§ Lords amendment: No. 340, in page 126, line 32, after "5)(49" insert
§ ",(Winding up orders) (5), (Winding up orders: Northern Ireland) (5)".
§ Mr. HowardI beg to move, That this House doth agree with the Lords in the said amendment.
§ Mr. Deputy Speaker (Sir Paul Dean)With this it will be convenient to take amendments Nos. 341 to 343, 345, 346, 389, 443 and 505.
§ Mr. HowardI hope that it will not come as too great a disappointment to those who have been waiting in anticipation for amendment No. 340, which I have been asked to open fully, if I begin by saying that the amendment and the others grouped with it are all relatively minor.
576 Amendment No. 443 to schedule 8 arises from the fact that a recognised SRO with potential or actual insurance company members has an additional requirement to take account in its rules of the regulation of insurance companies under part II of the Insurance Companies Act or the corresponding provisions in the law of another EC member state. That requirement might prevent an SRO from taking action against an insurance company because that action was reserved to the Secretary of State. Clearly it would be wrong if in those circumstances the SRO were liable for its inaction, and the amendment would grant it immunity from actions for damages in the discharge of those functions as for its other functions.
The other amendments are consequential on the new procedure for winding-up investment businesses introduced in Committee in another place or are consequential on an amendment made on Report in this House which moved the provision conferring immunity on the designated agency from schedule 7 to clause 156. Amendment No. 346 reflects the fact that arrangements made by a recognised clearing house for the monitoring function to be carried out by another person or body are entirely analogous to similar arrangements made under the relevant provisions relating to recognised self-regulating organisations, recognised professional bodies, registered investment exchanges and the designated agency.
§ Question put and agreed to.
§ Lords amendments Nos. 341 to 346 agreed to.
§
Lords amendment: No. 347, in page 127, line 9, at end insert—
(6) A recognised professional body may make it a condition of any certificate issued by it for the purposes of Part I of this Act that neither the body nor any of its officers or servants or members of its governing body is to 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 bad faith.
(7) The functions to which subsection (6) above applies are the functions of the body so far as relating to, or to matters arising out of—
§ Read a Second time.
Mr. Bruce Milan (Glasgow, Govan)I beg to move, as an amendment to the Lords amendment, in line 3, after "Act", insert
or of any application for such certificate".The amendment deals with immunity from action for damages of recognised professional bodies. We have been over that ground on several occasions before, so I shall not go over the history of the argument. At present under the Bill the SIB itself has an exemption from liability for damages, and so will self-regulating organisations in relation to suits or damages that might come from their own members or any member of the public.It has always seemed to me that the logical provision for recognised professional bodies would have been to give 577 them exactly the same treatment as the self-regulating organisations, but we have been over that ground, as I said. I do not want to open up the argument again, except to say that I have never found the ministerial answers on that point at all persuasive. But we are now in a different situation because an amendment was moved in the other place earlier this week to provide at least immunity from suits, from actions by members of recognised professional bodies. The Government were not willing to accept even that, but there have been discussions with some of the professional bodies concerned, including the Institute of Chartered Accountants, and the Government have come up with an amendment of their own, No. 347. As I understand it, Ministers have been saying that it is not necessary to have anything of the sort in the Bill and that the certification procedure of recognised professional bodies is sufficient. As a non-lawyer, may I say that that seems a rather dangerous course. It means that professional bodies would be doing by their own rules what the Government and the House had specifically prevented them from doing, something which would have been subject to legal challenge. The professional bodies rightly said, "If it is to be done through the certification procedure, at least a procedure should be written in the Bill", and that is what we have in amendment No. 347. That is a summary of the history.
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The difficulty with the certification procedure is that it bites only when a certificate has been issued, and there may be a dispute between a recognised professional body and one of its members over whether a certificate should have been issued in the first place. In other words, the member may object that he has been refused a certificate. There is nothing in the new provision which would prevent him suing the professional body on that ground. As I have said, the provision will not bite in those circumstances. No certificate will have been issued and, therefore, the conditions will not be applicable.
I do not understand why the Government have been so stubborn over this matter and why they should not have had a provision for recognised professional bodies, even if it were limited only to immunity from suit from their own members and expressed in exactly the same terms the provisions that apply to SROs. The provision would be limited to the professional bodies' own members. That is what was attempted in another place at a late stage and the Government have not, for reasons which I find odd, been willing to go along that route. Instead, they have produced their own provision, which, unfortunately, I believe is defective.
The purpose of the amendment is to fill the gap that will be left if amendment No. 347 is accepted as it stands. I do not know whether the Minister believes that a recognised professional body should automatically give a certificate of authorisation to any of its members who apply for one, and who are only engaging in investment business within the scope of the authorisation of the recognised professional body, but I think that that would be too automatic a procedure. There are certain conditions which have to be met before a certificate can be issued, and that must be right. It must be right in terms of the Government's approach to these matters. If there are certain conditions to be met, there are bound to be 578 circumstances in which a certificate will be refused to a member. A member may feel aggrieved in those circumstances and may wish to take legal action against the professional body. If we are not to give immunity from legal action generally, it should cover these circumstances, and that is the purpose of this minor and technical amendment to amendment No. 347.
§ Mr. CashI regard this provision as yet another sign of the slightly subordinate position, in a sense, which recognised professional bodies, including many distinguished chartered bodies, will face. I notice that my hon. and learned Friend the Minister is shaking his head, but there are distinctions in legal immunity which have to be considered. I can see some difficulties arising in the context of which the right hon. Member for Glasgow, Govan (Mr. Millan) spoke. I ask for my hon. and learned Friend's assurance that this matter has been given the most careful consideration and that there will not be any problems arising in future.
§ Mr. Tim SmithAfter long debates on this subject, I thought that my hon. and learned Friend the Minister might be interested to hear the legal opinion which my institute, the Institute of Chartered Accountants in England and Wales, has received. It deals with both members of the public claiming in respect of investments and practitioners. It reads:
Our advice is that in the second category"—practitioners—the Institute's exposure is very limited and can probably be eliminated by appropriate changes to its bye-laws. In the first category"—investors—the legislation does somewhat increase the scope for actions against the Institute, particularly in relation to acts carried out in the course of investigating complaints. There are, however, few cases in which such actions seem likely to be successful.I suspect that, after all the debates on this subject, the practical problems that will be created by the fact that my hon. and learned Friend has not been prepared to concede immunity to the recognised professional bodies, mainly because he was not happy about conceding it to the self-regulating organisations in the first place, will not be a great difficulty.
§ Mr. HowardI am grateful to my hon. Friend the Member for Beaconsfield (Mr. Smith) for drawing that distinguished legal opinion to my attention. I was previously unaware of it, and I hope that it will go a long way toallaying some of the fears that have been expressed.
In regard to what my hon. Friend the Member for Stafford (Mr. Cash) said, it is not envisaged that professional bodies should in any way be subordinated to self-regulating organisations—they are simply different. If they were not different, the need for a separate regime would not have arisen. The differences are effected in several different ways in the Bill. They are not, for example, subject to the direct rule changing power of the SIB.
We have not imposed a similar condition on applicants for certification as the right hon. Member for Glasgow, Govan (Mr. Milian) requests because we do not believe that that is necessary. A recognised professional body would not be required to subject applicants for certification to a fit and proper test—certification by a recognised professional body will be a much more straightforward matter than joining a self-regulating 579 organisation. The tests that the professional body would have to apply relate to easily established matters of fact such as whether the people managing and controlling the applicant are members of a professional body. In those circumstances, the risk of a certificate being refused on contentious grounds is very small, and there is no reason, therefore. to provide for immunity in such a case.
Mr. CouldI hope that I shall not weary the House unduly if I remind hon. Members that the Opposition have been entirely consistent on this matter. It is the Government who have done a minuet around us and changed their stance almost entirely.
We have always argued that for self-regulating organisations, as for recognised professional bodies, some immunity is required, especially against their members, if they are not to be frustrated whenever they try to enforce the rules or conduct inquiries and investigations. We argued strenuously for that in Committee, and the proposition was equally strenuously resisted by the Government. We then discovered to our astonishment on Report that the Government had entirely shifted their stance. They had accepted our case for immunity against members and provided a blanket immunity for self-regulating organisations against everyone.
The change substantially alters the nature of self-regulation. Self-regulation was a means which, one assumes, was requested by many City institutions and interests, and by which the investor was to be protected. Self-regulation was touted as the best possible means by which investor protection could be secured, but we now find a regime in which the aggrieved investor, far from being protected, is denied a remedy against the regulatory bodies. That means that the self-regulation that the Opposition were prepared to accept as a desirable element in the regulatory structure has suddenly become an end in itself rather than a means to secure investor protection, and a fundamental objective of the Bill has somehow been lost from sight.
I shall take the example of the McDonald Wheeler and FIM BRA affair. It is clear that if the Bill were in force there would be aggrieved people who would have lost as a result of the McDonald Wheeler failure and who would perhaps riot unnaturally — they would have every justification for it — seek a remedy against the self-regulatory organisation involved. As the Bill stands, they would he denied that remedy. I do not believe that that can be justified. For that reason, I am bound to make it clear, if I have not done so already, that this is one of those issues to which a future Labour Government will wish to return when they legislate anew on these matters.
I am aware that the amendment concerns recognised professional bodies I entirely agree with my right hon. Friend the Member for Glasgow, Govan (Mr. Milian) that at the very least it is important that, for reasons of consistency—I hope that I have established that we are consistent—we wish to argue, just as we did for the self-regulatory organisations, that recognised professional bodies should he protected for the same reasons against suit by their members.
I fully understand the Government's position, and the Minister was kind enough to talk to me and others about these matters within the last week or so. I know that what he is proposing, and will achieve by virtue of this amendment, is not a statutory immunity. He has removed any possible obstacles to achieving immunity by contract 580 between recognised professional bodies and their members. The Minister feels that it is difficult to draw a line between investment business, which may be relatively marginal business, and the other professional activities of members of the bodies. I accept that the line is difficult to draw, but — I have made this point to the Minister before—that problem is not avoided by relegating the matter from statute to contract. The rules still have to do that job. Somehow or other, that line has to be drawn if an immunity is to be secured, so I am not particularly persuaded by that element in the argument.
I would go a little further. By relying on contract—in effect, by inviting the professional bodies to secure the position that they want to achieve through the contract — the Minister is giving insufficient weight to the different roles and interests of the recognised professional body as being the body exercising quasi-statutory if not entirely statutory powers of supervision and regulation, and its members. If the interests of the members at the point of joining and the interests of the professional body with the statutory duties laid upon it were identical, there would be no reason why the members should not readily accede to whatever contractual terms were required of them by the recognised professional body, but that is not necessarily the case. There may be a conflict between what the recognised professional body wishes to do in the interests of the profession as a whole and to secure for itself the role that it could conceivably fulfil under the legislation and the interests of the members who say to themselves, "Why are we signing away perfectly good legal rights simply as a condition of joining the body?" The Minister has left a problem for recognised professional bodies which might, in certain circumstances, be extremely difficult to resolve.
If this matter is to be satisfactorily resolved and the recognised professional bodies are to be given immunity, which I believe the Minister concedes that they will need if they are to do this job—one for which they have volunteered, but which is described and identified in statutory terms—they will need more than the ability to try to secure that objective through contract. They should he given clear statutory immunity. No other solution will achieve what is required.
I was persuaded by the speech of my right hon. Friend the Member for Govan that he had hit upon a weakness, even within the limits of the Government's proposal, in the amendment. The Government will be prudent, and I am sure that the advice of the recognised professional bodies would be to accept my right hon. Friend's amendment for the sake of preventing avoidable difficulties.
§ Mr. AshdownI support the point made by the lion. Member for Dagenham (Mr. Gould) about the requirement to place this immunity on a statutory basis. Although I regret that I did not hear the latter part of his speech, I had seen the amendment and I support the line taken by the right hon. Member for Glasgow, Govan (Mr. Millan).
My view in Standing Committee—and it remains my view today — that to extend immunity from suit to members of the public and investors in the case of self-regulating organisations is going far too far. We were in favour of immunity from suit for members. The Minister will remember that we had long discussions about it. I was as astonished as the hon. Member for Dagenham when, following a long and strenous discussion one morning, this 581 point was given away. I still harbour the strong suspicion that, whatever the Minister may say to the contrary, it was given away more as a result of the pressure that was applied outside this Chamber than as a result of the arguments that he heard inside it.
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I recall that the Minister advanced a most remarkable new doctrine, especially for a lawyer. He said that since he had travelled in the direction that the hon. Member for Dagenham and I and others had recommended to him but had passed by our point and gone further, we should not complain; we should be doubly happy. I recall wondering at that time what the Minister's reaction might be if his wife came in with a broken car and said, "You told me to park the car in the garage, but you should be doubly happy because I went right through it and out the other side."
The Minister has gone far too far in providing immunity from suit in respect of members of the public. It amounts to a significant destruction of some of the advantages and rights that members of the public should have under the Bill. I do not go as far as the hon. Member for Dagenham. I do not say that automatically this means that we must move to a statutory system. However, it is a very bad move and it should be removed as soon as possible.
§ Mr. HowardThe hon. Member for Dagenham (Mr. Gould) raised four points, the last of which was endorsed by the hon. Member for Yeovil (Mr. Ashdown). He rightly attributed to me the identification of the difficulties of definition of the boundary line between investment business that members of professional bodies might carry out, and their other professional activities, as one of the reasons why I was reluctant to provide statutory immunity from suit for professional bodies.
The hon. Gentleman is right that that difficult question of definition remains and that it is not avoided if statutory immunity is not provided, but he failed to recollect the point that I made when we met to discuss this matter: that it is a particularly difficult question of definition and that therefore it is more appropriate to leave it for resolution by the professional bodies and their members, because of the scope that they will have to adjust a definition in the light of experience than to enshrine such a definition in statute law. One factor is that it might be appropriate to draw a definition in a different place for different professional bodies. Therefore, the route that the amendment provides offers considerable advantages in relation to that point.
§ Mr. CashI have absolutely no basis for asking this question other than curiosity, but will my hon. and learned Friend tell us whether the professional bodies concerned have agreed to this provision? It is important to know whether the professional bodies agiee with it.
§ Mr. HowardI dare say they might have been happier with a different provision, but I understand that they regard this provision as acceptable and workable.
The hon. Member for Dagenham sought to widen the discussion somewhat by suggesting that the effect of this provision was, in some very serious way, to deny remedy to investors. It is important to understand that investors will not be deprived of remedy. They will still be able to sue an authorised person if he breaches the rules that apply 582 to him, and they will have access to the compensation arrangements, where appropriate. Those compensation arrangements are specifically designed to favour small, private investors. Therefore, I do not believe that the interest of such investors will be seriously affected by the immunity granted under this clause, or under other clauses.
The hon. Members for Dagenham and for Yeovil have always failed to take properly into account the extent to which regulatory action by self-regulating organisations might be inhibited if they were liable to suit by investors. Investors do not simply and exclusively consist of Aunt Agatha, an investor who became fondly known to us during our discussions in Standing Committee. Investors will include large and powerful concerns which might well be prepared to use the threat of legal action to inhibit effective regulatory action by self-regulating organisations. That justified the extension of the immunity for those organisations.
The hon. Member for Dagenham (Mr. Gould) descended into the detail of the likely reaction of members of professional bodies. I do not share his analysis, because one can possibly divide those members into two categories. There will be those anxious to take advantage of the ability to carry out investment business by being authorised through membership of a professional body. They will have every incentive to enter into an agreement of that kind with the professional body in order to encourage the professional body to become recognised. The other category of members may have no interest in carrying out investment business. Equally, it will be in their interests to confer this power on their professional body because it will mean that they will be much less likely to be held liable at the end of the day to contribute to any liability incurred by that professional body.
§ Mr. GouldThere is at least the possibility of a third category, professional men carrying out investment business. They may be unwilling to accept, if one tries to impose it on them, a contractual term which denies them remedies against a recognised professional body. Therefore, they would prefer to go for direct authorisation. Would the Government be neutral on that?
§ Mr. HowardI do not entirely follow that argument, since direct authorisation would be a matter for the Securities and Investments Board or designated agency and they would have immunity. The people about whom the hon. Gentleman spoke would be no better off by taking that route. There is no way in which there would be an advantage in terms of securing less immunity by following any of the other routes. The third category of member of a professional body identified by the hon. Gentleman will not exist. For all those reasons, Lords amendment No. 347 provides a satisfactory balance and I commend it to the House.
§ Mr. MillanI am not convinced that the Minister could not quite easily have accepted my amendment which would have improved the Lords amendment. However, it is rather pointless to carry on the argument at this hour and at this stage in the Bill. At least amendment No. 347 as it now stands represents some movement on the part of the Government and we must be a little grateful for that. I beg to ask leave to withdraw my amendment.
§ Amendment, by leave, withdrawn.
§ Lords amendment agreed to.
583§ Further consideration of Lords amendments adjourned.—[Mr. Malone.]
584§ To be further considered tomorrow.