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Lords amendment: No. 393, in page 146, line 7, leave out paragraph 1 and insert
Shares and stock in the share capital of a company.
§ Mr. HowardI beg to move, That this House doth agree with the Lords in the said amendment.
§ Mr. Deputy SpeakerWith this it will be convenient to discuss Lords amendments Nos. 394 to 401, 405 to 409, 412, 414 to 419, and 421 to 426.
§ Mr. HowardThis rather large group of amendments contains several detailed amendments to the definition of investment business in schedule 1. They have all been made in response to concerns expressed about the wording of the schedule. Indeed, some of the amendments fulfil Government commitments made in the House when particular concerns were expressed.
I commend the amendments to the House.
§ Mr. Tim Smith (Beaconsfield)What is the difference between shares in the share capital of a company and stock in a company, and shares and stock in the share capital of a company?
§ Mr. HowardI am not sure that I can give a sufficiently authoritative exposition of that distinction immediately. As I am sure that my hon. Friend would not want any answer that was not entirely authoritative, I shall reply to him as soon as I am in a position to do so.
§ Mr. Laurie Pavitt (Brent, South)Why did the drafting on that point result in so much confusion? Is the same true of other provisions, in that the way in which they were worded has led to this large block of amendments?
§ Mr. HowardIn the Bill as originally drafted, we adopted definitions which we thought were appropriate, but we always recognised that it would be necessary to 601 consult further—consultation preceded publication of the Bill—with those engaged in day-to-day dealings with these various instruments in the markets, who are in the best position to know exactly how the definitions formulated in the legislation should apply to their activities. The Bill is an excellent example of the way in which we are prepared to learn from those who have the knowledge that cannot possibly repose within the confines of Government, and to respond constructively to representations made so as to ensure that the definitions in the legislation correspond as effectively as possible with the realities of practices in the market place. That is why these amendments have been introduced, and I make no apology for them.
§ Mr. GouldNevertheless, my hon. Friend the Member for Brent, South (Mr. Pavitt) has made a serious and valuable point which is very much in line with some of the opening remarks made by hon. Members yesterday.
The Bill is the culmination of a long process. The Gower report was commissioned in 1981, I think; there was then a long inquiry by professor Gower, followed by a White Paper and then the Bill. The Bill has now been discussed for nine or 10 months. Yet the House is still struggling to deal with so many late amendments. Why is that? I entirely accept that these are essentially technical matters, drafting problems, and so on, and that the Government have striven hard to get them right. Yet despite all the preparatory work which has gone on for so long we still face this difficult situation. I do not entirely blame the Government, because they have done all that they could, but why have City interests come forward so late in the day squealing, as it were, that they would be hurt by a badly drafted provision? Why were they not brought in or induced to make those points much earlier, when the House and the Committee could have considered them properly?
§ Mr. HowardI am grateful to the hon. Gentleman for giving me another opportunity to expand on that point. It is not a question of people not having been brought in or encouraged to comment earlier. Extensive consultation took place with affected interests. As I shall demonstrate, it is not only the City which has come forward late with suggestions. Extensive consultations took place during the preparatory stages of the legislation, before publication of the Bill. The Bill was published last December, so there was every opportunity for affected interests to come forward. I am not in a position to say why, in many cases, they came forward later rather than earlier, but it was not for lack of any contact, invitation or encouragement on the part of the Department and its officials.
A particularly good example is provided by the question asked by my hon. Friend the Member for Beaconsfield (Mr. Smith), to which I can now give a more authoritative answer. I do not know whether he will find it particularly illuminating, but it is a good example of the consultation that has taken place. We do not think that amendment No. 393 makes any significant difference to the text of the original Bill, but the Law Society came along at a late stage and said that it believed that the wording provided in amendment No. 393 was clearer than the original wording. Opposition Members paid tribute to the Law Society yesterday and it is sensible to pay serious regard to the Law Society's representations. When the Law Society comes to us, at however late a stage, and 602 suggests that an alternative formula provides greater clarity, even if that extra clarity is not immediately obvious to us, and as no detriment could be caused, we try to respond favourably and positively. That is why amendment No. 393 has been proposed. It is a good and typical example of the way in which the consultation processes work.
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§ Mr. Deputy SpeakerI remind the hon. Member for Dagenham (Mr. Gould) that he can make a further contribution only with the leave of the House. I hope that we are not to have a protracted debate about consultation methods or their absence.
§ Mr. GouldI was hoping to intervene in the Minister's speech. However, I ask the leave of the House. I was interested in the Minister's concluding remarks. Does he accept that we are talking about a novel principle for legislation? Apparently one can add words to a Bill, however meaningless they may seem, provided that they do not actually do anything.
§ Mr. HowardThat is not quite what I said. I did not suggest that the words to be added to the Bill are meaningless. I said that the extent of the additional clarity which they provided was open to dispute and question. The words are certainly not meaningless. They are meaningful, but whether they are more meaningful than the original words is open to doubt. So as to be certain that we take full advantage of the Law Society's learning, I commend the amendments to the House.
§ Mr. CashThe amendments emanate from the Law Society, of which I am a member. I was concerned to hear that the amendments were suggested so late in our proceedings. We received late amendments during the Committee stage and I had to raise the matter with the Law Society.
I take your point, Mr. Deputy Speaker, about not going on about consultation, but this Bill is important and it has been essential to give Ministers and others as much time as possible to consider all aspects. Amendments which arrived late made that difficult for members of the Committee.
§ Question put and agreed to.
§ Mr. PavittOn a point of order, Mr. Deputy Speaker. I should be grateful for your advice. I have been in the House for a long time, but today I have been faced with a new situation. A total of 581 Lords amendments are before the House. You, Mr. Deputy Speaker, have just ruled that an hon. Member, having spoken on a group of amendments, must seek the leave of the House if he wishes to speak again. If an hon. Member has spoken about one amendment in a group of 10, is he precluded from speaking again on another amendment in the group? Do we have to deal in one intervention with all the amendments in the group or are we able, if we accept one amendment, to talk about another amendment in that group? After all, we might wish to divide the House on one of the other amendments. For me, your ruling is unprecedented.
§ Mr. Deputy SpeakerI appreciate the difficulty of considering a large number of amendments. One of the purposes of Mr. Speaker's selection of amendments, 603 putting like amendments in a group, is to enable us to debate them together. Having participated once in a debate on a group of amendments, an hon. Member can speak again only with the leave of the House.
§ Lords amendments Nos. 394 to 401 agreed to.
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Lords amendment: No. 402, in page 147, leave out lines 36 and 37 and insert—
(2) A contract shall be regarded as made for investment purposes if it is made or traded on a recognised investment exchange or made otherwise than on a recognised investment exchange but expressed to be as traded on such an exchange or on the same terms as those on which an equivalent contract would be made on such an exchange.
(2A) A contract not falling within Note (2) above shall be regarded as made for commercial purposes if under the terms of the contract delivery is to be made within seven days.
§ Mr. HowardI beg to move, That this House doth agree with the Lords in the said amendment.
§ Mr. Deputy SpeakerWith this it will be convenient to take amendments Nos. 403 and 404.
§ Mr. HowardThese amendments are the result of very helpful advice that we have received from the commodity and futures exchanges and the banks which do business both on such exchanges and off-exchange.
The original provisions in the Bill do not, we now acknowledge, fully deal with contracts made off a recognised investment exchange, albeit on the same terms as those of contracts made or traded on such exchanges or even where they are expressed to be traded as such. The futures exchanges expressed their concern that without an amendment there would be a possibility of abuse by unscrupulous, unregulated brokers. We share that fear. We do not wish to see futures contracts being offered to the public on the standard terms of a recognised investment exchange where the broker has managed to avoid authorisation —and regulation—simply by designating those off-exchange contracts as having a "commercial purpose". The amendment would deal with that problem.
A further point that arose during discussions was the question of "spot" contracts. It was proposed that spot contracts—sometimes also called "cash" contracts—should be excluded from the definition of "futures" when made off a recognised investment exchange even though such contracts bear many of the characteristics of futures. For example, the Bill currently defines a contract as a "future" where, inter alia,
delivery is to be made at a future date".We are agreed that the purpose of entering into a sport contract is to obtain possession of the property in question not, as is the case with "futures", to assume or to transfer the risk of commodity price changes. This is already the import of note 3(b) of paragraph 8, but it is obviously desirable to put this beyond question. This is done by the addition proposed at paragraph (2A) by amendment 402.I now turn to the effect of note 3(c) of paragraph 8 of schedule 1. I can confirm that it never was the Government's intention to catch within the definition of "futures" any physical forward delivery contracts which are entered into for commercial purposes. The problem stems from a possible interpretation of note 3(c). We have given an assurance to the physicals markets associations which publish standard terms on which their members enter into contracts, including the British Bankers' 604 Association and the Grain and Feed Trade Association, that the provisions relating to "futures" were not meant to extend to the foreign exchange, bullion or physical commodity dealings of their members when made for commercial purposes. Accordingly, to make this clear, the amendment to note 3(c) makes the provision a one-way indicator, the presence of which suggests a commercial purpose but the absence of which suggests nothing.
Finally, I turn to amendment No. 404. We have accepted that by no means all futures contracts require that a price is agreed upon when the contract is made. We have been advised that contracts are frequently made between brokers and "clients" expressed as a contract between principals under which the price is determined by the price at which a subsequent matching contract is executed by the broker on the market floor. Furthermore, it is common practice in some futures markets to allow quality and quantity tolerances to determine the price in the event of delivery. The provisions that we have added as a new note 5 take account of these matters.
§ Mr. GouldI thank the Minister for that explanation of some important and useful changes to the schedule. They certainly help to make clear the new regime which is to apply to some important and relatively novel forms of trading.
I asked the Minister a question in Committee to which I am certain he gave me a satisfactory reply, but I cannot remember it. The amendments deal with passages in paragraphs to the schedule which are sometimes preceded by the heading "Notes". Why is that, and does the heading make any difference to the status of the provisions?
§ Mr. HowardWith the leave of the House, Mr. Deputy Speaker, I shall respond to the question of the hon. Member for Dagenham (Mr. Gould). The hon. Gentleman's surmise of the import of the explanation which I gave in Committee and which he failed to recollect is correct.
§ Question put and agreed to.
§ Lords amendments Nos. 403 to 409 agreed to.
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Lords amendment: No. 410, in page 149, leave out lines 32 to 35 and insert—
"Investment advice
15. Giving, or offering or agreeing to give, to persons in their capacity as investors or potential investors advice on the merits of their purchasing, selling, subscribing for or underwriting an investment, or exercising any right conferred by an investment to acquire, dispose of, underwrite or convert an investment.";
§ Mr. HowardI beg to move, That this House doth agree with the Lords in the said amendment.
The amendment narrows the definition of "investment advice" in response to concerns that certain types of advice had inadvertently been included. It may be helpful if I mention some of the main aspects in which the definition has been narrowed. First, to be within the new definition, advice would have to be given on the merits in the recipient's capacity as an investor of buying or selling the investment or doing any of the other things specified in the amendment. This would exclude, for example, advice about tax or the legal consequences of buying an investment. Secondly, advice about classes of investment as opposed to particular investments would not be caught. Thus general advice that life assurance was a safer investment than commodity futures would not rank as investment advice, but a recommendation to buy a 605 particular policy would. Thirdly, advice about the exercise of rights conferred by investment would fall within the definition only if the rights concerned were rights to buy, sell, underwrite or convert an investment. This makes clear that advice to vote for the election of a particular director at a company's annual general meeting, for example, would not he caught.
§ Mr. GouldI am grateful to the Minister for introducing the amendment. I am sure that it is a well intentioned attempt to deal with the problem which exercised my noble Friends in another place, but I am not necessarily convinced that "merits" has exactly the effect that the Minister claims. I concede, however, that these are difficult drafting matters and I can only join the hon. and learned Gentleman in hoping that he has managed to make the distinctions clear in the form of words chosen.
§ Mr. Tim SmithI have listened carefully to what my hon. and learned Friend the Minister has said about the way in which the definition has been narrowed. When I read the amendment I thought that there were two ways in which it had been narrowed. First, advice has to be given on the merits. Secondly, advice has to be given to persons in their capacity as investors. I may have missed the explanation, but I do not understand the consequences of bringing that phrase into the paragraph. Perhaps my hon. and learned Friend will provide some explanation.
§ Mr. HowardWith the leave of the House, Mr. Deputy Speaker, I shall respond to the intervention of my hon. Friend the Member for Beaconsfield (Mr. Smith). I suppose that if advice were given in a purely academic context as part of a seminar for academic purposes, where those receiving the advice were not investors or potential investors, that might be one example. It is not, however, the example that has been drawn to my attention on a piece of paper that has just been passed to me. That does not necessarily mean that it is not an apposite example.
An example which may be even more apposite relates to advice on the merits of taxation, for instance, which ties in with the capacity of the person to whom the advice is given. In those circumstances, that person would not be regarded as an investor or potential investor.
§ Question put and agreed to.
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Lords amendment: No. 411, in page 150, line 4, leave out paragraph 17 and insert—
17.—(1) Paragraph 12 above applies to a transaction which is or is to be entered into by a person as principal only if—
(2) In sub-paragraph (1) above "buying" and "selling" means buying and selling by transactions to which paragraph 12 above applies and "members of the public", in relation to the person soliciting them "the relevant person", means any other persons except—
(3) Sub-paragraph (1) above applies only if the investment to which the transaction relates or will relate falls within any of paragraphs 1 to 6 above or, so far as relevant to arty of those paragraphs, paragraph 11 above.
(4) Paragraph 12 above does not apply to a transaction which relates or is to relate to any other investment and which is or is to be entered into by a person as principal if he is not an authorised person and the transaction is or is to be entered into by him—
§ Mr. HowardI beg to move, That this House doth agree with the Lords in the said amendment.
§ Mr. Deputy SpeakerWith this it will be convenient to take amendments Nos. 413 and 420. I have to inform the House that amendment No. 420 involves privilege.
§ Mr. HowardThis group of amendments makes important changes to the definition of investment business in schedule 1. Important though the changes are, however, they are changes only at the boundaries. They would not affect the position of mainstream investment business. Definitions are notoriously difficult, especially in a Bill of this sort, as are decisions about the precise boundaries of areas to be regulated. The House will recall that one of the major conclusions of the Gower report, on which much of the Bill is based, was that the definition of investment to which existing law applied was outdated and too narrow and that a much broader and more flexible definition was needed. Accordingly, the Bill as presented included wide definitions of investment and investment business, which in turn proved to be too wide in some respects.
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Particular concern was expressed by the Confederation of British Industry and the Association of Corporate Treasurers, among others, that a number of industrial and commercial companies would come within the definition of investment business as the Bill was originally drafted. These are not the type of companies to which the Bill was intended to apply. Their investment activities are only peripheral to their main commercial activities and they generally confine themselves to the professional market place and do nothing which affects the ordinary investor. This group of amendments is aimed at meeting the remaining concerns without at the same time creating loopholes which could be exploited by the unscrupulous. The amendments look and are extensive, but I emphasise that they are concerned with the detailed definition of the activities to be regarded as investment business. Mainstream investment activities are not affected.
Amendment No. 411 removes paragraph 17 and replaces it with a new paragraph, but that does not reflect any fundamental change in the philosophy underlying the paragraph. It is still concerned with dealings by a person as principal and the changes made are mostly detailed ones. Perhaps I should comment particularly on the change which will have the effect that a person will not be required to be authorised to solicit shareholders for the purpose of acquiring a strategic stake in a company. The effect will not be to allow such solicitation to take place without any controls. Unauthorised as well as authorised persons would be subject to the rules in clause 51 on unsolicited calls. Investment advertisements will be subject to controls under clause 52. The only effect, therefore, is that a person will not be required to be authorised solely by virtue of his regularly soliciting persons for this particular purpose.
The basic principle underlying new paragraph 18A, which is introduced by amendment No. 413, is that nothing which is done between companies in the same group or between participators in a joint enterprise is to be regarded as constituting investment business. In considering transactions between any member of the group or participator in the enterprise and a third party, any transaction into which a member or participator enters on behalf of another member or participator is treated as though it were entered into by him as principal.
§ Mr. Tim SmithWill my hon. and learned Friend explain how minorities would be protected under these provisions? A group may consist of subsidiary companies, all of which are not necessarily wholly owned. How will minority shareholders be protected from investment advice that is taken in the group?
§ Mr. HowardI do not think that the issue of minorities arises in this context. We are concerned with a company which engages in activities in which it would normally engage as a principal. If an offer is made on behalf of a company to shareholders in another company for their shares, we are concerned with whether the company should be deprived of its exclusion from the Bill's provisions by virtue of the fact that it is acting on behalf of other companies in the group and not only as a principal. That is why I say that I do not think that the protection of minority shareholders arises in this context. Minority shareholders have the benefit of the protection that is afforded by the general provisions of company law.
608 Amendment No. 413 introduces paragraph 18B, which is concerned wth sales finance. Export finance in particular, especially where large sums are required, frequently involves the use of instruments which fall within the definition of investments. The attractiveness of the financial package associated with an offer to supply goods or services is frequently an important consideration for the customer. Many industrial and commercial companies have developed in-house expertise to assemble these packages rather than relying on external financial advisers.
The amendment is intended to exclude such operations from the requirement to be authorised so long as certain conditions are complied with. The principal condition is that the activities would be excluded only if they were engaged in for the purpose of or in connection with the sale or supply by the supplier of particular goods or services or related sale or supply. It may be helpful to explain the concept of related sale or supply. A construction company, for example, may contract with a customer to build a power station, the turbines of which are to be sold direct to the customer by a third party. The sale of the turbines would be a related sale or supply and activities engaged in by the construction company in connection with that sale would benefit from the exclusion provided.
The second main condition is that where the provision of sale finance involves the supplier acting as the customer's agent in dealing with the outside world, the supplier can gain the benefit of the paragraph only if he confines himself to activities which, if he were dealing on his own account rather than as the customer's agent, would themselves be excluded from the definition of investment business.
These two amendments will, we believe, solve most of the problems which have been raised with us on behalf of industrial and commercial companies. None the less, there will remain a few such companies whose activities will still be substantial enough to require them to be authorised. In most cases these companies will deal only with similarly sophisticated companies and with professionals in the investment markets. Amendment No. 420 therefore provides a procedure for exempting such companies from the requirement to be authorised. Exemption can be granted only if the conditions in subparagraph (3) are met. In particular, it is expected that permissions granted under the paragraph will be limited to persons who do not deal with members of the public.
Amendment No. 420 does not lay down any procedure for the grant or withdrawal of permissions and leaves scope for the exercise of considerable discretion as to the grounds on which a permission is granted or withdrawn. I believe that this flexibility to be desirable, given the problem which the provision is designed to solve, but the absence of settled procedures and criteria should not be taken as an indication that the power will be exercised in an arbitrary manner.
I would expect the Secretary of State or designated agency to make public the guidelines which he or it would follow in deciding whether to grant or to withdraw a permission under the paragraph, and also to institute administrative arrangements so that decisions were taken on a reasonable timescale. Certainly, in considering any proposal that powers should be transferred to a designated agency, the Secretary of State will wish to consider carefully the availability of such guidelines and how it is proposed that the powers under this paragraph should be exercised.
§ Mr. GouldThe Minister's explanation of the measure shows that he has made a valiant attempt to meet the concerns of the CBI, the Association of Corporate Treasurers and others about the difficult definitional problems. I have no quarrel with what the Minister has sought to achieve. I share his hope that the provisions will secure that objective. The only observation I make is that, as in so many other of the difficult problems with which the drafters of the Bill have had to deal, we must realise that dividing lines drawn now and which look appropriate now could well be inappropriate in changing circumstances.
One has only to reflect on the fact that many industrial and commercial companies in today's unhappy climate are having great difficulty in making profits on their mainstream operations. Many remain in profit only by virtue of the activities of their corporate treasurers in dealing with money markets, foreign exchange markets, and so on. It would be relatively easy for some of the companies which might be affected by the provisions to slip from one category to the other—in other words, to become less industrial and commercial companies and more financial companies. We must watch that carefully.
The dividing line between what is incidental investment business and what is mainstream business must be watched, as the position can change, as is the case with the other dividing line with which amendment No. 420 is designed to deal. The problem has also arisen in other respects—for instance, whether an investor or someone engaged in the investment business is dealing with other professional investors in every circumstance. The procedure which the Minister has outlined, which is represented in amendment No. 420, gives the requisite flexibility. The Minister and his successors, whichever party is in government, will have to watch those matters carefully. It is worth recording at this point that changes may have to be made frequently.
§ Mr. Teddy Taylor (Southend, East)Can my hon. and learned Friend say whether new paragraph 17(1) (c) would remove any protection for the general public against being cascaded with misleading information about investment in unsound schemes, such as the construction of the Channel tunnel?
§ Mr. PavittI hope that the Minister will forgive me for my ignorance in seeking an explanation of new paragraph 17(1)(b). I am more at home in talking about the National Health Service than I am in the stratosphere of high finance. I am sure that all hon. Members will understand my asking: how does a principal hold himself out to be engaged in either investment or speculation? What process must he go through if he is to conform to the strictures contained in the new paragraph? Since my days on the stock exchange floor there have been gigantic changes. For example, the position of a principal who is a jobber or a broker has altered recently.
New paragraph 17(1)(b) relates to a person buying investments with a view to selling them. He is really buying to make a profit. The Minister said that there were two processes—one involving people who are in the business purely for making a quick profit and turnover, and those, such as borough treasurers, and so on, who are in the market for investment purposes. Does the Bill cover a person buying for a profit and selling subsequent to a rise? Does it include the position of a principal engaged in 610 speculation and selling shares, stock, debentures, or any other form of negotiable security in the hope that before he comes to settle he can buy them back—in other words, the bear position rather than the hull position? Does new paragraph 17(1)(b) cover both those positions? Or does it cover only the person who speculates to make a profit by buying cheap and selling dear, and not the other way round?
§ Mr. HowardMy hon. Friend the Member for Southend, East (Mr. Taylor) will appreciate how severe the temptation is for me to be drawn into extensive discussion on the Channel tunnel project and how unwise it would be for me to succumb to that temptation. I content myself with the observation that the protections of clauses 51 and 52 will still be available, as I said in opening, and I think that that provides the answer to the general point that he raised.
The hon. Member for Brent, South (Mr. Pavitt) referred to the concept of "holding oneself out". That concept is reasonably well recognised in law. It is riot a novel creation of this legislation, and it would not be a difficult concept for the courts to interpret in the context of the legislation. Those who make markets, who use the new technology in the stock exchange and who take advertisements in newspapers will readily be seen to be holding themselves out. I do not think that any difficulty should arise about that concept.
My initial reaction to the hon. Gentleman's second point—it is not for me to give a definitive interpretation, as ultimately that will be a matter for the courts—is that the bear position to which he referred would be covered by the provision in the same way as other intentions would be.
§ Question put and agreed to.
§ Lords amendments Nos. 412 to 419 agreed to.
§ Lords amendment No. 420 agreed to. [Special Entry.]
§ Lords amendments Nos. 421 to 430 agreed to.
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Lords amendment: No. 431, in page 155, line 20, leave out from "include" to end of line 21 and insert
a number of persons independent of the organisation and its members sufficient to secure the balance referred to in subparagraph (1)(b) above.".
§ Mr. HowardI beg to move, That this House doth agree with the Lords in the said amendment.
It has always been the Government's intention that the persons responsible for making and enforcing the rules of a self-regulating organisation should include a sufficient number of persons independent of the organisation and its members to secure a proper balance between the interests of the organisation or its members and those of the public. During the debate in another place on the Bill it was suggested that the link between the sufficient number and the balance to be achieved was not expressed clearly enough. This amendment makes clear what is meant by "sufficient" in this context.
§ Question put and agreed to.
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Lords amendment: No. 432, in page 155, line 24, at end insert—
(2) The arrangements may make provision for the whole or part of that function to be performed by and to be the responsibility of a body or person independent of the organisation.
§ Mr. HowardI beg to move, That this House doth agree with the Lords in the said amendment.
611 The amendment makes it clear that it is open to a recognised self-regulating organisation to establish, possibly in conjunction with other RSROs, an independent mechanism, such as an ombudsman scheme for the investigation of complaints against the organisation or its members. However, this mechanism would not be able to exercise the enforcement or disciplinary functions of a self-regulating organisation, which would remain the SRO's responsibility.
Generally speaking, if a function is carried out on behalf of a self-regulating organisation, the ultimate responsibility remains with that organisation. If the function of investigating complaints is carried out by an independent body, it may help to underline that very independence if responsibility is transferred as well. This would be important in a case in which a complaint is made against the organisation itself rather than one of its members.
§ Mr. CashI am glad to hear the Parliamentary Under-Secretary make that point. It will help considerably in cases in which, for example, bodies might otherwise be unreasonably and unfairly blackballed, because members of that organisation will have an opportunity to make representations. On the point about the cosy club, on which there are differences of opinion, only time will tell. It is possible for circumstances to arise in which somebody who is not regarded with the same favour in some circles as others would find himself excluded, perhaps unreasonably. In those circumstances, rather than having to go through the courts, he may be able to take advantage of this provision. Will the Parliamentary Under-Secretary confirm that that is what he has in mind?
§ Mr. John Butterfill (Bournemouth, West)Will the Parliamentary Under-Secretary enlighten us as to why this clause is permissive rather than mandatory?
§ Mr. HowardI am happy to confirm that the effect of the clause as drafted will cover the point raised by my hon. Friend the Member for Stafford (Mr. Cash).
The point raised by my hon. Friend the Member for Bournemouth, West (Mr. Butterfill) was carefully considered. We took the view that there was no need to make this provision mandatory. It may be that in a particular case an external investigation service, or at least an external element, would be preferable, but if a wholly internal investigation service can provide adequate protection for investments, I cannot see why it should be ruled out. The key point is that the Secretary of State or designated agency will have to be satisfied that the arrangements are effective, whether they are internal or external.
If an investor is aggrieved at the result of the self-regulating organisation's investigation, he can refer his complaint to the designated agency. The agency, by virtue of paragraph 4 of schedule 5, will need to have arrangements for investigating complaints against authorised persons and against SROs. If amendment No. 439, to which we are about to turn, is agreed, those arrangements will be required to include in appropriate cases arrangements for the independent investigation of complaints against authorised persons. Therefore, the Bill provides a means whereby a person who is dissatisfied with a self-regulating organisation's investigation of his 612 complaint can have his complaint investigated by somebody independent of the organisation. Consequently, the requirement that each self-regulating organisation should have its own ombudsman is unnecessary.
§ Question put and agreed to.
§ Lords amendments Nos. 434 to 436 agreed to.