§ [Nos. 11 and 12]
§ Clause 6, page 6, line 19, after "applies" insert "or subordinate company within the meaning of section (Restriction on transactions with connected persons) below of any such company".
§ Clause 6, page 6, line 23, at end insert—
§ "(2) Different classes or descriptions of agreements or arrangements may be prescribed for the purposes of this section in relation to companies of different classes or descriptions."
§ THE EARL OF LIMERICK
My Lords, I beg to move that this House doth agree with the Commons in their Amendment No. 11. If it is convenient to the House it may be desirable, in considering the Amendments to Clause 6, where we have the first reference to the new concept of a subordinate company, to deal at the same time with Amendments to later clauses, especially to Clause 10 where that concept has its main application. This involves considering together Amendments Nos. 11, 12, 17, 19, 42 and 55. I think it would be helpful to the House if I were first to explain the Amendment to Clause 10 itself—that is, Amendment No. 17.
As your Lordships may recall, Clause 10 was added to the Bill while it was 1563 under consideration in this House. Its purpose is to place a limit on the extent to which assets of long-term—that is to say life—insurance funds may be invested in, loaned to or used to back guarantees of companies under the same control as the long-term insurance company and thus avoid any major conflict of interest for those involved in the direction, both of the long-term business and of those other businesses which may have nothing to do with insurance. The complexity of the inter-company relationships from which that conflict may arise is reflected in the length of Clause 10. Your Lordships may recall that the clause was originally introduced at the instigation of the industry, and I gratefully acknowledge the further help we have had from them in improving it. It might occasion some surprise that the inspiration for it should have come from those whose freedom it is designed to curtail. Long-term insurers have, however, customarily exercised restraint in such matters and they feel that it is desirable now to establish a statutory standard.
It is not easy to express an effective limitation in this area in statutory terms and it will be noticed that the clause has undergone extensive reconstruction since it left this House. The substance and the objective are still the same but the detail has been given greater precision. The principal changes made are these: first, the introduction of the concept of a subordinate company as defined in subsection (4). This may be briefly described as a company, not necessarily engaged in insurance business itself, in which the majority of the beneficial interest is held as an asset of the long-term funds. Investment in such a company is not limited by this clause, but any investments it may make in what are now called connected persons are to be aggregated with those of its parent long-term fund for the purpose of the limitation. This is provided for in subsection (3).
The second change is that the list of transactions covered by the limitation now includes undertakings such as guarantees, whereby the insurance company undertakes a liability to meet an obligation of another person or to help him in doing so. This is in paragraph (c) of subsection (2). The third change is 1564 that what the clause as it left your Lordships' House rather confusingly called "associated companies" are now referred to as "connected persons". It will be seen that the definition in subsection (5) has been extended so as to include not only a company which controls an insurance company and one which is under that same control (a mother and a sister company, let us say) but also the partner of a major shareholder and a director of the company and his wife or children. The broad purpose of these modifications is on the one hand to permit the legitimate use of subsidiary companies to undertake ancillary functions without allowing them to become a channel whereby the limitation can be evaded and, on the other, to apply the limitation to as many other forms of connection as can reasonably be defined and identified in practice.
My Lords, I hope I have said enough to indicate the changes in Clause 10 which have been made, but I am equipped to go on at great length if your Lordships so wish. But if your Lordships are agreeable I will turn to the associated Amendments. Amendments 11 and 12 to Clause 6 are consequential. The Department will want to be kept in touch with the transactions of the kind limited by Clause 10. Clause 6 provides the necessary machinery. Since the transactions of subordinate companies with connected persons are to be aggregated with those of their parents, it is necessary to be able to impose a notification requirement on the subordinate also. This is the effect of the first Amendment, No. 11. Amendment No. 12 stems from the first, which leads to the need for a power to prescribe to be applicable to certain companies for certain transactions.
Amendment No. 19 is in part a consequential amendment to Clause 12(1)(b). It relates to the Secretary of State's powers of intervention on the ground that a company appears to him to have failed to satisfy an obligation under the insurance companies legislation. It may be necessary to intervene to protect the interests of the long-term policy holder if either a long-term insurance company or its subordinate company has failed to observe the limitation imposed by Clause 10, or where a subordinate company has failed to notify a relevant transaction under Clause 6.
1565 Amendment No. 42, to Clause 38, which contains powers to modify the effects of certain clauses, is consequential. It is recognised that, despite the care in drafting Clause 10, some anomalies may result. The additional subsection will allow the Clause 38 powers of modification to apply to the obligations upon a subordinate company where that is considered appropriate. Finally—and I am grateful for your Lordships' forbearance on this complex matter—Amendment No. 55 is in part a consequential Amendment to Clause 46, in relation to offences and penalties relating to Clauses 6 and 10. I beg to move.
§ Moved, That this House doth agree with the Commons in the said Amendments.—(The Earl of Limerick.)
§ LORD DIAMOND
After such a careful and detailed explanation I feel it would be less than courteous if I did not say how much we appreciate not only the explanation the noble Lord has given but the excellent "gardening" which the Government have been doing. The seeds which we have sown, whether they came from this side of the House or the other matters not, were sown at the time your Lordships were in the first place considering this Bill. They have not only developed; they have grown and flourished. We are very glad to see it, and glad to note the attention which the Government have paid to the suggestions made in formulating the policy now included in this Bill.