HC Deb 22 January 1987 vol 108 cc1035-41

4.3 pm

The Secretary of State for Trade and Industry and President of the Board of Trade (Mr. Paul Channon)

With permission, Mr. Speaker, I should like to make a statement on the report of the committee of inquiry into regulatory arrangements at Lloyd's.

I have today laid before the House, as a Command Paper, the report of Sir Patrick Neill and his colleagues. I am sure that the House will wish to join me in expressing warm appreciation of their work.

The committee was set up by my predecessor a year ago to consider whether the regulatory arrangements being established at Lloyd's, under the Lloyd's Act 1982, provide protection for the interests of members of Lloyd's comparable to that proposed for investors under the Financial Services Act 1986. The committee recognises the major contribution Lloyd's makes to the national economy. The report notes that the council of Lloyd's has strengthened the regulation in its market by putting into effect a major programme of reform since the 1982 Act entered into force.

The committee makes 70 recommendations, which should bring the two levels of protection into line. The committee does not believe that the solution to the problems it has identified is external supervision of Lloyd's, or an extention of the role of my Department. It recommends, instead, a change in the balance of representation on the council of Lloyd's by increasing the number of nominated independent members. They and the elected non-working members would then command a majority.

The committee also recommends an enhanced role for the nominated members in Lloyd's, for example, through their chairing of important committees.

The committee's conclusion is that its recommendations will make the protection of Lloyd's members comparable to that provided under the Financial Services Act. The committee has, moreover, taken care to strike a balance between the safeguarding of members' interests and the protection of Lloyd's policyholders.

The Government believe that the report provides a good basis for the further development of measures to protect the interests of Lloyd's members. I shall, of course, be discussing the report with Lloyd's. I shall want to hear its proposals and timetable for action. I expect Lloyd's to take all the necessary steps to bring the protection offered to members up to the standard of the Financial Services Act. I shall therefore be following closely with it its progress in this matter.

Mr. John Smith (Monklands, East)

The Secretary of State referred selectively to sections of the report. Why does he not tell us that, although the report notes that Lloyd's has made approved changes since 1982 it also reaches the conclusion in paragraph 1.5 that, notwithstanding the changes, progress has not been sufficient and it goes on to detect some shortcomings?

Is it the case that the Government did not draw our attention to that because it would invalidate, to some extent, one of their arguments for excluding Lloyd's from the Financial Services Act 1986? Will the Secretary of State bear in mind the narrow terms of reference given to the committee? The terms of reference were to consider whether the protection for names was comparable to the proposed protection for investors under the Financial Services Act. Surely the terms of reference should have been what measures are necessary to restore confidence in Lloyd's? If that question had not been put properly a much more interesting report might have emerged.

Is the Secretary of State aware of the well-expressed comment in many of the newspapers that the chairman, Sir Patrick Neill, wanted much stronger action in the recommendations but was out-voted by his colleagues on the committee? Is it not the case that the proposed changes in the council merely amount to a re-jigging of the membership and not to any fundamental change in Lloyd's? Is it not surprising that although the report identifies the importance of the independence of the chief executive, it proposes no action to secure the independence of the chief executive? That is an important matter in view of the fact that Mr. Hay Davison, a former chief executive, found it impossible to maintain his integrity in the position he had taken up. Is it not clear that the answer is to bring Lloyd's simply and clearly within the provisions of the Financial Services Act so that the same standards apply throughout all of our financial institutions?

Will the Secretary of State tell us how many references there have been from Lloyd's to his Department about persons in respect of whom prosecutions might be taken? How many proposed prosecutions are under consideration by the Department of Trade and Industry? What action will be taken to bring offenders to book, bearing in mind that some major scandals have occurred in Lloyd's? Does the Secretary of State think that it is scandalous that Mr. Peter Cameron-Webb and Mr. Peter Dixon, who have committed gigantic frauds, have not only escaped prosecution but are apparently conducting insurance broking business in Florida?

Mr. Channon

The Director of Public Prosecutions is looking at several cases and my right hon. and learned Friend the Attorney-General made a statement to the House on 20 November, to which I refer the right hon. and learned Gentleman, which deals with the point he has in mind. On the matter of insufficient progress, the whole purpose of my statement is to say that we wish to provide for Lloyd's comparable arrangements to those under the Financial Services Act. Simply to bring it within the terms of the Act would be wrong and that was widely recognised during the passage of the Bill through the House. It is true that some hon. Members, including some of my hon. Friends, took a different view. I think that what the new report suggests are comparable arrangements that should be satisfactory to the House.

I have no evidence to believe there is a shred of truth in the suggestion that Sir Patrick Neil was out-voted. It is certainly not reflected in the report. I shall now study the report with great care and I shall study any comments made by the House before coming to final conclusions. I want Lloyd's to take all the necessary steps to bring the protection offered to members up to the standard of the Financial Services Act at the earliest opportunity. The right hon. and learned Gentleman will recognise that it says on many occasions in the report that the council has transformed self-regulation for Lloyd's. Indeed, paragraph 1.4 says: We know of no profession or equivalent organisation which has accompished such a major programme of reform in such a short timescale.

Mr. Leon Brittan (Richmond, Yorks)

Does my right hon. Friend agree that the carping about the terms of reference in seeking to probe the internal workings of the committee by the right hon. and learned Member for Monklands, East (Mr. Smith), is a classic example of sour grapes because the committee did not come to the conclusions to which he wanted it to come? Will he further agree that the conclusions of the committee amply confirm the view that was formed that, although changes were needed at Lloyd's, it would be wholly inappropriate to bring about those changes by amending the Financial Services Bill to include Lloyd's? Will he also agree that the time has come, in the light of the positive but substantial recommendations of the committee, for him to urge Lloyd's strongly to proceed with the further changes that are necessary and appropriate to put matters in order?

Mr. Channon

I am grateful to my right hon. and learned Friend—who was responsible for setting up the committee. I entirely agree with his criticism of those who criticise the terms of reference, as the right hon. and learned Member for Monklands, East (Mr. Smith) did a few moments ago. My right hon. and learned Friend is entirely right to say that it would be inappropriate—as the report makes clear—to bring Lloyd's within the terms of the Financial Services Act. We must look to Lloyd's to act with urgency and to come forward with measures, in the light of the report, to provide protection comparable with that under the Financial Services Act. I shall be discussing the matter with Lloyd's, and I hope to arrange a timetable that will be agreeable to all parties in the House.

Mr. Brian Sedgemore (Hackney, South and Shoreditch)

Will the Secretary of State assure the House that the Government will insist that Lloyd's takes up two recommendations—one on compensation for the names and the other on the appointment of an ombusdman to settle internal disputes? Equally important, will he tell the House about the political shenanigans that occured in the preparation of the report and the pressure, expressed and implied, that was brought on Sir Patrick Neill to stop him following his natural inclination to bring Lloyd's under a wider statutory purview, for which the Opposition have constantly argued?

Mr. Channon

The hon. Member must take responsibility for his own comments. I have no evidence that what he says has the remotest bearing on the truth. Sir Patrick Neill can answer for himself; he has given a press conference this morning, and no doubt he will consider what the hon. Gentleman has said and answer it in any way that he likes. I do not believe that what the hon. Gentleman says is the truth, but Sir Patrick must speak for himself. Neither I, nor, as far as I know, anyone else, has put any pressure on Sir Patrick Neill to come up with any solution. Anyone who knows him knows that it would have been totally counter-productive to make any effort to do so.

As to the question of compensation and the ombudsman, we shall look carefully at all the recommendations in the report and I shall keep the House informed of our thinking on these matters.

Sir Peter Tapsell (East Lindsey)

While we all look forward to reading the 70 recommendations of this report with the greatest care and interest, may I put it to my right hon. Friend—I am sure that he shares this view himself —that it is a matter of concern that certain cases of really serious alleged irregularities—which have been very publicised in great detail—have still, after a very long passage of time, not resulted in even the launching of a prosecution? This does seem to contrast rather mysteriously with the relative speed with which, for instance, the Securities and Exchange Commission was able to act in New York in the case of the Boesky scandal.

Mr. Channon

I have some sympathy with what my hon. Friend says about prosecution. However, that is a matter for the Director of Public Prosecutions, and, as I said, my right hon. and learned Friend the Attorney-General made some comments to the House in late November about that matter. I shall draw what my hon. Friend has said to his attention.

Mr. Dennis Skinner (Bolsover)

If the Prime Minister's recent remarks about the Tory Government taking tough action against the City are to mean anything at all, the Minister should have come to the Dispatch Box today and said that the cosy club, self-regulated atmosphere at Lloyd's would end. What he is really saying is that Lloyd's can do as it likes. The Government will have a few words on the quiet, but the Minister will not change the arrangements. We shall return to the Cameron-Webb and Dixon days, when they got away with £39 million. The Berlin wall mentality will continue to operate at Lloyd's, where nobody else can interfere, including the fraud squad. Why should that area of the City be a no-go area, when 138,000 claimants on the DHSS are done by those same fraud officers?

Mr. Channon

With respect to the hon. Gentleman, he cannot have studied the report with care—[Interruption.]

Mr. Skinner

I read it before today.

Mr. Channon

I read what the hon. Gentleman said in The Guardian, but what he says bears no relation to the truth. This was an independent committee, and the House will have to consider its decisions. The committee agrees that that is an acceptable basis on which to go forward, but I want to make sure that there is a proper timetable and that Lloyd's makes the necessary changes. I believe that is what the House wants to see, and that is what we shall do.

Mr. William Cash (Stafford)

Will my right hon. Friend agree that the keynote of the recommendations—the increase in the independence of the governing body—should be accepted to ensure that all parties involved in Lloyd's, and the public, can have confidence in Lloyd's. Furthermore, the key question is whether one can strike a balance—as the report accurately does—between self-regulation, which has to be maintained for practical reasons, and tough regulatory action for defaulters.

Mr. Channon

I agree with my hon. Friend. It is important that the change in the composition of the council should take place. I shall discuss that point with Lloyd's at an early date. Lloyd's have issued a statement on its preliminary views, and at first sight that seems encouraging, but I take note of my hon. Friend's views.

Mr. Ian Wrigglesworth (Stockton, South)

is the Secretary of State aware that that undertaking is most welcome, because the recommendation to increase the number of independent members is of importance in trying to ensure that there is public confidence in the way in which Lloyd's will be regulated in the future? Will he ensure that that recommendation—while being brought in quickly—does not only refer to Lloyd's? Does it not also imply that there is a case for having the same sort of independent majority on the Securities and Investment Board, which is covering the work of the rest of the City?

Mr. Channon

On the first point, I welcome the hon. Member's remarks and I am glad to have his support. However, I do not think that the situation is on all fours with the SIB, but it is open to me to keep under review the number of lay members that there will be on the SIB. I shall keep that under continuing review. If it proves necessary to make a change, we shall make a change, but I do not think that there is any need for that at present.

Mr. Anthony Nelson (Chichester)

Does my right hon. Friend agree that many of the 70 recommendations in the report are significant in terms of constitutional change, investigatory powers and monitoring? The question for the Government must be whether they can be accommodated from the inside by simple changes of rules within the council, or whether they should be introduced from outside by some means or another. It has always been the view of many of us that it would be wholly improper for this matter to be part of the Financial Services Act. However, will he ensure that he does not close the door on the possibility of introducing changes by a public or private Bill, as many of us still feel that that would restore and enhance the respectability and confidence of both policyholders and members of Lloyd's?

Mr. Channon

I do not close off any possibility at present, and I shall bear my hon. Friend's views in mind. However, I am anxious to proceed with some speed and if that can be done without legislation, which is bound to cause delay, we shall be able to act much more quickly. I want to see investor protection. I agree with what the hon. Member for Stockton, South (Mr. Wrigglesworth) said about comparability with the SIB. We all want comparable investor protection to be achieved at the earliest possible moment and that is what we shall work for.

Mr. Austin Mitchell (Great Grimsby)

Is it correct that one of the reasons for appointing the committee with its limited terms of reference was to take minutes and waste years and thus fob off the possibility of regulation under the Financial Services Act? Further, is it correct that the wish of the chairman was for a similar framework of regulation for Lloyd's but that he was overruled by the other two members? Is it also correct to say that in wanting comparable arrangements for Lloyd's the committee has conceded the case for regulation under the Financial Services Act, and should not the Secretary of State's proper course now be to rewrite that Act, put it on a statutory basis, and bring Lloyd's within it?

Mr. Channon

I do not agree with anything that the hon. Gentleman says. There is no evidence of the chairman being in a minority, but he can speak for himself. I have no evidence that what the hon. Gentleman says bears any relation to the truth—

Mr. Skinner

The right hon. Gentleman is in a minority.

Mr. Channon

I am not in a minority.

Mr. Skinner

Yes—even in the Cabinet.

Mr. Channon

No, I am in a strong majority, and a strong majority of hon. Members is in favour of the report.

The committee was not set up to waste a lot of time. It has reported reasonably quickly and we shall take action quickly.

Several Hon. Members


Mr. Speaker

Order. There is another statement to follow but I shall call those hon. Members who are standing, but I ask them to put their quesions briefly.

Viscount Cranborne (Dorset, South)

My right hon. Friend has stressed the importance of speed in this and the House will welcome that, particularly in view of the lack of action so far in prosecuting the perpetrators of the many scandals that have bedevilled Lloyd's over the past few years. Therefore, will my right hon. Friend help the House a little more by saying how fast he would like Lloyd's to act and whether he would expect some action within six or 12 months, or when?

Mr. Channon

I want to have urgent talks with Lloyd's and to be in a position shortly to come back to the House with an agreed timetable for action. I hope that that will happen shortly and I shall keep my hon. Friend in touch.

Mr. Tim Smith (Beaconsfield)

If Lloyd's is to be placed on an equal footing with self-regulating organisations under the Financial Services Act, my right hon. Friend the Secretary of State must inevitably have the same powers as the Securities and Investment Board already has under the Act. I understood my right hon. Friend to say that Neill had recommended no addition to the Secretary of State's powers. Can he confirm that he already has the same powers to interfere in the affairs of Lloyd's as the SIB has to interfere in the affairs of SROs?

Mr. Channon

What I have are powers under the Companies Acts and under the insurance regulatory Acts to deal with the affairs of Lloyd's. There have been a number of investigations into groups at Lloyd's in the past and I believe that I have the necessary powers in that area. I also believe that we can now work together—I hope that I am right in thinking that there will not be substantial disagreement between the various parts of the House—so that we can agree a timetable for action on the report so that we shall see progress shortly.

Mr. Nicholas Budgen (Wolverhampton, South-West)

Will my right hon. Friend remind Lloyd's that it has conducted a public discussion about how it can institute self-regulation at least since the Fisher report in 1980, and within the next year will he tell it that either it does the job itself and does it properly or else Parliament will legislate?

Mr. Channon

Yes, Sir.

Mr. Tim Yeo (Suffolk, South)

I welcome the Government's decision to set up the inquiry, and the main conclusions of the report, as steps towards the maintenance of public confidence in Lloyd's, which is, after all, an important earner of overseas exchange. Would not an even more important step towards rebuilding that confidence be the early prosecution, and preferably conviction, of those wrongdoers whose notorious, and as yet unpunished, activities remain a source of considerable public concern?

Mr. Channon

Yes, I understand and share my hon. Friend's view about that matter. I have already said that I shall draw the attention of my right hon. and learned Friend the Attorney-General to what has been said in the House. This is a matter for the Director of Public Prosecutions and I shall draw his attention to that.

Mr. Robert McCrindle (Brentwood and Ongar)

How does my right hon. Friend square the idea of a compensation fund for investors with the traditional unlimited personal liability of names at Lloyd's?

Mr. Channon

That is something to be discussed by Lloyd's. It is a suggestion in the report. I am not accepting every detail of the report today. I am saying that, so far as I can judge, it is an acceptable basis for discussion with Lloyd's so that there can be an urgent review and a timetable drawn up on how to proceed. That will be among the matters which I shall wish to discuss with Lloyd's and I would welcome my hon. Friend's views on the topic.

Mr. Michael Marshall (Arundel)

Will my right hon. Friend accept that those of us who sat on the Committee that considered on the Lloyd's Bill believe that there is a need to be consistent in the House? We should bear in mind that the House came to the view that the case for self-regulation was powerful. Speaking as a name, I am bound to say that the report points the way forward.

Mr. Channon

I am grateful to my hon. Friend. I think that in broad terms I share his views and I shall certainly bear them in mind.