Insider Dealing

HC Deb 17 November 1986 vol 105 cc313-7 3.46 pm

Mr. Robin Cook (Livingston)

(by private notice) asked the Secretary of State for Trade and Industry if he will make a statement on the introduction of his new powers on insider dealing.

The Parliamentary Under-Secretary of State for Trade and Industry (Mr. Michael Howard)

On 14 November my right hon. Friend the Secretary of State made a commencement order bringing into force on 15 November those sections of the Financial Services Act which confer new powers of investigation into insider dealing offences and the related provisions on disclosure of restricted information and powers of entry.

Mr. Cook

The Opposition congratulate the Government on bringing in powers which only two weeks ago the Minister said could not be introduced until next year. Will the Minister now consider earlier implementation of the rest of the Act? Does he agree that in the light of the discovery of abuse of the new structures in the City just a week after they were set up it would be intolerable if the new Securities and Investments Board did not begin enforcing the rules until almost a year from now?

Does the Minister recognise that the case of insider dealing under investigation is an exception only inasmuch as the dealer has been detected and dismissed? Is he aware that in the past year 100 takeover bids have been preceded by an average rise in share prices of 66 per cent. as insiders have cashed in on their knowledge? Is he satisfied with the fact that of the 80 cases referred to the Department since 1981 only half a dozen have resulted in prosecution? Why do the Government not pursue fraud in the City with the same vigour as they prosecute fraud at the DHSS?

Finally, did the Minister notice that the tale of seedy speculation through broken rules in the City and tax avoidance in the Cayman Islands surfaced in the same weekend as he confirmed that manufacturing investment had fallen yet again by 6 per cent. on the preceding year? Does he agree that the City will continue to lose respect until it manages to put the same ingenuity and resources into investing in British industry as at present it can muster only for gambling with its ownership?

Mr. Howard

The remainder of the Act will be brought into force as soon as practicable. The hon. Gentleman will appreciate that it is not practicable to bring all the provisions into force immediately.

As regards those provisions that have been brought into force, the House will wish to know the sequence of events. The Stock Exchange reported to the Department the initial conclusions of its investigating committee on a particular case on the evening of Thursday 13 November. My right hon. Friend the Secretary of State implemented the legislation on Friday 14 November and appointed inspectors on Saturday 15 November. That is some indication of the Department's determination to tackle the mischief and the pernicious offence of insider dealing with all the new powers made available by the Act.

As for the City's contribution to investment in British industry, in the last year for which figures are available the City raised £6.2 billion for industry—a record of which it can be proud.

Mr. Tim Smith (Beaconsfield)

Is not the difference between this case of alleged insider dealing, which has led to this private notice question, and all previous cases, first, that Morgan Grenfell Securities dealt with it without hesitation and, secondly, that it issued a press release so that people could know what had occurred? Does this not show that self-regulation, rather than not working, is effective, following the big bang?

Mr. Howard

I agree with my hon. Friend. If, a fortnight ago, it had been suggested that a major house would ask for the resignation of one of its most senior employees for breach of an internal rule, that suggestion would no doubt have been greeted, not least by Labour Members, with considerable scepticism. The fact that Morgan Grenfell acted in such a way demonstrates that self-regulation is working, and working well.

Mr. Robert Sheldon (Ashton-under-Lyne)

Does the Minister accept that as the purchase of these shares was made only half an hour before the shares were to be increased in price, nothing could have been done to protect the identity of the person concerned? It was the crudeness of the method that led to the disclosure, and we should not expect such crudeness to be common. Are there not more sophisticated ways to hide insider dealing than this, which means that the hon. and learned Gentleman's conclusion that self-regulation is working well is unwarranted?

Mr. Howard

The right hon. Gentleman will not expect me to comment on the circumstances of the particular case, and I shall not do so.

As to the extent to which these matters are likely to come to light, I ask the right hon. Gentleman to bear in mind two aspects which will play an important role in the future. The first is the fact that as vastly more information becomes available it will become easier to identify particular patterns of dealing and movements in share prices, which will prove to be the starting point for investigations in these matters.

Secondly, sweeping and draconian powers are available to the Department under the Financial Services Act. Under these powers, those suspected of offences are to be obliged to answer questions, those answers are to be admissible in evidence, and any refusal to answer questions can lead to the persons concerned being brought before the courts and punished for contempt. We shall not hesitate to use these powers, and I have no doubt that their benefit will become visible to us all.

Mr. Kenneth Carlisle (Lincoln)

Should not the public have absolute confidence that the Government will not stand for fraud in the City and will take resolute action against it? Does not Friday's prompt action show that this is the truth? Will my hon. and learned Friend confirm that the Government will pursue fraud in the City with all the energy and resources at their command?

Mr. Howard

Yes, Sir.

Mr. Greville Janner (Leicester, West)

How far does the lack of prosecutions result from the shortage of resources for policing, investigating and enforcing the rules, and if it is considerable, as I suspect it is, what is the Minister proposing to do about it?

Mr. Howard

By far the most significant cause of the absence of successful prosecutions in the past relates to the difficulty of proving these offences and obtaining evidence that would satisfy the demanding standards of the criminal courts. That is why new powers were taken under the Financial Services Act and those powers will lead to a different picture in future from that which we have seen in the past.

Mr. Richard Hickmet (Glanford and Scunthorpe)

Do not the reputation and position of the City as a world financial centre depend on the honesty and probity of those who operate within it? How will that position be retained if barrow-boy tactics are used in dealings? I accept that the Government have acted quickly and with great determination, but demands for a Securities and Exchange Commission may become irresistible unless the City is prepared to abandon such tactics.

Mr. Howard

I have heard with interest some calls, in the context of these recent developments, for the introduction of an SEC, but no one has yet demonstrated how the introduction of an SEC would make the slightest difference to the detection, investigation or punishment of the kind of offence that has led the Secretary of State to take the powers that are under discussion.

Mr. D. N. Campbell-Savours (Workington)

What confidence does the Minister now have in the effectiveness of Chinese walls? Is it not true that the only reason why this matter surfaced was not that Morgan Grenfell was particularly good spirited, but that two firms lost $15,000, were angry and threatened to report it to other authorities?

Mr. Howard

Chinese walls have nothing whatever to do with the circumstances of this matter.

Mr. Campbell-Savours

That is what this is all about.

Mr. Howard

What is under investigation is the allegation that an employee of a concern used information for his own private purposes.

Mr. Campbell-Savours

Rubbish.

Mr. Howard

The matter that is currently under investigation has nothing to do with Chinese walls. As to the fact that the matter came to light because information was made available by firms through which the dealing was alleged to have been placed, that is indeed one of the best ways in which information relating to matters of this kind can come to the attention of the authorities.

Mr. Anthony Beaumont-Dark (Birmingham, Selly Oak)

Does my hon. and learned Friend suggest that it is pompous and pious nonsense to suggest that all fraud, be it in the City or in other walks of life, can ever be entirely stamped out? Will he also accept that this famous case was not discovered as the hon. Member for Workington (Mr. Campbell-Savours) suggested. When it was found out internally, it was immediately dealt with. It is important that the City should deal with its own fraud and that it should become public knowledge.

Does my hon. and learned Friend further agree that for many years the City has brought thousands of millions of pounds of trade to this country and that if the City were as corrupt as some people, for political motives, suggest, it would not enjoy the high reputation that it holds among the nations of the world? It ill befits this House to talk as though the City were all corrupt, when patently it is not. It should deal with its own fraud, but does my hon. and learned Friend agree that the City as a whole is an honest, hardworking institution?

Mr. Howard

I agree with my hon. Friend. It is as well to remember that in 1985, the last year for which full figures are available, the financial services sector of our economy earned for this country, £7.5 billion net, of foreign exchange. I agree with my hon. Friend that those who may be guilty of dishonourable practices are a small minority. However, that make it all the more important that those practices should be rooted out and dealt with when they come to light.

Mr. George Park (Coventry, North-East)

Does the Minister agree that one swallow does not make a spring and that the taking of swift action in this case does not excuse the lack of action in previous cases? Does the Minister further agree that the new circumstances in the City provide many more temptations and many more opportunities for bending and breaking the rules?

Mr. Howard

As I have already said, it was precisely because inadequate powers were available in the past that new powers were taken under the Financial Services Act. As soon as they became available, the Government used them. I do not think that any reasonable person could ask the Government to do more.

Mr. Michael Fallon (Darlington)

Will my hon. and learned Friend accept that many people outside London find it intolerable that such huge salaries should be so easily augmented by dishonest dealing? In view of the difficulties that my hon. and learned Friend has elucidated, I hope that he will not hesitate to come back to the House and seek further legislation if that proves to be necessary.

Mr. Howard

I have no reason to suppose that further legislation will prove to be necessary. Indeed, I have every reason to suppose that the legislation which is now on the statute book and which provides the powers that are being used will be more than adequate to achieve the purposes which I am sure the whole House desires should be achieved.

Mr. Dave Nellist (Coventry, South-East)

The Minister talked about the billions of pounds that come through the City by way of trade and investment. Is he aware that only £1 out of every £30 traded through the City does that, and that the other £29 represent the speculation and gambling that take place? The complaint by Mr. Collier is not so much about that taking place but that he feels that he has been singled out and caught doing something that he knows many other highly paid people in the City are doing.

When will we get from the Minister and from the ranks of his City Friends behind him the same sort of early-day motion as that put down by 29 Tory Members—the very first of this Session—calling for a limit of £150 in the DHSS benefit that any family can receive? They used the general term "scroungers". When will we get an early-day motion on scroungers in the City?

Mr. Howard

I have given the timetable pursued by my right hon. Friend the Secretary of State, and I have outlined the actions that he has taken in this matter. He has acted with vigour and expedition, and no reasonable criticism can be made of the way in which he has responded.

Mr. Alan Howarth (Stratford-on-Avon)

Does my hon. and learned Friend agree that it is an important virtue of the system of self-regulation within the statutory framework that the Government have established that it should be possible to act promptly? That is in contrast to what would be possible under the fully statutory, though vaguely defined, system that the Opposition advocate. Does my hon. and learned Friend agree that in the recent case it was extremely useful that Morgan Grenfell was able to enforce its own rule book, rather than having to resort to the protracted processes of the law?

Mr. Howard

I agree with my hon. Friend. As I said earlier, there is not a single respect in which it could be demonstrated that a fully statutory system could be brought to bear on the circumstances presently under discussion in a way which would be more effective than the way in which the Government are presently proceeding.

Mr. Dennis Skinner (Bolsover)

Is the Minister aware that the public outside will never believe that the Government are intent on taking action against the City crooks until they are prepared to introduce people to supervise the system in the same way as social security is supervised? Is he also aware that Collier was detected mainly by a fluke, because he was able to name the bank to which the money had gone? If some smarter fellows in the City decided, as such people are probably doing, to make sure that nominees and a Swiss bank were used, what chance would the Minister have of finding out where the money had gone? Would he use a sequestrator, as the Government did in the case of the NUM?

Mr. Howard

The hon. Gentleman spoke about people outside. They will be a good deal more ready than he is to accept the evidence of the Government's actions as showing our determination to deal with these matters. The Financial Services Act 1986 contains powers to deal with insider dealing, even if it is perpetrated through the medium of foreign banks or foreign investment houses. We have that evil in mind as well.

Several Hon. Members

rose—

Mr. Speaker

Order. We must move on. I must tell the House that we are to have a statement, followed by an important debate, and that these matters will be relevant in that debate and in the debate tomorrow.