to drop these expressions altogether and specify the simple qualifications necessary—a period of employment or some other qualification—and cut out all subjective matters of opinion.

I conclude my remarks on this amendment by emphasising my belief that all insurance men—

Mr. Welsh

And women.

Mr. Moate

—I am grateful to my hon. Friend. I understanad that the term "men" embraces women. No doubt it applies in insurance, as elsewhere. They should start off on an equal footing. The insurance company man and the insurance broker should be able to go before the British Insurance Brokers' Council without any prejudice about their previous employment. I shall not develop the case by talking about the skills of life insurance inspectors and company managers. This is now beginning to be understood.

I hope that my hon. Friend will be as helpful and as forthcoming on this amendment as he was with the previous group of amendments and that he will give me and the insurance world the pleasure of saying that he accepts this proposition.

Mr. John Page

I am glad to say that I can again make my hon. Friend happy. I slightly deprecated his view that this was the final act of his to wring from an unwilling person—myself—a modest recognition of the abilities of insurance company employees. In fact, since the first evening that he and I discussed this matter I have had a lot of sympathy for this amendment. I said so in my Second Reading speech and I introduced in Committee what I thought was an amendment to cover the point that he wished to make.

All I will say is that I am happy to accept the amendment and hope that this will continue to increase the goodwill that my hon. Friend may show for the Bill.

Amendment agreed to.

Amendments made: No. 7, in page 2, line 21, at end insert 'or'. No. 8, in page 2, line 26, at end insert or by an authorised insurer'. No. 9, in page 2, line 26, at end insert 'or'.—[Mr. Moate.]

Mr. Moate

I beg to move Amendment No. 10, in page 2, leave out line 40.

The Chairman

With this we may take Government Amendment No. 11.

Mr. Moate

The Bill requires that a person shall prove that he is of good character to the British Insurance Brokers' Council before he can gain registration. I do not in any way minimise the difficulty that the proposers of the Bill must have faced in trying to deal with this very sensitive point. In proposing to delete the words "of good character" I do not wish to suggest that I regard that as the conclusive answer. I think that on balance it may be the answer for this provision to be wider.

The Government have tabled Amendment No. 11. They have again changed the provision and have made yet another valiant attempt to get it right. They seek to insert only the words as to his character and suitability to be a registered insurance broker". I understand that the debate began with the term that the person should be "a fit and proper person" in the words of the Insurance Companies Act 1974. Later, there was the provision that a person had to be "of good character". Now the Government are proposing that we should delete the words "of good character" and state that the applicant should satisfy the Council as to his character and suitability to be a registered insurance broker". I find it difficult to know which of those phrases is best. I am sure that any lawyer could argue interminably about which was best and about whether a person was fit and proper, of good character, or simply of character. I am not certain what it means to be "of character", having deleted the word "good". There is endless legal argument about the meaning of these words and I doubt whether, at the end of the day, there is significant difference between the words. I would have though that lawyers would argue equally about the meanings and definitions of all of them.

12.15 p.m.

It comes back to the group of individuals sitting as the Insurance Brokers' Council having to make a judgment on the character of an individual and deciding whether he can be a member of the insurance broking profession. Some people are thus being asked to make a judgment on the character of others. This is very difficult to define in law, and I would have thought that it was very difficult to do in practice. I suspect that it would have been far better to decide that this should not be done at all. It is not necessary for it to be done, although I know why it is done. It is following the Insurance Companies Act 1974.

It would be helpful if the Minister could tell us whether a lawyer has to prove that he is of good character before he can set up his practice. I believe that the answer is that he simply has to pass his examinations and can then describe himself as a qualified solicitor or barrister and set up in practice. But he does not have to prove at that stage that he is of good character.

Mr. Weitzman

I think that the hon. Member will find that under the rules of admission to the Inns of Court a person has to be a person of good character.

Mr. Moate

That is a very helpful point. I shall not pursue the question of lawyers, except to say that presumably the lawyer does not have to prove at the point when he enters practice that he is of good character. But as lawyers are self-evidently of good character, the matter is purely academic.

It was suggested at one stage that Members of Parliament might require such information to be given in the Register of Members' Interests, and that therefore it should be essential knowledge for the general public. Some may argue that being a Member of Parliament would automatically mean that a person has failed the test of good character, but that is a matter of opinion.

If we take the example of accountancy, an accountant does not have to prove that he is of good character when he enters the profession, or at any other point. He simply has to pass his chartered accountancy examinations and set up in practice as a chartered accountant. I am not seeking to make a controversial point; I am trying to be helpful. If these examples bear analysis, the Government may find a way out of this genuine dilemma. It might be right to say that neither the Council nor the Secretary of State nor the courts should have to decide whether a person is of good character.

I was a member of the Committee dealing with the Insurance Companies Bill, as was my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle). We had very long debates on the meaning of the words of "fit and proper person" and long debates about control of insurance companies. We debated them at great length because we were very concerned that these far-reaching powers should not be given to a Government unless they were to be exercised very judiciously, sparingly and under some degree of scrutiny.

Very reluctantly we decided that it was right that the Government should hold this view, because insurance companies are in an almost unique category, in the sense that they are responsible for hundreds of millions of pounds of investments, premiums and savings. Having long-term control over those investments, there were suspicions that undesirable elements could gain control of insurance companies. There was even talk of Mafia or other criminal elements securing control of these massive investments. It was right that the ultimate power should be held by the Government to say whether someone is a fit or proper person.

We went further and said that a controller of a company had to be a fit and proper person. There was argument about what a controller is, because it is clear that an unfit or improper person could easily pass the controlling shares over to his brother, his sister, his uncle, or his aunt. We became quite Gilbertian in our debates on the question who was or was not a controller. It was considered right that in the end the Government should have the power.

There are such fundamental differences between the financial structure of insurance companies and insurance broking that the Minister would be well advised to seek the deletion of the good character provision. The difference is to a certain extent self-evident. In the Bill my hon. Friend does not seek for the Government the powers of scrutiny over the finances of insurance broking that the Government have over insurance companies. The Government, for obvious reasons, are not asking here for regular returns of insurance brokers' accounts such as are required under the Insurance Companies Act. Insurance companies and insurance brokers are totally different animals.

As insurance companies and insurance brokers are totally different in that fundamental respect, there is a case for not having the good character requirement in the Bill. For that reason, the House would be well advised to delete the good character requirement.

There is another point about controllers of companies. If we were so concerned that a person who was unfit and improper, or who was not of good character, should not gain control of insurance broking moneys, we should certainly have included a controller clause. We should have tried to establish that such a person would not be able to exercise control over an insurance broking house in any other way—for example, through related or hidden shareholdings.

We have not done that, because an insurance broker is a very different animal from an insurance company. It is clearly established that in insurance broking public money is not at risk in the same way as it is with insurance companies. Without exception, the insured's money is at risk with an insurance company. It is therefore right that the Government should have extensive powers of control and scrutiny over insurance companies affairs.

It is very much the exception when an insured's money is at risk with an insurance broker. There has been some misunderstanding about this. No doubt there are and will continue to be cases of fraud in this profession, as in others, but, generally speaking, once the moneys are paid to the broker they are at risk only vis-á-vis the insurance company. Once the broker has placed the insurance company at risk in respect of the client, the moneys are the responsibility of the insurer.

Leaving aside the question of fraud or defection, if the broker fails, his debt will be not to the client but to the insurance company, and the insurance company will honour the contract entered into between the insurer and the insured. A broker does not have control over the money of investors and clients in the same way as insurance companies have. I see no reason why the Bill should seek to follow the Insurance Companies Act either in its detailed wording or in principle. It would facilitate the passage of the Bill and its future administration if the Government would support my amendment rather than seek to pursue their own.

I ask the Minister to assume that the Insurance Brokers Council rejects a man's application for registration on the grounds that he is not of sufficiently good character and is unsuitable to be an insurance broker. The Government have the duty of administering the EEC rules on the freedom of establishment of the services offered by insurance brokers. The Government must issue a certificate to an individual if an individual is to have freedom to practice in other EEC countries.

I want to know from the Minister how the authority that will be vested in him from June or July to issue certificates to individuals will relate to the Bill. We could be in a serious legal dilemma. It might well be that the point could be resolved ultimately only by the European Court.

I ask the House to postulate that I decided to establish myself as an insurance broker independently and applied to be registered. If I had not endeared myself sufficiently to the members of the Council, they might say "That man is not of sufficiently good character."

I might then decide that I wished to practise on the Continent of Europe and that I satisfied the criteria laid down in the EEC directive. I might think "Though I have been turned down by the Council on the ground of bad character, I believe that I satisfy the necessary conditions laid down in the EEC directive."

Apparently, I have then to apply to a body called the "Certificate of Experience Unit, Europe. Industry and Technology Division, Department of Trade." I do not know what poet dreamed up the title "Certificate of Experience Unit." Nevertheless, that is the body to which I would have to apply. Presumably it is under the control of the Under-Secretary.

I quote from Trade and industry of 7th January 1977: Before operating in another state … the applicant must provide a certificate of experience proving that he complies with the conditions set out in the preceding paragraphs. The preceding paragraphs lay down that the requirements are— The pursuit for at least one year of the activity of either insurance broker or insurance agent and receipt of the relevant attested training … It says earlier: For insurance agents and brokers the time limits involved are four consecutive years in an independent or managerial capacity or two consecutive years … or one year in an independent or managerial capacity in addition to training.

I hope that the point is now becoming clear. The standards laid down for training and experience are far lower in the EEC directive than those set out in the Bill. What is more important and relevant to the amendment is that the EEC directive does not say that a person must be of good character. To satisfy the EEC requirement it is not necessary that one should have passed the test of the British Insurance Brokers Council as to one's good character and suitability.

I should like to know what the Minister would do in such circumstances. Would he say to me "Yes, you certainly satisfy the EEC criteria and, even though you are an unfit and improper person, or are not of good character, we can certify that you have the necessary experience to be a practising insurance broker in the rest of Europe".

Mr. John Page

I hate to seem to be correcting my hon. Friend. I do so only when I think that what he is saying is definitely misleading. He spoke of satisfying the British Insurance Brokers Council as to his qualifications and character. He means the Insurance Brokers Registration Council, which is a substantially different body. It is important that the two bodies should not be confused.

Mr. Moate

I understand the point that my hon. Friend makes. I suspect that it will be some time before we become familiar with the two titles. I think that I now understand the position and am right in saying that the Insurance Brokers Registration Council is the statutory body.

I hope that I have not lost my hon. Friend on my general point, that there seems to be a total difference of approach between the United Kingdom requirements and the European requirements with which we shall be complying, in all probability, in June or July this year. I am sure that the Minister has much more information about this at his fingertips and he will be able to correct me. I was quoting from the publication of the Department of Trade and Industry which decided this matter.

12.30 p.m.

I return to my example. Let us assume that I have been turned down because I am a bad lad and unfit to be registered in this country, but I am given a certificate of experience enabling me to practise in the rest of the Community. Is the Minister saying that I would not be able to use that certificate of experience to practise in the United Kingdom?

I should have thought that under the Treaty of Rome freedom of establishment means that I would have freedom of establishment in all Community territories and would be free to provide such services. It would be helpful if the Minister could say what relationship there is be- tween the "good character" provision—which is an important turning point in the argument of suitability—and the EEC directive, which I think the Government accept.

The Bill incorporates a number of dubious legal points in that it uses words that involve matters of opinion, such as "suitability" and "bad character". I said earlier that words such as "opinion", "adequate", "practical" and "comparable" involve matters of opinion to be exercised by an independent body to which the House proposes to give statutory powers.

This is an unsatisfactory way of drafting Bills. I should think that the Minister accepts that it is unsatisfactory. In those circumstances, his best approach would be to limit as much as possible the use of words that concern matters of opinion. In this case, we would be better off without this power in the Bill. The words "good character" or the Minister's own description, involving "character and suitability" and so on, should be omitted from this legislation.

Mr. Clinton Davis

The points made by the hon. Member for Faversham (Mr. Moate) are numerous and I shall try to deal with them as quickly and as comprehensively as possible. In dealing with this issue we must have criteria governing important matters in an industry where business is transacted continually on the basis of the doctrine ultima fide—the utmost good faith.

It therefore follows that characteristics of honesty and integrity are essential. How we approach the matter is a fairly difficult problem, but it is not unique. Listening to the hon. Member for Faversham one gets the impression that this is an almost unprecedented situation.

I start with the proposition that there must be some basis on which the Council is able to deny access to the register to those who are not able to be regarded as trustworthy. The hon. Gentleman raised, and then slipped away from, the situation in which someone may be convicted for fraud. What about people who have been repeatedly associated with business failure? Is that not also a matter that ought to be taken into account, bearing in mind that we are talking about a situation in which we are seeking to provide a degree of protection for the consumer?

The hon. Gentleman went on to say that that protection was not necessary, because the situation was a different one from that which affected the insurance companies. Of course it is a different situation, but the mere fact that it is different is no reason for excluding this form of criteria from the considerations which ought to govern our minds when we approach the issue. The Government are seeking to retain the criteria to which I have alluded, concerning honesty and integrity, and also to pray in aid something that is already in practice.

We have adapted the wording from Section 3(1)(b) of the Solicitors Act 1974, which links the mention of character with the criterion of suitability for the solicitor's profession. After all, it is an applicant's suitability, in the broadest sense, that we are expecting any professional body, including in this case, the Council, to satisfy itself about before he is admitted to the register. It is an essential condition precedent.

It is perfectly true, in a sense, that these are matters of opinion or discretion on the part of a professional body, but I repeat that this is not a unique consideration. The hon. Gentleman is impliedly suggesting that we never trust professional bodies to exercise these very wide powers.

Mr. Moate

I am interested in the point that the Minister has made about the solicitors' rules. Is that a condition precedent to the man's right to practise as a solicitor, or is that part of his subsequent code of discipline, to which he has to conform?

Mr. Davis

It is both. It is a condition precedent and a continuing condition, and so it must be.

The Council will not be able to apply itself in an arbitrary fashion towards the consideration of these matters. There is a procedure under Clause 5 for appeal against refusal to register and I should have thought that that would provide an effective safeguard. We shall debate that later.

As for compatibility with the EEC rules, my understanding is that there is no inconsistency of approach here. We would be obliged to accept notarial evidence of compliance with the sort of requirements that we would be imposing here. We could not go behind that notarial evidence of compliance with, for example, the requirement for good character. The situation would apply in reverse, because there is reciprocity.

We can seek satisfaction as to the terms of compatibility with our requirements but we cannot go behind the evidence that is notarially produced in this regard. That is how I understand the position. If the hon. Gentleman wishes to pursue that aspect of the matter further I shall be happy to correspond with him about it. This is not an absolutely fundamental issue, and I hope that he will agree that we can deal with it separately.

I hope that I have given the hon. Gentleman, in headline terms, what is essentially the thinking behind the EEC rules in this regard.

Mr. Shersby

Having listened to my hon. Friend the Member for Faversham (Mr. Moate) with great care, I find it rather difficult to comprehend why he takes such strong objection to line 40. After all, we are legislating in respect of people who are in direct contact with the public. It is, in my view, of vital importance both to the insurance brokers and to the general public that those people should be of good character. We are discussing, after all, a self-regulatory measure to enable brokers to be registered. That implies that the public, looking at the register, will assume that anyone whose name appears on the register is a person who is properly qualified and who is thought to be a fit and proper person to carry out the business of insurance broker.

The wording which we considered on the Committee stage came in for a good deal of criticism. I think that the alternative which is now proposed is a much more satisfactory form of words and one to which most people of good character surely could not take exception.

I accept, as my hon. Friend the Member for Faversham says, that it is a matter of judgment. It is a matter first of all to be considered by the Insurance Brokers Registration Council. But I have sufficient confidence to believe that the Council will operate this particular provision sensibly, and that it will be to the advantage of the general public to know that anyone whose name appears on that register is considered by his fellow men and women in the insurance broking profession as being of good character.

I thought that the hon. and learned Member for Hackney, North and Stoke Newington (Mr. Weitzman) made a very good point when he intervened to say that it was a rule of one of the Inns of Court that anyone practising at the Bar must be considered to be of good character. As the Minister has said, it is a requirement for solicitors as well. I cannot see any reason at all why anyone who wishes to practise as an insurance broker should not also satisfy both the Insurance Brokers Registration Council and the public, who will be dealing with that person, that he or she is considered to be of good character.

I hope, therefore, that my hon. Friend will not make too much heavy weather of this point, that he will feel on reflection that the form of words we now have can be accepted, and that we can make further progress.

Mr. Weitzman

In the discussion on this Bill I have usually found myself in agreement with the arguments put forward so ably by the hon. Member for Faversham (Mr. Moate), who, of course, has a profound knowledge of insurance practice, but I disagree with him on this occasion. I made some comments in Committee with regard to the unsuitability of the use of the words that he is of good character". The words now suggested, as to his character and suitability to be a registered insurance broker seem to me to be very apposite and very useful for insertion in the Bill.

Mr. John Page

It gives me great pleasure to agree with the hon. and learned Member for Hackney, North and Stoke Newington (Mr. Weitzman), and I am very happy to accept the amendment presented by the Under-Secretary of State for Trade. I have never particularly liked the words "of good character", and the words "fit and proper person" again are very subjective.

The proposed wording seems to get us closer to the idea of character and suitability from a business point of view. We are leaving out the social and moral aspects and concerning ourselves with the business ability and business character of the applicant. I have much pleasure, therefore, in supporting the Government amendment.

12.45 p.m.

Mr. Moate

When I began my remarks on my amendment I conceded that it was a very difficult area for decision. I still believe that the Government are perhaps glossing over the difficulties of administering a clause of this nature. I accept the very strong parallel made by the Minister with solicitors. There is indeed a very great degree of comparability here. It has been difficult throughout the proceedings of the Bill to make helpful comparisons with other professions. I mentioned accountants, and I suspect that there is no requirement to prove that one is of good character before one goes on a register of chartered accountants. In that instance an examination is sufficient.

In this case perhaps an analogy with solicitors is more apposite and helpful, but I think the Minister glossed over the case some what when he made his comparisons with the Insurance Companies Act 1974. Anyone would think that the "fit and proper person" clause had been a model clause and one that the Government had found easy to operate—we shall be dealing later with the matter of appeals—but in fact we know that this has been a very very difficult area of administration and decision by the Government.

In moving the amendment I was genuinely suggesting a way in which in future the Bill could be administered—or the Act, if the Bill becomes one—with less difficulty than might otherwise be the case. There could be major problems in administration.

I accept that if we are laying down standards of entry into a profession we should like to keep out undesirable people, but it is hard to draw up statutory rules relating to whether a person is desirable or undesirable, and even harder to establish a system for making judgments about people. It is even harder again to consider how on earth the person concerned can appeal against any such judgment.

I am not totally convinced by the arguments put against me, but when faced with the particularly powerful case advanced by the hon. and learned Member for Hackney, North and Stoke Newington (Mr. Weitzman) I have no choice but to withdraw the amendment. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 11 in page 2, line 40, leave out 'that he is of good character' and insert 'as to his character and suitability to be a registered insurance broker'.—[Mr. Clinton Davis.]

Mr. Clinton Davis

I beg to move Amendment No. 12, in page 3, line 3, leave out 'section 11'and insert 'rules under section 12(1)'.

Mr. Deputy Speaker (Mr. Bryant Godman Irvine)

With this we may take Government Amendments Nos. 19, 20, 71, 74, 75, 76 and 80.

We may also deal with Government Amendment No. 21, in Clause 12, page 9, line 6, at end insert— '(1C) Subject to subsections (1D) and (1E) below, an accountant is qualified to give reports for the purposes of the rules if he is a member of a recognised body of accountants or is for the time being authorised by the Secretary of State under section 161(1)(b) of the Companies Act 1948 or, in Northern Ireland, by the Department of Commerce for Northern Ireland under section 155(1)(b) of the Companies Act (Northern Ireland) 1960.

  1. (a) in relation to a practising insurance broker, if he is an employee or partner of, or an employee of a partner of, the practising insurance broker;
  2. (b) in relation to an enrolled body corporate, if he is not qualified for appointment as auditor of the enrolled body corporate.
(1E) A Scottish firm of accountants shall be qualified to give such reports if, but only if, all the partners are so qualified.'. With it we may deal with Amendment (a) to Amendment No. 21, to leave out 'recognised body of accountants' and insert 'body of accountants recognised by the Council in that behalf'. We may also take a manuscript amendment which the Minister wishes to move and which has been selected by Mr. Speaker. The amendment reads: in page 3, line 33, leave out 'section 11'and insert 'rules under section 12(1)'". Copies of the manuscript amendment are available at the Table if any hon. Member wishes to have a further look at it.

Mr. Clinton Davis

At the outset I point out that the manuscript amendment is of a drafting character.

This series of amendments, to which Amendment No. 12 is the paving amendment, reconstitutes the financial, independence and accounting requirements of the present Clauses 11 and 12, in order to take account of certain comments on the earlier wording which were made to us by the accountancy profession and the insurance companies. They also make it clear that these requirements apply only to enrolled bodies corporate and to those registered insurance brokers who are carrying on business as insurance brokers.

The provisions relating to the financial requirements of brokers, and their independence from insurers, now in Clause 11, should, we propose, if this amendment is carried, be incorporated in subsection (1) of the revised Clause 12. The present reference in Clause 11(1)(a) and (b) to "adequate working capital" and to an "adequate" solvency margin are, as the hon. Member for Faversham (Mr. Moate) has indicated, imprecise. I agree that they are unduly imprecise. The effect of this part of those amendments is to require the Council to prescribe the amounts it considers adequate in rules.

These rules, like those under the rest of Clause 12, are to be subject to approval by the Secretary of State and Parliament. Hon. Members will recognise that I have already referred to the provisions of Clause 28(1) in that regard.

By virtue of new subsection (1)(b) of Clause 12, the Council will now be able to require practising brokers to deliver statements for the purpose of ascertaining whether or not the rules under subsections (1) and (1A) have been complied with. It will also be able to require brokers to deliver accountants' reports for the same purpose. This gives the Council more freedom to specify the type of information which it may require—for example, in order to assess brokers' compliance with the independence requirement.

The definition of a qualified accountant for the purposes of the clause has been broadened by the new subsection (1C) so that accountants authorised by the Secretary of State under Section 161(1)(b) of the Companies Act 1948 are eligible. These include overseas accountants with qualifications comparable to those of qualified United Kingdom accountants and accountants deemed to have obtained adequate knowledge and experience in the course of employment by a member of a recognised accountancy body.

I hope that the House will accept our amendments.

Mr. Weitzman

I am grateful to Mr. Speaker for having selected Amendment No. 21(a) for consideration in this group of amendments. It was drafted by my hon. Friend the Member for Hayes and Harlington (Mr. Sandelson), who has asked me to apologise for his absence. He has to attend the funeral of a constituent.

My hon. Friend's amendment seeks to leave out the words "recognised body of accountants" and substitute body of accountants recognised by the Council in that behalf". The Bill contains in Clause 12(1)(e) a provision enabling the Council to make rules requiring the delivery of reports by persons who are members of a recognised body of accountants. That provision is now to be replaced by the Government amendment substituting for the words reports given by persons who are members of a recognised body of accountants the words he is a member of a recognised body of accountants or is for the time being authorised by the Secretary of State under section 161(1)(b) of the Companies Act 1948". Section 161(1)(b) states that the person must be authorised by the Board of Trade to be so appointed as having similar qualifications obtained outside the United Kingdom, or a person with adequate knowledge and experience gained in the course of employment with a member of a recognised body, or a practising accountant before 6th August 1947. Therefore, the provision is clearly restrictive of the employment of accountants. I remind the House that again and again on Second Reading and in Committee the suggestion that people would be put out of employment by the provisions of the Bill was emphatically denied.

I am asked to make the plea for the acceptance of my hon. Friend's amend- ment on behalf of the Association of International Accountants, which has a membership of about 400 practitioners in the United Kingdom. It has 2,000 fellows and associates and 16,000 students. Admission to it is by examination only, coupled with approved accountancy experience of five years. The Association is the only accountancy body to examine in a separate paper on professional practice.

The Association was incorporated as long ago as 1932. Since 1948 no bodies other than the three Institutes of chartered accountants and the Association of Certified Accountants have been officially recognised under Section 161(1). Therefore, a monopoly has been created.

Since 1947 the Association has been seeking recognition by the Board of Trade and the Departments that have succeeded it. It has submitted data showing that it has a high standard. I have seen statements from the College of Technology emphasising how high is the standard required. The Association has seen Ministers and officials from time to time over a period of 30 years. I understand that during that time it has received assurances that attention was being given to its claim for recognition, but for some mysterious reason there has been no recognition to date.

Unless the amendment is accepted, serious injustice may well be done to existing practitioners. Insurance brokers now employing them will have to employ in addition other accountants, members of a recognised body, in order to make such reports. That must mean unemployment for members of the Association, which seems counter to the statement that people would not be deprived of their employment by the provisions of the Bill.

It will be noted that the wording of the amendment would leave it to the Council to see that accountants employed were properly qualified. The amendment is surely elementary justice.

Mr. Clinton Davis

My hon. Friend the Member for Hayes and Harlington (Mr. Sandelson), who is unavoidably absent, has spoken to me about the amendment, which has been very capably spoken to, as always, by my hon. and learned Friend the Member for Hackney, North and Stoke Newington (Mr. Weitzman). The more I think about the Hackney representation in this House, the more I feel that I must say that the House and the electors of Hackney as a whole are very well provided for.

The point that my hon. and learned Friend makes is not, unfortunately, in accord with a satisfactory standard, which must be applied here. I see that the hon. Member for Mid-Sussex (Mr. Renton) is present. He will have vivid recollections, as I do, of debates on this very issue during the passage of the Companies (No. 2) Bill, when we spent hours on the matter.

This debate has been in a sense stimulated by the Association of International Accountants Limited, which has sent all hon. Members a document setting out its case. As my hon. and learned Friend said, it is a fairly small body in the United Kingdom, with, he said, 400 practitioners here. It also has a number of overseas members. It has been pressing for recognition under the Companies Act for a very long time, but we must satisfy ourselves—and I am sure that my hon. and learned Friend will agree that the requirements must be very stringent in this regard—that its standards are comparable to those of the recognised bodies. I am sure that my hon. and learned Friend would not want to see lower standards in an area as important as this.

The amendment would give the Council discretion as to whether to recognise bodies of accountants as having standards high enough for their members to audit registered brokers. I do not know why that should be necessary, because my right hon. Friend the Secretary of State recognises under the Companies Acts four bodies as having members sufficiently qualified to audit companies. Those bodies are specified in Clause 30. The non-recognised bodies of accountants, of which this happens to be one, are in certain instances making determined efforts to improve their standards. I recognise that, but I feel that the standards will fall short of those required of the recognised bodies. In these circumstances, I do not want the Council to be seen as more liberal than the Secretary of State. In the Bill we are trying to legislate for high standards for brokers. Therefore, we should legislate for high standards for auditors.

Mr. Weitzman

The amendment states: body of accountants recognised by the Council in that behalf. If the Council felt that the standard was not high enough, it would not accept this body of accountants. I am asking only that the Council be the judge of the matter. I agree with my hon. Friend's remarks about high standards, but surely the Council should be the judge of this matter.

1.0 p.m.

Mr. Davis

The matter has to be considered in a much broader context. The fact is that the two accountancy bodies that have applied for recognition are at present not recognised under the Companies Act. In that context we must determine whether they should be able to provide their services on the important basis that we are now considering. My hon. and learned Friend says that the matter should be left to the Council, but on the broader issue of public policy I cannot agree to that course.

My hon. and learned Friend has referred to some form of delinquent conduct on the part of the Department of Trade in respect of the applications that have been made. I cannot agree. The fact is that the applications are being considered. At our suggestion those concerned are in the process of appointing independent moderators to examine the standards of the examinations and the syllabus. Surely that is essential. I understand that early recognition is not in prospect as even when the standards are brought up to those of the recognised bodies it will be some considerable time before a sufficient proportion of the membership has obtained entry under the new arrangements.

There is no question of people being rendered unemployed by reason of these events. I believe that my hon. and learned Friend has exaggerated the situation. Surely it is not right materially to reduce standards in respect of the professional requirements that are imposed upon another body of professional people.

Mr. Weitzman

My hon. Friend says that he is not content to leave the matter to the Council. Those were the words that he used. I remind him that he is content to leave matters of character and suitability to the Council. Why should my hon. Friend not leave the standard required to the Council?

Mr. Davis

That is because this is a matter that embraces a wider point of public policy. The other matter involves day-to-day administration, which is best determined by the Council. We do not and cannot support any idea of reducing standards in a profession that is as important as the accountancy profession. If the other bodies are able to bring up their standards to those of the recognised accountancy bodies, so be it. If they are able to do so, that will be all right. However, as I indicated, it will be some time before they can ensure that their existing membership can obtain entry under such arrangements.

I hope that my hon. and learned Friend will not feel it appropriate to press the matter. I have given him the assurance that the applications that the two bodies of accountants have put forward are being closely examined and that there is no question of any delinquency on the part of the Department in dealing with them.

Mr. Deputy Speaker

Before I call the next speaker I make it clear that the only Question before the House concerns Amendment No. 12. The hon. and learned Member for Hackney, North and Stoke Newington (Mr. Weitzman) will have the opportunity later to move his amendment formally.

Mr. Moate

I am grateful for your clarification, Mr. Deputy Speaker. I understand that we are debating the other grouped amendments.

Mr. Deputy Speaker

The other amendments are being debated and they can be moved formally at the appropriate time.

Mr. John Page

Is Amendment No. 12 to be discussed now? It has been moved.

Mr. Deputy Speaker

Amendment 12 has been moved, and that is the amendment that we are debating. The other grouped amendments, including the manuscript amendment, are being discussed with Amendment No. 12. If desired, there will be the opportunity subsequently to move the amendments formally.

Mr. Moate

I ask for further clarification, Mr. Deputy Speaker. I understand that Amendment No. 21(a) may be moved formally later. Will there be the opportunity for a separate vote on that amendment when it is moved formally?

Mr. Deputy Speaker

That would be absolutely correct.

Mr. Weitzman

I take it, Mr. Deputy Speaker, that when I move my amendment formally I shall be able to reply to the Minister.

Mr. Deputy Speaker

All the debate on the amendment should take place now. There will be the opportunity for the hon. and learned Gentleman to move his amendment formally but there will be no further opportunity for debate.

Mr. Weitzman

I take it, Mr. Deputy Speaker, that I have no right of reply.

Mr. Deputy Speaker

That is correct.

Mr. Moate

My main intention is to talk about the substantial batch of Government amendments now before us. Before doing so, I comment on the case that has been advanced by the hon. and learned Member for Hackney, North and Stoke Newington (Mr. Weitzman) in support of his amendment. I do not think that the Under-Secretary of State gave a fully satisfactory answer to the case that the hon. and learned Gentleman advanced.

I accept that this matter has been the subject of exhaustive debates elsewhere and involves matters of considerable public importance. Therefore, perhaps the Minister feels that he cannot go into the long and complex argument in the context of the Bill. However, I do not think that he gave a fully satisfactory answer to the case made by his hon. and learned Friend.

I refer to the document that has been sent round to all hon. Members on behalf of the Association of International Accountants. In paragraph 7, page 2, it states: The practical effect of the clause therefore is that a broker who is already employing a member of the Association of International Accountants to prepare his accounts will also be compelled to employ a chartered or certified accountant for the separate purpose of giving the report required pursuant to the clause. He is most unlikely to accept that he should employ and pay two accountants, and is therefore likely, against his will, to dispense with the services of the first. Accordingly such an accountant, by losing his existing employment, would be deprived of his existing rights of employment, without any redress. It seems that it is quite legitimate for us to argue about what is a recognised body of accountants for the purposes of the Companies Act. The House should consider carefully whether individual accountants will lose business, and perhaps even their livelihoods, as a result of the Bill.

Mr. John Cope (Gloucestershire, South)

It is open to any individual who finds himself in such a position to apply to the Secretary of State. If the Secretary of State thinks that his qualifications are sufficient, he may be accepted both for the purposes of the Companies Act and for the Bill, including the amendment as drafted, if it is enacted.

Mr. Clinton Davis

Only for 12 months.

Mr. Moate

The Minister says "Only for 12 months". I presume that it is a limited right. I do not imagine that the position is as simple as is suggested.

Mr. Clinton Davis

The Companies Act 1976 in fact covered this. There are to be no more applications under Section 161 after 12 months from the time that this provision comes into effect. However, that does not disqualify people who have acted under a Section 161 authorisation from continuing to act in the future in this connection.

Mr. Moate

We have a situation, then, in which there is limited scope for relief for such individuals. But it is only limited scope. In any event, if it were as simple as that I imagine that the Association of International Accountants would not have gone to such lengths to protest its case in defence of its members. It says: In each case where that expression"— "recognised body of accountants"— has been used the effect in practice has been to shut out of employment accountants who are not either chartered or certified accountants. This bears particularly hard on members of the Association of International Accountants, a professional body which is in fact at present undergoing a prolonged process of detailed official scrutiny in order to determine the justification of its claim to be 'recognised' under Section 161. I was surprised that the Minister wished to close the door against this body. It is especially strange, bearing in mind that he laid such stress on the Government's willingness to allow the Insurance Brokers Registration Council to make a whole range of decisions, that they are not prepared to allow it to say to a broker that he may continue to use the same firm of accountants that he has been using satisfactorily up until now. That strikes me as being a very restrictive approach.

Mr. Weitzman

This body has for 30 years been seeking recognition and has submitted standards showing how well qualified its members are. For some mysterious reason it has been given assurances from time to time, but nothing has been done.

Mr. Moate

Of course, all these cases of professional recognition involve very complex matters. It is not for me to engage in a discussion of the respective merits of the different bodies of accountants. But it is harsh to impose a new requirement in this Bill. I do not suppose that my hon. Friend the Member for Harrow, West (Mr. Page) ever dreamt that this matter would arise, but, inadvertently, we are imposing conditions that will deprive certain accountants of a great deal of their business.

Mr. John Page

My hon. Friend the Member for Faversham (Mr. Moate) always attempts very carefully to attribute to me thoughts that are not my own. No attempt is being made by the Minister or by this clause to remove business from any accountant. He will be entitled to carry on his accounts as before. Under this Bill, we have merely the introduction of a new certificate. The business remains exactly as it is.

Mr. Moate

If I attempted to attribute to my hon. Friend the Member for Harrow, West any sentiments, it was only in an effort to be generous. I was not trying to be malicious. I quoted extracts from the submission of the body most concerned about this. It is that body's view that the consequence of this clause could be that certain accountants would lose that business. Obviously my hon. Friend is right to say that the accounts can continue to be handled by the same firm of accountants, but they will have to have another body to certify them. The Association dealt with that point, and I said that in practice people were unlikely to employ two firms of accountants and that the result would be that they would cease to use their existing accountants.

Mr. Weitzman

Many persons who are members of this international body are employed by companies. If they are not allowed to sign reports, it must mean the employment of two accountants. That would be too expensive. The result will be the very one that the hon. Member for Harrow, West (Mr. Page) says that he does not want to achieve—unemployment resulting from the dismissal of members of this body.

1.15 p.m.

Mr. Moate

The hon. and learned Member for Hackney, North and Stoke Newington (Mr. Weitzman) has a stronger point than the Minister has allowed. I hope that before we take a decision on that amendment the Minister will change his mind and that he and my hon. Friend the Member for Harrow, West will agree that the amendment should be added to the Bill.

I turn to the main batch of Government amendments relating to the financial position of insurance brokers. It is a complex and substantial block of amendments but, broadly speaking, they are fairly non-controversial. They represent a sensible tidying-up of the previous arrangements, and in principle I do not quarrel with them.

However, there is one matter in respect of which I feel that the clause is defective and will be difficult to operate in practice. Before we deal with it, I think that we shall have to look carefully at the rules that are laid down when we have a chance to examine the Statutory Instruments.

Other right hon. and hon. Members are much more expert in accountancy procedures than I am. But it seems to me that we are saying that the Council will be able to make rules prescribing the working capital of a company, the value of the assets of its business in excess of its liabilities and the bank accounts and various other accounts that it will have to keep, and laying down a series of rules for insurance brokers that are different from those for other limited companies, with the exception of certain companies such as insurance companies.

It may be that when the rules are prescribed they will be sensible and that the House will have no objection to them, but I hope that when those responsible for drawing up the rules are discussing them with the Department they will not seek to make them too restrictive.

I can see no reason why an isurance broker should have a greater surplus of assets over liabilities than any other limited company. I can see no reason why the ordinary operation of the Companies Act should not be applicable to an insurance broker as to any other firm. Presumably the Minister believes that there is a case for separate laws to be applied to insurance brokers with regard to their working capital and their surplus of assets over liabilities. I hope that they will not be too unreasonable.

There are large numbers of very small insurance brokers operating as limited companies who might find themselves unable to meet any strict criteria imposed on them by these regulations. It would be very hard if people were put out of business, even though they could no longer call themselves insurance brokers, when they complied with the Companies Act and were solvent in accordance with the current definitions of solvency. It would be very unfortunate if that resulted from their failure to have a surplus of assets over liabilities in accordance with a Statutory Instrument issued under this legislation.

I look forward to hearing the Minister say why he believes that an insurance broker, large or small, is in a different category from other companies. Why should an insurance broker have to have different standards of financial solvency from those of other companies? It may be that there is a case, but it has not been advanced, and I think that the case should be made before we approve this amendment.

The point that concerns me especially in this occurs in Amendment No. 20. Subsection (1)(c) of that amendment reads: that the number of insurance companies with which they place insurance business, and the amount of insurance business which they place with each insurance company, is such as to prevent their businesses from becoming unduly dependent on any particular insurance company". This again introduces matters of opinion. We have already debated a number of words that are very much matters of opinion and that we have sought to incorporate in statutory form. Here we have another. Someone has to judge whether an insurance broker is unduly dependent on one client. There may be accountants who are unduly dependent on one account or solicitors who are in the same boat—

Mr. David Hunt (Wirral)


Mr. Moate

My hon. Friend says "No", but I suspect that many solicitors get their main income from one large corporation or one big concern. Maybe they are not totally dependent, but I suspect that some would go out of business if they lost one or a group of clients on whom they relied.

In the insurance world it is difficult to say what is meant by undue dependence on one company, and it is almost impossible for anyone to make an intelligent and sensible judgment on that. What the Government are saying is that in certain cases broking houses are not truly independent brokers but merely agents of a particular insurance company, operating under a different name and therefore under false pretences.

I suspect that the reasoning behind this lies in the history of Vehicle and General, and the public argument about Andrews and Booth, which, it became clear later, was a wholly-owned subsidiary of Vehicle and General and was channelling a large proportion of business to the parent company. Therefore, it was not an independent broker.

Since then we have had the new rules under the 1974 Act which provide for full disclosure of any such relationships. It seems to me that this has done the trick. There are plenty of brokers who put a great volume of business with one insurance company. I can think of several very reputable firms that would be decimated if they lost a substantial account with one particular insurance company. I shall not mention any names, but I can think of firms in the constituencies of some of my hon. Friends who are in the Chamber now. These companies would be regarded by their rivals as being virtually dependent upon a particular contract placed by a group of clients or by one insurer. Although nobody would dream of saying that they are not sound, successful and flourishing brokers, the fact remains that they are dependent on one underwriter or one company.

Some brokers are specialists, and this involves placing business with one particular underwriter. Now the Minister is moving an amendment that says, in effect, that this is improper. Is he seriously saying that he is changing the rules for Lloyd's brokers—no, I am sorry, Lloyd's brokers are privileged and they get by regardless. The fact that Lloyds' brokers qualify automatically and do not have to go through strict tests will cause some upsets in the provinces. The provincial broker, on the other hand, has to prove that he is not unduly dependent, and I do not think that a lot of them will be able to do so.

Why has the Minister introduced this wording into the Bill? It is most unsatisfactory as it stands. The Bill will lose nothing if it is taken out. The Minister has the rules of disclosure requiring the broker to disclose the facts if he is a subsidiary of an insurance company. We do not need to require brokers to state that they are independent. The Bill is better off without this proposal, which would be unworkable anyway. The Bill will lose nothing by the withdrawal of this phraseology. Perhaps the Minister will look at it again before the Bill goes to another place—and I suspect that there will be a whole host of amendments in another place.

There is one other matter on which I seek guidance from the Minister. The Council will comprise, to a large extent, practising insurance brokers who will have placed before them a great deal of private information about other insurance brokers. With limited companies it is not too difficult to see their accounts if they file them on time. One only has to go to Companies House and have a look. Some firms are exempted for one reason or another—a partnership is a classic case—and one does not have a great deal of information about their accounts. One certainly does not establish any relationship between their turn over and capital requirements, and so on.

This is a privileged group of brokers. They will be seeing the accounts of their rivals. I realise that that is unavoidable and I am certainly not suggesting that these people will misuse the information. But what are the rules of confidentiality of such information? Where are these rules laid down, and how will they be enforced? If a member of the Council misuses the information, what penalty will he suffer?

The Minister may think that this is academic, but insurance broking is a very competitive world. The provincial broker with a large volume of business at risk—and in the insurance broking world one is always fighting to gain or defend an account—might be very wary of feeding information to the Council, on which he knows that his direct competitors are sitting. I can think of just such examples, although, for obvious reasons, I shall not quote them. This is a real danger. A provincial broker might be reassured if he knew that there were tight rules of non-disclosure of this information.

I hope that when we deal with the amendment in the name of the hon. and learned Member for Hackney North, and Stoke Newington the Minister will concede that it can be added to the Bill. To sum up, I should be grateful if the Minister would explain how he intends to enforce the parts regarding undue dependence on one insurance company, and if he would state the penalties for breaches of the confidentiality of information.

Mr. Clinton Davis

In this debate a number of interesting points have been raised. I shall carefully consider those put forward by the hon. Member for Faversham (Mr. Moate) between now and the time the Bill goes to the House of Lords, because he made some points of substance.

I turn, initially, to the points made by my hon. and learned Friend the Member for Hackney, North and Stoke Newington (Mr. Weitzman) concerning this body of accountants. He has repeated his assertion that the body of accountants concerned has made application to the Department of Trade for recognition for over 30 years. When one is trying to increase professional standards in auditing—and I stress that auditing is relevant here—it is vital that the Department of Trade should ensure that the standards of new applicants for recognition are not lower than those of the bodies already recognised whose standards have been scrutinised and found acceptable.

It is essential that they should satisfy the Department about their syllabus and their examination standards, and it is also essential that they should be able to ensure that people within their particular body are capable of adhering to those standards. In other words, those who are members of the bodies would have been required to undertake examinations to become party to the professional régime on which we place so much importance.

1.30 p.m.

Mr. Weitzman

I recognise that the Minister is right in saying that certain standards ought to be adopted. I have made investigation into this matter. I understand that the standards that have been reached are very high indeed and should certainly qualify the Association of International Accountants for recognition. What I seek from the Minister is this. I understand that it has applied for over 30 years, from time to time, and has submitted evidence. It may be that the Board of Trade was not satisfied with that evidence. All that I seek from the Minister is an assurance that, at any rate, the most careful and urgent attention will be given to its application so that at the earliest possible moment it can be given recognition. Otherwise, if the standards are there and the position is as I have put it, it is a gross injustice that it should not be recognised.

Mr. Davis

I have no intention, nor has the Department, of excluding people from recognition if they attain a certain standard. Indeed, we should be delighted that that should be so. However, what has happened so far is that we suggested to the body that it should appoint independent moderators to investigate the syllabus and the examination procedures, and this it has done. This is an essential precondition. It has not been the situation in the past, so some movement is being made.

However, I cannot give an undertaking to my hon. and learned Friend that we shall necessarily recognise the body. It depends on our being satisfied in the public interest that the standards are high—as high as those of the other recognised bodies. I have no desire, in any way, not to expedite these considerations. I want to do that because I think it is right that if the body is able to satisfy us that satisfactory standards are being attained, it should have the opportunity of being recognised. But that is the essential precondition.

I come to the second point made by my hon. and learned Friend, and by the hon. Member for Faversham. That was that some degree of unemployment will result from these provisions because brokers would have to appoint two firms of accountants, one to deal with their accounts and one to deal with the auditing. It is not an unknown proposition at all in business life that even unqualified accountants—unqualified even by the standard of the professional body to which we are here alluding—are employed by a business to deal with its accounts and a professional certified firm of accountants or chartered accountants is brought in to deal with the auditing. It is done with great regularity and frequency. I should think that virtually every smallish professional firm does not employ a firm of chartered accountants to undertake its everyday accountancy, because it would be far too expensive for the firm to do so. The firm employs either an internal accountant or a freelance accountant, who may not be professionally qualified, to do its everyday accounts. A note of alarm has been brought into this matter—not necessarily by hon. Members, because they have been rehearsing arguments put to them in the paper that they have received.

I shall turn shortly to the other points concerning the adequacy of working capital and the question of independence, but before doing that I ought to add a footnote to the point about why the Council should not have the right to deal with this matter, which I almost overlooked. I think that if the Council were to have the sole right to look into the qualifications, effectively, of accountants to deal with auditing, it would expose the Council to constant pressure to approve bodies that the Secretary of State has not yet deemed it advisable to approve because their standards, in his judgment, are not high enough. That would be a quite unfair burden to place on the Council.

I turn to the other point raised by the hon. Member for Faversham. I cannot put the case any better than it is put in the document "Insurance Intermediaries", with which he is very familiar. The arguments are very well rehearsed there as to the question of independence. It is a public concern. The people who offer professional advice should do so on a basis of independence. This is an argument that has been raised with regard to auditors. They are fully aware of the situation, and a working party set up by the auditors is investigating that aspect of the matter at present. The public are entitled to be concerned about the independence of their professional advisers, the way in which advice is tendered and so on. Therefore, I make no apology for that, and indeed, even in the definition of an insurance broker in the EEC draft directive, the words that are imported there are persons acting with complete freedom as to their choice of undertaking. What is there implied is that there should be some independence in the judgment that is applied to these important matters, which can do so much to affect and even blight the lives of people who rely upon this form of professional advice.

Mr. Moate

I should be glad if the Minister will look again at this point before the future stages of the Bill. A broker can be substantially dependent, perhaps unduly dependent, on one insurer, but he does not, thereby, cease to be an independent broker and he does not lose the freedom of choice that is explicit in the EEC definition. This clause has got it wrong. As an independent free broker, he can still have an undue proportion of his business, if he likes, with one particular insurer.

Mr. Davis

The hon. Gentleman has a point. I do not accept that the clause has it wrong, but I should like to look at the matter again. I hope that the hon. Gentleman will accept that assurance.

On the question of the adequacy of the working capital, that is rehearsed, as I have indicated, in the document. It is essential, considering the background against which we are discussing this matter—that is, the handling of very substantial sums of money and the ability in the past, anyway—it will be severely limited now—to set up an establishment without too much difficulty. However, again I want to be sure that we shall not cause any injustice to anyone by reason of too high or too difficult a standard. I shall look again at this aspect of the matter. I think that I recall that the sponsor of the Bill was worried about it in Committee.

The question of confidentiality is a bit of a red herring. Again, we are not without precedents in this matter. For example, we have the Association of British Travel Agents, which no doubt from time to time is invested with quite confidential information from competitors. We have the British Insurance Association. Under the Policyholders Protection Act, as the hon. Gentleman will recall, we set up a group of people who are able to advise the Secretary of State on the exercise of his powers, and most certainly they will have confidential information available to them, fed in by competitors.

Another example I would pray in aid is the Airworthiness Board, on which manufacturers and different interests are represented, clearly very often in competition one with another, and yet there is an understanding that it is necessary to maintain confidentiality.

I have no evidence that in any of these institutions the situation has resulted in prejudice to anyone. There is a risk, but I do not think that it is a serious concern.

Mr. Moate

This is another difficult area of administration. The examples that the Minister has quoted are all fairly recent examples. I think that he would accept that. However, he will recall that in our debates on the Policyholders Protection Act this same concern was expressed by the House about individuals who are, in effect, being given privileged information. It seems that it is an area of concern, and the more bodies that we create that have such powers, the greater the concern should be.

Mr. Clinton Davis

Of course there is some concern, but generally anxieties are more theoretical than practical. One could pray in aid a whole range of areas in which confidential information is vested. For example, shop stewards are frequently told that if they disclose information it will damage their membership and, as a matter of practice, they do not disclose it.

I think this is a little bit of a red herring. One has to have some faith in the capacity of those who administer a scheme of this kind, and that is what is happening. I hope that the hon. Member for Faversham will feel prepared to accept the assurances that I have given.

Amendment agreed to.

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