- (a) an offence involving fraud or other dishonesty; or
- (b) an offence under legislation (whether or not of the United Kingdom) relating to companies (including insider dealing), building societies, industrial and provident societies, credit unions, friendly societies, insurance, banking or other financial services, insolvency, consumer credit or consumer protection.
§ (2) Nothing in section 4(1) (restriction on evidence as to spent convictions in proceedings) shall prevent the determination in any proceedings specified in Part I of Schedule (Restriction of Rehabilitation of Offenders Act 1974) to this Act of any issue, or prevent the admission or requirement in any such proceedings of any evidence, relating to a person's previous convictions for any such offence as is mentioned in subsection (1) above or to circumstances ancillary thereto.
§ (3) A conviction for any such offence as is mentioned in subsection (1) above shall not be regarded as spent for the purposes of section 4(2) (questions relating to an individual's previous convictions) if—
- (a) the question is put by or on behalf of a person specified in the first column of Part II of that Schedule and relates to an individual (whether or not the person questioned) specified in relation to the person putting the question in the second column of that Part; and
- (b) the person questioned is informed when the question is put that by virtue of this section convictions for any such offence are to be disclosed.
§ (4) Section 4(3)(b) (spent conviction not to be ground for excluding person from office, occupation etc.) shall not prevent a person specified in the first column of Part III of that Schedule from taking such action as is specified in relation to that person in the second column of that Part by reason, or partly by reason, of a spent conviction for any such offence as is mentioned in subsection (1) above of an individual who is—
- (a) the person in respect of whom the action is taken;
- (b) as respects action within paragraph 1 or 4 of that Part, an associate of that person; or
- (c) as respects action within paragraph 1 of that Part consisting of a decision to refuse or revoke an order declaring a collective investment scheme to be an authorised unit trust scheme or a recognised scheme, the operator or trustee of the scheme or an associate of his,
§ (5) Parts I, II and III of that Schedule shall have effect subject to Part IV.
§ (6) In this section and that Schedule "associate" means—
- (a) in relation to a body corporate, a director, manager or controller;
- (b) in relation to a partnership, a partner or manager;
- (c) in relation to a registered friendly society, a trustee, manager of member of the committee of the society;
- (d) in relation to an unincorporated association, a member of its governing body or an officer, manager or controller;
- (e) in relation to an individual, a manager.
§ (7) This section and that Schedule shall apply to Northern Ireland with the substitution for the references to the said Act of 1974 and section 4(1), (2) and (3)(b) of that Act of references to the Rehabilitation of Offenders (Northern Ireland) Order 1978 and Article 5(1), (2) and (3)(b) of that Order.'.—[Mr. Howard.]390
§ point completely. If it is necessary to provide greater clarity, I shall ensure that any necessary amendments are brought forward in another place.
§ I have to disappoint the hon. Member for Dagenham (Mr. Gould), although I suspect that that will come as no great surprise to him. The purpose of the new clause is to facilitate the giving of certain assistance by employers in order to encourage share schemes for their employees and to enable them to spend money if they so wish in a manner in relation to which there is a certain amount of doubt in the present law. That does not begin to constitute a justification for the imposition of additional and unwanted burdens by way of expenses, which led me to oppose the hon. Gentleman's amendment in Committee, which was then the subject of considerable debate.
§ I fear that the new clause will not give the hon. Member for Dagenham much comfort, but I hope that it commends itself to the House.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.391
§ Brought up, and read the First time.
§ Mr. Deputy Speaker
With this, it will be convenient to discuss the following: amendment (a) to the new clause, in subsection 6(e) at end insert'or employee who has contact with clients or prospective clients with a view to obtaining or soliciting orders on behalf of the investment business, advises clients or commits the investment business, for transactions in investments covered by Schedule 1, paragraphs 1, 2, 3, 4, 5, 7 or 8.'.Government amendments Nos. 232 and 273.
§ Mr. Howard
A few moments ago I omitted to say, on behalf of my right hon. Friend the Secretary of State, how grateful I was for the condolences offered by the hon. Member for Dagenham (Mr. Gould). I am sure that all my right hon. and hon. Friends will wish to associate themselves with them.
In Committee, I undertook to bring before the House a partial disapplication of the Rehabilitation of Offenders Act. The clause and its related schedule fulfil that undertaking. The complexity and length of the provision indicate the care with which we have focused the disapplication. We have sought to ensure that relevant convictions will be disclosed and that the provisions of the Rehabilitation of Offenders Act will not prevent information about them from being used in appropriate cases when they call into question the fitness and properness of a person to carry on investment business.
But I have been equally mindful of Parliament's intentions in passing the Rehabilitation of Offenders Act and have sought to limit the disapplication, so as not unacceptably to undermine previous legislation passed by the House which significantly affects the rights of individual citizens. I have restricted the provision so that it concerns only individuals in certain senior positions, and then only in relation to certain offences.
The clause will affect sole traders, partners and those who hold or are to be appointed to senior positions in authorised businesses, or businesses which are applying for authorisation: the positions covered, broadly speaking, are those of director, manager or controller in a company, with appropriate modification for partnerships and unincorporated associations. I propose to follow broadly the definition of manager given in the Banking Act and have tabled an amendment to clause 163 to that effect. The House will see that, under this definition, only those near the top of the hierarchy of a business will be deemed to be managers. Persons holding the same position in companies which have, or apply for, official listing will be affected in the same way: so the new clause will replace clause 130 in the present text of the Bill which provides a less focused disapplication of the Rehabilitation of Offenders Act.
The limiting of a disapplication to those persons who hold these senior positions follows the precedent of the Banking Act. The disclosure of spent convictions by less senior employees of an authorised business would both deprive a large number of people of their rights under the Rehabilitation of Offenders Act and should anyway be unnecessary as their activities will he properly supervised by the management and directors of the authorised business.
392 Those who will be able to put questions about spent convictions include regulators, be they the Secretary of State, a designated agency, a self-regulating organisation or recognised professional body, the competent authority for listing and a business which is authorised or an applicant for authorisation or official listing.
One novel feature of this provision is that only certain types of spent convictions will need to be disclosed or may be taken into account when determining an application. These are convictions relating to fraud or dishonesty and to offences under specified legislation of a type related to financial services — banking, credit, building societies and so on. It is spent convictions of this nature which may materially affect judgments about an individual's suitability to be in charge of an investment business. Other offences which are of less relevance to the financial services sector will be outside the scope of this clause and the usual provisions of the Rehabilitation of Offenders Act will apply.
Information about relevant spent convictions may be used in determining whether authorisation should be granted, a power of intervention used or employment of a particular individual prohibited. The competent authority may use such information to refuse an application for listing.
I should remind the House that the 1974 Act contains its own built-in safeguards. Convictions do not become spent until substantial prescribed periods have elapsed. Where a conviction results in a custodial sentence in excess of 30 months, it never becomes spent, nor will any other convictions be subsequently incurred. The Act also provides that in any proceedings before a judicial authority evidence relating to spent convictions may be admitted and required if the authority is satisfied that justice cannot otherwise be done. The Act definesproceedings before a judicial authoritywidely, and proceedings concerning authorisation or admission to listing would be covered. So convictions not covered by the specific disapplication which is the object of the current clause will still be able to be taken into account in appropriate circumstances.
I believe, therefore, that the new clause provides the right balance between the need to protect investors by ensuring that responsible authorities are fully aware of the relevant previous convictions of applicants and can take them into account, and the need to maintain important rights granted by Parliament under other legislation.
The amendment tabled by my hon. Friend the Member for Beaconsfield (Mr. Smith) raises a matter which I know to be of concern to the stock exchange. Current estimates suggest that several thousand, perhaps over 5,000, employees of stock exchange member firms will be registered traders and representatives and thus would be caught by the amendment. Many more employees of other investment businesses in similar lines of investment business but not employed by stock exchange firms will also be caught, because the text of the amendment is not confined to the stock exchange.
The amendment would substantially increase the number of those who would be deprived of their rights, given to them by Parliament, through the provisions of the Rehabilitation of Offenders Act. Such a wide-ranging disapplication runs counter to the intentions of the 1974 Act.
Those carrying on the activities described in the amendment will be employees of an authorised business. 393 They will be subject to the managerial controls of that business and should be properly supervised. There are also safeguards in the Rehabilitation of Offenders Act itself, to which I have just referred.
Whenever one draws a dividing line, one runs the risk of being told that it should have been drawn elsewhere, but I believe that the proposals in the new clause strike the right balance. This amendment would tip that balance too far and deprive too many individuals of their rights under the Rehabilitation of Offenders Act.
§ Mr. Gould
The Minister was right to remind the House that we debated this matter in Committee. Our short debate then showed clearly that the problem facing the Minister, which he has explained to us again this evening, was to balance two conflicting principles.
The first was the protection and rehabilitation of those who had committed offences. Indeed, that was very much the purpose that Parliament had in mind in passing the 1974 Act. In our debate, that point was stressed by the hon. Member for Chichester (Mr. Nelson). But running counter to that was the importance, in the interest of protecting investors, of making available to the regulatory authorities all the relevant information about those who were authorised. There is inescapably implicit in the notion of authorisation some form of statement by public or quasi-public authorities that the authorised persons have in a sense passed some test or have a clean bill of health. That makes the conflict between the Act's original intention and our quite proper concern for effective investor protection quite difficult to resolve.
The Minister has done an excellent job of drafting the new clause and the schedule. By limiting the class of offence to which the disapplication applies to crimes of dishonesty in relation to financial matters, by limiting the disapplication to procedures essentially created, or provided, by the Bill, and by fairly accurately defining the sorts of relationships between those entitled to ask the questions and those obliged to answer them, the Minister has properly limited the extent of the disapplication. As a consequence, the Minister has struck the right balance in what is clearly a difficult matter.
§ Mr. Tim Smith (Beaconsfield)
The debate in Standing Committee underlined the fact that there is a conflict of principles. It is a question of balance and of judgment as to where one draws the line. When it comes down to it, I am more interested in protecting the investor than I am in protecting the former crook. One would not know from the debate that that is not a novel restriction. Immediately after the Rehabilitation of Offenders Act was passed, the Government introduced an exception order in 1975 containing exceptions for dealers in securities, insurance companies and authorised unit trusts.
The proposal in the new clause is not unprecedented. In one sense, it is narrower than the existing exceptions, and in another sense it is wider. The proposal is wider because it extends to all the investment business which is covered by the Bill, but narrower because the existing exceptions cover dealers in securities who are not necessarily principals in their firms.
The new clause extends only to directors, managers, partners and their equivalents. Those who will be in the front line dealing with investors may be partners, directors and managers, but often they will be employees. That will be the case in stockbroking firms, which is why the stock 394 exchange has suggested this amendment. This will also be the case with life assurance salesmen. The stock exchange suggested the amendment because it is worried about the ambit of the new clause and because it believes that the parallel with the Banking Act 1979 is not realistic as the two businesses are different.
The stock exchange says about the Banking Act:This Act does not have the same aims as the Financial Services Bill, and deals with an area of business which is quite different from the securities industry. Banking and stockbroking are still quite different and it is very unusual for the employee of a bank to give advice to a member of the public or solicit business on a regular, day-to-day basis without referring to his superiors in the way that the employee of a stockbroking firm does.The employee of a stockbroking firm gives advice to the public without referring to his superiors because he must take decisions quickly. There is no time to refer to a superior about investment advice when prices change regularly. He must make decisions at his discretion and off his own bat.
The stock exchange has a fair point. We should be a little worried about the lack of application of the new clause to life assurance salesmen who will be knocking on doors selling life policies. The Government have decided that there will be no register of life assurance salesmen, but a blacklist. If such information was available, we could. compile a blacklist.
§ Mr. Anthony Nelson (Chichester)
It is important in the context of debating the new clause to remember the atmosphere in which the Rehabilitation of Offenders Act 1974 was introduced. Hon. Members who were in the House at that time will recall that there was much debate in Standing Committee and in the House to try to ensure that the extent of the restrictions was limited and that the ambit of that legislation was cast sufficiently wide to ensure that those who had spent convictions and had paid their debts to society could, in certain circumstances, start again and make new lives for themselves.
As hon. Members on the Standing Committee will know, I believe that that was a worthy objective and one that we should be circumspect about limiting. We must be clear about the ambit of restriction that we will provide in the new clause. Having said that, I pay tribute to my hon. and learned Friend the Parliamentary Under-Secretary of State, who, in drafting the new clause, took account of the opinions on both sides of the Standing Committee about the matter. Although I may not lean to the same side of the balance as my hon. Friend the Member for Beaconsfield (Mr. Smith), I believe that the Minister has struck a reasonable balance between the two conflicting objectives of the Bill and the previous legislation to try to restore and revitalise the opportunities to rehabilitate offenders.
Before we pass such a new clause, it is important to ask ourselves two questions. First, why are we seeking a restriction with regard to this form of activity? It might be argued in the context of other consumer legislation or other departmental legislation that there were similar grounds for restrictions in other parts of the 1974 Act. I would not wish the passage of the new clause to be considered as something to be built upon in other legislation, in terms of limiting the ambit or reducing the protection to rehabilitated offenders, provided under the 1974 Act. That must be seen as exceptional in the context of new legislation and not something to be extended or repeated elsewhere.
395 Secondly, it is reasonable to ask whether the rationale behind the new clause is that there is clear evidence that the rate of recidivism among those who have been convicted of fraudulent or other dishonest offences is significantly higher than in other areas. As my hon. and learned Friend the Minister said, the 1974 legislation applies to some and not all spent convictions. One would need to be satisfied in those areas where it applies that there was a danger to the public and that if the new clause was not passed the public would be at greater risk.
I ask my hon. and learned Friend the Minister how it will be apparent to individuals applying for authorisation to carry on a business that they will need to disclose such a spent conviction. Many people who have spent convictions under the Rehabilitation of Offenders Act, and are acutely aware of the provisions of that legislation, may be under the erroneous impression, despite the passage of the new clause, that they need not answer a question put to them by the regulatory authority or anyone else about whether they have had a past conviction. Such a question should be put by the authorising or regulatory authority only when it is seeking to give them authorisation to carry on a business. It must be made clear at that time that they are not covered, as they thought they were, by the terms of the 1974 Act. Otherwise, for genuine reasons, many people might unwittingly transgress the new legislation thinking that they are protected by the provisions of the 1974 Act.
I also ask my hon. and learned Friend whether the disclosure of a spent conviction for the purposes of the legislation necessarily means that the supervisory authority will not grant authorisation to that sole trader or business. It is exceedingly difficult to ask either the Secretary of State or the designated agency to say in some cases, "Although you have declared a past conviction, we nevertheless believe that it was not sufficiently serious or not so relevant to the business for which you are seeking authorisation that we must refuse your application."
In some cases, a sole trader setting up an investment business with such a spent conviction may have reasonable grounds for being allowed to proceed with such a business and it should not mean automatic disqualification. If it implies automatic disqualification, there will be a further disincentive on the individual to come clean about that.
Many of those points have been covered to some extent in the drafting of the new clause, and I commend it, as other hon. Members have, to the House. I refer to a representation made to me, which does not agree with my view but which refers to the amendment moved by my hon. Friend the Member for Beaconsfield. Today, I received a letter from the chairman of the Securities and Investments Board, which states:We believe that as presently worded the clause is too narrow in its scope since it would permit the non-disclosure of convictions by employees (and prospective employees) of authorised businesses, some of whom might be placed in positions of great trust and responsibility; and also by anyone seeking exempt (or appointed) representative status under Clause 41. There is obviously a difficult balance to be struck here between the interests of investors on the one hand and the underlying aims of the Rehabilitation of Offenders Act on the other, but we still feel that rather more weight should be given to the former, as was done in relation to securities businesses in the Rehabilitation of Offenders Act 1974 (Exceptions) Order 1975.396 For reasons that I have already adduced, I do not go along with that representation, but in all fairness it should be put before the House tonight.
§ 8 pm
§ Mr. D. N. Campbell-Savours (Workington)
I do not want to prolong the debate, but I want to ask a question, although it does not specifically relate to the matters that we are dealing with under the Bill so far as we are not dealing with Lloyd's. Will the Minister explain whether the disclosure arrangements which would exist under the Bill, subject to the Rehabilitation of Offenders Act 1974, have their parallel under the Lloyd's Act 1982? Are managing agents and operating officers within syndicates of Lloyd's required to comply with a similar provision? If not, to what extent is investor protection as adequately covered as it appears that it will be if the new clause were to have the approval of the House?
§ Mr. John Butterfill (Bournemouth, West)
I rise briefly merely to say that I obviously respect the views put forward by my hon. Friend the Member for Chichester (Mr. Nelson) whose personal commitment and that of his family to the rehabilitation of offenders is well known to hon. Members. Nevertheless, I feel, rather as does my hon. Friend the Member for Beaconsfield (Mr. Smith), that if we are to strike a balance, in these particular circumstances we must err on the side of caution since the people about whom we are talking will be dealing with other people's money, usually the money of relatively small investors and usually money which is on an extremely large scale for those investors. Therefore. I tend to agree with Sir Kenneth Berrill that we should err even more on the side of caution than my hon. and learned Friend the Minister suggests in the new clause.
§ Mr. Howard
First, I thank the hon. Member for Dagenham (Mr. Gould), whose endorsement of the new clause was rather more enthusiastic than that of my hon. Friends. I am grateful too for the endorsement, however qualified, of my hon. Friend the Member for Chichester (Mr. Nelson) and I shall endeavour to respond to his three specific questions. First. I regret that I am not in a position to give him any of the statistics on recidivism which would assist him in formulating his position on the new clause. I doubt whether they are available, but whether they are or are not they are certainly not available to me this evening.
My hon. Friend's second question was whether someone would know that the 1974 Act was disapplied and that he was obliged to answer the questions being put to him. I think that my hon. Friend will find that that matter is specifically and expressly covered in paragraph 3(b) of the new clause, which provides that the person questioned has to be informed when the question is put that by virtue of the section convictions for any such offence are to be disclosed. I think that that covers my hon. Friend's point.
Thirdly, my hon. Friend asked whether the disclosure of such a conviction would amount to an automatic disqualification rather than simply something to be taken into account in assessing whether the applicant should be employed or authorised. There would be no question of automatic disqualification. The conviction would be a matter to be taken into account together with the rest of 397 the record of antecedents and character of the person concerned. I hope that that satisfies my hon. Friend on those three questions.
Of course, I understand the concern which my hon. Friend drew to the the attention of the House, which has been put forward by the Securities and Investments Board and which was commended to the House by my hon. Friends the Members for Beaconsfield (Mr. Smith) and for Bournemouth, West (Mr. Butterfill). As I think everyone recognises, this is a difficult balance to strike. Clearly, it is not the sort of balance on which it is possible to please everyone. Had I pleased my hon. Friends the Members for Beaconsfield and for Bournemouth, West, I should not have pleased my hon. Friend the Member for Chichester, nor indeed the hon. Member for Dagenham. We have attempted to strike the best balance in our judgment. It is perhaps easier for the stock exchange or, indeed, the Securities and Investments Board, which tend, perfectly understandably, and properly from their point of view, to look at a question such as this from a particular point of view and to see only one side of the question or to see one side of the question in a much more immediate perspective than the other side.
We in this House have a duty to make a much more balanced judgment. It is incumbent upon us to take into account the policy considerations that led to the passing of the Rehabilitation of Offenders Act and to give them full weight in any judgment that we make. It is for that reason that I suggest that the proper balance is that which is represented by the new clause which I commend to the House.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.