EXEMPTION FROM LIABILITY FOR DAMAGES

HC Deb 11 June 1986 vol 99 cc402-27

'(1) Neither a recognised self-regulating organisation nor any of its officers or servants or members of its governing body shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in had faith.

(2) The functions to which subsection (1) above applies are the functions of the organisation so far as relating to, or to matters arising out of—

1. (a) the rules, practices, powers and arrangements of the organisation to which the requirements in paragraphs 1 to 6 of Schedule 2 to this Act apply;
2. (b) the obligations with which paragraph 7 of that Schedule requires the organisation to comply;
3. (c) any guidance issued by the organisation;
4. (d) the powers of the organisation under section 49(2), 59(4) or 92(2)(a) above; or
5. (e) the obligations to which the organisation is subject by virtue of this Act.

(3) Neither a designated agency nor any member, officer or servant of a designated agency shall be liable in damages for anything done or omitted in the discharge or purported discharge of the functions exercisable by the agency by virtue of a delegation order unless the act or omission is shown to have been in had faith.

(4) Neither the competent authority nor any member, officer, or servant of that authority shall be liable in damages for anything done or omitted in the discharge or purported discharge of any functions of the authority under Part IV of this Act unless the act or omission is shown to have been in had faith.

(5) The functions to which subsections (1) and (3) above apply also include any functions exercisable by a recognised self-regulating organisation or designated agency on behalf of another body by virtue of arrangements made pursuant to paragraph 4(2) of Schedule 2, paragraph 3(2) of Schedule 3 and paragraph 3(2) of Schedule 5 to this Act.'. — [Mr. Howard.]

Brought up, and read the First time]

Mr. Howard

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Mr. Harold Walker)

With this it will be convenient to discuss also the following: amendment (b) to the new clause, in subsection (1), after "damages", insert— 'at the suit of any member of the self-regulating organisation or of any person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise'.

Amendment (a), after subsection (2), insert— '(2A) Neither a recognised professional body nor any member, officer or servant of that body shall be liable in damages for anything done or omitted in the discharge or purported discharge of the functions exercisable by the body by virtue of a recognition order unless the act or omission is shown to have been in bad faith.'.

Amendment (c), after subsection (2), insert— '(2A) Neither a recognised professional body nor any of its officers or servants or members of its governing body shall be liable for damages or purported discharge of any functions to which this subsection applies unless the act or omission is shown to have been in bad faith.

(2B) The function to which subsection (2A) above applies are the functions of the body so far as relating to, or to matters arising out of—

1. (a) the rules, practices, powers and arrangements of the body to which the requirements in section 18(2) apply;
2. (b) any guidance issued by the body;
3. (c) the powers of the body under section 49(2) or 92(2) (a) above; or
4. (d) the obligations to which the body is subject by virtue of this Act.'.

Government amendments Nos. 42, 44, 161, 179 and 230.

Mr. Howard

This new clause touches upon a matter that has perhaps aroused a degree of controversy since the Government's decision was announced. The new clause is of considerable importance and it is appropriate for me to speak about it at greater length than I have spoken about the new clauses that we have so far considered.

When we debated this matter in Committee I said, and no doubt I shall be reminded of it, that in principle regulators should be liable for damages and that the onus was on those who favoured immunity to make the case for it. I remain of that view. I was not then convinced that a case had been made for granting immunity for recognised self-regulatory organisations. However, consistent with the open-minded and receptive attitude that I hope the House will think I have sought to display throughout the proceedings, I am now convinced that the case has been made for doing so.

Mr. Gould

The Minister feels that his conversion is consistent with an open-minded attitude, but is it consistent with the principle that he expressed in Committee'?

Mr. Howard

Of course it is. Principles must govern our approach to these things, and it is in the application of those principles that flexibility is appropriate. I shall seek to explain to the House why I have changed my view. I would not have been prepared to consider granting immunity to recognised self-regulatory organizations unless I believed that it was necessary to do so to ensure the effective enforcement of the Bill's provisions. On reflection, I have come to the view that immunity along the lines proposed will significantly strengthen the Bill.

Two factors led me to that conclusion. The first is that, if regulation is to be effective, a recognised self-regulating organisation needs to be able to act swiftly and decisively, sometimes on less than conclusive evidence, if it seems necessary to do so in the interest of investors. However, its financial resources will often be smaller than those of its members or others affected by its actions. There is a real risk that the prospect of a number of large claims for damages would deter a recognised self-regulating organisation from taking the actions that it believed to be necessary. That would not be in the interests of investors.

Mr. Budgen

It seems to be put abroad by the stock exchange that every time, with the benefit of hindsight, that it could be said that a judgment was mistaken, that would lead to a successful claim for negligence. If it was obvious to a judge that a regulatory authority had to move swiftly and decisively, he would have that factor in mind. That would lead to his saying that there had not been negligence. It is right, is it not, that the stock exchange has no immunity, but has never been successfully sued?

Mr. Howard

Everything that my hon. Friend says is correct. The fact that speedy action had to be taken would be taken into account in assessing whether the regulating organisation had been negligent. What my hon. Friend said about the record of the stock exchange is also true. However, he underestimates the inhibition under which an organisation of this kind may labour if at every turn, and whenever it has to make a difficult decision of this kind, it has to contemplate the possibility of action. That is at the heart of this matter. The stress and demands on the financial resources of the self-regulating organisations that are likely to arise through litigation, even if, ultimately, the regulating organisation were to be successful in that litigation, also have to be taken into account.

Mr. Campbell-Savours

Perhaps the Minister could clarify his response to the hon. Member for Wolverhampton, South-West (Mr. Budgen), who asked about the stock exchange. I understand that the stock exchange produced a report on the Westland affair and the trading of shares. I also understand that it was not able to publish that document for fear of litigation and a series of actions. That document has still not been published. Is that not an example of how the fear of litigation is enough to quell the keenness of an organisation to pursue what is right and proper?

Mr. Howard

I hope that the hon. Member for Workington and the House will forgive me if I do not yield to the temptation to comment on specific cases. As a general principle, there is little doubt that the principle which I have put before the House and which. I think, is endorsed by the hon. Member for Workington undoubtedly applies.

Mr. Bermingham

Does the Minister not agree that the mere threat of litigation acts as a form of discipline? If one is answerable for one's decisions, one tends to take them carefully.

Mr. Howard

The hon. Gentleman leaves out of account the nature of the decision that a regulating organisation has to take. The important thing is that it should not be inhibited from taking action. It is not simply a question of making sure that the action that it takes is correct, but the fact that the action needs to be taken very often on information that is less than 100 per cent. accurate. No doubt a regulating organisation would like it to be 100 per cent. accurate. It may be less than wholly convincing, perhaps flawed, but nevertheless it may justify the self-regulating organisation in taking immediate action. The prospect of litigation brought by big battalions with large pockets may well inhibit the taking of that kind of effective action in the circumstances that we are postulating.

Mr. Ashdown

Why did the Minister not respond earlier with that sort of argument? The case was put to him in precisely the same terms in Committee and it took the arm twisting—no other phrase is appropriate—of a sitting in order to make him move position. In Committee he did not listen to precisely the same argument to which he is now responding.

Mr. Howard

The hon. Member for Workington's reading of the situation is much more perceptive and accurate than the construction that the hon. Member for Yeovil (Mr. Ashdown) seeks to place on it. Of course one listens, but one is not necessarily convinced immediately. One reflects upon the argument, and in some circumstances one reaches a more mature and wiser conclusion.

Mr. Butterfill

Does my hon. and learned Friend agree that perhaps ISRO is a far better example than the stock exchange? Decisions can be taken involving hundreds of millions of pounds or dollars. In cases like that, if ISRO were liable, it could not possibly function.

Mr. Howard

My hon. Friend is absolutely right.

I shall now pass on to the second factor of which I have taken account in arriving at my view on this matter. I make no apology for drawing it to the attention of the House, because it is a factor to which any responsible person making judgments on these issues would have to give a great deal of weight. As it became clear on considering this matter, there is a real danger that individuals might be reluctant to work for, or serve on, the governing bodies of RSROs if there were a risk of a personal liability in damages for actions undertaken in good faith. It is essential — I hope that this at least will be common ground — if self-regulation is to work properly that RSROs should employ and be run by people of the highest calibre. Anything that would deter such people from joining RSROs could seriously affect the effectiveness of the organisations in regulating investment business. This would clearly be an undesirable development which we should avoid if at all possible.

8.30 pm

Mr. William Cash (Stafford)

The Committee went in great detail into the questions of who are fit and proper persons and who should run these organisations. My hon. and learned Friend gave me an extremely learned letter from his Department about who was a fit and proper person. However, a further question arises here. Does the act or omission by anybody within such an organisation have to be shown to have been in bad faith? That leads us to the alternative question that arises in connection with acts or omissions that amount to negligence. If my hon. Friend cannot answer now, perhaps he will let me have a note about whether this matter could be dealt with by insurance arrangements, whether inquiries have been made as to what the potential liability would be, and whether it would not have been possible for the self-regulatory organisations to arrange insurance in those circumstances.

Mr. Howard

I am happy to promise my hon. Friend that I shall let him have a note on those matters, although I cannot promise that it will be as long and as learned as that which he received on the definition of "fit and proper". I can give him some preliminary signs. There is no doubt that inquiries were made about the availability of insurance, and it is no secret that the availability of insurance in this sector is becoming increasingly difficult and expensive. I put the matter in modest terms as a preliminary response, and I shall endeavour to add to it when I write to my hon. Friend.

Mr. Budgen

Might there not have been a case for giving some form of temporary immunity, or partial immunity, so that when the Act, if the Bill is passed, and the insurance matter have settled down it might be possible to see that the regulators are insured? If it is not possible for them to be insured, it might not be possible to have a system of private regulation of this market.

Mr. Howard

My hon. Friend makes a tempting point, but the absence of insurance was not the only factor that weighed with me. As I have sought to explain, there were a number of factors, and, even if insurance were available, it would not have met all the factors that I have identified.

For those reasons, I came to the conclusion that it would be right to grant RSROs an immunity similar to that which was in any event provided for the designated agency and the competent authority. This new clause brings all the immunity provisions in the Bill together, and clause 118(9) and schedule 7, paragraph 3, are therefore to be deleted. In each case the immunity is granted to the body itself and to its officers and servants for any acts or omissions in discharge or purported discharge of certain functions—effectively, the functions which they perform in maintaining the regulatory structure for which the Bill provides. The immunity is restricted to an immunity from liability for damages, and it does not apply when an act or omission can be shown to be in bad faith.

The proposed immunity will still leave interested parties with the possibility of redress. Investors who have suffered loss as a result of a business breaching an RSRO's rules will still be able to sue the business for damages, and compensation schemes will be available. Members of an organisation will be able to use the organisation's appeals procedures against unfair decisions. It will still be possible to seek a declaration setting out the rights and wrongs of the situation or an injunction to stop or prevent an unlawful act or requiring an RSRO to act lawfully. Damages can still be sought where an act or omission is the result of had faith.

In the light of the immunity conferred under the new clause, the second half of clause 14(7) is no longer appropriate, and it is deleted by amendment No. 42 Amendment No. 44 similarly deletes the second half of clause 20(5). A failure to provide information required by clause 14 or 20 will still provide grounds for revocation of a recognition order or in the case of an RSRO the exercise of the Secretary of State's or designated agency's intermediate sanctions. Amendment No. 161 has the effect that the same consequences would follow from a failure to provide information required under clause 91.

I believe that the balance that we have struck should remove lingering fears on the part of potential RSROs while leaving adequate remedies in place for aggrieved parties. I commend the proposals to the House.

My hon. Friend the Member for Beaconsfield (Mr. Smith) and the right hon. Member for Glasgow, Govan (Mr. Millan) have proposed that recognised professional bodies should have a similar immunity, but that suggestion overlooks, it seems to me, the differences that there will be between RPBs and RSROs. The RPBs will be regulating a much narrower range of business on a much smaller scale than will RSROs. The prospect of a number of large claims against an RPB is therefore much smaller than in the case of an RSRO. In these circumstances, I do not believe that it would be appropriate to extend immunity to RPBs. Further, it would certainly be anomalous for RPBs to have immunity when they are incidental aspects of their members' business when they do not have it, and do not appear to have needed it, in relation to the regulation of their members' mainstream professional practice.

The hon. Member for Dagenham suggested that an RSRO should still be liable for damages to investors, but this could still leave it at risk from a number of large claims. A regulator will face a number of difficult choices in deciding when to act. One of the most difficult issues is deciding when to remove a business's authorisation, particularly on solvency grounds. The situation is rarely clear-cut. There are always arguments that, given another week or so, more capital can be found or a valuable asset sold and the problem will be resolved. The interests of existing clients and others already dealing with a business will often suffer if authorisation is removed, but such action may nevertheless be necessary to prevent harm to future clients.

Existing clients and those dealing with a business would, of course, suffer more seriously if the business collapsed, but they may claim that the supervisor's action was unnecessary and that the business would not have collapsed if given more time. They might then bring an action for damages against the supervisor on the ground that their loss was the direct result of the supervisor's intervention. The parties bringing such an action might themselves be large financial businesses — the big battalions of the international financial world. For example, a United States securities firm might use a British RSRO member to manage its clients United Kingdom portfolio. If the RSRO expelled the British business, or stopped it undertaking particular activities, because of concern about its solvency, the US firm might sue the RSRO for the loss that it suffered as a result — for example, of missed opportunities or damage to reputation. This threat could he a very serious one, and could put the RSRO's future at risk.

Supervisors should not have such a threat hanging over them when taking difficult decisions. If they have, the quality and effectiveness of regulation and the interests of investors will suffer. As I have explained, investors will still be able to claim against a business which had broken the rules or, if appropriate, the compensation fund, and I do not believe that the proposed immunity will seriously affect their interests.

Mr. Bermingham

Can the hon. and learned Gentleman explain the difference between a supervisor or a regulator in those circumstances and a liquidator acting either under a debenture or some other power? The liquidator or receiver is equally liable for his actions, his misfeasances and the mistakes that he makes. Why is the regulator in a different position?

Mr. Howard

There are two answers to that question. First, I do not believe that liquidators operate in the same kind of world that we are contemplating in the context of this legislation. I do not believe that they run the risk in the same way of actions being brought or threatened by the largest financial battalions in the world which might well be able to use the very power of mounting effective and expensive litigation to bring pressure to bear on the regulators.

Secondly, and on a purely practical basis, so far as I am aware no one has refused to act as a liquidator because immunity of this kind is not available. But, as I said earlier, I make no apology for the fact that if we are to get an effective regulatory system in operation, it is essential that we get people of the right calibre to accept the responsibilities of serving on these organisations. That is not a difficulty that is encountered in the context of liquidators, but it most certainly is a difficulty encountered in this context.

Mr. Ashdown

The Minister's comments have been very revealing. The reason for this remarkale Pauline conversion—no doubt the result of this time bomb that has been ticking away in his head as a result of the arguments advanced in Committee—is revealed as being brought about the refusal of the SROs to recruit people to be their officers and members unless such immunities have been granted. In other words, his arm has been twisted to change his mind.

Mr. Howard

The hon. Gentleman fails to understand the position. The fact that it was important to ensure that people of the right calibre were prepared to serve on the SROs was a matter that I took into account. I suggest that anyone who failed to take that into account would have been utterly irresponsible.

I have also reflected on the other arguments that were put in Committee, which I have summarised this evening. It is on a totality of those considerations that I suggest that the view that I presently take is to be preferred to the view that I expressed in Committee.

Mr. Gould

Listening to the debate, I had the sense of watching one of those courtly dances, where at a given moment in the tune the dancers suddenly exchange positions and take up those formerly occupied by their partners. The Minister's manoeuvre has been so bewildering that one is entitled to ask who is calling the tune. The hon. Member for Yeovil (Mr. Ashdown) is right to suggest that the Minister has changed his mind in such a bewildering way because he has been got at by extremely powerful interests in the City. They have done so in such a way, and so thoroughly, as to call into question something that had hitherto been common ground, at least within the Committee — the desirability of self-regulation.

The Minister fairly recalled that the whole question of immunity for SROs was raised through an amendment tabled by myself. We pointed out that for very good reasons immunity had been granted to the Securities and Investments Board or to the designated agency, and we felt that it was equally necessary in respect of the SROs. That view was supported across the Committee, although not by every hon. Member. Indeed, I seem to recall that the hon. Member for Bournemouth, West (Mr. Butterfill)— who has also done his little minuet—was very much opposed to any form of immunity, let alone the blanket immunity now proposed in the new clause. However, there was all-party support for some form of immunity, and that in turn was given powerful support by a campaign mounted by the SROs and the SIB.

The case advanced by myself and others who spoke in favour of immunity was to the effect that without it any SRO would be inhibited — indeed, frustrated — in the performance of its duties not by the constant threat of being liable for vast damages but by the real possibility of the issuing of writs and so on. We felt that the SRO would simply find itself incapable of proceeding against those whom it was its duty to regulate. It therefore seemed to us to be extremely important that, if we were to place reliance on the SROs, they should not be frustrated from the outset by being put at risk as a result of actions by those whom they were meant to be regulating.

8.45 pm

The Minister's reaction was to say: In principle, regulators should be liable for damages. We advanced the argument that that was indeed a good principle, but that there was a countervailing principle which meant that in the interests of effective regulation the SROs needed a limited immunity. The Minister later returned to the argument when he said: It is common ground between us that self-regulating organisations should not have immunity from suit on the part of investors."—[Official Report, Standing Committee E, 11 February 1986; c. 174, 182.] That was something with which I readily agreed, but the whole burden and thrust of my argument was that it was immunity at the suit of those who were supposed to be regulated that was important and desirable.

Yet, after these firm statements of principle and agreement with me about the importance of absence of immunity in the case of actions brought by investors, the Minister is suddenly converted not only to the idea of immunity against those who are to he regulated: he also abandons the common ground that he had sought with me and staked out. He now says that there should be not only immunity of the sort covered by the amendment but a blanket immunity that will extend to actions from any quarter, including actions brought by small investors who may well feel aggrieved at some glaring dereliction of duty on the part of an SRO.

It may be that the Minister was so appalled by the admission that he made to the Committee, elicited from him by a question by my hon. Friend the Member for Workington (Mr. Campbell-Savours), that he was prepared to contemplate SROs going bankrupt—that he has now swung around entirely in order to expunge from his memory the fact that he ever made such an astonishing confession.

But, for whatever reason, I believe that the Minister has now trod a path that we know is fraught with difficulties and danger. In Committee, I drew attention to the provisions of the Lloyd's Act, and reminded the Committee that when Lloyd's piloted its own private Bill through the House it had strongly argued for immunity on the ground that I was prepared to argue for— that it needed that immunity in order to be an effective regulator. In other words, it needed to be able to be tough with those in respect of whom it was entrusted with the duty of regulating, without being threatened with action.

I pointed out that Lloyd's was tempted —I suspect more than tempted and, indeed, set about—to use that immunity in the case of the PCW scandal not in order to be a more effective regulator but to protect itself against its own failures as a regulator. It would use that immunity to prevent any action brought by aggrieved investors in the PCW syndicates who believed that Lloyd's had fallen clown in its duty.

The clear view of many people is that Lloyd's did fall down in its duty, and, while one does not necessarily have unlimited sympathy for Lloyd's members, it is entirely right that where they lose money through the clear failures of the supervisory authority they ought to be able to turn to that authority for recompense if — here I associate myself with the telling point made by the hon. Member for Wolverhampton, South-West (Mr. Budgen) — they can make their case in the court. That is not as easy as it seems. It is difficult to think of individuals who have been able successfully to sue bodies of that nature for regulatory failures. That must tell us something about the balance of power and of probability in such circumstances.

Mr. Butterfill

Mention has been made of the PCW names at Lloyd's and it is suggested that it is proven that the case resulted because of a failure by the regulator. I believe that it is far from proven. The information that I have heard suggests that it was not due to a failure by the regulator but because the syndicates of which they were a part took extremely ill-advised underwriting business. It was high-risk business, no doubt for high rewards. It seems that an attempt is being made to evade responsibilities in the underwriting of that business.

Mr. Gould

We could have a long debate about the rights and wrongs of the PCW affair. I believe that investors lost money through fraud and theft and then through ill-advised business, undertaken to maximise premium income to cover the tracks of those criminals. All of that took place under a supervisory regime for which Lloyd's was responsible. But that is not the point. The point is whether we should enact, as we did in the case of Lloyd's, a provision which prevents PCW investors from resolving in the courts the debate which the hon. Gentleman and I have just had. Should we say that the PCW investors should be precluded from having their day in court to establish their case?

Mr. Budgen

Can the hon. Gentleman confirm to those outside that if a plaintiff fails against a regulatory authority the cost of bringing the proceedings is likely to be large and, having failed, he will have to bear not only his own but the defendant's costs?

Mr. Gould

The point is well taken. There is another explanation, one assumes, for the relative rarity of such actions.

One could elaborate the case at length, but I do not propose to do that. I want to raise the general principle at the heart of the issue. If self-regulating organisations are to be made immune from suit, from whatever quarter, the nature of the self-regulation with which we have imagined that we are dealing is misunderstood. We have imagined that the self-regulating organisations are an instrument for exercising statutory powers and that they exist because they have particular expertise and the ability to monitor activities day by day.

That type of self-regulation is suddenly revealed by such a measure not to exist. Under the provision we are confronted with self-regulation on the bad old model where self-regulation is undertaken by groups or professional cliques whose real purpose is to defend the interests of their own members against the outside public. Such a provision will make it impossible to break down the wall built around those organisations, which will be impregnable by the outside investor.

If we were to enact the provision, the self-regulation which we have hitherto been prepared to support would become a much different proposition. We could not easily tolerate a City regulated by bodies against which there was no possibility of sanction by those who would lose as a consequence of their failures.

In drawing the line between actions brought by members, or the regulators, and actions brought by investors and members of the public, I am not excluding the possibility that very large investors with very deep pockets might sue self-regulating organisations. That was a possibility which a few months ago the Minister was prepared to contemplate.

The difficulty is that the Minister must now make a choice. Does he provide effective investor protection for the small investor, or is he so mesmerised by the possibility of large investors threatening self-regulating organisations that he is prepared to throw investor protection out of the window? That is the consequence of the new clause.

The investor who wishes to sue the self-regulating organisation will limit his argument in such a way as not to threaten the continued viability of that self-regulating organisation. That is not achieved by any of the proposed amendments. The Minister should be able to come up with a solution which would provide a balance between protecting the self-regulating organisations and protecting the interests of the investor. If he cannot do that, the notion of using self-regulating organisations to carry out the purpose must be re-examined.

If the Minister believes that self-regulating organisations need to be protected against actions for damages by anybody, one must conclude that self-regulating organisations are not the appropriate instrument for carrying out that function. That is the essential question which must be answered. That is why we believe that the Minister's conversion, while welcome to the extent that we had urged it upon him, has gone too far. The Minister has not adequately explained why he has so demonstrably changed his position.

Mr. Bermingham

Does my hon. Friend agree that, if the Minister has been converted — I use the word advisedly because I suspect that he does not know where the road from Jerusalem to Damascus really is—could it be because of his fear of the multinational financial institutions? If that is so, perhaps the regulation should be by Government bodies rather than private bodies.

Mr. Gould

My hon. Friend is right. That is the conclusion that I arrived at. If the contest between the self-regulating organisations and the large City investors, who in most cases will be members, is so unequal, it is hard to see how the self-regulating organisations can bear the weight of the burden.

Mr. Budgen

I am not sure that the hon. Member for Dagenham (Mr. Gould) has persuaded me that it would be right to grant immunity to the regulated. It is difficult to draw a line between the regulated—particularly the big regulated—and those who are also investors. That is particularly difficult since we now have a multiplicity of capacities in the City. It is difficult to see, when an organisation might be a clearing bank, a stockbroker and a stock jobber, how one can precisely describe it as a big investor or a person regulated by the authority.

We are not really talking about that tonight. We are talking about whether the Government are wise to grant blanket immunity to all persons who have to deal with the self-regulatory authority. I am grateful to my hon. and learned Friend for the courteous way in which he gave way to me as he expounded his only two reasons for saying that his previous view had changed.

I agree with my hon. and learned Friend that the presumption should be against immunity. I shall not repeat the two questions that I put to him, although I did not receive a satisfactory answer. I therefore conclude that the Government have been very unwise in general and political terms in granting this blanket immunity to a self-regulatory authority. They allowed Lloyd's blanket immunity through the Lloyd's Act. Plenty of hon. Members say in the Lobbies that they wished that the Government had not granted that blanket immunity because it has not been used as a means of making Lloyd's a straighter or more efficient organisation. It is seen by many to be more of a shield than a sword.

9 pm

It must be remembered that a special privilege was granted to the stock exchange in 1983. I was opposed to the Parkinson-Goodison deal because I thought it wrong to take pending litigation out of the ambit of the courts. The restrictive practices of the stock exchange should have been considered by the Restrictive Practices Court. Plenty of people share that view. Perhaps I am wrong, but it appears politically unwise to grant to the stock exchange another great privilege— [Interruption.]. I have failed to satisfy my right hon. and hon. Friends that it is unwise to grant one's friends these great privileges.

I wish to direct a few words towards the stock exchange. In our society there are two main ways to ventilate a grievance. If one has a disagreement with a state-run concern, there is a political method to ventilate that grievance. For the sake of argument, I might say that I do not like the way in which the Bank of England is controlled by the Government, I will never support Mr. Nigel Lawson or vote Tory again, and that Mr. Lawson should resign. That is perfectly reasonable and everyone understands the way in which political grievance can be ventilated. Equally, everyone understands that a private individual has a right to ventilate his grievance through the courts. However, a self-regulatory body that is not state-controlled and cannot be sued in the courts is, in the last resort, irresponsible.

Mr. Butterfill

Is my hon. Friend aware that on 3 June the stock exchange announced its intention to appoint an ombudsman to represent the interests of investors as against the stock exchange council?

Mr. Budgen

Ombudsmen make grave recommendations, but they are not in any way binding. An ombudsman is not a satisfactory alternative to the right to sue through the courts.

Sir Nicholas Goodison, who is no doubt congratulating himself on his great triumph, has in fact acquired for himself and his organisation a most short-sighted triumph. There will be many changes in the securities industry in the next few years. Many wise people who know a great deal about the industry— I am not wise, nor do I know a great deal about the industry —say that over-capacity is building up, and they may be right.

I do not know about the way in which prices of stocks and shares go up and down, but there are those who say that eventually there will be a bear market. There are also those who say that the system of Chinese walls will not always work. A combination of over-capacity and a bear market, with opportunities for malpractice, means that a few corners may be cut in future. When Granny Smith finds that she has no opportunity either to take the political course or to sue to ventilate her grievance—it may well be that there is not a Conservative Government at that time — she may say that there is a need for further legislation. She will say, "That wicked old Tory Government in 1986 passed legislation which was plainly to the advantage of their friends and was not fair to me." The danger is that the splendid settlement will be unpicked. When it is unpicked, not only that part of it but the remainder will be unpicked. That will be to the disadvantage of the stock exchange. Certain people may drink their second magnum tonight and congratulate themselves on such a great triumph, but I hope that it does not look too bad for them in five, six or 10 years, when Granny Smith goes to a Member's surgery and complains that she has no means of ventilating her grievance.

Mr. Bruce Millan (Glasgow, Govan)

I agree with the hon. Member for Wolverhampton, South-West (Mr. Budgen) that if we are to give special legal privileges of immunity to anybody, there must be good grounds of public policy for doing so. It cannot be given simply as a protection for the body concerned. As I understood the argument in Committee— I was not a member of the Committee— there were good grounds of public policy for giving at least a degree of immunity to self-regulating organisations, because otherwise they might be inhibited, as the Minister said earlier, from carrying out the functions of investor protection placed on them by the legislation. The argument provides a strong case for legal immunity. I believe that the extent of the immunity is a separate matter, as my hon. Friend the Member for Dagenham (Mr. Gould) has argued. My amendment (c) applies the same arguments to recognised professional bodies as have been applied in the Minister's new clause regarding self-regulating organisations.

As a chartered accountant and a member of the Institute of Chartered Accountants of Scotland to which I am parliamentary adviser. I have an interest in the matter. Listening to the Minister's arguments for his new clause, I found it difficult to accept the arguments that he put up a little later about why recognised professional bodies should not have the same degree of immunity—whatever it is that Parliament eventually decides the degree of immunity should be. After all, under the Bill, those bodies are to be subject to a regime that is intended to give protection to investors equivalent to that which they would obtain through anything done by an authorised person in a self-regulating organisation. The rules and monitoring arrangements to provide that are to be as stringent, detailed and as subject to supervision as those that apply in respect of self-regulating organisations. Therefore, recognised professional bodies will be placed in almost exactly the same position as self-regulating organisations. It is difficult, on the face of it, to understand why immunity is to be granted to one kind of organisation but similar immunity is not to be granted to another kind of organisation—a recognised professional body.

The Minister used two arguments against that proposition. He said that in the case of professional recognised bodies — I take the chartered accountants' institutes as an example— regulation would be only a small part of their activities, and it could be anomalous if immunity were granted for a small part of their activities when the main part of their activities was not similarly protected by immunity.

The recognised professional bodies are having particular and new obligations placed on them by the legislation, assuming that they will apply for recognition. It is a matter of choice. They may not apply for recognition if they do not feel that they can take on the obligation. If they apply for recognition, they will take on an entirely different range of responsibilities. For example, the institutes of chartered accountants do not actively monitor their members' activities or have a legal obligation to do so. Of course, they are responsible for discipline, and so on. Under this legislation, they will take on the additional responsibility of monitoring their members' activities with respect to investment.

Although this aspect may be only a small part of the activities of these professional bodies, it is a new and special responsibility. It is a legal obligation, not a voluntary role. By applying for recognition, a body automatically takes on those responsibilities. The argument that these bodies are not given immunity for the major part of their activities and that, therefore, it would be anomalous to give them immunity for the minor part of their activities does not bear examination.

It has been argued also that a member of a recognised professional body who has been authorised will be recognised only because certain activities are incidental to his main activity as an ordinary professional person. That is true. The Bill does not lay down a definition of what is incidental. There have been considerable discussions on this point, and I am not arguing that there should be a specific definition in the Bill. A practitioner may be involved in activities that are incidental to his main activities, but that does not necessarily mean that those incidental activities do not involve considerable sums. He may he vulnerable to legal action even though his activities are incidental. Of course, if the activities were not incidental, they would have to be regulated in a way other than through the recognised professional body. That is not a good argument for distinguishing between a self-regulating organisation and a recognised professional body.

Mr. Bermingham

I put this point to the Under-Secretary of State but he did not seem to understand it. Does my right hon. Friend, with his vast professional experience, accept that often the chartered accountant who is the liquidator or receiver in a company liquidation can be involved in what may appear, on the face of it, to be a small transaction but be liable for vast sums?

Mr. Millan

My hon. Friend has made that point in a rather different context. Because a person is involved in an activity that is only a small part of his general professional responsibility it does not mean that he is not vulnerable to being liable for large sums. That point has been made. I think that the Under-Secretary of State understands that the professional bodies are agitated about this matter, and I ask him to consider it again.

I do not want to go at great length into how far immunity should extend. There is a distinction between immunity from action by a recognised professional body's members or someone authorised' by it and immunity from action by a member of the public — for example. an aggrieved investor. From the point of view of the recognised professional bodies or the self-regulating organisations, liability for large sums in damages may arise from the suit of an aggrieved investor rather than art aggrieved authorised member or a member who has been refused authorisation. Vulnerability to liability for large sums of damages may well be caused by bodies outside rather than within an SRO. Amendment (b) restricts immunity to a person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise". In some circumstances, that may be a fairly limited immunity. An aggrieved investor may get beyond the authorised person, with whom his grievance basically rests, to the authorising body which is responsible for monitoring the activities of that person. There is a real dilemma but I do not necessarily want to take a firm view on that matter. All that I am saying is that, whatever the ultimate form or shape of the Bill or the new clause, I think that there are strong grounds, in terms of public policy, for treating self-regulating organisations and recognised professional bodies in exactly the same way.

9.15 pm

Mr. Butterfill

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) referred to Granny Smith and her predicament and her inability to sue. My constituency probably contains more hypothetical Granny Smiths than most others. The difficulty that the Granny Smiths in my constituency encounter is that the law does not seem to do for them what my hon. Friend the Member for Wolverhampton, South-West thinks that it might. They come to my advice centre and say that there is one law for the rich because they can afford it, there is another law for the poor because they can get legal aid, but there is no law for the small people in between who cannot get legal aid because they have a little bit of money. They are precisely the people who will be the investors in the stock exchange and who will not he able to afford the litigation.

I am touched by the faith my hon. Friend the Member for Wolverhampton, South-West has for the legal process and the courts. It is not a faith that I have heard him express quite so vividly on previous occasions. Nevertheless, it is a touching thought. However, I do not think that it is something which Granny Smith will want to rely on. I think that she would much rather rely upon an ombudsman appointed by the stock exchange especially if, unlike the ombudsman we seem to have created in this place, he actually has some teeth and may get redress for the complainant investor.

The hon. Member for Dagenham (Mr. Gould) referred to the views I expressed in Committee. I am sure that if he refers to column 176—I have just refreshed my memory on that, he will see that — my view arose from the experience that I and other Members of the Committee had as members of professional bodies. I suggested that since those of us who were members of professional bodies had not seen the need for them to have this type of immunity I did not really see, extrapolating from that, why the immunity should be extended to the stock exchange or any of the other self-regulating organisations we are setting up under the Bill.

I must tell the hon. Member for Dagenham that I have taken further advice on this matter. However, I have not undergone a conversion in a blinding flash along the road to Damascus. I have trodden the road to Damascus but it was not there that the inspiration came to me. I have considered the representations, as my hon. and learned Friend the Parliamentary Under-Secretary will have done, that have been made to me by those concerned in these matters and those who have much more experience than I have. In an earlier intervention I referred to the position of ISRO, which is dealing with an international money market of billions of dollars. It would be completely impossible for regulators of that type to operate if, in giving a ruling, they were likely to be liable to be sued for damages for billions of dollars. A bankrupt regulator will not be any good to any of us and, therefore, it is essential that we provide the immunity that is suggested in the new clause.

Mr. Ashdown

I thought that the hon. Member for Dagenham (Mr. Gould) put it rather well when he said that the House was engaged in a rather interesting minuet. We are required to do so in considering the new clause. The hon. Gentleman and I and other Opposition Members called for immunity for SROs and the Minister's change of heart is welcome, but that welcome must be tempered by the fact that he has gone further than the consensus that we reached, such as it was, in Committee, and has done so for some fairly curious reasons. As the hon. Member for Dagenham said, and as the hon. Member and for Wolverhampton, South-West (Mr. Budgen) said in an interesting, amusing and telling speech, that makes this issue one of considerable principle.

It is right that we should remind ourselves of the terms in which the Minister, with a good deal of enthusiasm and no small despatch, advanced arguments that went against the position that he has now adopted. He told us in Committee, in the face of the arguments that he has presented this evening, that he was against the immunity that is now proposed. He told us that it would be wrong to allow a City institution to operate above the normal workings of the law. He did not use precisely those words but that was the purport of his contention. He declared elegantly and with some force that the immunity for which we asked would go against the trend of English law over the past 50 years. He explained that there had been a move in the opposite direction and added that doctors, lawyers and tour operators had all been made liable for damages for incorrect decisions. We are entitled to investigate why it is that the Minister has committed such an extraordinary volte face. It would seem that the hon. and learned Gentleman is stretching our credibility a little too far by asking us seriously to believe that the arguments which were so powerfully advanced in Committee caused him to change his mind.

If the Minister's change of mind was caused by the arguments that were presented in Committee and, to a certain extent, by some "practical facts", as the Financial Times put it, presented to him outside the House, I might be better disposed towards him, but I suggest that there is no evidence that that is what happened. The Minister is fast enough on his feet and has a brain that works quickly enough to accommodate and show some serious consideration of the arguments advanced in Committee, but instead he dismissed them with considerable despatch.

Mr. Ron Davies (Caerphilly)

And with contempt.

Mr. Ashdown

I would not go that far. It was a good-natured Committee and I did not see too much contempt displayed. I merely say that the Minister dismissed with enthusiasm the arguments in favour of immunity.

What has happened? We know that a letter was sent to the Minister on 16 April 1986 from the six nascent SROs—AFBD, IMRO, ISRO, LAUTRO, NASDIM and the stock exchange—which contained a thinly veiled threat. They wrote: Failing to grant immunity from these liabilities in the Bill will discourage the formation"— a euphemistic approach— of SROs in the first instance, as well as compromise their operation if they do decide to seek recognition. That was an approach that was articulated more clearly in an article that appeared in the Financial Times. The commentary in the Financial Times that appeared shortly afterwards was rather more blunt but it was accurate enough. The article stated: The six nascent SROs issued a joint statement saying that unless they were granted the same immunity from negligent actions as their immediate overseer, the Securities and Investments Board, they would not invite members to join or to serve as directors and officers. There it is. There is the armlock or the half-Nelson. That is why the Minister has changed his mind. In future, as the hon. Member for Wolverhampton. South-West said, when Granny Smith wants to know why it is that she has no recourse and no possibility, neither political nor through the courts, of getting back at wrong decisions, it will be said with some force that the Government changed their mind because some of their friends and some of their paymasters in the City required them so to do. I say that as someone who has not advanced that argument with the strength with which others have deployed it previously. That, however, will be the judgment that history and hindsight will place on the Minister's decision.

Mr. Campbell-Savours

I find the comments of the hon. Member for Yeovil (Mr. Ashdown) quite remarkable. It is not my place to defend the Minister, but I have a letter from Allen and Overy, solicitors. The organisations took legal advice, and all the matters contained in the letter from the stock exchange are taken directly from the correspondence. If the hon. Member for Yeovil had simply telephoned the solicitors, he would have found the case clearly set out in favour of immunity. The solicitors were commenting only on the relevance of a legal judgment as it affected their position. They were perfectly entitled to obtain the legal judgment and put it to the Minister.

Mr. Ashdown

It is strange for the hon. Gentleman to place such remarkable weight on the view of lawyers as being the final word in this matter. I am aware that the Committee was overburdened with lawyers and that was difficult for us to cope with. However, we must make a judgment on this. It is possible for anyone to seek an opinion from a lawyer which will meet the desired requirement. I am not against the concept of immunity and I argued for it within certain limited constraints that I will refer shortly, and relate strongly, to the amendment tabled by the hon. Member for Dagenham (Mr. Gould).

It is perfectly clear that the half-Nelson which the Minister was put in by his friends in the stock exchange and elsewhere caused this remarkable change of mind. It is even more remarkable, because elsewhere in the Bill and throughout the Committee the Minister time and time again placed what many of us regarded as a touching faith in the operation of the courts when it came to decide on such matters as, for example, the meaning of the word "significant" when assessing the proportion of a firms general business which involves investment. The Minister is granting an immunity not just to the members and those who are regulators on the matter—

Mr. Budgen

Will the hon. Gentleman give way?

Mr. Ashdown

I will give way to the hon. Gentleman in a moment if he will just be patient. The Minister is granting an immunity not just to the members and those who are regulators, but is going further than what was agreed in Committee on this matter.

Mr. Budgen

Does the hon. Gentleman agree that the way that the stock exchange suggests that it is accepting self-regulation, as it were to do the Government a favour, is rather odd? The exchange wants self-regulation because it believes that the more skilled and informal way of regulating the market will be a selling point to foreign investors. However, having desperately wanted this self-regulation, sadly it is not prepared to accept its consequences.

Mr. Ashdown

The hon. Gentleman has made a powerful point. I am in favour of a degree of immunity for reasons advanced in Committee. There are important reasons why there should be freedom of operation in respect of regulated numbers. However, by extending that even to immunity from damage claims by investors, he is seen to have moved much further than he agreed might be appropriate in Committee and in a direction which fundamentally extends the powers of self-regulation to levels that most hon. Members would disagree with.

There is anxiety about self-regulation as a basic principle, although I agree with that principle. That principle is worrying enough but to give the self-regulators total immunity from anyone in relation to damages levied against them, not only to those who are members of the regulators and to investors, goes far beyond what is acceptable.

Mr. Butterfill

Does the hon. Gentleman accept that when the big bang occurs the investors and members may be the same people? Is that not the problem?

Mr. Ashdown

If the investors and the members are the same people, granting immunity to the members should be sufficient. I would happily go along with such a proposal.

The Minister has moved for the wrong reasons. He has moved not because of democracy and argument in Committee but because he has been put in a half-Nelson. The second reason for the Minister's shift is even more worrying. The City has caused a fundamental change in his mind by simply saying that it will not operate a set of regulations which is enshrined in an Act of Parliament. That bodes very ill for the future of self-regulation as one of the determining factors of the success of self-regulation is the City's attitude. That is a matter of not inconsiderable weight.

9.30 pm

As for what the Minister should have done, I cannot add significantly to what the hon. Member for Dagenham said. To offer immunity to those who are regulated is appropriate, but to offer it to those who are investors as well is dangerous. If the Minister is saying that the power of investors in terms of the money that they can generate is so great as to cause him considerable worry in this matter, it might be right for him to recognise that there should be a state organisation. That is not my view, but. if the Minister believes that the power of investors will be so great as to undermine his Bill, giving a private body such immunity is going too far by a long way.

This is an issue of fundamental principle. I am in favour of immunity for the regulated, but we should not grant immunity from damages levied against the SROs in respect of those who invest. To do that would be significantly to undermine the Bill and to extend the power and influence of SROs to an unacceptable extent. We would also diminish the safeguards for investors.

Mr. Tim Smith

This has been a bizarre little debate. It has something in common with "Through the Looking Glass". My hon. and learned Friend the Minister has changed his mind and, ever since announcing it, he has been attacked by the very people who wanted him to change his mind. I refer not to my hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) but to those who made the mistake of speaking in the earlier debate on this subject.

Mr. Gould

The hon. Gentleman cannot be allowed to get away with that statement. We approve of the Minister changing his mind 100 per cent. —it is the 200 per cent. which makes things difficult for us.

Mr. Smith

It is partly that and partly the suggestion that he has not changed his mind on the merits of the argument but has somehow been got at. It has been suggested that the stock exchange got at him.

We should be clear who is calling the shots. No fewer than 49 out of the 50 leading members of the stock exchange are owned by members of ISRO. The stock exchange will soon be a subsidiary of ISRO, so if anybody is calling the shots it is ISRO and the international securities dealers. It is important to listen to what they have to say. Everybody who wanted a change agreed that there should be immunity for members.

It is easy to exaggerate the difficulties of view and their consequences, but we are considering whether there should be immunity for investors. The hon. Member for Yeovil (Mr. Ashdown) completely misunderstood the point made by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) about investors and members being the same people. They will not be the same people on the same occasion. When we speak about large investors, we speak about the people who are members of ISRO and other bodies with substantial clout. My hon. and learned Friend might perhaps consider whether we can draw a distinction between the very large operators, who are probably quite capable of looking after themselves, and the Granny Smiths to whom my hon. Friend the Member for Wolverhampton, South-West referred. Such a distinction exists because the Government have tabled an amendment to schedule 6 which makes it.

When I saw the Government's proposal, I was a little surprised in view of what my hon. and learned Friend said previously. I see the force of his arguments, however, and that the professional investor does not need such protection. The origin of the Bill is concern for small investors. Perhaps we should see whether we cannot deal with the matter in that way.

My amendment (a) is very similar to amendment (c) tabled by the right hon. Member for Glasgow, Govan (Mr. Millan). I subscribe to all the arguments put forward by the right hon. Gentleman in favour of extending the clause to include recognised professional bodies.

Mr. Bermingham

I do not propose to detain the House for long. But it is incredible that the Minister, who comes from a learned profession, should seek to negate the actions of the courts in this matter. I do not know whether it was the blinding light on the road to Damascus again, pressure from the City again, or pressure again on other hon. Members from the little chaps across the coffee table, which has led to the claim that there is a difference between the stock exchange and other professional bodies. On occasion, the Law Society has been the subject of actions. The Glanville Davies case is a classic example. In that instance, the Law Society found that it was in the wrong. Other professional bodies, such as the accountancy profession, have been the subject of actions. But those actions are always undertaken by small people.

Apparently, however, we are to exempt the new SROs and the Securities and Investments Board from liability for their actions. From the Minister's argument — I hope that he will pay me the courtesy of listening to this point — it seems that these bodies will be gagged by the actions of large American and other institutional investors. Apparently they will issue a series of gagging writs, as a result of which no actions will be taken. If the House acknowledges that there are powerful enough bodies, in the City or elsewhere, to gag other bodies set up by the House simply by issuing writs, it is a very weak and namby-pamby place. After all, that has never been the position.

If someone said today that all professional bodies were to cease functioning simply because rich, powerful and influential bodies could issue writs to threaten them and subdue them into submission, I trust that the House would have the courage to act. On Second Reading I was very much against — as I always have been — the SIB or independent concept of self-regulation. In the light of the Minister's remarks, I am confirmed in my belief that we cannot trust the City to regulate itself. That is what worries me.

I was always in favour of the American solution, with the Securities and Exchange Commission or a Government body. I was in favour of a state body regulating the whole investment industry. I accept, as I believe the hon. Member for Beaconsfield (Mr. Smith) mentioned, that there are SROs in New York, but they are in turn subject to other controlling bodies.

I am prepared to concede limited immunity between those companies or businesses which are to be regulated and the regulator. I understand the argument that if bodies do not like how they are being regulated they, as a collective group, can change the rules on how they are run; but I strongly object to the negation of an individual's rights. That individual could be a bank or the Granny Smith referred to by the hon. Member for Wolverhampton, South-West (Mr. Budgen). Indeed, for once I entirely agree with his remarks. He hit the nail on the head.

I strongly object to the man in the street being told that he has no right of redress. In its own way that is a negation of democracy. One cannot have a body that is answerable to nobody. I concede immediately that such bodies would be by way of declaratory judgments, and so on, answerable, say, through the divisional court. But that does not provide the necessary remedy to the ordinary person.

Perhaps the Minister would like to travel again on the road from Jerusalem to Damascus. I am sure that the House will understand the time that it takes. Perhaps once again he could hope that the light would hit him and this time lead him to understand that he has no need to be frightened of the large multinationals. Britain and our courts are big enough to protect us against the gagging and conspiratorial tactics which he so fears from them.

Mr. Camphell-Savours

They are not.

Mr. Bermingham

My hon. Friend says that the courts are not strong enough. He knows not what he says. Indeed. the courts are strong enough and they will not accept that sort of behaviour, because it is in itself a conspiracy to pervert.

I say to the Minister: think again. The House has the power to set up regulations in a way that meets the needs of all. To deny the individual the right of redress and to say that if we do not have this blanket immunity the City, which is being given the right to regulate itself, will not play really is the conduct of a spoiled brat. Let him have the courage to say to the City, "Look, we believe that the individual has rights. If you want self-regulation, have the courage to do it, but in a form which makes you answerable to the people you seek to regulate."

Mr. Nelson

Some immaculate points of principle have been put forward this evening by hon. Members. Indeed, some of them have almost waxed biblical in their defence of people's right to bring suits. However, we must decide whether we want the legislation to work, whether we want the legislation well thought out, given a Second Reading and enjoying a large measure of support on both sides of the House. If we do, we must ensure that the bodies which are charged with this responsibility have the incentive, the means and the ability to carry it through.

Those of us—I am one of them—who advance the case for extending immunity to SROs do not do so because in some idle way we think that it would be a useful immunity that would help the running of the City. We do not do so because we have paymasters or vested interests. We do so because, as we have clearly said, we are interested in investor protection. It is because we want to protect investors that we want SROs to do their job and it is because we want SROs to do their job that we want to ensure that they have the membership, the effectiveness and the immunity so to do.

I find it odd that in the debate so far there has been no mention of or objection to the immunity which the SIB enjoys. The SIB is given complete immunity from suit by SROs, by members of SROs and by the investing public.

Mr. Budgen

The SIB is far less of a self-regulatory authority and far more of a state organised authority.

Mr. Nelson

That goes to the heart of a debate that we shall no doubt have later on Report, on which the Standing Committee spent no little time.

The fact of the matter is, as is proposed, that the SIB or the designated agency will remain a private sector body. It is given, and I welcome it, substantial powers of regulation and power over SROs, but enjoys— a fact that nobody has complained about—total immunity.

Some hon. Members have complained—again, it is a compelling and almost immaculate argument—that not to be in favour of extending immunity to self-regulating organisations because they are private sector as opposed to governmental is either a case for not extending that immunity or a case for making the system statutory. That was the point made by the hon. Member for Yeovil (Mr. Ashdown).

However, making the system statutory, even if it were practically possible, making not only the SIB but every SRO, including the stock exchange, a statutory body, would not of itself mean that those SROs could not be challenged in court or in law. They would only not be challenged if, in the legislation giving them statutory identity, an immunity was extended to them as well. Exactly the same point exists whether or not the SROs and the SIB are statutory or private. Therefore, those arguments are wholly defective.

We must consider whether we want the legislation to work and whether the proper presumption against the. extension of immunity to any body or organisation should be waived or limited to this extent because we think a greater good will be served. I share the view to some extent that regulators should be liable and responsible for their actions, and that there should be a presumption against an extension of immunity as a generality. I am fearful— have expressed this to self-regulating organisations and in Committee — that SROs may sometimes act in a capricious or negligent way, possibly in the interests of the firms for which individual members of SROs work, rather than in the interests of the public or the market as a whole.

9.45 pm

I am well persuaded, as I believe my hon. and learned Friend the Minister was, that the practical reality is that. SROs will be blockaded or rendered impotent by the threat of suits or damages of an order substantially greater than the hon. Member for St. Helens, South (Mr. Bermingham) imagines. [Interruption] I am making a point and I am open to challenge.

The resources available to the legal departments of some investment banks, which will be both members of ISRO and investors on the international securities market, not only are prodigious but will be deployed, as the investment banks have said, because when acting on behalf of various substantial investment interests one may be culpable if one does not fling bricks in every direction and overstate the damages that can be claimed. If the hon. Gentleman honestly believes that that will not happen, he should consider what has happened in the United States, where the volume and size of writs has been enormous.

Mr. Bermingham

Does the hon. Gentleman not agree that to say that companies will use inflated writ procedure by in-house lawyers brings upon them the disgraceful allegation that they would do so and upon the judicial system the equally disgraceful allegation that it would tolerate such conduct in the English courts?

Mr. Nelson

Of course companies would, and the courts would have to tolerate it. It happens in the United States. The sums involved are enormous compared with the cost of taking a case to court, which may be substantial in absolute terms but which is nothing when one considers the turnover of some individual investment houses which is now over ․1 trillion.

Mr. Budgen

My hon. Friend should also mention contingency fees, which make a difference between here and New York.

Mr. Nelson

I recognise that., and I concede the point to the extent that there are different practices and attitudes in this market. But let us not underestimate the extent to which these suits will be brought.

I was well persuaded by the chairmen of the SROs, members of SRO steering committees and individual member firms that they will not get lay or professional members on those SROs. Ian Steer of ISRO, to whom I have spoken, Charles McVeigh, a member of the standing committee, and Salomon Brothers International, all of whom are involved in establishing and running this organisation and are investors and self-regulators in the market, say that there is no way that they will put themselves forward and have the opportunity cost of highly paid executives' time to make themselves vulnerable to the sort of law suits which they believe will undoubtedly be brought, if this sort of immunity is not extended.

For those reasons, my hon. and learned Friend was absolutely right. Although, with the benefit of hindsight, the announcement could have been made more sensitively, the judgment is correct and deserves support.

Regarding professional bodies, it is important that we draw a differentiation between incidental business and mainstream business. The arguments would be different if recognised professional bodies were to preside over member firms whose investment activities extended well beyond the sort of incidental business for which they will be authorised. Where they engage in such business, it will have to be authorised, and where they are authorised, they will be a member of an SRO in the usual course of events. For all these reasons, my hon. and learned Friend deserves far greater support than many have so far given him.

Mr. Campbell-Savours

In Committee I took a great interest in the subject of immunity, and the Minister has been wise to pursue the course that he has adopted. However, he would do well to note the comments of my hon. Friend the Member for Dagenham (Mr. Gould). At the beginning of the debate I said that I had an open mind on this matter.

Mr. Ashdown

Oh, yes?

Mr. Campbell-Savours

I am being objective in the way that the Liberals tell the public they are always objective. It is a pity that they cannot apply their objectivity in the Chamber, where people such as I do so. I have been thoroughly objective. In Committee it was remarkable that at every stage of our 22 sittings we sought a balanced judgment. We have so many amendments because we went about our business in an objective way.

Mr. Ashdown

Will the hon. Gentleman give way?

Mr. Campbell-Savours

I want to watch a football match at 11 o'clock, and I intend to do so, so I shall proceed with the important business.

My hon. Friend the Member for Dagenham was right in his comments on the need for a special look at the position of investors and that one has to weigh up these matters carefully and have a balanced judgment about them. As I understand it, he was saying that if, through concern about the power of multinational corporations and large investors, we end up by applying a system that does not fully protect the small investors, we question the whole principle of the self-regulatory organisation. 11' we do that, we do great damage to the principle of self-regulation.

As far as I can see, the only way around this is to pursue the proposition put forward by the hon. Member for Beaconsfield (Mr. Smith), who also was most reasonable. He suggested that there would be a case to answer and asked whether we could find some way of drawing a distinction between the large and the small investors. Over the next few weeks the Minister might examine these matters and, before the Bill is dealt with in the other place, produce a solution. I do not know what it might be, but it could be some form of ceiling on immunity. We must find a way round this problem. It would be wrong to be so near to perfection, but yet slightly undermine a system that would work.

Mr. Cash

I am extremely disappointed with these provisions. In Committee I spoke about fit and proper persons and asked whether the Bill, which is leading up to the big bang, would lead either to a galaxy or a black hole. That has much to do with the manner in which the SROs operate. The new clause will go through. I am sure that if there is a Division it will go in the direction that the Government want, but that does not detract from my main point. The immunity that is to be extended to the SROs in these circumstances will lead to a serious situation, as the Granny Smiths of this world will learn to their cost in due course.

Having said that, there is a broader issue that must be addressed — whether the self-regulatory organisations would be prepared to operate. It is clear on the balance of the argument that they are not prepared to operate unless this provision is put through. It is more important that the Bill should succeed. I have expressed the warning, and I stand by it. I hope that the Government will use the powers in new clause 6 to rectify the matter in due course if things go wrong.

Mr. Howard

I agree so much with the eloquent remarks of my hon. Friend the Member for Chichester (Mr. Nelson) that I can be brief in replying to the debate.

Perhaps the most remarkable feature of the debate has been the eagerness of Opposition Members, led by the hon. Member for Dagenham (Mr. Gould), who was joined somewhat eccentrically by the hon. Member for Yeovil (Mr. Ashdown), to take credit for the change of mind that I had in response to the arguments that they put forward in Committee. I have fully explained that change of mind.

Mr. Gould

I am delighted to take credit, not only for the conversion of the Minister, but for the conversion of every Conservative Member on the Standing Committee who voted on the issue when we pressed on the Minister the matter of immunity for self-regulating organisations. We marvel, not only at the scope of that conversion in terms of the numbers of Government Members, but at the area which the conversion covers. The Minister is so enthusiastic in support of the arguments that we advanced that he is now taking the matter beyond the bounds of what is reasonable.

Mr. Howard

The hon. Member for Dagenham should not be surprised at the fact that when the Government undertake to rethink matters we do so in a thorough way. Having done that, we follow our thoughts through to their logical conclusion.

My hon. Friend the Member for Wolverhampton, South-West (Mr. Budgen) had the courtesy to tell me today that he was not in favour of the proposals contained in the new clause. I knew that he would put forward the views that I expressed in Committee with a great deal more pungency than I could ever hope to aspire to. I have admired the intellectual honesty of my hon. Friend for over a quarter of a century, and I hope that he will continue to reflect upon these matters in the same way as I have reflected upon them, and that in due course he will see the force of the arguments that I have presented to the House. I am sure that when that moment arrives he will put forward those views with the same pungency as he expressed his views in this debate.

Some hon. Members have spoken about the relatively small investor. It is perhaps characteristic of the changed positions that we have adopted in the course of the debate that Aunt Agatha, who was such a faithful companion in the Standing Committee, has been transformed into Granny Smith for the purposes of this discussion.

The small investor will be protected. The investor will still be able to pursue investment businesses and will have the advantage of the compensation arrangements that will be made available if those investment businesses, for some reason, are not able to meet claims for compensation.

As I say, the small investor will be protected, and that is important. Such protection is at the heart of these matters, and I attach great importance to it. That has a lot to do with the reason why, after giving a great deal of thought to the possibility of a distinction, which was put forward by my hon. Friend the Member for Beaconsfield (Mr. Smith), between professional investors and small scale investors, I came to the conclusion that it would be extraordinarily difficult to arrive at such a distinction, because of the difficulties of defining a professional investor in that context. It is also unnecessary to do so, because of the protection which in any case exists for the benefit of the small investor.

I have already advanced my argument about the professional investor. The right hon. Member for Glasgow, Govan (Mr. Milian) was right to stress the importance of the definition of incidental investors. That definition will, of course, be a matter for the professional bodies themselves. It will be in their power to limit the kind of investment which their members will be allowed to undertake and which they think they will be able to regulate effectively without the benefit of immunity.

The hon. Member for Dagenham was right when he said that the path we have chosen is difficult. There are no easy decisions in this area. However, he was wrong to suggest that we were in any way sacrificing investor protection. It is because we wish to ensure that that protection is effective that I commend the new clause to the House.

Question put and agreed to.

Clause read a Second time.

Amendment proposed to the new clause: (b), in subsection (1), after 'damages', insert 'at the suit of any member of the self-regulating organisation or of any person, whether authorised or not, whom the organisation is authorised by this Act to investigate or supervise'.—[Mr. Gould.]

Question put, That the amendment be made:—

The House divided: Ayes 111, Noes 202.

Division No. 220]	[10 pm
AYES
Adams, Allen (Paisley N)	Bell, Stuart
Alton, David	Benn, Rt Hon Tony
Archer, Rt Hon Peter	Bennett, A. (Dent'n & Red'sh)
Ashdown, Paddy	Bermingham, Gerald
Ashton, Joe	Bidwell, Sydney
Atkinson, N. (Tottenham)	Brown, N. (N'c'tle-u-Tyne E)
Banks, Tony (Newham NW)	Bruce, Malcolm
Barron, Kevin	Callaghan, Jim (Heyw'd & M)
Beckett, Mrs Margaret	Campbell, Ian

Campbell-Savours, Dale	Maclennan, Robert
Carter-Jones, Lewis	McNamara, Kevin
Clark, Dr David (S Shields)	McWilliam, John
Clarke, Thomas	Madden, Max
Clay, Robert	Mason, Rt Hon Roy
Clelland, David Gordon	Maxton, John
Cocks, Rt Hon M. (Bristol S)	Maynard, Miss Joan
Cohen, Harry	Meacher, Michael
Coleman, Donald	Mikardo, Ian
Cook, Robin F. (Livingston)	Millan, Rt Hon Bruce
Cox, Thomas (Tooting)	Miller, Dr M. S. (E Kilbride)
Craigen, J. M.	Mitchell, Austin (G't Grimsby)
Crowther, Stan	Morris, Rt Hon J. (Aberavon)
Dalyell, Tam	Nellist, David
Davies, Ronald (Caerphilly)	Parry, Robert
Davis, Terry (B'ham, H'ge H'l)	Patchett, Terry
Dewar, Donald	Pavitt, Laurie
Dixon, Donald	Pendry, Tom
Dormand, Jack	Penhaligon, David
Douglas, Dick	Pike, Peter
Eastham, Ken	Powell, Raymond (Ogmore)
Field, Frank (Birkenhead)	Prescott, John
Fields, T. (L'pool Broad Gn)	Randall, Stuart
Flannery, Martin	Redmond, Martin
Forrester, John	Robinson, G. (Coventry NW)
Foster, Derek	Rogers, Allan
Foulkes, George	Ross, Stephen (Isle of Wight)
Freud, Clement	Rowlands, Ted
George, Bruce	Shields, Mrs Elizabeth
Godman, Dr Norman	Silkin, Rt Hon J.
Gould, Bryan	Skinner, Dennis
Hardy, Peter	Smith, Rt Hon J. (M'ds E)
Harrison, Rt Hon Walter	Snape, Peter
Haynes, Frank	Spearing, Nigel
Hogg, N. (C'nauld & Kilsyth)	Steel, Rt Hon David
Holland, Stuart (Vauxhall)	Thompson, J. (Wansbeck)
Home Robertson, John	Thorne, Stan (Preston)
Howells, Geraint	Wallace, James
Hughes, Simon (Southwark)	Wardell, Gareth (Gower)
John, Brynmor	Welsh, Michael
Jones, Barry (Alyn & Deeside)	Wigley, Dafydd
Kaufman, Rt Hon Gerald	Wilson, Gordon
Kirkwood, Archy	Winnick, David
Lambie, David	Woodall, Alec
Leadbitter, Ted
Lewis, Terence (Worsley)	Tellers for the Ayes:
Livsey, Richard	Mr. James Hamilton and
McGuire, Michael	Mr. Mark Fisher.
McKay, Allen (Penistone)

NOES
Alexander, Richard	Brown, M. (Brigg & Cl'thpes)
Amess, David	Browne, John
Ancram, Michael	Bruinvels, Peter
Arnold, Tom	Bulmer, Esmond
Ashby, David	Burt, Alistair
Aspinwall, Jack	Butcher, John
Atkinson, David (B'm'th E)	Butterfill, John
Baker, Nicholas (Dorset N)	Carlisle, John (Luton N)
Baldry, Tony	Carlisle, Kenneth (Lincoln)
Banks, Robert (Harrogate)	Carlisle, Rt Hon M. (W'ton S)
Batiste, Spencer	Carttiss, Michael
Beaumont-Dark, Anthony	Cash, William
Bellingham, Henry	Chapman, Sydney
Bendall, Vivian	Chope, Christopher
Benyon, William	Clark, Dr Michael (Rochford)
Best, Keith	Clark, Sir W. (Croydon S)
Bevan, David Gilroy	Clarke, Rt Hon K. (Rushcliffe)
Biffen, Rt Hon John	Clegg, Sir Walter
Biggs-Davison, Sir John	Colvin, Michael
Blackburn, John	Conway, Derek
Boscawen, Hon Robert	Coombs, Simon
Bottomley, Peter	Cope, John
Bottomley, Mrs Virginia	Cormack, Patrick
Bowden, A. (Brighton K'to'n)	Corrie, John
Braine, Rt Hon Sir Bernard	Couchman, James
Brandon-Bravo, Martin	Crouch, David
Bright, Graham	Dicks, Terry
Brinton, Tim	Douglas-Hamilton, Lord J.
Brittan, Rt Hon Leon	Dover, Den

Dunn, Robert	Monro, Sir Hector
Evennett, David	Montgomery, Sir Fergus
Eyre, Sir Reginald	Morris, M. (N'hampton S)
Fallon, Michael	Moynihan, Hon C.
Farr, Sir John	Murphy, Christopher
Favell, Anthony	Nelson, Anthony
Fenner, Mrs Peggy	Newton, Tony
Fletcher, Alexander	Nicholls, Patrick
Fookes, Miss Janet	Norris, Steven
Forman, Nigel	Oppenheim, Phillip
Forsyth, Michael (Stirling)	Osborn, Sir John
Forth, Eric	Parkinson, Rt Hon Cecil
Fox, Marcus	Pawsey, James
Gale, Roger	Pollock, Alexander
Gardiner, George (Reigate)	Powell, William (Corby)
Garel-Jones, Tristan	Powley, John
Glyn, Dr Alan	Prentice, Rt Hon Reg
Goodhart, Sir Philip	Price, Sir David
Gow, Ian	Proctor, K. Harvey
Gower, Sir Raymond	Raffan, Keith
Gregory, Conal	Rathbone, Tim
Griffiths, Sir Eldon	Rhys Williams, Sir Brandon
Ground, Patrick	Ridsdale, Sir Julian
Grylls, Michael	Roe, Mrs Marion
Hamilton, Hon A. (Epsom)	Rossi, Sir Hugh
Hamilton, Neil (Tatton)	Rowe, Andrew
Hampson, Dr Keith	Ryder, Richard
Hargreaves, Kenneth	Sackville, Hon Thomas
Harris, David	Shelton, William (Streatham)
Hawksley, Warren	Shepherd, Colin (Hereford)
Hayward, Robert	Shersby, Michael
Heddle, John	Silvester, Fred
Hind, Kenneth	Smith, Sir Dudley (Warwick)
Hirst, Michael	Smith, Tim (Beaconsfield)
Hogg, Hon Douglas (Gr'th'm)	Soames, Hon Nicholas
Holland, Sir Philip (Gedling)	Spencer, Derek
Hordern, Sir Peter	Spicer, Jim (Dorset W)
Howard, Michael	Stanbrook; Ivor
Hunter, Andrew	Steen, Anthony
Jones, Gwilym (Cardiff N)	Stern, Michael
Jones, Robert (Herts W)	Stevens, Lewis (Nuneaton)
Kershaw, Sir Anthony	Stewart, Allan (Eastwood)
Knight, Greg (Derby N)	Stewart, Andrew (Sherwood)
Lamont, Norman	Stradling Thomas, Sir John
Lawrence, Ivan	Taylor, John (Solihull)
Lee, John (Pendle)	Tebbit, Rt Hon Norman
Leigh, Edward (Gainsbor'gh)	Temple-Morris, Peter
Lennox-Boyd, Hon Mark	Terlezki, Stefan
Lightbown, David	Thomas, Rt Hon Peter
Lilley, Peter	Thompson, Donald (Calder V)
Lord, Michael	Thorne, Neil (Ilford S)
McCrindle, Robert	Thornton, Malcolm
McCurley, Mrs Anna	Thurnham, Peter
MacKay, Andrew (Berkshire)	Townend, John (Bridlington)
MacKay, John (Argyll & Bute)	Wakeham, Rt Hon John
Maclean, David John	Walker, Bill (T'side N)
McLoughlin, Patrick	Waller, Gary
McNair-Wilson, M. (N'bury)	Ward, John
Major, John	Wardle, C. (Bexhill)
Malins, Humfrey	Watts, John
Malone, Gerald	Wells, Bowen (Hertford)
Maples, John	Wells, Sir John (Maidstone)
Marland, Paul	Whitfield, John
Marlow, Antony	Wilkinson, John
Marshall, Michael (Arundel)	Winterton, Mrs Ann
Mates, Michael	Wolfson, Mark
Mather, Carol	Wood, Timothy
Maude, Hon Francis	Woodcock, Michael
Mayhew, Sir Patrick	Young, Sir George (Acton)
Merchant, Piers
Meyer, Sir Anthony	Tellers for the Noes:
Miscampbell, Norman	Mr. Tony Durant and
Mitchell, David (Hants NW)	Mr. Peter Lloyd.
Moate, Roger

Question accordingly negatived.

Clause added to the Bill.