APPOINTED REPRESENTATIVES (Hansard, 30 October 1986)

§ Mr. Deputy Speaker (Sir Paul Dean)
With this it will be convenient to discuss the following Lords amendments: No. 43, in page 27, line 19, after "on" insert the whole or part of". No. 44, in page 27, leave out lines 21 and 22 and insert writing and the investment business carried on by an appointed representative as such is the investment business for which his principal has accepted responsibility". No. 45, in page 27, line 28, leave out "authorised".
No. 46, in page 27, line 28, leave out "or".
No. 47, in page 27, line 32, leave out "authorised".
No. 48, in page 27, line 32, at end insert ;or 530 (c) giving advice as to the sale of investments issued by his principal or as to the exercise of rights conferred by an investment whether or not issued as aforesaid. No. 49, in page 27, line 36, leave out "authorised".
No. 50, in page 27, line 39, leave out "authorised".
No. 51, in page 27, line 40, at end insert— (4A) If the contract between an appointed representative and his principal does not prohibit the representative from giving advice about entering into investment agreements with persons other than his principal it must make provision for enabling the principal either to impose such a prohibition or to restrict the kinds of advice which the representative may give by reference to the kinds of investment in relation to which or the persons with whom the representative may advise that investment agreements should be made. No. 52, in page 28, line 1, leave out subsection (5).
No. 53, in page 28, line 9, after "done" insert "or omitted".
No. 54, in page 28, line 12, leave out from "with" to end of line 15 and insert—

"(a) any provision contained in or made under this Act; or

(b) any rules of a recognised self-regulating organisation or recognised professional body,

anything which a person who at the material time is or was an appointed representative of the authorised person has said, done, or omitted as respects investment business for which the authorised person has accepted responsibility shall be treated as having been said, done or omitted by the authorised person. (7A) Nothing in subsection (7) above shall cause the knowledge or intentions of an appointed representative to be attributed to his principal for the purpose of determining whether the principal has committed a criminal offence unless in all the circumstances it is reasonable for them to be attributed to him. (8) In this Act "investment agreement" means any agreement the making or performance of which by either party constitutes an activity which falls within any paragraph of Part II of Schedule 1 to this Act or would do so apart from Parts III and IV of that Schedule. No. 112, in clause 59, page 46, line 5, after "person" insert or, except in the case of the power conferred by section 60 below, any appointed representative of his No. 114, in page 46, line 27, leave out "a person" and insert "(a) an authorised person" No. 115, in page 46, line 28, leave out "(a)".
No. 117, in page 46, line 30, leave out "(b)".
No. 118, in page 46. line 32, at end insert or (b) an appointed representative whose principal or, in the case of such a representative with more than one principal, each of whose principals is a member of such an organisation or body and is subject to the rules of such an organisation or body in carrying on the investment business in respect of which his principal or each of his principals has accepted responsibility for his activities;". No. 119, in page 46, line 36, leave out or body of which he is a member and insert of which he or, in the case of an appointed representative, any of his principals is a member or any such body by which he or, as the case may be, any of his principals is certified". No. 120, in clause 61, page 47, line 8, after "person" insert or appointed representative". No. 121, in page 47, line 9, after "person" insert or, as the case may be, representative No. 122, in clause 62, page 47, line 16, after "person" insert "or appointed representative"
No. 123, in page 47, line 18, at end insert "or appointed representative"
No. 124, in page 47, line 22, after "person" insert 531 or, as the case may be, appointed representative". No. 125, in clause 63, page 47, line 33, after "person" insert "or appointed representative" No. 126, in page 47, line 35, after "person" insert or, as the case may be, appointed representative No. 379, in clause 171, page 139, line 39, at end insert— (d) in the case of an appointed representative, be given to or served on his principal. No. 385, in clause 173, page 141, line 33, leave out 5(7)" and insert "41(8)". No. 479, in schedule 9, page 178, line 17, leave out agreement to acquire or dispose of an investment and insert— investment agreement". No. 499, in page 180, line 35, at end insert— or the appointed representative of such a society No. 500, in page 180, line 39, after "society" insert "or such a representative".
No. 502, in page 181, line 10, leave out from "relation" to "except" and insert—

"(a) to a member society which is subject to the rules of a recognised self-regulating organisation for friendly societies in carrying on all the investment business carried on by it; or

(b) to an appointed representative of a member society if that member society, and each other member society which is his principal, is subject to the rules of such an organisation in carrying on the investment business in respect of which it has accepted responsibility for his activities;".

No. 503, in page 181, line 13, after "society" insert "or appointed representative".
No. 504, in page 181, line 14, leave out it is a member society and insert— the society or, as the case may be, the society which is the representative's principal is a member society".

§ Mr. Butterfill
Perhaps my hon. and learned Friend the Minister can explain the effect of the rather complicated set of amendments to clause 41. How do they affect the principles of polarisation which we discussed in detail in Committee? Numerous representations have been made to us, particularly by the clearing banks.

§ Mr. Howard
These amendments are largely technical and correct some defects in the regime of the Bill for appointed representatives. Perhaps the two most important effects of the amendments are to extend the definition of the business that an appointed representative may carry on and—I come to the point that may have given rise to my hon. Friend's concern—to ensure that an appointed representative is allowed to have a number of principals.
The reason behind the provision permitting an appointed representative to have more than one principal relates to the problems created for insurance companies by the fact that section 16 of the Insurance Companies Act 1982 prohibits them from carrying on any activity otherwise than in connection with, or for the purposes of, their insurance business.
It follows that an insurance company could not lawfully accept responsibility for an appointed representative when he was selling non-insurance products, such as unit trusts offered by a unit trust company in the same group. It is undesirable that an insurance company's appointed representative should not be able to sell other products offered by companies in the same group if the contract between the company and the representative permits it. The amendments therefore make it possible for a principal 532 to be able to accept responsibility for part of his representative's activities. But this should not prevent polarisation being instituted by a designated agency.
Rules can be made under clause 45(2) (f) restricting the sort of principals a particular appointed representative may have. Indeed, the change would facilitate what the SIB has proposed in this area. As my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) will know, it has always envisaged that an appointed representative should be restricted to selling not just the products of a single company but the products of a single company or group. The amendments do nothing to make it more difficult for rules to that effect to be promulgated. Indeed, they facilitate that.

§ Mr. Anthony Nelson (Chichester)
The House will be grateful to my hon. and learned Friend the Minister for his elucidation of the purpose behind the amendments. But the amendments are a little more than technical, and raise an issue which was the subject of an important debate both in Committee and on Report. Many hon. Members have taken an interest in this subject. We are enlarging, in a desirable way, the range of investment insurance products that an authorised representative can offer to members of the investing public.
Therefore, in yet another material way we are perhaps granting a facility, privilege, freedom or authorised right to that group of people who are competing against independent intermediaries in the offering of a variety of different products. It may be that in the former case we are talking about a variety of insurance or investment products within a group of companies, offered through a range of subsidiaries. That is wholly desirable. I am sure that this does not in any way undermine the principle of polarisation.
What progress has been made to ensure that the provision of these services will he free and fair and that many of the uncertainties which independent intermediaries fear would arise as a result of this proposal of polarisation will not occur? I am referring, in particular, to a commission agreement. Although that is not directly relevant to the technical import of these amendments, it is relevant because the question of polarisation and what authorised representatives, as well as independent intermediaries, are allowed to do must be considered together.
Before we seek to ratify what their Lordships did in the other place, I wish to know what progress has been made with regard to the commission agreement. May we reassure the many enterprising companies and individuals who are involved as independent intermediaries and who provide these investment services? We hear varying tales of the extent to which these parties will be subject to the commission agreement and will be protected by the arrangements envisaged. I should be grateful for the Minister's comments on this.

§ Mr. Gould
I support the general remarks made by the hon. Members for Chichester (Mr. Nelson) and for Bournemouth, West (Mr. Butterfill).
Is it possible for the Minister to tell us what is likely to emerge in terms of commission agreements, disclosure of charges and so on about which there has been a great deal of speculation and press comment? That is one important issue. An equally important, related issue is the alarm which many of us felt at the strong indications front the 533 other place that a great deal of pressure was being put on the Government to unravel—that is how I see it—the whole structure which the Standing Committee had worked hard to establish.
An important plank of that work was the principle of polarisation. If, at any time, the Government were tempted to accede to pressure put upon them, presumably by the clearing banks, and were in some way to weaken or modify the principle of polarisation, the whole structure of the regulation of the sale of life insurance would come to pieces. I was encouraged by what happened in the other place and I congratulate the Government on standing firm on this point.
The Minister is obliged to answer for the Securities and Investments Board. The draft rules and activities of the SIB are not easily accessible from debates and I wonder whether the Minister can give us a further assurance, if that is possible, that the SIB is intent upon adhering, in its rules, to the principle of polarisation. I seek an assurance that, even at this late stage, the principle of polarisation will not be lost sight of in the SIB's rules.

§ Mr. Howard
The House will be aware, as the hon. Member for Dagenham (Mr. Gould) said, that the Government have not acceded to any suggestion for any changes in legislation which would eat away at the principle of polarisation. During the course of many debates in Committee I have made my views clear on the desirability of the general terms of polarisation.
The SIB, in the course of its preparation for application for designation, must draw up its own rules governing this topic. It is for the SIB to consider whether there is any scope for considering how those rules can apply to particular institutions. That is a matter for the designated agency and it is one which the Secretary of State will wish to take into account when he decides whether those rules are appropriate and sufficient to enable him to designate the agency.

§ Mr. Ashdown
I am especially glad to have heard the Minister's last few sentence because this was a matter that the Government were pressed upon, not least by my colleagues in another place, who take a different view on polarisation.
I expressed that view in relation to insurance agents and tied and independent intermediaries. At the end of that debate—I recall that the amendment was withdrawn—the Government conceded that there was a considerable amount of discussion yet to take place in relation to the clearing banks. On the basis of that assurance, my colleagues and indeed Conservative Members of the other place who had raised objections withdrew their amendments. Will the Minister confirm that the matter is still open for discussion?

§ Mr. Howard
This is not a discussion in which the Government are taking part. It is a discussion between the SIB and those institutions which are affected. Clearly the SIB is having a number of discussions with interested parties and it is right that it should do so.
It is the responsibility of the SIB to draw up its rules and it is right and proper that, in the course of that task, it should engage in discussions. The Government's role begins when the SIB makes its application for designation. 534 It would be wrong and quite inappropriate for me to be drawn into detailed questions, which inevitably would form the basis of detailed rules drawn up by the SIB.

§ Mr. Gould
Are we right in concluding from the Minister's earlier remarks that the shape and direction of the rules in relation to polarisation is something in which the Secretary of State, and indeed the Under-Secretary of State, will take a close interest?
I think it is well accepted that the Minister and the SIB talk from time to time and that they will indeed discuss polarisation. Are we right to conclude that, in the course of those conversations, the Minister will bear in mind the decision—jointly arrived at by the Standing Committee —in respect of the importance of polarisation?

§ Mr. Howard
I have already said that I have not departed from the views I expressed in Standing Committee. The detailed application of the principle of polarisation in particular circumstances must be a matter for the SIB. I do not propose to be drawn any further on the matter this evening.

§ Mr. Alan Howarth (Stratford-on-Avon)
I understand that and, of course, it would be quite wrong of me to press my hon. Friend on detailed points.
When the Secretary of State comes to consider designated agencies, will he be satisfied with a set of rules, contemplated by the agency, by which a conglomerate financial institution would hold itself out as offering objective investment advice to the small investor and yet at the same time be marketing to that small investor its in-house products?

§ Mr. Howard
I understand my hon. Friend's concern. When the time for designation arrives the Secretary of State will certainly pay close attention to such rules.
My hon. Friend the Member for Chichester (Mr. Nelson) asked about the likelihood of a commission agreement. He will appreciate that it is not within my power to guarantee that there will be such an agreement, although the signs suggest this. Ever since the publication, in January 1985, of the White Paper on financial services in the United Kingdom the Government have made their position clear. The Government believe that commissions received by independent intermediaries from insurance companies should be disclosed—either by disclosure of the commission received or in accordance with the proposition that the remuneration is within the terms of a voluntary, industry-wide agreement. Such an agreement would need to be examined in relation to its impact on competition. Arrangements would have to be made to provide investors with ready access to details of the agreement. The Government envisage that there might be such an agreement.
The Life Assurance and Unit Trust Regulatory Organisation, which is seeking to become the recognised self-regulating organisation for life offices and unit trusts, is strongly committed to the idea of a commissions agreement. It is already working on the form of such an agreement involving consumer and intermediary interests in the work and I think that those indications provide a strong answer to the question posed by my hon. Friend as to the likelihood of such an agreement.