§ The Economic Secretary to the Treasury (Mr. Anthony Nelson)
I beg to move,That the draft Insider Dealing (Securities and Regulated Markets) Order 1993, which was laid before this House on 8th December, be approved.The order is required to enable the insider dealing legislation contained in the Criminal Justice Act 1993 which repeals and restates the law on insider dealing to be brought into force. We plan to commence the Act's insider dealing provisions on 1 March.
The House will know that during the passage of the Criminal Justice Act the House considered at length the broad question of how to prevent insider dealing. It is not the function of the order to address that question. Instead, the issues with which it deals are much more specific and it is to them that I intend to confine my remarks during the course of this debate.
First, the House may find it useful if I set the order in the context of the Criminal Justice Act. Under the Act, the first test of whether an offence has been committed is that an individual has information whose publication would significantly affect the price of a security. Where that is the case, the Act makes it illegal, subject to the exceptions and defences, to do any one of four things: first, for that individual to deal on a regulated market in that security; secondly, for him or her to deal as a professional intermediary or through such an intermediary in that security; thirdly, for him or her to encourage another to deal in that security; fourthly, for him or her to disclose the information with a view to others profiting from it.
I think there is general agreement within the financial services industry that the new legislation represents a sensible broadening of our existing law while carrying forward the thrust of the present regime; that those who possess privileged information should not be permitted to misuse it to the detriment of others.
While the legislation contained in the Criminal Justice Act is an important element in the fight against insider dealing, there are others which I should like to mention briefly. I think that most people would agree that the most effective way to curb insider dealing is to restrict the opportunities which the potential wrongdoer has for misusing information. That can be achieved only if companies meet their obligations under the stock exchange rules to announce, as soon as possible, significantly price sensitive information to the market as a whole, rather than to disclose such information selectively. I know that the stock exchange will strive to ensure that listed companies continue to honour this obligation and I welcome the work which they are leading on drafting new guidance concerning the dissemination of price sensitive information.
Also of importance is the role of market surveillance, which is vital in the detection of possible offences. I am pleased therefore to see that the Securities and Investments Board is taking forward work to build upon the present surveillance system by considering how regulators can be given access to information about activity in all parts of the cash and derivatives markets in equities, comprising transactions done over the counter as well as on exchange.
278 The order has three functions. First, it specifies the securities to which the Criminal Justice Act is to apply. The effect of the order is to apply the law to securities which are market related, reflecting the fact that the legislation is designed to protect the integrity of the market in its broadest sense.
The order therefore applies to any security falling within schedule 2, that is, shares, debt securities, warrants, depository receipts, options, futures and contracts for differences. A security of those types which is officially listed in a state within the European Economic Area would be caught by the order. In addition, any such security which either is admitted to dealing on, or has its price quoted on or under the rules of, a regulated market is a security for the purpose of insider dealing.
The order also includes alternative conditions for derivatives of shares and debt securities, which are required so that an insider dealer is not able to circumvent the law by, for instance, dealing in an unlisted security of these types which relate to shares or debt securities which are themselves listed.
The second function of the order is to specify what is meant by the term "regulated market", which is important for determining whether a transaction in a particular security is covered by the legislation. Transactions in securities will be covered if they occur on regulated markets; or if they are done off-market in reliance on a professional intermediary. Regulated markets are stock exchanges within the European Economic Area, relevant domestic derivatives exchanges—LIFFE, the London International Financial Futures and Options Exchange, OMLX, the London Securities and Derivatives Exchange —and the recognised overseas investment exchange, NASDAQ.
Dealings in securities which are traded on these markets will be subject to United Kingdom law provided that they have a significant United Kingdom component. This allows us, for example, to apply the law to an insider dealer in London who tries to avoid the law by buying shares in a company with multiple listing on the Paris bourse rather than on the London stock exchange.
Finally, the order specifies what is meant by the term "market regulated in the UK". That is important, because the Government intend that all dealing which occurs on securities markets operating within the United Kingdom should fall within the ambit of the legislation, regardless of the whereabouts of the dealer. A United Kingdom regulated market is any market which is established under the rules of the London stock exchange and LIFFE and OMLX.
The order brings into effect the legislation that has been considered at length by the House. In doing so, it updates and, I think, significantly improves the existing legislation.
§ Mr. Hugh Dykes (Harrow, East)
I thank the Minister for his work in this field. Bearing in mind the fact that the single market in financial services and stock exchange dealings has now begun in earnest, is he optimistic that the order and the related legislation in this and other countries will enable us to deal on a common basis with insider dealing infringements in all the markets of the member states?
§ Mr. Nelson
Yes. I am much more confident that the order goes a long way towards providing an assurance about free and fair markets within the European Economic Union—Community.
§ Mr. Nelson
All the pillars of the union will have free and fair markets.
More importantly, the investment services directive provides the passport for investment services from one member state to another. That will come into effect eventually and has been carefully negotiated. I hope to ensure free, fair and transparent markets and, critically, to ensure that this country's financial services industry, which is extremely important and a large employer that attracts significant liquidity and competitive industry from abroad, is preserved and its future competitiveness enhanced.
§ Mr. George Mudie (Leeds, East)
The Minister says that he is fairly confident that the protection will work. The order refers to Liechtenstein. Is the Minister aware that Barlow Clowes opened a stock exchange company there in which only the directors and not the shareholders need to be identified? It is not hard to see how insider dealing could work in that country, as Barlow Clowes obviously worked out. How will these arrangements protect investors in that country?
§ Mr. Nelson
The inclusion of Liechtenstein results from the extension of the ambit and jurisdiction of the order to the European Economic Area. That means that outside the Community it includes Austria, Liechtenstein, Finland, Iceland, Norway and Sweden. That is a necessary requirement under the directive.
It is important to understand that the order and part V of the Criminal Justice Act will enable us to investigate and bring prosecutions in cases where people place an insider dealing order through a professional intermediary or on a particular regulated exchange. That is a question of fact which must meet the criterion and must be on one of the regulated exchanges here.
I shall now explain investigation and how the information is obtained. The market surveillance group of, for example, the stock exchange is principally involved in trying to spot—I acknowledge the difficulties at home and abroad—cases in which insider dealing may have arisen. When it is done through nominees at home or abroad, it can present as many difficulties in the future as it has in the past.
The hon. Member for Leeds, East (Mr. Mudie) made a fair point. It is extremely difficult in this area and in others to craft catch-all legislation that will deter or prevent all sorts of insider dealing. However, the directive provides significant clarification of the existing law. The fact that it is a directive and that it has been accepted by the members of the European Economic Area means that it is far more likely to work. By signing up to it, those member states are saying that they will comply with the standards of disclosure, investigation and prosecution that we shall apply.
For all those reasons, I believe that the order, which brings the Act into force, marks a significant improvement in legislation. It strikes the right balance between deterring, prosecuting and investigating insider dealing, which is not 280 a victimless crime, and ensuring that we do not deter or inhibit those professional companies that are so important to our financial services industry and the economy.
§ Mr. Alistair Darling (Edinburgh, Central)
The Minister has given us an excellent factual, but theoretical, explanation of how the legislation is supposed to operate, but there is a simple reason for opposing it. There is no point in the House continuing to pass legislation that will not be effective, and will not be enforced in many cases. It is complicated, it is difficult to understand and, at best, it will provide a dripping roast for the many lawyers who make a fortune in a sector where the Government's track record of enforcement is poor.
It is important to put criticism of the insider dealing legislation and of regulation in general into the context of the importance of the financial services industry to the country, both to those working in it and internationally. More than 2 million people are employed in the industry. It produces 18 per cent. of the gross domestic product. Many towns and cities depend on it for employment. In addition, London is still the pre-eminent and dominant market in the world. We enjoy an international reputation, and it is important that we keep it.
Another matter should be considered. Other world financial centres such as New York, Chicago, Tokyo and, increasingly, those in the far east are dominant in their field because of the strength of their domestic economy. In contrast, London's dominant position is despite the performance of our domestic economy. People come to London because of the critical mass of expertise here and the reputation of the City of London. It is important that the House recognises that and acts at all times to ensure that London's reputation, particularly its reputation as a clean market, is upheld. I fear that, unless the Government take action to ensure that legislation is workable and enforceable, it will not act as a deterrent to the minority of people who are determined to exploit the system for their own considerable personal gain.
Insider dealing is far more widespread than the Government care to admit. The record shows that the legislation is little deterrent. Since 1987, 104 cases have been reported. Only 33 have been prosecuted, and only 16 of those cases resulted in a conviction. Anybody operating in the financial services industry will say that insider dealing is taking place all the time, to a greater or lesser degree, not just in London but throughout the world. That is the very nature of the industry. If we are to assert the importance of London, to keep promoting it and the rest of the financial services industry, it is important that the legislation works, and that people know that it is not worth cheating on the system because they will be caught and convicted.
There are problems with conviction, and that is why we must explore the merits of using a complementary system of effective regulation. Apart from anything else, there is a different standard of proof. If one falls foul of the regulatory system, the penalties that may be visited upon the offender may be far greater than those that would be visited upon him by the criminal system. That is especially so when one considers the record of the courts.
It is interesting that the debate is taking place on the Floor of the House because of pressure from the Labour party. If the Government had had their way, the order 281 would have gone through, on the nod, in a Committee. We insisted on the debate because it is high time that the Government stopped their continuing silence on the problems in the financial services industry and their apparent uninterest in the face of obvious difficulties. There is a feeling that there is little chance of being caught, even less chance of being prosecuted, and every chance of getting off if one goes in for insider dealing or other City crimes.
When it comes to sentencing, the law is becoming laughable. Everyone remembers Roger Levitt. Few people will forget him laughing his way out of court after getting community service in the same week as a pregnant woman was sentenced to imprisonment for failing to pay her television licence. Levitt was described as "markedly dishonest" by the judge, yet he got community service.
Ministers were prepared to condemn the fact that a young boy was sent round the world as part of his rehabilitation, yet not one single Minister got up to condemn what happened to Roger Levitt or others convicted of serious crimes. Ernest Saunders was the only man in the world to have got senile dementia and recovered. Terry Ramsden was convicted of £90 million fraud and received a suspended sentence in the same week as a poacher in Scotland got three months in prison for poaching salmon.
The record of sentencing in the courts in Britain is abysmal. In the same week that the Government have been lecturing the nation on law and order and their policy of "back to basics", we have heard absolutely nothing about that branch of the law. We should remember that Gerald Ronson was fined £5 million—[Interruption.] I know that Conservative Members are getting very upset because they know that their record is abysmal. Gerald Ronson had £2 million of his fine paid by his own colleagues. They thought so much of his conduct that they now have him back behind his desk—[Interruption.]
§ Mr. Deputy Speaker (Mr. Michael Morris)
Order. There seems to be barracking from all sides of the Chamber. There is barracking from one side and cheering from the other.
§ Mr. Darling
I am grateful from your protection, Mr. Deputy Speaker. It is interesting that the newly promoted Minister of State for the Armed Forces was leading the barracking and has now slunk out of the Chamber.
When we look at the record, at Saunders, Ramsden, Levitt and Ronson, I cannot understand why Asil Nadir has anything to fear from British justice.
It is not just the Labour party that believes that the enforcement of insider dealing is ineffective. The London stock exchange also believes that we need a new system of enforcement. Representatives of the stock exchange wrote to me last year saying that they believed that a central enforcement body was necessary. It is not their primary duty to take care of such matters, but they detect through their duties under the Financial Services Act 1986 that insider dealing might be going on. They believe that a centralised body is necessary to enforce such matters.
Andrew Large, the chairman of the Securities and Investments Board, alluded to the fact that we do not have a centralised enforcement body when he addressed the 282 same conference as the Economic Secretary last autumn. The Economist, in an editorial last April complained that enforcement is not taken seriously.
We need to use a judicious mix of the criminal law, where there is allegation of criminal conduct, and regulation, which requires a different standard of proof, but carries far more draconian penalties where conduct falls short of criminal activity, because the wrongdoer can be prevented from carrying on business.
Why will the Government not consider the problem? Why, when they complain about every other aspect of the breakdown of law and order, sometimes justifiably, sometimes not, do they do nothing about an increasing problem which is recognised not just by the Opposition but by respected bodies in the City of London and elsewhere?
I also believe the time has come for the Government to look at the work of the Serious Fraud Office. It has its own problems and operates in a difficult area. However, it is clear from its record over the past few years that the time has come to assess, among other things, its relationship with the City of London police. It has to be asked whether cases are being prosecuted in an appropriate manner and whether indictments are too long.
The Government should take some responsibility, yet we hear absolutely nothing. If we had a new enforcement agency with responsibility for criminal and regulatory powers, that would be a major step forward and I am sorry the Minister has said nothing about it. However, a new enforcement agency could be established only as part of the overall regulatory system. An increasing number of people in the industry believe that self-regulation must be brought to an end now.
The pension scandal, unveiled at the end of last year and, incidentally, detected by the SIB, the direct regulators, not by any of the self-regulating organisations that are supposed to look at such matters, revealed that up to 500,000 people may have been wrongly advised and transferred to personal pensions. The home income plans that emerged in the late 1980s led to thousands of elderly people losing everything.
Surely, when everyone else realises that the system is not working, the Government might show some interest in the matter. But what have we got? We have had three years of horse trading over the new Personal Investment Authority, about which controversy continues. The much respected Jim Stretton of the Standard Life Assurance Company resigned this week. I disagree with the reasons that led him to resign, but I agree with his conclusion that we would be better off with direct regulation.
The problems of Lloyd's show what happens under self-regulation. Surely the time has come for the Government to examine it. When one considers the cost of regulation to the industry and, therefore, to members of the public who pay for it, we cannot afford to limp on for another four or five years when a growing number of people realise that a radical overhaul is absolutely necessary.
Self-regulation must stop and we must have direct regulation by the SIB reporting to Parliament. There is no point limping on. It would be far better for everyone to get the system right now. Let us set up something that gives the public confidence, without which the public will not do business with the industry.
Even on the question of narrow self-interest, the industry should have recognised that proper regulation is necessary for confidence. In the future, more and more 283 people will want to make provision for themselves, whether through pensions or savings plans. If the Government ask them to do that, they must ensure that regulation works. Effective regulation is not a burden; to coin a phrase, it is a price well worth paying.
The SIB should have direct responsibility for prudential supervision. If we provided for that, together with the reform of banking supervision which is now long overdue, the regulatory system would be seen to be of positive assistance to the industry and a safeguard to the public in the United Kingdom and throughout the world.
Yet we have heard nothing from the Government. All that we heard was a well-read resume of the theoretical position on insider dealing legislation. The Minister does not seem to acknowledge that there is even a tremor of concern anywhere. I assume that he sees the cuttings in the newspapers. I assume that he speaks to people operating in London and the other financial centres in the United Kingdom. Yet he said nothing about that.
Before the hon. Gentleman became a Minister he regularly, and to his credit, expressed great concern about these matters. I understand the problem that he had when he worked under the right hon. Member for Kingston-upon-Thames (Mr. Lamont), who took a more Thatcherite view of these matters than perhaps the hon. Gentleman did. Yet the present Chancellor, who I know has a reputation for not being interested in the small print of these matters, might have been expected to take an interest in the matter. If the Government do not act, we shall be faced with scandal after scandal until the regulatory system is put in order. Yet the Government sit by as a disinterested spectator.
The Minister got angry earlier today when he and I appeared on television and I suggested that part of the problem is that too many Conservative Members are deeply involved in the City of London for their own personal gain and they cannot see the wood for the trees, and that is why so many of them are reluctant to see any action being taken. But the Government should rise above that and accept that there are problems which must be met now.
The public believe that the Government should act because regulation would ensure that the wrongdoers, people such as Gerald Ronson, would not return to their desks after a brief sojourn in an open prison.
When the Government attack single parents, young people, social workers and anyone who lived in the 1960s, it is surprising that they have nothing to say about Ronson, Saunders and Levitt. We are not prepared to put up with this charade any longer. That is why we shall oppose the order by voting against it tonight.
§ Mr. Paul Marland (Gloucestershire, West)
In order that there should be no confusion, I remind the House that I am a name at Lloyd's. I want to speak about Lloyd's and explain why it should be brought under a beefed-up version of the order that we are debating.
It is widely understood that insurance is a risk business and that, within reason, there are losses as well as profits. For names at Lloyd's it used to be reassuring that Lloyd's is a 300-year-old institution, run by men who did much to uphold the City of London's reputation for integrity and decency, as well as being bound by the Lloyd's Act 1871, which states that one of the society's main objectives is 284the advancement and protection of the interests of the Members of the Society".
§ Mr. Marland
I agree—what a laugh.
In 1982, the House reviewed the 1871 Act, but self-regulation continued. As a result of SASSE litigation, members of Lloyd's ruling council ensured that they protected themselves against being sued for negligence —thereby relieving themselves of any duty of care to names at Lloyd's.
How did Lloyd's, free from any obligations under the Financial Services Act 1986 and from any duty of care, exploit its investors by insider dealing? There are many ways in which it did so, but I will explain just three.
First, there were baby syndicates. That was a device whereby a few insiders—usually underwriters, agency directors and their families—got together to form a small syndicate that skimmed the cream off the business going into the main syndicate run by that agency. That favoured group sliced off the best business and, when necessary, reinsured itself into the main syndicate under its control. That ensured that when there were profits, the baby syndicate fared handsomely—and when there were losses, they were picked up by others. It was a win and no lose situation. I may add that I was never a member of a baby syndicate.
All that was done at the expense of Lloyd's external names. At the beginning of the 1980s, there were more than 90 baby syndicates. At Lloyd's one previous chairman was an expert on baby syndicates, as we learned from a television interview on 3 November 1992, in which he denied his involvement. That chairman was on four baby syndicates run by his agency. Three of them—184, 207 and 998—enjoyed huge profits, all at the expense of the members of the main syndicates. That is an utter disgrace.
Furthermore, Sir David Walker's recent inquiry into Lloyd's showed conclusively that many other insiders favour themselves on to the safest syndicates.
The second way in which insiders favour themselves is by churning the market and fleecing external investors. The House will be aware that churning is illegal on the stock exchange, but not at Lloyd's under self-regulation. Lloyd's professionals make money out of commission, which is usually paid at the rate of 10 per cent. each time business changes hands. Business changing hands can be simply a matter of the broker moving from one box to the next. When some Lloyd's brokers wanted to increase their earnings, they simply passed the parcel within the business and helped themselves to the commission—which in some cases they shared with the underwriters.
When, however, the risk had been split up, rebundled and passed on 20 times, all the premium income had gone in commission. In many cases, so vague were the details of what was in the bundle of risk that some underwriters ended up reinsuring themselves.—[Laughter.] I agree that that is ludicrous. Proof of that activity emerged after the Piper Alpha disaster. A claim of $750 million gave rise to the movement of $15 billion within the insurance market. The money moved was 20 times the value of the claim. No money was left to pay out—no insurance premiums were left. The insiders at Lloyd's simply turned to the names and said, "Pay up"—and it should be remembered that names are liable down to their cufflinks.
285 Instead of stopping that churning, Lloyd's committee —the regulators—participated, as can be seen from the results of the syndicates run by those legislating at Lloyd's. Two thirds of the London market of excess loss money—more than £600 million in 1989—went to the syndicates managed by council members. The Merritt syndicates removed £256 million from the spiral in 1989; the Murray Lawrence syndicates removed £134 million; and the Sturge syndicates removed £120 million—as well as taking vast salaries from the markets.
All of that was done while Lloyd's names were forced to sell their houses. Some regulation that was—some duty of care.
The third way in which the Lloyd's insiders abused their professional knowledge is perhaps the most pernicious of all. In the mid-1980s, Lloyd's agents actively recruited, and were encouraged by the Lloyd's council to recruit, unwitting names, which the regulator allowed to be recruited, on to syndicates already known to be heavily tainted with pollution and asbestosis claims, so that the new recruits were there to be fleeced when they were needed. By the spring of 1982, more than 15,000 claims for asbestosis had been registered at Lloyd's.
Evidence of that practice and of the magnitude of claims has recently emerged in the minutes of an auditors meeting in February 1982 with Ken Randall, who was then Lloyd's audit manager. The auditors were understood to have called the meeting to express grave concern about asbestosis reserves for the 1979 accounting year and warned that some syndicates held inadequate reserves. The auditors claimed that if proper reserves were made the market would effectively be bankrupt.
As a syndicate may not close an account with inadequate reserves, the auditors said that badly hit syndicates should leave the 1979 account open. What happened? I can see that you are curious, Mr. Deputy Speaker. All but one of 404 syndicate accounts closed and the market declared a false £229 million profit for the year. It is alleged that some accounts were closed improperly and that the 1980 members inherited liabilities for which reserves were inadequate and that those liabilities were concealed from them by lack of disclosure.
Nevertheless, the 1980 names were enrolled in droves with the promise to clean up at Lloyd's after the Lloyd's Act 1982 and many existing names were persuaded to increase their capacity.
At more or less the same time, the show of wealth required to join Lloyd's was reduced to £37,500—not the £250,000 of which we hear talk. From Lloyd's point of view, that exercise was a great success because from 1983 to 1988, Lloyd's capacity doubled to £14 billion—a growth rate of 15 per cent. compared with an annual growth rate of 3 per cent. between 1967 and 1983.
An example of one of the new recruits was Mr. George Aldrich who joined in 1984. Mr. Aldrich is a retired chemist from Evesham who sought to augment his pension and protect his life savings from inflation. One of the things that Lloyd's agents used to say was that investment in Lloyd's was inflation proof. He was a man of modest means and now he is a man of virtually no means. He enjoyed a couple of years with small profits, but then demands for payment and cash calls began rolling in, 286 which exceeded by 100 times what he had been told was the worst possible scenario. He has been well and truly fleeced, as were so many others.
§ Mr. Paul Flynn (Newport, West)
Will the hon. Gentleman give an assurance that no Members of the House were involved in the baby syndicates?
§ Mr. Marland
I cannot possibly give that assurance. I do not know the identity of the people who were in the baby syndicates. I have taken the trouble to research one or two, but I do not know who all the members were.
§ Sir Richard Body (Holland with Boston)
No Members of the House were members of the baby syndicates.
§ Mr. Marland
I am grateful for the intervention of my hon. Friend. It was a job for the insiders. I am glad that the hon. Member for Newport, West (Mr. Flynn) is following what I am saying so closely because it is a serious matter.
Imagine the horror of the names who had been fleeced when they learned that Mr. Robert Hiscox, the deputy chairman of Lloyd's, had said when referring to Lloyd's names:If God had not meant them to be sheared he would not have made them sheep.In order that there shall be no misunderstanding, I will repeat that. The deputy chairman of Lloyd's said of his investors:If God had not meant them to be sheared he would not have made them sheep.That is backed up by another member of the Lloyd's regulatory body, whose identity I know, but I am not sure of the quote and therefore I shall not accredit it to him. He was heard to say, in effect, "If we find a mug, we use him." That is the way in which the Lloyd's regulatory authority refers to its investors. There is not much duty of care there.
§ Dame Elaine Kellett-Bowman (Lancaster)
Would my hon. Friend care to repeat what he has said this evening outside the House?
§ Mr. Marland
I should be happy to repeat it, but the quotation from Mr. Robert Hiscox is on the record. I am sorry that my hon. Friend thinks that this is not on the public record; it is all on record—it is all in the newspapers. I can produce chapter and verse for all that I have said, and I can back up what I am going to say to show just how disgraceful are the goings on at Lloyd's.
The Lloyd's hierarchy put it about that they do not make people bankrupt. In the recent past, Lloyd's has made 169 people bankrupt—except those whom it has forced into independent voluntary arrangements—and has levelled similar threats at a further 3,500.
What is so misleading about the statement, "We do not make people bankrupt", is the fact that the banks do it for Lloyd's, through the bank guarantee offered to Lloyd's as security by those who struggle to qualify. Lloyd's then calls the guarantee; the bank then asks the Lloyd's investor how he will service the borrowings, and if he cannot do so the bank makes him bankrupt.
I suppose that, strictly speaking, it is true that Lloyd's does not make people bankrupt; but, to quote Lord Armstrong, that is being very economical with the truth. The horror continues when we realise that the regulators at Lloyd's have been fiddling the unregulated system, and that until very recently the chairman of Lloyd's and the Lloyd's regulator was one and the same person.
287 Lloyd's investors are not shrinking violets: they have been to court and secured a judgment in their favour about duty of care. But can you believe it? Lloyd's appealed. It was in the Court of Appeal that the negligence of the Lloyd's regulator was clearly exposed. No less a person than Sir Thomas Bingham, Master of the Rolls—sitting with Lord Justice Hoffman and Lord Justice Henry on 13 December 1993—made the following statement:The Managing Agents owed a tortious duty to the Names to take reasonable care not to cause them economic loss. It was not easy to think of a non contractual commercial relationship in which a duty of care more obviously ought to exist than the relationship of Managing Agent and Name".Sir Thomas then threw out the Lloyd's appeal against the duty of care.
It is greatly to the credit of my right hon. Friend the Member for Wokingham (Mr. Redwood) that, when he was a Minister at the Department of Trade and Industry, he saw and understood what was going on at Lloyd's and appointed Sir David Walker—then chairman of the Securities and Investments Board—to investigate what was going on. The chairman of Lloyd's tried to convince the world that he had appointed Sir David Walker to investigate, but that simply was not true.
What did Sir David find? He found that Lloyd's had kept no records. He had to design his own computer system to find out what had been going on there, despite the Boydell undertaking given to the House in July 1981 that within two years Lloyd's would adopt true and fair accounting practices. Twelve years later, Sir David found that Lloyd's had done nothing. It had no measurement of risk against premium; the Lloyd's professionals were doing substantially better than the external investors. The LMX underwriters, he found, were considered a "soft touch", and the regulator had done nothing about it. On the contrary—the regulators were helping themselves to the funds, as I have already mentioned.
Sir David found that there was little consideration of duty of care by Lloyd's insiders in regard to names' interests. It will come as no surprise that a majority of names are either in litigation or threatening litigation against the Lloyd's professionals, and that the Serious Fraud Office is investigating the activities of Mr. Anthony Gooda and Mr. Derek Walker while they ran Gooda-Walker, now one of the most notorious agencies at Lloyd's.
§ Mr. Peter Hain (Neath)
The hon. Gentleman is describing a massive case of not merely insider dealing but corruption on a grand scale. As he has demonstrated very eloquently, insider names—underwriters and managing agents—have protected themselves and dumped all the losses on external names. The question that he and, surely, the Government Front Bench must answer is this: why did the Government not institute a proper inquiry into Lloyd's to ensure that this corruption, fraud, mismanagement and insider dealing was rooted out and the culprits prosecuted?
§ Mr. Marland
I hope that what is going on in the House tonight may stimulate the Government into action. The hon. Gentleman has put his finger right on the point.
I believe that it will surprise you, Mr. Deputy Speaker, when I tell you that so far more than 30 Lloyd's investors have killed themselves or died early as a direct result of their Lloyd's losses and Lloyd's attitude towards them.
§ Sir Gerard Vaughan (Reading, East)
I, too, am a name at Lloyd's, although I have never taken part in or 288 been involved in any baby syndicate. My hon. Friend is expressing a clear argument. Does he agree that the conclusion is that insider dealing and other financial manipulations are rife within Lloyd's and that the whole system of self-regulation in Lloyd's and other parts of the financial market has failed? It is totally unreasonable to expect the self-interested to be self-regulating. It is time that not only Lloyd's but the other parts of the market which do not come under the Financial Services Act 1986 were brought within that Act.
§ Mr. Marland
I appreciate that intervention. That is precisely the point that I am trying to make and I am glad to have my hon. Friend's support.
§ Sir Richard Body
Does my hon. Friend agree that the House was deceived by Lloyd's when we considered the Lloyd's Bill? When some of us, on both sides of the House, queried whether Lloyd's should be regulated from outside, massive arguments and much persuasion were used to dissuade us from any regulation. We were deceived factually.
§ Mr. Marland
I agree with that. That is another helpful intervention. The proof of that is the fact that the Boydell undertaking which was given in 1981 was never implemented. Twelve years later, Sir David Walker went back to investigate Lloyd's and found that nothing had happened. It had said that within two years it would tidy up its act.
§ Mr. Darling
Does the hon. Gentleman agree with the proposition that, while he and others who are Members of the House and members of Lloyd's agree with the view that he is expressing, they are in the minority and that the majority of those who are Members of the House and members of Lloyd's do not agree with him? Does he agree that when the House discusses the regulation of Lloyd's it would be better if all members of Lloyd's who are Members of the House took no part in the proceedings? There should not be the taint of self-interest when we are discussing regulatory matters.
§ Mr. Marland
That is a valid point and perhaps it should be discussed at a later date. There is no doubt that a great deal of elbow clutching went on in the House during the early 1980s when the Bill went through. We were told, "Don't worry, old boy, it will all be all right. Would you like to come and have lunch with the chairman?" Many of us were put through that treatment.
I want to return to the 30 people who killed themselves or died early as a result of Lloyd's losses. Mr. Harold Weston, a 51-year-old solicitor, hanged himself from the bannisters of his home in north west London. Several others have hanged themselves. Some have shot themselves and others have gassed themselves in their cars. I will spare the House the gruesome details, but my hon. Friend the Member for Lancaster (Dame E. Kellett-Bowman) will be reassured to know that they have all been written up and reported in the newspapers.
There were two further suicides in Canada which Peter Middleton, Lloyd's chief executive, admitted were as a direct result of their Lloyd's losses.
This is only the tip of the iceberg. Thousands of families up and down the land and across the world are facing trauma and massive anxiety as a result of the goings on at No. 1 Lime street.
§ Mr. Roy Beggs (Antrim, East)
To help those of us who do not completely understand the position, can the hon. Gentleman tell us whether those who took their lives because of what had happened to them relieved their families of responsibility by doing so?
§ Mr. Marland
That is a very good question and I am coming to it. The fact is that Lloyd's liability continues beyond the grave. As I was saying, many families across the land are facing trauma because of the goings on at No. 1 Lime street. Even those names who want out cannot get out if they have been hoodwinked into open syndicates. As I said, Lloyd's liability goes beyond the grave.
Why am I making this speech in a debate on insider trading? In a few words, I am doing so because events have shown that insider trading was rife at Lloyd's and there is no evidence to suggest that insider trading is not still rife at Lloyd's. I have had many letters and telephone calls from all over the world about financial malpractice at Lloyd's, urging the Government to do something about Lloyd's internal practices.
Like many others, I have immense respect for Peter Middleton, the new chief executive of Lloyd's, but reform is a lonely business and setting right the wrongs of the past is a difficult task, especially if the sinners have friends in high places.
It is proving very difficult to get justice at Lloyd's for those who have been wronged and the victims need my hon. Friend the Minister's interest. Leopards do not change their spots, so one should not hold one's breath waiting for Lloyd's to reform itself. I urge my hon. Friend to keep a watchful eye on what is happening at Lloyd's. I ask him to insist that the Government have regular updates on proposed changes at Lloyd's and that the changes are monitored closely to ensure that they come about.
§ Mr. Peter Viggers (Gosport)
I declare an interest as an underwriting member of Lloyd's since 1973 and as a member of the council which has regulatory responsibilities for the past two years. I understand my hon. Friend's deep concern about Lloyd's and the fact that he is deeply interested in the matter as he has described. However, he is not paying proper tribute to Lloyd's importance to the City of London and to the export business as leader of two out of five insurance risks in the City. I must also say that if my hon. Friend were to repeat his speech outside the House I think that he would find himself subject to a number of libel writs because much of what he has said is simply not true.
§ Mr. Marland
I am not the least bit surprised that my hon. Friend has intervened because, as he said—I hope that we all heard him—he is a member of the Lloyd's council. I hope that he is deeply ashamed of what his friends in Lime street have been up to. I also hope that when he goes there tomorrow he will be man enough to tell them what the House thinks of their deceitful ways. Lloyd's may have historically contributed to the balance of payments, but things are changing and now it is the other way around. I hope that my hon. Friend will be man enough to tell his friends on the council at Lloyd's what the House thinks of them.
I want my hon. Friend the Minister to ensure among other things that Lloyd's—
§ Mr. Flynn
The hon. Gentleman alleged that there had been "elbow clutching" when the House took a decision.
290 Does he mean that improper influence was brought to bear on hon. Members during a debate? If so, it is a very serious allegation and one that the House must examine. Is that what he meant by "elbow clutching"?
§ Mr. Marland
I meant that a member of the Lloyd's council who was also a Member of the House at the time tried to reassure other hon. Members that if the Lloyd's Act 1982 was passed everything would be put in order. However, as I have explained, it did not happen.
I am anxious that my hon. Friend the Minister should ensure among other things that Lloyd's is solvent. If the Government were seen to conceal insolvency at Lloyd's, they would be guilty of concealing from policy holders the fact that Lloyd's was insolvent. In all likelihood, the Government would be liable to pay up. As I understand it, Lloyd's today faces future liabilities standing at more than £.8.5 billion.
§ Mr. William Ross (Londonderry, East)
I do not propose to follow the hon. Member for Gloucestershire, West (Mr. Marland) or to comment on what he said other than to say that his remarks will echo in Lloyd's and in many other places in the country for a long time to come, with consequences that are not as yet foreseen for not only Lloyd's but perhaps for the Government.
I bring to the Minister's attention one small matter that has been put to me. It concerns the capacity of some analysts who work in the City of London. It has been put to me that some analysts are of such ability and reputation and are so respected that the publication of their investigations into a company will cause its share price to rise substantially. Would such a person's employers be guilty of insider dealing if the information were made available to their clients, who acted on it knowing that, when it is more widely available under the analyst's name, the price will rise substantially? I am told that that applies especially to non-FTSE stock where the market size is limited. A number of City firms feel that they cannot deal in such stock for some days after the information is published, but their clients could then say that the firm had not acted in their best interests. I appreciate that this is a grey and difficult area, but some guidance should be given.
§ Mr. John Greenway (Ryedale)
I declare an interest as an elected member of the Insurance Brokers Registration Council.
Much of what the hon. Member for Edinburgh, Central (Mr. Darling) said needed to be said, but I did not agree with everything that he said by any stretch of the imagination.
The debate has ranged perhaps wider than it should have within the confines of the order—
§ Mr. Greenway
I stand corrected, Mr. Deputy Speaker.
A number of the scandals to which the hon. Member for Edinburgh, Central referred did not relate to insider dealing. He is right to be concerned, as all of those who are involved in regulation in the City are, about the reputation of London and of the insurance and financial services industry, but it is far too soon to leap to the conclusion that the Financial Services Act 1986 has failed and that we need 291 statutory regulation. The one thing that proponents of statutory regulation have not shown is the benefits that it would bring.
The problems that were revealed in cases such as that of Roger Levitt, which caused much anger throughout the country and in the House, had much more to do with the criminal justice system than with whether we should have self-regulation or statutory regulation of the financial services industry. The way in which that case appears to have been handled by the Serious Fraud Office and the Crown Prosecution Service and the complexity of prosecuting fraud trials under the jury system are what need to be considered and addressed. The case is not evidence that self-regulation is not working.
It is too soon to say—my hon. Friend the Economic Secretary knows my views on this—whether the proposed Personal Investment Authority can succeed. The House must recognise, however, that it is probably the best option that the industry is likely to have for some time, and it behoves everyone to try to make it work. There is, however, as Mr. Jim Stretton's resignation from the shadow PIA board showed yesterday, disagreement in the industry about what needs to be done.
Scandals such as Roger Levitt's were unearthed by the self-regulatory system that was set up under the Financial Services Act. It is, therefore, the criminal justice system that needs to be addressed. Is not it a strange coincidence that tonight the hon. Member for Edinburgh, Central attacked such scandals, yet last night his party did not support the Second Reading of a Bill that sought to address some of the weaknesses in the criminal justice system which are the cause of the difficulty? [Interruption.] I will not be interrupted. Mr. Deputy Speaker, day after day in the House the Labour party demonstrates its tunnel vision.
§ Mr. Greenway
I will not give way.
Labour Members demonstrate tunnel vision when they complain one day about one issue, and the next day they say the very opposite of what they said the day before.
I suppose we should ask my hon. Friend the Member for Gloucestershire, West (Mr. Marland) whether the surveillance of insider dealing and of the financial services in the City by the Securities and Investments Board will be adequate and whether, when fraud or malpractice is unearthed, they will be prosecuted as vigorously as they should be. That question lies at the heart of the measure. I fervently believe that it is to the criminal justice system that we need to look for yet more reform to make that effective.
§ Mr. Austin Mitchell (Great Grimsby)
Mr. Deputy Speaker, the hon. Gentleman just made a curious argument, because if he is saying that we could deal with the problem through the criminal justice system he is leaving out of account the obscene spectacle of many fraudsters and criminals—people who have been responsible for defrauding shareholders and for the collapse of companies, with the consequent suffering of all the stakeholders—who have escaped scot free at the end of their activities. There was the case, for instance, of Levitt, who received an unimportant, minute sentence of 180 292 hours community service at the end of a massive fraud trial. Many others who have gone before have escaped scot free.
The argument that was made by the hon. Member for Gloucestershire, West (Mr. Marland) was much more serious and telling. He was illustrating the consequences, and the consequences on the institution of Lloyd's, of the spectacle of insider trading.
The Minister gave a polished performance. He always gives us a polished performance with a high intellectual content, but it is usually an apology for inadequate policies, and that was what it was tonight. The policies that are proposed to solve the problem will not do so; they are totally inadequate. The legislation is ineffectual; it simply will not work. It might be that that is a faithful reflection of what the Government want, because there has been no indication by the Government in 14 years in power that they want to deal firmly and strongly with the obscenity of insider trading.
The people who have been defrauded are the smaller shareholders. The people who the Government want to buy shares in companies, the people who the Government want to invest in the system, are being defrauded by those who have privilege, power and insider information and are using it to enrich themselves. A Government who want to encourage a shareholder democracy should put that problem at the forefront of their priorities and propose effective methods for dealing with it.
The problem distorts markets and swindles the shareholders. It reduces the reputation of the City of London, which, as my hon. Friend the Member for Edinburgh, Central (Mr. Darling) pointed out, depends now, not on a powerful manufacturing economy, which is behind the American share market, but on its international reputation and its skills. That international reputation is being reduced by the spectacle of scandal and fraud that has grown in the past few years and is still not dealt with.
I have only one central argument tonight: the proposals are ineffectual. The only way in which we shall solve the problem is by substantial reform. It is interesting to hear the voices on the Conservative Benches now speaking in favour of that; it is interesting to hear the growing chorus of demand for an end to a system of self-regulation which has not worked, is not working and cannot be made to work because the vested interest of the self-regulators precludes them from regulating in the wider public interest. The Mafia cannot regulate the Mafia in the way that is proposed.
We should have a system similar to the Securities and Exchange Commission in the United States, a statutorily based independent regulator, properly staffed, properly paid, with the power to carry through its decisions and the power to deal directly and immediately with that type of crime against the system. We should scrap the structures of self-regulation that were introduced in the Financial Services Act 1986. The Opposition warned against that in the Committee which debated the legislation. Indeed, the Minister supported us in some of our warnings as we tried to strengthen the Bill. Our basic argument was that self-regulation could not work unless there was a statutorily based independent regulator, freed from the vested interests of the sector that it regulates.
As self-regulation has failed to deal with the problem of insider trading, we must now return to the drawing board and say, "Let's build a new structure which, alone, can deal with that problem." Like the United States Securities and 293 Exchange Commission, such a new structure would answer ultimately to the House but would have independent authority. Working under that commission and chaired by commissioners would be regulators of the different sectors of the economy. We need a banking regulator—a banking commission—because the Bank of England is an inadequate regulator for banking. It must be freed from its Bank of England role and banking regulation must be given to a banking commission. We need an accounting and audit commission and an effective Securities and Investments Board to work under our securities and exchange commission. Each of these regulators would work in its own way.
Answerable to the whole structure, and working for the commission, should be a powerful enforcement agency that can fine, disbar, punish, proceed by civil and criminal action, and strike at crimes as they are committed, as effectively as the Securities and Exchange Commission does in the United States in a much bigger and more complicated system.
Until the Government return to the drawing board and bring to the House proposals for which their own Members are calling, and for which an increasing number of voices in the City are calling—indeed anyone concerned with the reputation of this country's financial sector and with putting an end to the squalor—the measures that we are discussing tonight will be ineffectual.
§ Mr. Nick Hawkins (Blackpool, South)
I rise in response to the speech by the hon. Member for Great Grimsby (Mr. Mitchell) because, to hear him talk, one would think that the Securities and Exchange Commission in the United States had eliminated fraud. But the problems with junk bonds still exist and other financial frauds involving savings are still committed. Fraud and crime will always exist, whatever the policing or regulatory regime.
I have no interest to declare, but I have a background in this subject. For five and a half years prior to coming to the House, I worked in financial services compliance. As my hon. Friend the Minister knows, I am no longer commercially involved in that area, but I was working closely with the regulatory authorities, the Securities and Investments Board, and am now heavily involved in the all-party group on financial services and insurance, chaired by my hon. Friend the Member for Ryedale (Mr. Greenway).
My experience in those areas leads me to believe that we need a gradual improvement in regulatory regimes, which is already well under way. I hold no brief for the bureaucratic nightmare that the Financial Services Act 1986 created, but we are now seeing an improvement in the regulatory structure, with the core principles of the Securities and Investments Board, the streamlining of new subsidiary regulatory bodies, and a new Personal Investment Authority getting rid of the problems of regulatory arbitrage.
All the problems cannot be solved overnight. There will always be financial frauds, as there are on a much larger scale in the United States under the system of the Securities and Exchange Commission, which is so vaunted by the hon. Member for Great Grimsby.
294 This country is moving gradually towards an improved regulatory regime. There may be some scope for further statutory regulation. I believe, as my hon. Friend the Member for Gloucestershire, West (Mr. Marland) does, that there have been massive problems in Lloyd's of London, but we have every opportunity to continue to see the City of London develop, as it has for many years, as an enormously important contributor to the British economy.
Despite all the fine words of Opposition Members, the number who support the City of London because of what it contributes to the British economy and who do not vote consistently for policies which would undermine the City could be counted on the fingers of one hand. Until there are Opposition Members who understand the positive contribution of the City, their words cannot be taken seriously.
I hope that the Government will not be persuaded by the fine words, which butter no parsnips, of the hon. Member for Great Grimsby and his hon. Friends. They do not understand the City. They do not believe in the system that has done so much for the country. It is not perfect, but the last thing we want is to replace it with an equivalent of the Securities and Exchange Commission, which has not prevented far worse abuses in the United States.
§ Mr. Geoffrey Hoon (Ashfield)
I hope that the hon. Member for Blackpool, South (Mr. Hawkins) will forgive me if I do not comment directly on his speech.
It has been curious for the Opposition to hear so many Conservative Members declare their interests in financial services. We have heard trenchant criticism of self-regulation, because those who self-regulate tend to be self-interested. As I heard Conservative Members declare their interests, I wondered whether they are confident that they are capable of commenting objectively on the order. We have criticised self-regulation. It follows that those hon. Members who are self-interested to the extent that they must declare their financial services interests must have some difficulty—I say that with the greatest respect to Conservative Members—in dissociating their own self-interest from the relevant legislation. That is a matter of considerable concern in relation to Lloyd's.
§ Mr. Roger Knapman (Stroud)
If hon. Members are not allowed to talk about particular subjects in which they might have an interest, is it possible that certain Opposition Members should not contribute to debates on trade unions and other subjects in which they may have some interest?
§ Mr. Hoon
The difficulty about that argument—[Laughter.] Perhaps I should try to answer the question before Conservative Members descend into hysterical amusement. I am talking about financial self-interest. Conservative Members derive financial benefit from the interests which they are then required to declare according to the rules of the House. There is a clear difference between that and interests connected with trade union legislation. If Conservative Members cannot understand that, I feel sorry for them.
I am surprised that Conservative Members are not calling for tougher legislation on insider trading, because that would ensure a free market in securities. Insider dealing prevents the operation of that market. Conservative Members stress the need for such a market for everything else that I have heard them speak about. I understand that 295 it is one of the central pillars of Conservative party belief. Why have those Members not demanded tougher legislation to ensure a free market in the sale of securities, which is prevented by insider trading? When the Opposition argue for tougher regulation and enforcement, they are arguing for more effective operation of free market forces in the sale of securities.
The main debate in the European Community about the issue has been concerned with enforcement and whether existing rules and practices in each of the member states represent sufficient compliance with legislation such as the order. The Community wants to establish whether there is sufficient consistency between the practices of different member states to ensure that there is a single market in securities, and, importantly, a single system of regulation.
Statistics on enforcement in the United Kingdom are instructive, given the importance of the United Kingdom's financial services to the rest of the Community. We have had legislation against insider dealing since 1980, since when only 22 people have been convicted of the offence. Only 17 people have been convicted since 1987, despite the fact that 104 cases have been referred for prosecution by the stock exchange in London. If he has time to wind up, I hope that the Minister will refer to the disparity between the number of cases referred and the number of convictions secured.
§ Mr. Hoon
I hope that my hon. Friend will forgive me if I do not pursue his point, but I thank him for making it.
When this matter was discussed through the legislative process in the European Community, there was an argument for a European-style SEC, an institution that would regulate insider dealing right across the single market. The Government presumably support the idea of a single financial market in the Community, yet I understand that in Council meetings it was the British Government who most strongly resisted the idea of a European institution to try to regulate the sale of securities across the single market. I hope that the Minister will comment on the Government's attitude to the European-wide enforcement of these regulations.
If we are to have a single market in the sale of securities, it is important also that there be a single market in the enforcement of this sort of legislation. Without consistent enforcement, it is highly unlikely that the legislation will be effective. The statistics that I have mentioned tend to suggest that the enforcement of the legislation in the United Kingdom has been less effective than we might have liked.
§ Mr. Peter Ainsworth (Surrey, East)
Does the hon. Gentleman think that one reason for the lack of successful convictions might be the fact that the burden of proof required under our criminal justice system is just too great, so the extension of the civil law into these matters might be helpful? That is a far cry from what the hon. Gentleman suggests—even tougher legislation.
§ Mr. Hoon
That point has already been made. We need a more sophisticated approach and more resources to ensure that insider dealing is investigated. The Government should commit themselves to a body of 296 enforcement and investigation along the lines of the SEC, as my hon. Friend the Member for Great Grimsby (Mr. Mitchell) suggested. That sort of body would expose far more cases of insider dealing and would provide the prosecuting authorities with the sort of support and back-up that they enjoy in the United States.
I hope that the Minister will agree that this should be the next stage: a more sophisticated system of enforcement. I hope that the Government will state tonight how they intend to ensure that this legislation is properly enforced.
§ 12.3 am
§ Mr. Paul Flynn (Newport, West)
The hon. Member for Gloucestershire, West (Mr. Marland) suggested in a courageous speech that "elbow-clutching" has been going on—undue influence exerted. He identified Lord Kimball, the former Member for Gainsborough, as the man he was talking about.
We must look to the reputation of the House and the influences brought to bear on it. It is true that 14 per cent. of Opposition Members have financial interests outside the House, according to the latest survey, but 85 per cent. of Conservative Members have such interests. When votes are taken on matters in which hon. Members have a direct financial interest, we should apply the rules that apply to local authorities whose members have to declare their interests and may not be allowed to vote.
Another group of people have been greatly hurt by the system of self-regulation, the death knell of which will sound from the Chamber at the end of this debate. They are not the hundreds or perhaps thousands at Lloyd's, but the millions who have been robbed by the lack of regulation in the system. Some of those people were identified by my hon. Friend the Member for Edinburgh, Central (Mr. Darling) when he spoke about the 500,000 people who were tempted to transfer from occupational pensions to personal schemes. At least 2 million others were tempted to leave the state earnings-related pension scheme and now have personal pensions that run counter to their financial interests. In 10 or 20 years' time, those people will find that they have been robbed. Those are the real victims, the innocent sheep who have been sheared by the failure of the regulatory system.
I should like the Minister to have sufficient time to answer fully the charges that have been laid. Therefore, I conclude by saying that the system of self-regulation has failed in the City, and its death knell must be sounded.
§ 12.5 am
§ Mr. Nelson
I passionately believe that all Members are honourable. As a Back Bencher who now sits on the Front Bench, I urge the House to be extremely careful about limiting the voting rights of hon. Members. People with a personal interest often bring experience to our debates and decisions and as long as the interest is transparent and overt, we have nothing to fear. By sectioning ourselves we have a great deal to lose.
§ Mr. Nelson
Perhaps the hon. Gentleman will forgive me if I do not give way. I have a limited amount of time and I wish to do justice to hon. Members who have spoken. He will have other opportunities.
The hon. Members for Newport, West (Mr. Flynn) and for Edinburgh, Central (Mr. Darling) raised the serious 297 issue of personal pension plans, and I wish to touch on that. The Life Assurance and Unit Trust Regulatory Organisation reported its concerns to the Securities and Investments Board; the SIB commissioned a study of the subject; shortcomings in the marketing of personal pensions were discovered and are being acted upon, and the SIB has presented proposals for the co-ordination of remedial action to those who may have been sold inappropriate personal pensions. That shows that the system is working. One cannot decry as inadequate a system that uncovers and seeks to redress wrongs. It could be criticised if it covered them up or did nothing about them.
I am the first to admit that there are shortcomings in our system of regulation. But anybody who suggests that we should switch to a system of total statutory control and that that would in some way be a panacea for all our ills and would change the attitude of the door-to-door salesman with a variety of investment products and would change overnight the practice in individual markets needs his head tested.
As the United States and other countries with statutory systems have found, it will always be difficult to ensure absolute, high standards of investor and depositor protection. One must always try to approximate. I can speak with some confidence from the Dispatch Box because people know my background before I became a Minister. I am not wedded to an absolute statutory system. I should like to see our system toughened by evolution, and that is what I have been about.
I can point to many things that have been done in the past two years significantly to improve standards of investor and depositor protection. To engage in revolution rather than evolution of the system would not only visit great uncertainty and cost upon financial services industries, which, at the end of the day, are paid for by the industry's customers, but would lead to a blight of uncertainty that would not be in the interests of that great industry, which provides benefit and employment for our country.
My official advice is not to say anything about Lloyd's because it is a matter for the Department of Trade and Industry, but I shall speak about it, because it concerns the House. I wish to reflect carefully on what has been said by my hon. Friend the Member for Gloucestershire, West (Mr. Marland). He will be aware that I cannot say much about Gooda Walker, which is the subject of a Serious Fraud Office inquiry, or about the affairs of Lloyd's generally, which are for the Department of Trade and Industry. However, I can say that the Government are concerned about the probity and reputation of major financial institutions, including Lloyd's. Of course we shall not stand by and see people ruined and misdeeds going on without taking an interest. That applies to the Treasury in co-operation with the DTI.
As my hon. Friend the Member for Gosport (Mr. Viggers) said, there is much that is good as well as much that is bad. Sir David Walker's inquiry showed that, while much of the internal dealing led to some advantage to professionals within the organisation, it was not necessarily of a massive order above the names outside. It is also a fact that the Neill report significantly increased the 298 representation of outside names and their representatives on the council of Lloyd's. That should provide some reassurance.
§ Mr. Nelson
I will not, because I shall not be able to comment on the speeches made by hon. Members if I do so. The hon. Gentleman had a good opportunity and made a long speech at the beginning of the debate, and I wish to refer to some other points.
The hon. Member for Londonderry, East (Mr. Ross) asked about analysts' reports of companies, and asked whether if companies issued reports to clients in advance of issuing them to the market they would be liable for insider dealing. The answer is that, assuming that the information supporting the recommendation is in the public domain, by virtue of section 58(2)(d) of the Act, the information will not be insider information, even if it is price sensitive.
Further, dealing based on the logic underlying the recommendation will not be prohibited because it would have taken place, regardless of the fact that when the recommendation is published the share price is likely to move. Dealing in such circumstances is, therefore, covered by the third of the general defences set out in the legislation. I hope that when the hon. Gentleman studies those words they will provide him, and thus those who have made representations to him, with the reassurance that he seeks.
I thank my hon. Friends the Members for Ryedale (Mr. Greenway) and for Blackpool, South (Mr. Hawkins) for the measured and sensible contributions that they made to the debate. They recognise that nothing is perfect in the present regime, but that it would be foolish to toss it aside. There is a great deal of benefit in a sensible process of change and toughening up of investor protection where it is necessary. I believe that the proposals promulgated by Andrew Large, the chairman of the SIB, for improving regulation and the interface between the SIB and the self-regulatory organisations and for significantly improving the monitoring and the coming down hard in cases where that is justified will bring a stepped change in the perceptions and the delivery of investor protection. If it does not, the House will have to look at it again. I do not have a closed mind. I am not ignoring the long-term possibilities of what may need to be done because of short-term difficulties in introducing a toughening up of the present situation.
However, many people give of their time and have to be attracted into the difficult process of regulation of our financial markets. I am not about to pull the rug of authorisation from under their feet when they are trying to institute much-needed changes to ensure that we have the standards and reputation that the industry requires, and that reputation requires that we provide free and fair markets. Therefore, I am not opposed to evolution of the system, but it is irresponsible in the extreme to suggest that we toss all that aside while we are trying to deliver significant improvements in investor and depositor protection and lurch into an uncertain statutory future without much greater consideration of the matter.
The problems of delivering such protection to investors and depositors are not just about the regimes that we set up here, whether for Lloyd's or the investment industries. At the end of the day, they are about the people who sell the products and about the efficiency and effectiveness of the 299 people who regulate. One does not necessarily get a satisfactory solution in statutory change. Therefore, I welcome what my hon. Friends the Members for Ryedale and for Blackpool, South said in that regard, particularly what my hon. Friend the Member for Rydale said about the importance of adequate surveillance of insider dealing. The stock exchange surveillance market group is significantly improving its surveillance of that matter, and working closely with the SIB to determine how best that can be done.
The hon. Member for Ashfield (Mr. Hoon) said that the order was not sufficiently tough and others suggested that the Government had introduced the measure simply to conform with a European directive. However, in 1980 it was a Conservative Government who made insider dealing a criminal offence for the first time and in 1985 consolidated the legislation and changed and improved it.
A Conservative Government have again come forward, not just to comply with our European obligations under the directive, but to move beyond the minimum requirements, to conform with existing legislative responsibilities and to move with the times to ensure that certain products that were not included in the previous legislation, such as debt securities and certain derivative products, are covered.
We have not been inactive. We are not soft on City law and we abhor and are concerned about the invasion of investor and depositor rights. At the end of the day, the decisions of the courts in such cases as Levitt and Ronson, which have been mentioned tonight, are matters for the courts.
The House knows better than I that the courts have minds of their own. If somebody is given a community service order instead of what the law could provide—up to seven years' imprisonment—it is not for a Minister of the Crown to question the decision of the court.
We have provided the penalties for the courts and the mechanisms to ensure that those who are responsible for defrauding others are detected and brought to book. Whether it is the Serious Fraud Office, the SIB or my right hon. Friends the Chancellor of the Exchequer or the President of the Board of Trade—all of whom have prosecution and investigation obligations in that regard —we will not flinch from the responsibility of ensuring that the high standards of investor and depositor protection are maintained.
For all those reasons, I commend the order implementing insider dealing legislation to the House. It will bring improvements and perceptive changes in the free and fair markets for which Britain is well known and we shall ensure that the legislative changes that have taken place in recent years are respected.
I was asked in particular about the number of convictions and prosecutions that have been brought. Some 22 individuals have been convicted of insider dealing, out of a total of 49, but what is much more important is the deterrent message that that sends to a wider audience. [Interruption.] Of course it is. All company law, including regulatory control, is more about the deterrence in the message that it sends than picking up the pieces afterwards.
We must have laws and systems in place which ensure, through deterrents and the ability to detect and use those penalties, that we provide high standards of investor and depositor protection. That is what the order and the relevant provisions of the Criminal Justice Act will do and I commend them to the House.
§ Question put:—
§ The House divided: Ayes 309, Noes 232.303
|Division No. 64]||[12.17 am|
|Ainsworth, Peter (East Surrey)||Deva, Nirj Joseph|
|Aitken, Jonathan||Devlin, Tim|
|Alexander, Richard||Dickens, Geoffrey|
|Alison, Rt Hon Michael (Selby)||Dicks, Terry|
|Allason, Rupert (Torbay)||Dorrell, Stephen|
|Amess, David||Douglas-Hamilton, Lord James|
|Arbuthnot, James||Dover, Den|
|Arnold, Jacques (Gravesham)||Duncan-Smith, Iain|
|Arnold, Sir Thomas (Hazel Grv)||Dunn, Bob|
|Aspinwall, Jack||Durant, Sir Anthony|
|Atkins, Robert||Dykes, Hugh|
|Atkinson, David (Bour'mouth E)||Eggar, Tim|
|Atkinson, Peter (Hexham)||Elletson, Harold|
|Baker, Rt Hon K. (Mole Valley)||Evans, David (Welwyn Hatfield)|
|Baker, Nicholas (Dorset North)||Evans, Jonathan (Brecon)|
|Baldry, Tony||Evans, Nigel (Ribble Valley)|
|Banks, Matthew (Southport)||Evans, Roger (Monmouth)|
|Banks, Robert (Harrogate)||Evennett, David|
|Bates, Michael||Faber, David|
|Batiste, Spencer||Fabricant, Michael|
|Beggs, Roy||Fenner, Dame Peggy|
|Beith, Rt Hon A. J.||Field, Barry (Isle of Wight)|
|Bellingham, Henry||Fishburn, Dudley|
|Bendall, Vivian||Forman, Nigel|
|Beresford, Sir Paul||Forsyth, Michael (Stirling)|
|Biffen, Rt Hon John||Forth, Eric|
|Blackburn, Dr John G.||Fowler, Rt Hon Sir Norman|
|Bonsor, Sir Nicholas||Fox, Dr Liam (Woodspring)|
|Booth, Hartley||Fox, Sir Marcus (Shipley)|
|Boswell, Tim||Freeman, Rt Hon Roger|
|Bottomley, Peter (Eltham)||French, Douglas|
|Bottomley, Rt Hon Virginia||Fry, Sir Peter|
|Bowden, Andrew||Gale, Roger|
|Bowis, John||Gallie, Phil|
|Boyson, Rt Hon Sir Rhodes||Gardiner, Sir George|
|Brandreth, Gyles||Garel-Jones, Rt Hon Tristan|
|Brazier, Julian||Garnier, Edward|
|Bright, Graham||Gill, Christopher|
|Brown, M.(Brigg & Cl'thorpes)||Gillan, Cheryl|
|Browning, Mrs. Angela||Goodlad, Rt Hon Alastair|
|Bruce, Ian (S Dorset)||Goodson-Wickes, Dr Charles|
|Bruce, Malcolm (Gordon)||Gorman, Mrs Teresa|
|Budgen, Nicholas||Gorst, John|
|Burns, Simon||Grant, Sir A. (Cambs SW)|
|Burt, Alistair||Greenway, Harry (Ealing N)|
|Butcher, John||Greenway, John (Ryedale)|
|Butler, Peter||Griffiths, Peter (Portsmouth, N)|
|Butterfill, John||Gummer, Rt Hon John Selwyn|
|Campbell, Menzies (Fife NE)||Hague, William|
|Carlisle, John (Luton North)||Hamilton, Rt Hon Sir Archie|
|Carlisle, Kenneth (Lincoln)||Hamilton, Neil (Tatton)|
|Carrington, Matthew||Hampson, Dr Keith|
|Carttiss, Michael||Hannam, Sir John|
|Cash, William||Hargreaves, Andrew|
|Channon, Rt Hon Paul||Harris, David|
|Churchill, Mr||Haselhurst, Alan|
|Clappison, James||Hawkins, Nick|
|Clark, Dr Michael (Rochford)||Hawksley, Warren|
|Clarke, Rt Hon Kenneth (Ruclif)||Hayes, Jerry|
|Clifton-Brown, Geoffrey||Heald, Oliver|
|Coe, Sebastian||Hendry, Charles|
|Colvin, Michael||Hill, James (Southampton Test)|
|Congdon, David||Hogg, Rt Hon Douglas (G'tham)|
|Conway, Derek||Horam, John|
|Coombs, Anthony (Wyre For'st)||Howard, Rt Hon Michael|
|Coombs, Simon (Swindon)||Howarth, Alan (Strat'rd-on-A)|
|Cope, Rt Hon Sir John||Howell, Rt Hon David (G'dford)|
|Couchman, James||Howell, Sir Ralph (N Norfolk)|
|Cran, James||Hughes Robert G. (Harrow W)|
|Currie, Mrs Edwina (S D'by'ire)||Hunt, Rt Hon David (Wirral W)|
|Curry, David (Skipton & Ripon)||Hunt, Sir John (Ravensbourne)|
|Davies, Quentin (Stamford)||Hunter, Andrew|
|Davis, David (Boothferry)||Hurd, Rt Hon Douglas|
|Day, Stephen||Jack, Michael|
|Jackson, Robert (Wantage)||Redwood, Rt Hon John|
|Jenkin, Bernard||Renton, Rt Hon Tim|
|Jessel, Toby||Richards, Rod|
|Johnson Smith, Sir Geoffrey||Riddick, Graham|
|Johnston, Sir Russell||Rifkind, Rt Hon. Malcolm|
|Jones, Gwilym (Cardiff N)||Robathan, Andrew|
|Jones, Nigel (Cheltenham)||Roberts, Rt Hon Sir Wyn|
|Jones, Robert B. (W Hertfdshr)||Robertson, Raymond (Ab'd'n S)|
|Jopling, Rt Hon Michael||Robinson, Mark (Somerton)|
|Kellett-Bowman, Dame Elaine||Roe, Mrs Marion (Broxbourne)|
|Kennedy, Charles (Ross, C&S)||Ross, William (E Londonderry)|
|Key, Robert||Rowe, Andrew (Mid Kent)|
|Kilfedder, Sir James||Rumbold, Rt Hon Dame Angela|
|King, Rt Hon Tom||Ryder, Rt Hon Richard|
|Kirkhope, Timothy||Sackville, Tom|
|Knapman, Roger||Sainsbury, Rt Hon Tim|
|Knight, Mrs Angela (Erewash)||Scott, Rt Hon Nicholas|
|Knight, Greg (Derby N)||Shaw, David (Dover)|
|Knight, Dame Jill (Bir'm E'st'n)||Shaw, Sir Giles (Pudsey)|
|Knox, Sir David||Shephard, Rt Hon Gillian|
|Kynoch, George (Kincardine)||Shepherd, Colin (Hereford)|
|Lait, Mrs Jacqui||Shepherd, Richard (Aldridge)|
|Lang, Rt Hon Ian||Shersby, Michael|
|Lawrence, Sir Ivan||Sims, Roger|
|Legg, Barry||Skeet, Sir Trevor|
|Leigh, Edward||Smith, Sir Dudley (Warwick)|
|Lennox-Boyd, Mark||Smith, Tim (Beaconsfield)|
|Lester, Jim (Broxtowe)||Soames, Nicholas|
|Lidington, David||Speed, Sir Keith|
|Lightbown, David||Spencer, Sir Derek|
|Lilley, Rt Hon Peter||Spicer, Sir James (W Dorset)|
|Lloyd, Rt Hon Peter (Fareham)||Spicer, Michael (S Worcs)|
|Lord, Michael||Spink, Dr Robert|
|Luff, Peter||Spring, Richard|
|Lyell, Rt Hon Sir Nicholas||Sproat, Iain|
|MacGregor, Rt Hon John||Squire, Robin (Hornchurch)|
|Maclean, David||Stanley, Rt Hon Sir John|
|McLoughlin, Patrick||Steel, Rt Hon Sir David|
|McNair-Wilson, Sir Patrick||Steen, Anthony|
|Madel, Sir David||Stephen, Michael|
|Maitland, Lady Olga||Stern, Michael|
|Malone, Gerald||Stewart, Allan|
|Mans, Keith||Streeter, Gary|
|Marland, Paul||Sumberg, David|
|Marlow, Tony||Sweeney, Walter|
|Marshall, John (Hendon S)||Sykes, John|
|Martin, David (Portsmouth S)||Tapsell, Sir Peter|
|Mawhinney, Rt Hon Dr Brian||Taylor, Ian (Esher)|
|Merchant, Piers||Taylor, John M. (Solihull)|
|Milligan, Stephen||Thomason, Roy|
|Mills, Iain||Thompson, Sir Donald (C'er V)|
|Mitchell, Andrew (Gedling)||Thompson, Patrick (Norwich N)|
|Mitchell, Sir David (Hants NW)||Thornton, Sir Malcolm|
|Moate, Sir Roger||Thurnham, Peter|
|Monro, Sir Hector||Townend, John (Bridlington)|
|Montgomery, Sir Fergus||Townsend, Cyril D. (Bexl'yh'th)|
|Moss, Malcolm||Tracey, Richard|
|Nelson, Anthony||Tredinnick, David|
|Neubert, Sir Michael||Trend, Michael|
|Newton, Rt Hon Tony||Trotter, Neville|
|Nicholls, Patrick||Twinn, Dr Ian|
|Nicholson, David (Taunton)||Vaughan, Sir Gerard|
|Nicholson, Emma (Devon West)||Viggers, Peter|
|Norris, Steve||Wallace, James|
|Onslow, Rt Hon Sir Cranley||Waller, Gary|
|Oppenheim, Phillip||Ward, John|
|Ottaway, Richard||Wardle, Charles (Bexhill)|
|Page, Richard||Waterson, Nigel|
|Paice, James||Watts, John|
|Patnick, Irvine||Wells, Bowen|
|Patten, Rt Hon John||Whitney, Ray|
|Pattie, Rt Hon Sir Geoffrey||Whittingdale, John|
|Pawsey, James||Widdecombe, Ann|
|Peacock, Mrs Elizabeth||Wiggin, Sir Jerry|
|Porter, Barry (Wirral S)||Wilkinson, John|
|Porter, David (Waveney)||Willetts, David|
|Portillo, Rt Hon Michael||Winterton, Mrs Ann (Congleton)|
|Powell, William (Corby)||Winterton, Nicholas (Macc'f'ld)|
|Rathbone, Tim||Wolfson, Mark|
|Wood, Timothy||Tellers for the Ayes:|
|Yeo, Tim||Mr. Sydney Chapman and|
|Young, Rt Hon Sir George||Mr. Andrew MacKay.|
|Abbott, Ms Diane||Enright, Derek|
|Adams, Mrs Irene||Etherington, Bill|
|Ainger, Nick||Evans, John (St Helens N)|
|Ainsworth, Robert (Cov'try NE)||Fatchett, Derek|
|Allen, Graham||Field, Frank (Birkenhead)|
|Anderson, Donald (Swansea E)||Fisher, Mark|
|Anderson, Ms Janet (Ros'dale)||Flynn, Paul|
|Armstrong, Hilary||Foster, Rt Hon Derek|
|Ashton, Joe||Fraser, John|
|Austin-Walker, John||Fyfe, Maria|
|Banks, Tony (Newham NW)||Galloway, George|
|Barnes, Harry||Gapes, Mike|
|Barron, Kevin||Garrett, John|
|Battle, John||George, Bruce|
|Bayley, Hugh||Gerrard, Neil|
|Beckett, Rt Hon Margaret||Gilbert, Rt Hon Dr John|
|Bell, Stuart||Godman, Dr Norman A.|
|Benn, Rt Hon Tony||Godsiff, Roger|
|Benton, Joe||Golding, Mrs Llin|
|Bermingham, Gerald||Graham, Thomas|
|Berry, Dr. Roger||Griffiths, Nigel (Edinburgh S)|
|Betts, Clive||Griffiths, Win (Bridgend)|
|Blair, Tony||Grocott, Bruce|
|Blunkett, David||Gunnell, John|
|Boateng, Paul||Hain, Peter|
|Boyes, Roland||Hall, Mike|
|Bradley, Keith||Hanson, David|
|Bray, Dr Jeremy||Hardy, Peter|
|Brown, Gordon (Dunfermline E)||Harman, Ms Harriet|
|Brown, N. (N'c'tle upon Tyne E)||Hattersley, Rt Hon Roy|
|Burden, Richard||Henderson, Doug|
|Byers, Stephen||Heppell, John|
|Caborn, Richard||Hill, Keith (Streatham)|
|Callaghan, Jim||Hinchliffe, David|
|Campbell, Mrs Anne (C'bridge)||Hoey, Kate|
|Campbell, Ronnie (Blyth V)||Hogg, Norman (Cumbernauld)|
|Canavan, Dennis||Home Robertson, John|
|Cann, Jamie||Hood, Jimmy|
|Chisholm, Malcolm||Hoon, Geoffrey|
|Clapham, Michael||Howarth, George (Knowsley N)|
|Clark, Dr David (South Shields)||Howells, Dr. Kim (Pontypridd)|
|Clarke, Eric (Midlothian)||Hoyle, Doug|
|Clarke, Tom (Monklands W)||Hughes, Kevin (Doncaster N)|
|Clelland, David||Hughes, Robert (Aberdeen N)|
|Clwyd, Mrs Ann||Hutton, John|
|Coffey, Ann||Illsley, Eric|
|Cohen, Harry||Ingram, Adam|
|Connarty, Michael||Jackson, Glenda (H'stead)|
|Cook, Robin (Livingston)||Jackson, Helen (Shef'ld, H)|
|Corbett, Robin||Jamieson, David|
|Corbyn, Jeremy||Jones, Jon Owen (Cardiff C)|
|Corston, Ms Jean||Jones, Lynne (B'ham S O)|
|Cousins, Jim||Jones, Martyn (Clwyd, SW)|
|Cryer, Bob||Jowell, Tessa|
|Cummings, John||Kaufman, Rt Hon Gerald|
|Cunliffe, Lawrence||Keen, Alan|
|Cunningham, Jim (Covy SE)||Kennedy, Jane (Lpool Brdgn)|
|Dalyell, Tam||Khabra, Piara S.|
|Darling, Alistair||Kilfoyle, Peter|
|Davidson, Ian||Lestor, Joan (Eccles)|
|Davies, Bryan (Oldham C'tral)||Lewis, Terry|
|Davies, Rt Hon Denzil (Llanelli)||Litherland, Robert|
|Davies, Ron (Caerphilly)||Livingstone, Ken|
|Davis, Terry (B'ham, H'dge H'I)||Lloyd, Tony (Stretford)|
|Denham, John||McAllion, John|
|Dewar, Donald||McAvoy, Thomas|
|Dixon, Don||McCartney, Ian|
|Dobson, Frank||Macdonald, Calum|
|Donohoe, Brian H.||McFall, John|
|Dowd, Jim||McKelvey, William|
|Dunnachie, Jimmy||Mackinlay, Andrew|
|Dunwoody, Mrs Gwyneth||McLeish, Henry|
|Eagle, Ms Angela||McMaster, Gordon|
|Eastham, Ken||McWilliam, John|
|Mahon, Alice||Roche, Mrs. Barbara|
|Mendelson, Peter||Rogers, Allan|
|Marek, Dr John||Rooker, Jeff|
|Marshall, David (Shettleston)||Ross, Ernie (Dundee W)|
|Marshall, Jim (Leicester, S)||Ruddock, Joan|
|Martin, Michael J. (Springburn)||Salmond, Alex|
|Martlew, Eric||Sedgemore, Brian|
|Maxton, John||Sheerman, Barry|
|Meacher, Michael||Shore, Rt Hon Peter|
|Michael, Alun||Simpson, Alan|
|Michie, Bill (Sheffield Heeley)||Skinner, Dennis|
|Milburn, Alan||Smith, Andrew (Oxford E)|
|Miller, Andrew||Smith, C. (Isl'ton S & F'sbury)|
|Mitchell, Austin (Gt Grimsby)||Smith, Rt Hon John (M'kl'ds E)|
|Moonie, Dr Lewis||Smith, Llew (Blaenau Gwent)|
|Morgan, Rhodri||Snape, Peter|
|Morley, Elliot||Spearing, Nigel|
|Morris, Estelle (B'ham Yardley)||Squire, Rachel (Dunfermline W)|
|Mowlam, Marjorie||Steinberg, Gerry|
|Mudie, George||Stevenson, George|
|Mullin, Chris||Strang, Dr. Gavin|
|Murphy, Paul||Thompson, Jack (Wansbeck)|
|O'Brien, Michael (N W'kshire)||Tipping, Paddy|
|O'Brien, William (Normanton)||Turner, Dennis|
|O'Hara, Edward||Vaz, Keith|
|Olner, William||Walker, Rt Hon Sir Harold|
|O'Neill, Martin||Walley, Joan|
|Orme, Rt Hon Stanley||Wardell, Gareth (Gower)|
|Parry, Robert||Wareing, Robert N|
|Patchett, Terry||Watson, Mike|
|Pendry, Tom||Wicks, Malcolm|
|Pickthall, Colin||Williams, Rt Hon Alan (Sw'n W)|
|Pike, Peter L.||Williams, Alan W (Carmarthen)|
|Pope, Greg||Wilson, Brian|
|Powell, Ray (Ogmore)||Winnick, David|
|Prentice, Ms Bridget (Lew'm E)||Wise, Audrey|
|Prentice, Gordon (Pendle)||Worthington, Tony|
|Primarolo, Dawn||Wray, Jimmy|
|Purchase, Ken||Wright, Dr Tony|
|Quin, Ms Joyce||Young, David (Bolton SE)|
|Raynsford, Nick||Tellers for the Noes:|
|Reid, Dr John||Mr. John Spellar and|
|Robinson, Geoffrey (Co'try NW)||Mr. Alan Meale.|
§ Question accordingly agreed to.
§ That the draft Insider Dealing (Securities and Regulated Markets) Order 1993, which was laid before this House on 8th December, be approved.