Patrick O'Byrne

HC Deb 14 June 1994 vol 244 cc602-10

Motion made, and Question proposed, That this House do now adjourn—[Mr. Robert G. Hughes.]

9.42 pm

Mrs. Cheryl Gillan (Chesham and Amersham)

As you know, Madam Speaker, I have been trying for some time to arrange this Adjournment debate. I am grateful to have this opportunity to raise the case of my constituent, Mr. Patrick O'Byrne, and his experiences originally with the Association of Futures Brokers and Dealers and subsequently with the Securities and Investments Board which has now assumed responsibility for this matter.

Although I appreciate that in the space of the next half hour my hon. Friend the Minister may not be able to provide any solution to Mr. O'Byrne's problems, I hope that the debate will enable matters of concern to be addressed and focused on by the Government and by the self-regulatory organisations concerned. As Mr. O'Byrne's Member of Parliament, I have made representations on his behalf for nearly two years, but despite every effort I have not been able to obtain simple answers to his questions about the procedures of the AFBD and the SIB. Probably the only route left to him would be a judicial review, which Mr. O'Byrne cannot afford and which indeed could take years. I have therefore requested this debate on his behalf almost as a last resort and I am sure that my constituent appreciates, as I do, the time that my hon. Friend the Minister is giving up to listen to and to reply personally to my constituent's problem.

Until 1991, Mr. O'Byrne was the owner of a company, Landsdowne Futures and Options Ltd, which was a member of the Association of Futures Brokers and Dealers and which operated from Wigmore street in the west end of London. Due to capital adequacy problems, Mr. O'Byrne tendered his company's resignation to the AFBD on 27 December 1990. The resignation was tendered after much thought and in increasingly difficult economic times. Only two weeks later, at a meeting on 10 January 1991, despite the fact that a tendered resignation was on the table, he was advised by the AFBD that if he injected £65,000 additional money into the company he could continue to operate.

Having confidence in that advice, on 17 January 1991, in the morning, the necessary additional capital was put into the business. However, not the next day, not the following week, not the following month but on that very afternoon, after the money had been injected into the business, he was informed by the AFBD that the company should cease trading. Mr. O'Byrne feels that the collapse of Landsdowne was not inevitable. As he says in his own words:

I had numerous offers to join other companies. After all, with some 450 clients producing instant income, client production in the system and one million US dollars under management, I was an attractive proposition. So you can see that not only did the AFBD take my money, but they prevented me from making choices and from making a living. A meeting was called for 1 February 1991 with the AFBD, which approached the issue in what appeared to Mr. O'Byrne and his colleagues as a totally unco-operative fashion—a distinct change from the previous meeting, at which the further injection of capital had been encouraged. With the suspension in force, Mr. O'Byrne naturally asked —he had been given advice on previous occasions—under what conditions the company could restart trading, but no answer was forthcoming.

As my hon. Friend the Minister can imagine, the results of the AFBD's action immediately had catastrophic results for the company. Later that month, at a meeting with the then chief executive of the AFBD, Mr. O'Byrne raised his concerns, including the daily loss of money as the company was not allowed to trade but was still sustaining its overheads. Effectively, the company was in a kind of limbo, unable to trade but unable to lay off staff while the problem was unresolved. At that meeting, the solution proffered by the chief executive was a further injection of £70,000 into the business—something which by that stage was quite outside my constituent's resources. As a result, the whole business became subject to a business conduct tribunal, which was eventually held on 27 March 1991.

At that hearing, Mr. O'Byrne's lawyer was prevented from cross-examining the. AFBD main witness by the panel, and Mr. O'Byrne feels—with some justification, in my view—that the judgment was produced on one-sided evidence. The tribunal's decision was to expel the company from the AFBD. That in itself seems curious, as my constituent had lost all his money and his business —and now, I may add, his home—when all that he had done was to follow advice given to him by the AFBD in the first place.

In May 1991, he lodged an appeal with the council of the AFBD and in the course of so doing raised numerous questions. No answers to those questions were ever produced. At a meeting of the council in June, the company was offered a choice of resigning from the AFBD or being expelled, causing Mr. O'Byrne further surprise as he had already tendered the company's resignation some six months earlier and by then the actions of the AFBD in suspending his right to trade had forced the company into insolvency. Since that date, there has been a raft of correspondence between the AFBD, the SIB and various other individuals. But to this day, answers to some of the basic questions have still not been given to my constituent.

In the two years that I have been dealing with Mr. O'Byrne, we have repeatedly asked for answers and my constituent still feels that the full circumstances have not come to light. Tonight, on his behalf I shall repeat the questions as clearly and concisely as possible in the hope that the organisation and individuals responsible will now feel obliged to answer them.

After Landsdowne Securities had resigned from the AFBD, why did the AFBD advise Mr. O'Byrne to inject £65,000? When he followed that advice, why did the AFBD move the goalposts so rapidly that following the injection of capital in the morning he was told to cease trading that afternoon? What was the reasoning behind the decision to commence an investigation of the company? Are there minutes of the meeting at which that was discussed? What details are there of the briefing that the council received about Landsdowne and Mr. O'Byrne, and should they not be made available to Mr. O'Byrne?

In the time allowed tonight I cannot make some of my points in detail but there are further points, such as why the AFBD did not respond to the questions raised in a telephone conversation between Mr. Swahey, Mr. O'Byrne's solicitor, and Mr. Simon of the AFBD on 21 January 1991. Further to that, why did the AFBD refuse to answer the questions submitted at the meeting on 1 February? Why was Mr. O'Byrne's solicitor prevented from cross-examining witnesses on fact at the panel hearing? Lastly, when the council considered what action to take against Mr. O'Byrne's company, who was present and what facts were alleged which resulted in the decision to pull the plug? Mr. O'Byrne has never been privy to the information about his company which was passed from the AFBD to the SIB, so how can he know whether it was accurate?

My hon. Friend the Minister may also wish to know that, relevant to this, during these delicate proceedings Mr. O'Byrne became aware of some wild and outrageous statements which were being made about his personal life, which he refutes absolutely but which were apparently circulating within the AFBD. That has caused him great distress, and to this day no explanation of their source has been firmly established, despite the fact that he feels that they may also have been used in reference to his company's situation.

Earlier this year, my constituent received a detailed report from Mr. Young of the SIB and I understand that a copy has been given to the Minister. Despite an apparently thorough investigation, there are still question marks especially over the procedures involved. Indeed, in a report prepared by Michael Blair, the general counsel to the SIB, he says at paragraph 22, addressing Mr. O'Byrne's request for more details about the SIB's procedures: There is considerable informality about the handling of this aspect of SIB's duties. SIB has a wide range of responsibilities and in terms of staff mix relatively few junior staff. So there is by contrast to other organisations comparatively little set down in firm staff instructions. In many respects the staff are expected to know the Act or the parts of it relevant to them and to have a good working knowledge of relevant board decisions and previous practice. I ask my hon. Friend whether that is a satisfactory state of affairs.

I accept the principle of self-regulation. As we have seen in other areas such as pensions, however, there can be a blind spot and when someone has genuine concerns, as in the case of Mr. O'Byrne, they may find it impossible to get a definitive response to a question because there is no recourse to any authority, other than a judicial review which comes at great cost and possibly after many years. It is Mr. O'Byrne's view—and it is certainly my impression of the case—that these self-regulating bodies are judge, jury and policemen in their own field. The SIB is not an appellate body, and its procedures are far from transparent. So long as there is not an appellate body on procedures, individuals—such as my constituent—who have been forced into bankruptcy and who believe that that is a direct result of the actions of that self-regulatory body appear to have no recourse whatever available to them.

I am aware that the ultimate route for appeal against a decision on membership lies with the commissioner appointed by the Governor of the Bank of England. This is a matter not of the membership status of the company, but of the procedures and facts in the case. Whatever the rights and wrongs of this case, there is a real need to review the experiences of the workings of self-regulatory bodies to see whether the case that I have raised is exceptional, or whether new bodies ought now to be created.

I hope that my hon. Friend the Minister will be able to consider the apparent blind spot in this case, and tell me if anything further can be done to help Mr. O'Byrne to obtain full answers to his outstanding questions. I hope that my hon. Friend will also comment on the possibility of reviewing the operations of the SIB and introducing an appeals system dealing with procedures and facts.

My constituent feels robbed and cheated, with no hope of discovering the details behind his sorry case. He has had my best efforts, support and understanding, and I now ask the Minister for his. No man should have his company and livelihood removed without access to the discussions and deliberations leading to the company's demise. I thank my hon. Friend for listening to me, and I await his reply.

9.56 pm

The Economic Secretary to the Treasury (Mr. Anthony Nelson)

The House will be indebted to my hon. Friend the Member for Chesham and Amersham (Mrs. Gillan) for the impassioned plea which she makes on behalf of her constituent. I congratulate her on the way in which she has pursued this particular case, and so many others. My hon. Friend has acquired a deserved and early reputation as a doughty champion of her constituents' interests. She is one who does not give up. She approaches Ministers and follows through on cases, and I know from my own experience that her constituents are extremely well served in the way in which she advances their interests.

The case that my hon. Friend has raised tonight is another example of that. It is interesting that she does not just pursue the particular case, but draws on it to make wider comments about the regulatory system. Where she perceives the need for improvement, she demands them rightly in the House of Commons. Therefore, I make no complaint at all about seeking to answer the important issue which she raised generally, and the particular case on behalf of her constituent Mr. O'Byrne. I know that many people will sympathise—as I do—with him. His losses are serious, both personally and financially. I am sorry that he remains unhappy about his dealings with the Financial Services Act 1986 regulatory bodies. I think that it might be helpful if I begin by explaining the Government's role under the Financial Services Act.

The Act was introduced to provide a high standard of protection for investors. It provides a wide range of powers, most of which have now been transferred to the Securities and Investments Board as the designated agency under the Act. The SIB is responsible for recognising the practitioner-based self-regulating organisations, to which the majority of investment businesses belong. The Government established the framework within which regulators work, but the detailed ways in which the system operates are for the regulators themselves. The Treasury has no statutory role to intervene in individual cases.

My hon. Friend asked a number of specific questions about Mr. 0' Byrne's case.

Sir Ralph Howell (Norfolk, North)

Does not the Treasury have a responsibility to ensure that the SIB is carrying out its functions in an effective manner? I also have a constituent with problems in that area, and I feel that ultimately it is the responsibility of the Treasury to see that the body is doing its work properly.

Mr. Nelson

My hon. Friend is absolutely right. I would not wish to dismiss, sidetrack or avoid the responsibility of the Treasury for ensuring that the legislation is implemented properly. We passed an order in the House to designate to the SIB the supervision of the self-regulating organisations that, in turn, monitor the day-to-day activities of authorised businesses. That is the nature of the framework set out under the Financial Services Act. My hon. Friend is absolutely right that, of course, we have an interest and responsibility in ensuring that the law is observed. If the SIB does not fulfil its statutory responsibilities under the terms of the legislation, we have the right to revoke that designation. I assure my hon. Friend that that responsibility is an important interest of mine, which I take extremely seriously.

It being Ten o'clock, the motion for the Adjournment of the House lapsed, without Question put.

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Robert G. Hughes.]

Mr. Nelson

My right hon. and learned Friend the Chancellor also takes that interest seriously. We monitor and seek to ensure that the legislation is properly observed and implemented by the SIB. In turn, it must be satisfied that the SROs under it observe the criteria which by law they are required to observe. In this case, as in others, that has been properly done.

My hon. Friend the Member for Chesham and Amersham asked a number of specific questions about Mr. O'Byrne's case, some of which I will address later. Given the statutory position, it would be inappropriate for me to comment on the rights and wrongs of Mr. O'Byrne's case or on why the regulators took certain actions. I understand, however, that the SIB answered the questions addressed to it by Mr. O'Byrne in the report by the SIB's general counsel, Michael Blair. My hon. Friend referred to that report and acknowledged that she has received and read a copy of it.

I fully acknowledge that Mr. O'Byrne's case raises general issues about the disciplinary proceedings of the SROs under the Financial Services Act and about the way in which the SIB handles complaints about those disciplinary proceedings and about its own conduct.

Under the Financial Services Act, it is a condition of recognition by the SIB that, in the event of a disciplinary case concerning an SRO member, the SRO's rules and practices must be fair and reasonable and include adequate provision for appeals. The SROs are also required to have effective arrangements for the investigation of complaints against the organisation or its members.

In the case of Mr. O'Byrne's company, Lansdowne Futures and Options Limited, the SRO was the Association of Futures and Brokers Dealers, AFBD. I understand that the disciplinary case against Lansdowne involved capital adequacy problems. The regulations covering the capital adequacy requirements of investment firms are a vital ingredient of a regulatory system, which is designed to protect investors and maintain the financial integrity of the markets.

Lansdowne's case was considered in March 1991 by a panel appointed by the conduct of business committee of the AFBD. That panel included an independent lay element, a former circuit judge, who was an independent member of AFBD's council. After consideration by the panel, the matter was referred to the AFBD's governing body, the council, which comprised a number of Mr. O'Byrne's fellow practitioners and public interest members.

As my hon. Friend has said, in the case of the AFBD, the final appeal mechanism against membership decisions was to an appeals commissioner appointed by the Governor of the Bank of England. An appeals mechanism was, therefore, not only available under the AFBD's rules and procedures, but is a requirement of the Financial Services Act. I am puzzled that Mr. O'Byrne chose to resign from the AFBD rather than to exercise that option.

On the SIB's handling of complaints, the Financial Services Act requires the SIB to have effective arrangements for the investigation of complaints arising out of the conduct of an SRO. The SIB is answerable to the Treasury under the Act—a point raised by my hon. Friend —for the adequacy of those arrangements, along with a number of other functions. If the Treasury considers that the SIB's oversight of the regulatory structure is not adequate, it has the power, with the approval of each House of Parliament, to make an order assuming the functions transferred to the SIB.

If a complaint against a recognised body is substantiated, there are a number of possible outcomes. The SRO might decide to tighten up its procedures, accept that it must reconsider the issue, or offer to make an ex gratia payment to the complainant. Other options open to the SIB include an informal rebuke of the SRO, a public statement about the quality of regulation of the SRO, or a court order requiring the SRO to fulfil its obligations under the Act. The SIB, therefore, has a range of options open to it to ensure that the front-line regulators have disciplinary proceedings that meet the Act's requirements.

As my hon. Friend observed, when investigating complaints against SROs, the SIB does not act as an appellate body. There is ample provision for appeal against the rights and wrongs of a disciplinary decision within the SRO's procedures. The SIB does not review the merits of a decision reached by an SRO, but it is concerned to ensure that the SRO's disciplinary processes and procedures are fair and equitable.

I understand that, his firm having resigned from the AFBD, Mr. O'Byrne complained to the SIB about the AFBD's handling of his case on 30 September 1991. As a result, staff in the SIB's then capital markets division and complaints unit made extensive inquiries into the points raised by Mr. O'Byrne. The inquiries included discussions with both AFBD staff and Mr. O'Byrne as well as scrutiny of the papers held by the AFBD. Having considered all that material, the SIB concluded that the AFBD had properly and fairly followed its disciplinary procedures. It found no reason to think that those procedures were unsatisfactory. It is difficult to see what more an appellate body on procedures could have done.

If a complainant is not satisfied with the SIB's handling of the complaint against an SRO, it remains open to the complainant to make a complaint against the SIB itself. Complaints against the SIB are handled at an appropriate senior level and independently of the members of staff involved in the original complaint. Such complaints receive replies from the SIB's chief executive and, where appropriate, they may even be put to the board. A non-executive board member is involved in auditing the handling of such complaints.

My hon. Friend asked whether those SIB complaints arrangements were satisfactory and whether we should review the workings of the self-regulatory bodies. Of course we keep those matters constantly under review and I will reflect carefully on what my hon. Friend said. It is a requirement of the Financial Services Act that the SIB has effective arrangements for complaints. My hon. Friend may be aware that the chairman of the SIB, Andrew Large, had conducted a review of how the SIB carries out its responsibilities. In May 1993, having taken a thorough and critical look at the operation of the Financial Services Act's regulatory structure, Andrew Large made a number of important recommendations, which the Treasury accepted without reservation.

Much of Andrew Large's report was devoted to a fresh approach to supervision and enforcement, which should result in a step change in the level of protection offered to investors, and to more rigorous assessment and monitoring of the SROs by the SIB. Those are important issues which both my hon. Friends have raised tonight. I assure them that we try to ensure that, under the current regulatory structure, imperfect as it may sometimes seem, we take seriously the complaints and observations that are made and we try to make the system work effectively.

Andrew Large is also committed to promoting greater openness about the recognised bodies' activities. One element of that is expected to be the consolidation of the SIB's arrangements for independent review of its handling of complaints of various kinds. The SIB is currently discussing proposals to put in place a complaints commissioner. That person will have responsibility for auditing the SIB's handling of complaints about itself and its handling of complaints that it receives about SROs and other recognised bodies.

Mrs. Gillan

Does not the very fact that the Large review was so overwhelmingly immediately and readily accepted evidence that there were flaws in the procedures and the way in which the SIB conducted its business previously? Does not that indicate that there is a possibility that my constituent had fallen foul of what is obviously a less transparent procedure than we would all wish there to be in the operation of the SIB?

Mr. Nelson

I am afraid that I do not accept either of my hon. Friend's contentions, although I understand where she is coming from on that.

With regard to the first contention, I think that my hon. Friend must remember that the driving force for Andrew Large's review was very much the Maxwell shake-out. Andrew Large was asked to conduct his review as a result of imperfections that the Investment Management Regulatory Organisation considered in a report. The regulatory process is an evolving process and one learns from experience. Under the law, that is an important evolution. There is always room for improvement. I think that what Andrew Large proposes to do and is currently implementing will bring about that step change.

Yes, it is true, in terms of investor protection, that the Government were not satisfied and Andrew Large was not satisfied with the extent to which the working of the legislation provided such protection in the past. There were too many instances—from home income plans and the Maxwell case to many other situations and, most recently, personal pension opt-outs and transfers—of serious incidents affecting all our constituents and their savings and investments. The challenge must therefore be, and has been, to use the existing structures and powers of the law significantly to improve investor—and depositor on the banking side—protection. That was what Andrew Large was about. However, I do not accept, having considered as carefully as I can the case raised by my hon. Friend, that he has fallen foul of shortcomings in the previous operation of the law.

It seems to me, having examined the process of appeal, the process of consideration and the outcome by Mr. Blair, that the case has been examined thoroughly, not once or twice, but thrice or more by relevant bodies and appellate bodies and they have confirmed each other's judgment. They have done so, not as a group acting in concert, but as separate bodies and with degrees of independence that we should all respect.

As I was saying, if I may continue with the detail on which I was embarked, the SIB also proposes to assign an individual complaints officer to handle all SRO complaints, to ensure continuity and clarity in the handling of complaints. I am sure that my hon. Friend will join me in welcoming those changes because they are very much what she was asking for at the end of her eloquent address.

In the case of Mr. O'Byrne's complaint against the SIB, the SIB's general counsel, Michael Blair, investigated the complaint. Mr. Blair is a very senior member of staff, not previously involved in the case. He concluded that, although the SIB's staff could perhaps have explained their findings to Mr. O'Byrne in greater detail, there was nothing more that they could usefully have done to investigate his complaints. The matter was also reviewed by a non-executive member of the SIB's board, who decided that the SIB had properly dealt with Mr. O'Byrne's complaints against the SIB.

I have outlined the disciplinary, appeals and complaints procedures that are in place under the Financial Services Act. I do not think that there can be any doubt that the Act makes ample provision for ensuring that disciplinary cases against member firms are conducted fairly, and that complaints about the handling of cases are addressed properly. There is provision for appeals against the disciplinary and membership decisions of the self-regulating organisations.

I am satisfied that the SIB has adequate arrangements for the handling of complaints against SROs. Following a recommendation in the Large review, the SIB is, however, discussing changes to its complaints arrangements. Those changes will bring greater clarity to the SIB's handling of complaints. The SIB is satisfied that the disciplinary processes and practices employed by the AFBD in the Lansdowne case were fair and equitable.

I am afraid, therefore, that I cannot agree with my hon. Friend that there is a blind spot in the regulatory system or that there is a need for a further appellate body to examine matters of procedure. There comes a point, with all cases, when, however aggrieved a party may be and, indeed, whatever the justice of his particular cause, procedures are used up. The opportunity to go over the same ground again diminishes and the useful purpose of inquiring further and further into the same complaint comes to an end. Ministers and hon. Members in this House—very much the last court of appeal—are reluctant to do that; we always give our constituents the benefit of their case. However, there comes a point, and this is one, where although Mr. O'Byrne continues to feel aggrieved, a number of separate, independent, appellate bodies have considered his case thoroughly and carefully and he has had a fair and thorough hearing. Therefore, much as I sympathise with him, I cannot agree that any further action can or needs to be taken.

The SIB has done all that it can to deal with Mr. O'Byrne's concerns. Indeed, my hon. Friend has done even more, not just in pursuing his case prior to tonight but in bringing it to the ultimate authority of the high court of Parliament. I hope that my remarks offer my hon. Friend some reassurance that the Financial Services Act procedures were applied properly and fairly in Mr. O'Byrne's case as well as in the many other cases that we must consider.

Question put and agreed to.

Adjourned accordingly at fifteen minutes past Ten o'clock.