STATEMENTS OF POLICY: PROCEDURE

HC Deb 01 February 2000 vol 343 cc981-91

.—(1) Before issuing a statement under section 67, the Authority must publish a draft of the proposed statement in the way appearing to the Authority to be best calculated to bring it to the attention of the public. (2) The draft must be accompanied by notice that representations about the proposal may be made to the Authority within a specified time. (3) Before issuing the proposed statement, the Authority must have regard to any representations made to it in accordance with subsection (2). (4) If the Authority issues the proposed statement it must publish an account, in general terms, of—

1. (a) the representations made to it in accordance with subsection (2); and
2. (b) its response to them.

(5) If the statement differs from the draft published under subsection (1) in a way which is, in the opinion of the Authority, significant, the Authority must (in addition to complying with subsection (4)) publish details of the difference. (6) The Authority may charge a reasonable fee for providing a person with a copy of a draft published under subsection (1). (7) This section also applies to a proposal to alter or replace a statement.".—[Mr. Timms.] Brought up, and read the First time.

Mr. Timms

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker

With this it will be convenient to discuss the following: Government new clause 14—Statements of policy: procedure.

Government new clause 25—Codes: procedure.

Government new clause 26—Statements of policy: procedure.

Government new clause 30—Statements of policy: procedure. Government new clause 31—Statements under section 351: consultation. Government new clause 40—Consultation.

Government new clause 41—Procedure on making or varying orders under section (Orders in relation to the general prohibition).

Amendment No. 236, in clause 8, page 4, line 15,, at end insert— (6) Before appointing any person to the Practitioner Panel the Authority must consult persons representing the interests of practitioners, as it considers appropriate, with a view to identifying candidates for appointment to the Practitioner Panel.". Government amendment No. 407.

Amendment No. 216, in clause 49, page 23, line 5, after "Part", insert— or to impose a requirement under section 38". Amendment No. 217, in page 23, line 7, after "application", insert— or imposes a requirement under section 38". Amendment No. 218, in clause 50, page 23, line 17, leave out "written" and insert "a warning".

Amendment No. 219, in page 23, line 19, leave out subsection (3).

Amendment No. 220, in page 23, line 27, leave out "written" and insert "a decision".

Amendment No. 221, in page 23, leave out lines 28 to 30.

Amendment No. 224, in clause 59, page 27, line 35, at end insert— (2A) If no warning notice is given before the end of the period for consideration the application shall be treated as granted.". Government amendments Nos. 249 to 255.

Amendment No. 225, in clause 62, page 29, line 1, after "issue", insert "or alter".

Amendment No. 226, in page 29, line 2, after "it", insert— or, as the case may be a draft of it as proposed to be altered". Government amendments Nos. 256 to 270, 272 to 277 and 279.

Amendment No. 227, in clause 85, page 39, line 26, at end insert— and the procedure on such an appeal". Amendment No. 228, in page 39, line 30, at end insert— (4) The provisions of sections 349(3) to 349(5) shall apply in relation to the warning notices as if the competent authority was the Authority. (5) If, notwithstanding the representations made to the competent authority before the end of the period specified in the warning notice, the competent authority decides to impose a penalty on a person under section 84, the competent authority must give the person concerned written notice of the decision it takes and must inform him of the right of appeal available to him and the procedure on such an appeal. (6) The provisions of sections 350(1)(c), 350(6) and 351 shall apply to any such notice under subsection (5) as if it were a decision notice and the competent authority was the Authority.". Government amendments Nos. 280 to 284.

Amendment No. 229, in clause 87, page 40, line 10, at end insert— (2) The competent authority may not give a notice for payment under section 88(1) while the decision to give that notice is open to review. (3) "Open to review" bears the meaning set out in section 350(7) as if references to the Tribunal were to the person or body to which appeal may be made under the arrangements to be established under subsection (1).". Government amendments Nos. 285 to 315.

Amendment No. 365, in clause 142, page 68, line 30, at end insert— and if any proceedings are commenced against any person in reliance on the report the investigating authority shall provide a copy of the report to such person prior to the commencement of proceedings". Amendment No. 375, in clause 183, page 91, line 3, at end insert— (5) The Authority shall not give a notice for payment while the decision to give that notice is open to review within the meaning of section 350(7).". Amendment No. 376, in clause 184, page 91, line 12, at end insert— (4) The Authority shall not publish a statement under section 179 while the decision to publish that statement is open to review within the meaning of section 350(7).". Government amendments Nos. 320 to 325.

Amendment No. 377, in page 91, line 32, leave out "authorised persons" and insert "the public".

Government amendment No. 326.

Amendment No. 378, in clause 185, page 91, line 37, leave out— consult such persons as it considers appropriate and insert— include in the material a statement that representations about the material may be made to the Authority within a specified time". Amendment No. 379, in page 91, line 37, at end insert— (7A) Before publishing the material under this section the Authority must have regard to any representations made to it in accordance with subsection (7) and must make a statement as to the representations (if any) made to it and its response, in general terms, to them.". Government amendments Nos. 327 to 329.

Amendment No. 392, in clause 235, page 118, line 32, leave out from "give" to end of line and insert— separate written notice of its decision to the manager and trustee of the scheme". Amendment No. 394, in clause 236, page 119, line 38, after "must", insert— without prejudice to its other powers under section 108". Government amendments Nos. 140 and 331 to 344.

Amendment No. 11, in clause 351, page 181, line 39, after "case", insert— if the failure does not materially prejudice the person to whom the warning notice or decision notice is given". Government amendments Nos. 345 to 363.

Mr. Timms

The Government gave an undertaking in Committee to standardise the FSA's procedures, including for when the FSA consults on its making and amending of rules and codes, and of policy statements. New clauses 13, 14, 25, 26, 30, 31 and a number of amendments are intended to achieve that consistency, and I hope that they will be widely welcomed.

New clauses 40 and 41 relate to the new provisions on professionals. New clause 40 deals with the procedures to apply to directions by the FSA to cut back the scope of the exemption in relation to classes of person or activity. It sets out the procedure for consulting on a direction in line with similar procedures throughout the Bill. New clause 41 deals with individual orders made by the FSA to ban persons from carrying on regulated activities under the professionals' exemption. It sets out the procedure that will apply to a banning order under new clause 39. Essentially, the warning and decision notice procedures applied throughout the Bill should be adhered to, and the subject of the order can refer the matter to the tribunal.

Clause 48 provides that an authorised person should have a certificate setting out the terms of their permission and that the certificate is to have particular evidential weight. At present, the certificate takes precedence over the register that the FSA must maintain under clause 311, or over the notice to be issued under clause 47(4), in determining a person's position.

Our intention was to provide some certainty for authorised persons. However, we have become aware that some difficult practical issues would result from giving precedence to certificates in that way. It would be imperative for the FSA always to repossess a certificate when a permission is altered or cancelled. For example, what would happen if the authorised person declined to return the certificate or claimed to have lost it?

We are persuaded that it would not be right to place such reliance on certificates. By deleting clause 48 and the related provisions in schedule 5, we are deliberately leaving it open to the courts to place weight on a variety of forms of documentation—including the public register to be maintained by the FSA under clause 311—as they consider appropriate.

Amendment No. 269 makes a simple drafting change to clause 63. Amendment No. 140 makes a consequential change to clause 274, following the introduction in Committee of provisions as to recognised nominees. It provides that the FSA must have regard to representations from a recognised nominee before using its power of direction in respect of such a body.

I shall defer my comments on the amendments tabled by the Opposition until Opposition Members have had a chance to speak. I shall then try to catch your eye, Mr. Deputy Speaker.

8.30 pm

Mr. Flight

As the Minister pointed out, the Government's new clauses and the related amendments would standardise various procedural requirements relating to the making by the FSA of rules and codes and to the issue of policy statements. As far as we have been able to digest them, the amendments are welcome improvements; they appear to work.

However, the Opposition have some qualifications or questions. First, although in some cases the consultation procedures apply to proposals to alter or replace statements or policies, it is not clear what the position would be if the FSA proposed to alter rules made under part IX. If the rules were revoked and replaced by new ones, the consultation procedure would apply; however, the provisions do not cover alterations to rules.

Secondly, it seems to be assumed that many existing rules will be continued under the measure. As we have pointed out, those rules are intended to be grandfathered so as to avoid the need for the consultation procedure, and will not be subject to cost-benefit analysis. We are not clear how that grandfathering will be put into effect.

Thirdly, the consultation procedures do not apply to the Treasury's powers to make orders or to prescribe other matters under the measure. We think that the procedures should apply.

Finally, various Opposition amendments buried within the group cover many different territories. I shall not address each one, but shall discuss them in groups.

Amendment No. 236 is especially important. It would require the FSA to consult persons representing the interests of practitioners before making appointments to the practitioner panel. We had tabled alternative amendments on that. However, such a panel must be properly representative of practitioners and consultation is a sensible way to achieve that.

Amendments Nos. 216 and 217 would amend clause 49 to bring within the warning notice, decision notice procedures proposals by the FSA to impose conditions on applicants for permission to carry on regulated activities. Amendments Nos. 218 to 221 would amend clause 50 to bring within those procedures proposals by the FSA to use its own-initiative power, for example in non-urgent cases.

In the case of any application for approval, amendment No. 224 would provide that, if no warning notice were given before the end of the period for consideration of the application—the three-month period—the application would be treated as granted. We proposed that amendment in Committee and I thought that it had received a sympathetic response.

Amendments Nos. 227 and 228 would introduce to clause 85 the provisions of clauses 349 and 350—the warning notice, decision notice procedures—in the case of the proposed imposition of penalties for contravention of listing rules.

Amendment No. 365 would require a copy of an investigator's report made under the provisions of clauses 139 and 140 to be provided to the person under investigation before proceedings are commenced against him. We consider that to be of some import.

Amendments Nos. 375 and 376 amend clauses 183 and 184 to make it clear that the FSA cannot give notices for penalties, or publish statements, while the decision is open to review.

Clause 351(7) provides that if the FSA fails to follow its warning notice, decision notice procedure, it will not affect the validity of the relevant warning notice or decision notice. Amendment No. 11 provides that that is the case only if the failure does not materially prejudice the person to whom the warning notice or decision notice is given". We shall not press our amendment No. 377; we debated that subject pretty fully in Committee. Similarly, we shall not press amendment No. 378, to which it relates.

Amendment No. 379 is of some import. It provides that, before the FSA publishes a disciplinary notice, it must have regard to any representations and make a statement as to whether representations were made and what its response to them was.

Amendment No. 392 relates to powers on intervention. It would require the FSA, when revoking a power, to give separate written notice to the manager and trustee, not only to the applicant.

Amendment No. 394 provides that, in cases of urgency, decision notices should be without prejudice to the powers under clause 108 relating to hearings and appeals.

The amendments bracket together a strange hotchpotch of different territories. We view the most important as the practitioner panel point and the territory of not being able to publish statements while decision notices are open to review.

Mr. Loughton

My hon. Friend has probably said it all on this great hotchpotch, but I want to echo some of his words regarding the practitioner panel and amendment No. 236.

I fear that I may incur the wrath of the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) because the amendment does not deal with the body of consumers. We have addressed that subject many times in the Bill's passage. Many of us would contend that if we get the practitioners right, we are acting in the interests of consumers, but I shall not re-open that argument. No doubt he will intervene on me if he chooses to take us down that lane.

We had a good debate in Committee about the status and effectiveness of the practitioner panel. Many Conservative members of the Committee would have preferred the panel to be given much greater independence, to the extent that panel members could be nominated by practitioners from their own body instead of being appointed entirely by the authority; because it is essential that the practitioner panel has clout and is not just a form of tokenism, supposedly to give respectability to some of the greater excesses that the FSA rule-makers may wish to impose on the financial community. If the latter were the case, it would inevitably lead to prejudice to the consumer.

I have another worry. I have no qualms about the qualifications and standard of the people who have been proposed for the practitioner panel—indeed, some are highly qualified—but many are what I would term compliance and regulator people rather than practitioners. There seems to be a difficulty in filling the practitioner panel with practitioners, the people who are at the sharp end of the financial services business and conduct business day to day. Someone who regulates individual firms as a compliance officer does not constitute a practitioner.

In Committee, we also had problems when we contended that the practitioner panel should have first sight—and before the consultation was launched—of any consultation exercises that the authority recommended should go out to the general membership. It appears eminently sensible to suggest that the practitioners, who might have a sensible and pragmatic input to make to the consultation exercise, should be able to make it at the beginning. It would then be a rather more meaningful exercise, but, unfortunately, the Government did not accept our amendment. As we failed on those scores, it is essential that amendment No. 236 is taken on board. It would be absurd for the authority to appoint the people that it saw fit to serve on the practitioner panel without it consulting widely with the very people that the panel supposedly represents.

The Bill must contain a mechanism whereby the FSA is obliged to consult the practitioners properly before it names the people who it wants to appoint to the panel.

That is plain common sense if the panel is to be effective, independent and is to have an input into the workings of the FSA. It will be one of the worst cases of tokenism if it is made up of yes-men and women.

Mr. Timms

The hon. Member for Arundel and South Downs (Mr. Flight) asked me three questions about the Government amendments and I shall deal with them first.

First, the hon. Gentleman asked me about altering and replacing the rules under part IX. That is a drafting matter. It is not right to talk about rules being altered or replaced; they are revoked and new rules are made. In that sense, part IX is no different from other parts of the Bill.

The hon. Gentleman also asked me about grandfathering. Our intention is to lay transitional provisions in another place to deal with that. To some extent, it is a matter for the FSA. For example, in the case of prudential rules, it is consulting on a proposal to make interim rules. The aim is to allow it to take account of procedural steps, including consultation, before the Act comes into force.

Finally, the hon. Gentleman asked me about the need for consultation on the Treasury powers to prescribe. There are a number of powers in the Bill for the Treasury to make regulations. It would be unduly rigid to include in the Bill a requirement to consult on the regulations. However, we shall of course consult when it is appropriate to do so.

Mr. Tyrie

The Minister has just mentioned the transitional arrangements. As he has touched on them, will he explain why the Government have not yet taken the opportunity to table them? A huge number will be required with the ending of 18 separate sets of regulatory schemes and their replacement by the omnibus scheme. What has been the obstacle to tabling those arrangements for consideration in this House rather than waiting for them to be considered in the other place?

Mr. Timms

We referred to several matters earlier today and in the debate last week that we shall return to in another place. As a result of all our deliberations and the close attention that we have paid to all the points made to us, we have many matters to resolve, and those are among them. It has not been possible to table amendments on that in time for debate today, but I have no doubt that those matters will be properly scrutinised in the other place.

8.45 pm

I shall deal with the Opposition amendments in the order in which they were explained by the hon. Member for Arundel and South Downs. Amendment No. 236 would require the FSA to consult practitioners about possible candidates. The hon. Member for East Worthing and Shoreham (Mr. Loughton) referred to that. The FSA is under a duty to establish a panel of practitioners able to represent the views of practitioners. Clause 8 specifies categories of person who should be represented on the panel, and places the FSA under a duty to have regard to representations made to it.

I have no objection to the FSA consulting in the way proposed so that it can identify suitable people, but it is unnecessary and undesirable to specify so precisely the steps that it should take. Consultation with the industry may well be a good approach, but other methods may be suitable; for example, it may he appropriate to advertise. I would not want to tie the FSA's hands on that matter.

Mr. Flight

Will the Minister be a little more specific? He is saying that the Bill covers the spirit of what we seek to achieve, but what is the FSA likely to do? There are many trade bodies that represent different parts of the financial services industry. Is it envisaged that the FSA will discuss suitable candidates with them? Is it envisaged that the FSA will talk directly to any leaders or sections of the industry? We are concerned because it seems to us that the boards of comparable existing bodies could have been improved.

Mr. Timms

That will be a matter for the FSA. Its obligations in that respect are pretty clear, and they cover the points about which Opposition Members are concerned. Categories of person are specified; the panel has to be able to represent the views of practitioners, and the FSA is placed under a duty to have regard to representations made to it. Precisely how the FSA fulfils those obligations is a matter that we can leave to it, although I imagine that it will do much of what the hon. Gentleman suggested.

Amendments Nos. 216 to 223 are interesting. They would extend full warning notice, decision notice and tribunal procedures to all FSA decisions under part IV. There is a need to rationalise the procedures for FSA decisions, in the same way that we have aligned consultation procedures. For example, we tabled amendment No. 115, which will extend the right to refer matters to the tribunal in clause 52 to any applicant who is aggrieved by the determination of his application, such as in cases in which the FSA has granted an application but imposed a limitation or requirement.

At the same time, however, it is important to distinguish between the essentially prudential and protective nature of the provisions in part IV and the different nature of other provisions in the Bill, such as those on market abuse, discipline and restitution.

The interests of third parties will vary according to whether one is considering permission given to an authorised person or his wrongdoing. That will have a bearing on the urgency of the case and the amount of material that it will be appropriate for the FSA to disclose in a particular case.

We do not think that it is right that all consequences should flow in exactly the same way from all FSA decisions, which would be the result of the Opposition amendments. However, we accept the need to consider further the procedures that should apply and to align them as far as possible. We shall want to return to that matter in another place. I shall take on board the central thrust of the hon. Gentleman's case, but more detailed work is needed.

That brings me to amendment No. 224. In Committee, I made it clear that the Government had decided to allow the FSA up to three months in which to consider applications, in case it needs—as it will, from time to time—to carry out investigations into those making applications. However, the FSA has made it clear that it expects, in normal circumstances, to be able to grant approvals within a matter of days or weeks; it is consulting with firms as to the levels of service that they would like to apply to the processing of applications.

I hope that I did not inadvertently mislead the Committee about the Government's intentions. We believe that it is essential that the FSA satisfies itself that the candidate is a fit and proper person to carry out the controlled function in question. It must be absolutely clear that an application cannot be granted by default and that no benefit can accrue from delay or other such tactics. Therefore, I cannot accept the amendment.

Mr. Flight

I could cite difficult cases in which an existing self-regulating organisation left a matter in no man's land for anything up to one or two years because no one wanted to take responsibility for a difficult decision. Ultimately, decisions have been forced, usually by a potential employer being brave enough to address the issue. Some such cases have given rise to considerable injustice. The Minister appears to be saying that the three months is not really three months: what happens if a decision is not reached within three months? We do not want a regime that allows people to be left in limbo.

Mr. Timms

That, too, will be a matter of concern to the FSA. However, the problem can be seen the other way around: making the amendment could result in the unhappy outcome of a person assuming that he had approval and taking up a position with an authorised firm, only to find that the FSA sought to withdraw that approval a matter of days later. The Government's approach is correct, but the hon. Gentleman is right to say that care must be taken throughout the process, so that such cases are not repeated.

Amendments Nos. 225 and 226 have been overtaken by some of the Government amendments, so I shall not speak about them. The hon. Gentleman did not focus on them.

That brings me to amendments Nos. 227 to 229. In Committee, my hon. Friend the Economic Secretary set out the changes that we would make to the clauses dealing with official listing, following the decision to transfer the competent authority function from the London stock exchange to the FSA. We have not tabled amendments to part VI consequential on that decision; we shall do so in another place.

We shall in another place also propose changes to the warning notice and decision notice procedures. Those changes will rationalise the provisions, for example, by ensuring that a notice for payment is something that is given and takes effect only after the end of the review process.

As the hon. Gentleman said, amendment No. 365 is identical to one that we discussed in Committee. We agree that a person must know of what he or she is accused; that basic requirement is recognised in the Bill in several ways. In disciplinary and market abuse cases, clause 349 requires the FSA to disclose the reasons for proposing the action in the warning notice that it must give to the person concerned. Subsection (5) of that clause requires the FSA to make available the evidence on which it proposes to rely in any proceedings before the tribunal. We are working on proposals to extend this right of access to include additional information. In most cases these disclosure requirements and rights of access will cover most, if not all, of the contents of any report prepared following an investigation. We cannot agree to automatic disclosure of the full report of an investigation regardless of its content or the use that it might be put to. For example, it might reveal the source of a tip-off within a company under investigation. We think that that would be going too far. We are providing a great deal of transparency in this process. It is right that we should do so, but there are limits to what is appropriate.

I am grateful to Opposition Members for tabling amendments Nos. 375 and 376. They would prevent the FSA from imposing disciplinary measures under part XIII while the decision is still open to review. Clause 356 already prevents the FSA from publishing any information about a matter to which the decision relates while the decision is still open for review. The main provision that prevents such abuse is clause 108(5), which provides that a decision referred to the Tribunal does not have effect until the reference, and any appeal against the Tribunal's decision, has been … disposed of. Any notice of payment that the FSA purported to issue before the matter was referred to the tribunal would also be rendered ineffective if the matter was then referred to the tribunal. I understand that there could be some ambiguity about the status of such a notice and the passage of time under clause 108 if the firm decided not to refer the matter to the tribunal. It would be useful to consider whether the provision could be reworded as part of the amendments that we are proposing to put forward when the Bill is considered in another place. I hope that that will be of some reassurance to Opposition Members.

Amendments Nos. 377 to 379 aim to specify consultation procedures on statements of policy on the imposition of penalties. As we undertook in Committee, we have introduced a series of new clauses and amendments to standardise procedures. New clause 30 addresses the Opposition's concerns on this issue, I hope to their satisfaction.

The purpose of amendment No. 392 is to amend clause 235, which deals with the procedural aspects of revoking directions that are given under clause 231, so that both the manager and trustee of a scheme receive a written decision notice when an application for revocation has been made. I recall that the matter was raised in Committee. Procedural issues in this part of the Bill are still being broadly assessed, and this is a point that we shall consider further, as we said in Committee.

Amendment No. 394 concerns the role of the tribunal in the urgent intervention procedure for authorised unit trusts under clause 236. Again, the matter was debated in Committee. We said then that we would review the urgent intervention powers set out in the Bill at a later date, and we still intend to do so.

Amendment No. 11 is similar to an amendment tabled in Committee. As we explained then, we think that our amendments achieve the required effect. As it stands, clause 351(7) gives the FSA flexibility in carrying out its published procedures. That is necessary because there is a risk that any minor error or departure from the standard procedure would result in the entire procedure becoming a nullity.

In practice, the question whether there has been a procedural error that has materially prejudiced the other party would be resolved by the tribunal, whose proceedings would provide a completely fresh look at the case and a decision unprejudiced by any procedural errors by the FSA. The problem with a prejudice test is that it suggests that the tribunal should strike down a decision of the FSA wherever it has materially disadvantaged the other party. That would in effect lead to long arguments about the minutiae of the procedures adopted by the FSA. The tribunal's own fair procedures should effectively rectify any procedural failures as it provides a full opportunity for a fair hearing before a judicial body. The tribunal's ability to balance any material disadvantage was welcomed by the right hon. and learned Member for North-East Bedfordshire (Sir N. Lyell) in Committee.

Amendment No. 392 deals with the procedural aspects of revoking directions given under clause 231. We are looking into the matter.

Amendment No. 394 concerns the role of the tribunal in the urgent intervention procedure for authorised unit trusts under clause 236, to which we will give further consideration.

I hope that I have responded to the long list of amendments to the satisfaction of Opposition Members.

Question put and agreed to.

Clause read a Second time, and added to the Bill.