HC Deb 12 June 1986 vol 99 cc525-30

'(1) If any person —

  1. (a) refuses to comply with any request under subsection (3) of section 147 above; or
  2. (b) refuses to answer any question put to him by the inspectors appointed under that section with respect to any matter relevant for establishing whether or not any suspected contravention has occurred,
the inspectors may certify that fact in writing to the court and the court may inquire into the case.

(2) If, after hearing any witness who may be produced against or on behalf of the alleged offender and any statement which may be offered in defence, the court is satisfied that he did without reasonable excuse refuse to comply with such a request, the court may—

  1. (a) punish him in like manner as if he had been guilty of contempt of the court; or
  2. (b) direct that the Secretary of State may exercise his powers under this section in respect of him;
and the court may give a direction under paragraph (b) above notwithstanding that the offender is not within the jurisdiction of the court if the court is satisfied that he was notified of his right to appear before the court and of the powers available under this section.

(3) Where the court gives a direction under subsection (2) (b) above in respect of an authorised person the Secretary of State may serve a notice on him—

  1. (a) cancelling any authorisation of his to carry on investment business after the expiry of a specified period after the service of the notice;
  2. (b) disqualifying him from becoming authorised to carry on investment business after the expiry of that period;
  3. (c) restricting any authorisation of his in respect of investment business during that period to the Performance of contracts entered into before the notice comes into force;
  4. (d) prohibiting him from entering into transactions of a specified kind or entering into them except in specified circumstances or to a specified extent;
  5. (e) prohibiting him from soliciting business from persons of a specified kind or otherwise than from such persons; or
  6. (f) prohibiting him from carrying on business in a specified manner r otherwise than in a specified manner.

(4) The period specified in such a notice as is mentioned in paragraphs (a) to (c) of subsection (3) above shall be such period as appears to the Secretary of State reasonable to enable the person on whom it is served to complete the performance of the contracts in question and to terminate such of them as are of a continuing nature.

(5) Where the court gives a direction under subsection (2) (b) above in the case of an unauthorised person the Secretary of State may direct that any authorised person who knowingly transacts investment business of a specified kind, or in specified circumstances or to a specified extent, with or on behalf of that unauthorised person shall be treated as having contravened rules made under Chapter V of Part I of this Act or, in the case of a person who is an authorised person by virtue of his membership of a recognised self-regulating organisation or recognised professional body, the rules of that organisation or body.

(6) A person shall not be treated for the purposes of subsection (2) above as having a reasonable excuse for refusing to comply with a request in a case where the contravention or suspected contravention being investigated relates to dealing by him on the instructions or for the account of another person, by reason that at the time of the refusal—

  1. (a) he did not know the identity of that other person; or
  2. (b) he was subject to the law of a country or territory outside the United Kingdom which prohibited him from disclosing information relating to the dealing without the consent of that other person, if he might have btained that consent or obtained exemption from that law.

(7) A notice served on a person under subsection (3) above may be revoked at any time by the Secretary of State by serving a revocation notice on him; and the Secretary of State shall revoke such a notice if it appears to him that he has agreed to comply with the request in question.

(8) The revocation of such a notice as is mentioned in subsection (3)(a) above shall not have the effect of reviving the authorisation cancelled by the notice, except where the person would (apart from the notice) at the time of the revocation be an authorised person by virtue of his membership of a recognised self-regulating organisation or recognised professional body; but nothing in this subsection shall be construed as preventing any person who has been subject to such a notice from again becoming authorised after the revocation of the notice.

(9) If it appears to the Secretary of State—

  1. (a) that a person on whom he serves a notice under subsection (3) above is an authorised person by virtue of an authorisation granted by a designated agency or by virtue of membership of a recognised self-regulating organisation or recognised professional body; or
  2. (b) that a person on whom he serves a revocation notice under subsection (7) above was such an authorised person at the time that the notice which is being revoked was served,
he shall serve a copy of the notice on that agency, organisation or body.

(10) The functions to which section 96 above applies shall include the functions of the Secretary of State under this section but any transfer of those functions shall be subject to a reservation that they are to be exercisable by him concurrently with the designated agency and so as to be exercisable by the agency subject to such conditions or restrictions as the Secretary of State may from time to time impose.'.—[Mr. Howard]

Brought up, and read the First time.

5 pm

Mr. Howard

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

Mr. Deputy Speaker

With this, it will be convenient to take Government amendment No. 245.

Mr. Howard

I undertook to my hon. Friend the Member for Suffolk, South (Mr. Yeo) to consider how to amend the Bill to enable pressure to be applied, within the proper limits of United Kingdom jurisdiction, to dispose offshore intermediaries to co-operate with investigations into suspected insider dealing on United Kingdom markets. This new clause fulfils that undertaking. If an offshore intermediary refuses to co-operate with an inspector, the inspector may refer the matter to the court. If the court is satisfied that there is no reasonable excuse for the refusal, it may direct that the Secretary of State may use his powers.

These powers take two forms, depending on whether or not the intermediary is authorised in this country. If the intermediary is not authorised, the Secretary of State may direct that authorised businesses shall not transact specified kinds of business for it. Thus, its access to United Kingdom markets may be restricted or completely cut off. Contraventions of the direction will be a regulatory offence. If the intermediary is authorised, the Secretary of State may serve a notice applying a range of sanctions from restrictions on its business to de-authorisation.

I should say a few words about "reasonable excuses". Not knowing the identity of a principal will not be regarded as a "reasonable excuse". Nor will the existence of banking secrecy laws if the person might have obtained a waiver. The defence is intentionally drawn narrowly. The limit of the knowledge which it would be reasonable to expect a person to have will be taken into account in exercising the power. But the clause is based on the premise that if an overseas bank could know the identity of the principal behind a transaction on a United Kingdom market, who may have committed a criminal offence, but chooses not to find out, then it is reasonable for that bank to have restrictions imposed on its United Kingdom activities.

Given the importance of this matter, I should add a few words about the way in which we propose to exercise this power. I have already explained that we propose to use it against intermediaries who have participated in transactions which have taken place in our markets without putting themselves in a position where they can give us the necessary assistance to ensure that such transactions are properly policed. Therefore, there is a close connection between our jurisdiction and what we propose to do.

However, it has to be admitted that this clause can be operated so as to attach legal consequences to failure to answer inquiries abroad. Because of this aspect of the matter we propose to exercise this power with great care, moderation and restraint as indeed the Government have always argued should be done in these kind of circumstances. In particular, where arrangements are in place to ensure that the information we need can be obtained by other means through the co-operation of the relevant foreign authorities, we shall always resort to those means. It may be that the clause can be further refined to build in these necessary considerations. This is one of the matters that I shall be considering in this context.

The new clause should prove a worthwhile addition to the powers of the investigators, and I commend it to the House.

Mr. Gould

This is one of those welcome occasions when it is appropriate to congratulate the Minister on his response to an expression of opinion in Committee. It is perhaps foolish to be too sanguine in advance, until we see how the clause works out in practice. We have here a determined and fair response to the Committee's concern.

It may be as well to remind the House just what the Committee was worried about. The Minister rightly referred to the views expressed by the hon. Member for Suffolk, South (Mr. Yeo), in which he was strongly supported by the Labour party. Nothing that has happened since the Committee sat has reduced our concern—indeed, the news from New York heightens it —about the press reports and other evidence that insider dealing, which had been a criminal offence since 1980, had nevertheless continued to grow in scope. It has particularly flourished in the context of major takeover bids. There were reports current when the Committee was sitting of professional advisers to major companies who were parties to bids and using their insider knowledge to set themselves up and provide nominee shareholders and overseas companies, and then traded the shares of the companies to which they were advisers and of which they had insider knowledge.

In Committee, it emerged that the Bill as drafted was inadequate to deal with such problems. The danger that we had to face, and which particularly worried the hon. Member for Suffolk, South, was that, as a consequence of the Committee's deliberations, it had become clear that the range of measures proposed as the Bill then stood was inadequate and that, in a sense, those who were engaged in this practice might be encouraged to believe that they could proceed without fear of any sanction.

The measure contained in the new clause is an earnest of the Government's seriousness of purpose. I wish the provisions of the new clause well, and we shall watch it to see how well it works in practice. I fear that I cannot be absolutely confident that it will plug every loophole or be a total solution, but it is a substantial step forward. It is welcome to see that the Securities and Investments Board has concurrent jurisdiction in this matter, and that goes well in tandem with the other changes brought about in Committee, those giving the power to prosecute and investigate unauthorised persons.

I conclude on the happy note of congratulating the Minister on introducing the new clause.

Mr. William Cash (Stafford)

In respect of recognised professional bodies and the implications of this clause for them, I am hound to draw attention to the fact that the word "accountant" is used, but quite rightly without any definition that would necessarily confine the description to members of the chartered bodies concerned. This also happens in new clause 15. This is a matter of great importance and was considered in the evidence given in the early part of this century — in the 1930s — by the Institute of Chartered Accountants. My great-uncle gave evidence to the House of Commons on this very question. The conclusion was that in the course of the hearing, it had become clear that the word "accountant" by itself was almost meaningless. The description accompanying it was all-important, yet it was impossible to define what was covered by the word "accountancy".

Persons other than those who are members of the chartered bodies—for example, the Society of Company and Commercial Accountants — have a grave concern about the provisions that will apply to them. Therefore, although most of the provisions refer to recognised professional bodies, arrangements will have to be made to ensure that those who are members of other accountancy bodies are not precluded simply because they are not chartered. It will be necessary to return to this matter at a later stage, but I wanted to make the reference in connection with this clause.

Mr. Anthony Nelson (Chichester)

I congratulate my hon. and learned Friend the Minster, on moving the new clause, and I welcome its content. The House owes a debt. of gratitude to my hon. Friend, the Member for Suffolk, South (Mr. Yeo). He cannot be here this afternoon, because he is in the Committee debating the Finance Bill I know that he would want it recorded that he took a close interest in this matter, and introduced the relevant amendment in Committee.

I welcome the extension, provided for in the new clause, of the proposals in the Bill to deal in a tougher fashion with insider dealing, which is a great mischief that is more rife than is currently recognised. It is exceedingly difficult to detect and even more difficult to prosecute and convict for. Recent events, such as those highlighted by the hon. Member for Dagenham (Mr. Gould) in the United States, and, particularly, in the indictment of Mr. Levine, a former senior executive of Drexel Burnham, give one great cause for concern about the way in which offshore mediums are being used to cover up insider dealings.

My hon. and learned Friend the Minister will know that I wrote to him about this matter recently, because it came to my attention that there is a special agreement between the Swiss banks and the Securities and Exchange Commission in the United States with the express intention of trying to release information on suspected cases of insider dealing. That seemed to be of relevance to the United Kingdom in the new financial climate in which we shall be operating.

In Committee, we debated the difficulties of investigating or proving insider dealing where an offshore account or medium is used. Therefore, I drew to the attention of my hon. and learned Friend Agreement 16 between the Swiss Bankers Association and the Swiss banks generally, which was a gentleman's agreement relating to the handling of requests from the Securities and Exchange Commission in the United States for information on insider dealing and share transactions in the United States. There is no legal obligation for customers of a Swiss bank to signify their agreement to this clause, but if they fail to do so, the bank concerned may thereafter refuse to conduct security transactions with America for the client. If the SEC wishes to obtain information, its first recourse is to the police department of Switzerland, which, if it considers that there is prima facie evidence of insider trading, may approach the Swiss bank concerned to seek the disclosure of information under the terms of this agreement. In the last resort it is also possible, by invoking the provisions of this agreement, to freeze the assets of a customer with a Swiss bank account who is suspected of engaging in such activities, which are criminal activities here and in the United States.

We have some provisions under the companies legislation and now in the Financial Services Bill, as amended by this new clause, to limit the extent to which insider dealing will take place and to make investigations in a more incisive way. We shall have to look again at this problem if the incidence of insider trading continues to grow. I understand that the Council of Europe, which includes the Swiss, has made some progress in drawing up a convention which will seek to tackle the problem of insider dealing as part of a false market. I understand that the Government are trying to strengthen their contacts to develop exchanges of information with regulatory authorities overseas.

In his written reply my hon. and learned Friend the Minister was good enough to say that we may well have to look at this again. For the time being he feels that this agreement may be of limited application to us. I hope that in his reply to this short debate on the new clause he will tell us that he will keep an open mind about ways in which at a supranational level we can investigate more incisively and productively than we have done in the past the mediums being used for these pernicious and criminal activities, which are a fraud perpetrated on all investors.

Mr. Howard

I am grateful to the hon. Member for Dagenham (Mr. Gould) and my hon. Friend the Member for Chichester (Mr. Nelson) for the welcome that they have given the new clause. It is an earnest of our intentions to be serious about this pernicious abuse. I can give my hon. Friend the assurance that he seeks and tell him that we shall keep a close watch to see whether anything further that needs to be done can be done. I listened carefully to my hon. Friend the Member for Stafford (Mr. Cash) and I shall consider whether there is anything I can usefully add to what he already knows of my views on this matter.

Question put and agreed to.

Clause read a Second time and added to the Bill.

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