§ 9.18 p.m.
§ Lord ORAM rose to move, That the draft Protection of Depositors (Accounts) Regulations 1976, laid before the House on 19th October, be approved. The noble Lord said: My Lords, I beg to move that the draft Protection of Depositors (Accounts) Regulations 1976 which were laid before Parliament on 19th October, be approved. The Protection of Depositors Act 1963 seeks to restrict the issue of advertisements inviting the public to deposit money. It makes an important exception, however, for companies in-corporated in Great Britain (or having an established place of business here). These companies may issue advertisements which conform with other regulations made under the Act, provided that twice yearly accounts are submitted to the Department of Trade. These accounts must also be made available to depositors, and potential depositors.
§ The draft regulations now before the House set out the form and content of these accounts. The regulations also include details of supplementary information which may be annexed to the accounts, and lay down auditing requirements.
§ The 1963 regulations, which this revised text is intended to replace, have latterly become in some respects inadequate in their principal purpose. This purpose is to provide depositors with sufficient information to enable them to form a judgment on the suitability of a company which invites them either to place new deposits or to maintain existing ones.
§ A subsidiary purpose is that the detailed accounts furnish the Department of Trade with information which enables it to evaluate the financial position of a 318 deposit-taking company. This is important because the Secretary of State has powers under the principal Act to present a petition for the winding-up of a deposit-taking company if he believes that the company is, for example, insolvent or unable to pay sums due and payable to its depositors.
§ In a White Paper published earlier this year the Government announced their proposals for revising the arrangements for the licensing and supervision of deposit-taking institutions. The implementation of those proposals will involve the repeal of the Protection of Depositors Act, but pending the introduction and passing of banking legislation, it seems right that we should introduce, as an interim measure, regulations which will have the effect of providing the depositor with more information.
§ It may be recalled that the inspectors appointed to investigate the affairs of the London and County Securities Group Limited considered, at the Department of Trade's request, secondary banking; and their report included recommendations for improving the Protection of Depositors (Accounts) Regulations. In drawing up the draft regulations now before us, the Department took into account the inspectors' recommendations as well as drawing upon the considerable experience of that Department's accountancy advisers.
§ The principal areas of change in the regulations are: first, particulars of loans made to directors, associates of directors and associated companies are required to be given; secondly, analysis by size, number and date of repayment is required in respect of loans to, and instalment credit agreements made by, the company; thirdly, additional information on interests in property and land is now required from all deposit-taking companies subject to the Act. Hitherto, this information has been required only from such companies having a "substantial" interest in property and land; and, fourthly, certain of the provisions of the Companies Act 1967 relating to companies' accounts are to be applied to accounts delivered under the Protection of Depositors Act. My Lords, there are just over 100 companies currently submitting accounts under the Act and, to allow them time to adjust to the new requirements, it is proposed that the new 319 regulations will not come into force until 1st February 1977. With those words of explanation, I beg to move.
§ Moved, That the draft Protection of Depositors (Accounts) Regulations 1976, laid before the House on 19th October, be approved.—(Lord Oram.)
§ 9.24 p.m.
§ Lord LYELL
My Lords, we on these Benches are grateful for the clear and concise way in which the noble Lord, Lord Oram, set out what I regard as a complicated and immensely detailed Bill. I have a few questions for him and I think he will be able to give me a reasonably general answer to them; I will not at this hour go into details and I am sure that if there are any points which the noble Lord is unable to answer we can settle the matter later by correspondence. First, why is the 1963 Act felt to have become inadequate? Is it just that the Department of Trade would like to up-date the accounts at this interim stage? Because the noble Lord and the Government will know that we are having discussions on the Companies (No. 2) Bill, which itself is an interim measure. That Bill is awaiting further developments in the Bullock Committee. Evidently, much has happened since 1963. I wonder whether the noble Lord can stress any further important points that lie feels should be brought out.
Secondly, if the Secretary of State were to be able to ask for a winding-up and to declare a company insolvent, I wonder how this would clash with a statement by directors under Regulation 6(c), which says that in the balance sheet the directors have to sign a declaration that the assets of the company are realisable at a realistic value. Clearly, such regulations must be enforced and any loopholes must be tightened up. Is there a clash between paragraph (c) and the general declaration by the noble Lord, Lord Oram, that the Secretary of State can at present ask for liquidation?
Lastly, I wonder why we are having this interim Act. Was there any major case or has anything worried the Government? The noble Lord gave me a partial answer in that there was an unfortunate case that raised a number of issues. This 320 tightening up of the prevention of fraud regulations is at least a partial remedy. I am very pleased to see that the accounts must be submitted at least twice a year. This gives a further possibility for the depositors and the Secretary of State to scrutinise the way in which the company is being run.
I had a short opportunity to glance through the schedules at the end of the regulations. I wonder whether the noble Lord can confirm either now or later something that occurs in the interpretation of Schedule 2, paragraph 16, on page 12. This concerns instalment credit agreements. Loans are to be repayable by instalments at intervals not exceeding three months. I wonder whether these loans are supposed to be payable monthly, weekly, annually or three monthly. Why does this yardstick of three months come to be cited here? That is a minor point of detail, though I wonder whether the noble Lord can clear it up for me at some stage. However, I hope that I have not swamped the noble Lord with too many questions at this time of night. I should like to finish by thanking him for bringing forward this measure and for explaining and presenting it so clearly, and to give it our support.
My Lords, in brief response to the noble Lord, Lord Lyell, I shall to some extent have to rest on the noble Lord's kind introduction in which he indicated that he was not necessarily expecting off-the-cuff replies to the details of his questions. The noble Lord asked me why the existing regulations were now considered to be inadequate. As he said, much has happened since 1963, experience has been gained in the Department of Trade and a certain number of modest Amendments were thought up and were in train. Then came the London and Counties Securities Group inquiry, and the report in connection with that episode indicated that a more thorough redrafting of the regulations was required. I believe that I can say that the regulations now before the House largely depend upon that report.
The noble Lord asks why this is urgent, or why this particular set of regulations is necessary. As I indicated in my opening remarks, the Government have more 321 general legislation in mind on secondary banking problems, but that will necessarily take some time, and it was thought that as an interim measure it was desirable to ensure that depositors are provided with information to help them. I think that that links with what the noble Lord referred to in relation to the Companies (No. 2) Bill. It is true that that Bill will affect the whole question that we are talking about, and there will be the necessity to go through this kind of exercise again. So I am not suggesting that what we are legislating for this evening will stand for all time. There will have to be another look at this question.
The noble Lord also raised the question of whether or not there was a clash between the Secretary of State's powers and Regulation 6(c), as well as the matter of the three months' period. I think that if we were dealing with a Bill I should successfully claim that those were Committee points, but unfortunately there is no Committee stage on an order of this kind, and so I will, if I may, write to the noble Lord on those two points.