Financial Services Bill

HL Deb 21 July 1986 vol 479 cc37-109

4.49 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth)

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Lucas of Chilworth.)

On Question, Motion agreed to.

House in Committee accordingly.

[The LORD NUGENT OF GUILDFORD in the Chair.]

Clause 1 [Investments and investment business.]

Lord Williams of Elvel moved Amendment No. 1: Page 1, line 9, leave out from ("Act") to end of line.

The noble Lord said: It may be for the convenience of the Committee if I speak to Amendments Nos. 2, 4, 6, 7, 45, 46, 49 and 52. By way of introduction I should like to say that we are faced with a complex Bill which deals with a number of extremely difficult issues. We have a short time to consider this Bill, and we on our side wish to adopt a constructive approach to the proceedings of the Committee. We do not wish to obstruct the Bill, but we wish, as I said at Second Reading, to scrutinise carefully and meticulously its provisions.

We have before us as a Committee a large number of Government amendments, admittedly in response to commitments made to various parties and in another place. The text of these amendments needs careful examination, and noble Lords would be disappointed if, as I think the noble Lord, Lord Boyd -Carpenter, said in speaking to the Motion on the Social Security Bill, That the Bill do now pass, we did not exercise our function as a revising Chamber and do what we can to ensure that even amendments table I by the Government at this late stage do not give rise to any difficulties which the Government or ourselves may not have foreseen previously but which we can foresee at the moment.

With regard to the amendment which I am now moving, our belief, as I think I said at Second Reading, is that we need in the financial services industry a strong superstructure; in other words, we need a strong statutory commission. It is not my task to speak to amendments which we will table at a later stage on the various clauses that deal with that body. Nevertheless the thrust of the amendments to which 1 am now speaking subsumes that there will be a strong supervisory body.

In putting down these amendments we are concerned about three points. First of all, we are concerned about over-regulation. It may come as some surprise to noble Lords opposite that we on these Benches are worried about over-regulation, because it has always been assumed that we are in favour of wholesale statutory regulation of the financial services industry. Not so: we are in favour of very strong supervisory powers at the top level; we are in favour of very strong powers in pursuing fraud, in pursuing insider dealings and in pursuing all the malefactions which have been in evidence in the financial services industry over the past few years; but we wish the markets to work, and in our view the markets cannot work if they are regulated by legislation right down to the last detail.

The second point I wish to make is that the Bill before us provides for a proliferation of secondary legislation—statutory instruments—which may be created from time to time by the Secretary of State or the body to which he might delegate his powers, and these without proper scrutiny. The third comment I have to make in introducing these amendments is that a good deal of the definition of what constitutes an investment or investment business contained in Schedule 1 is in fact incomprehensible.

Amendments Nos. 1, 2, 4, 6 and 7 are basically paving amendments which are designed to introduce into Clause 1 certain features which look to our amendments in Clause 2. I have to apologise to the Committee for the fact that a number of these are starred amendments. The Committee will recognise that we have had very little time to study the Bill from the Committee point of view, and that as an Opposition we are not in a position to adopt all the skills of parliamentary draftsmen in getting our amendments perfect. What we are trying to do is to describe what we should like to see; and then, if the Government accept what we should like to see, no doubt the Government will draft them in a way that makes sense in the terms of the legislation.

Schedule I—and I am now talking to the Question, That Schedule I stand part—defines an investment, investment businesses and other exemptions and various things which remain to be determined. I shall speak to that in a moment, but I introduce the Question, That Schedule 1 stand part, in order to demonstrate that I believe that the schedule should properly be subject to the procedures we envisage for Clause 2. Amendments Nos. 46 and 48 describe the procedure that we have in mind.

Perhaps I may speak for a moment about over-regulation. I mentioned in my Second Reading speech that we were concerned that the timing of the legislation might be wrong. We are, after all, going into what is popularly known as the Big Bang. This will change the nature of the securities markets. As I mentioned at Second Reading, none of us knows what will be the result of the Big Bang. None of us knows, other than that there will be some major surprises in store, the content of which we cannot at present foresee. Our worry about Schedule 1 is that it attempts to define investment and investment business in a very strict and comprehensive manner.

I can understand how the Government have arrived at this procedure. They started off with a Bill which was generally rather loose, if I may put it in those terms. It relied on self-regulation, and it relied on a very loose definition of an investment and investment business. The Government quite rightly consulted a number of interested parties and took the Bill through the various stages in another place. As a result of those debates, and as a result of their consultations, they found a number of loopholes in the definitions which gradually they tried to close.

All of us who have been involved in public business know that there is a tremendous temptation on those who are drafting legislation, both primary and secondary, to try to close all the loopholes in advance. It is in one sense offensive to officials if they discover after six months that part of what they have drafted is not relevant. It may be wrong, it may be that it destroys markets. I can see that the Government have attempted to consult very widely and to define right down to the last dot and comma exactly where investments are and where investment businesses are. I do not believe that it is possible to do that in primary legislation.

I now turn to Schedule 1, and I shall make one or two brief points on it—although my copy of the schedule is covered in red ink, question marks and all sorts of rude expressions which I should not like to inflict upon the Committee. Paragraph 1 Schedule 1 states that investments are: Shares in the share capital of a company and stock in a company".

A note to the schedule states that this includes: any body corporate and also any unincorporated body constituted under the law of a country or territory outside the United Kingdom".

The extreme end of the spectrum, I can tell the Committee, is the Racing Club in Paris. It is an unincorporated body under French law. It issues certain certificates which I think probably could be regarded as stock. Are we saying in this schedule that participation certificates in the Racing Club, Paris, are in fact investments under this Bill? If we are, that is one way of defining them, but it seems to me to be going to extraordinary extremes. I can arrange for a number of different varieties of unincorporated bodies to be produced, in different jurisdictions, which would have the effect of creating instruments and be able to create instruments which seem to me to fall inside the schedule.

In making these remarks I should say at the outset that I do not fully understand the schedule. I have tried my best, but I find it an extremely difficult schedule to understand. If I have made a mistake, no doubt the noble Lord the Minister will correct me, but from my first reading, second reading and third reading of the schedule the rather ridiculous security I have in mind appears to fall within paragraph 1.

Paragraph 2 refers to certificates of deposit, but specifically excludes other bills of exchange. I assume that in excluding other bills of exchange it excludes bankers' acceptances—in other words, bills of exchange which are accepted by a bank. If you include certificates of deposit and exclude bankers' acceptances which are, broadly speaking, traded in the same market, there is a problem of definition which I find very difficult to understand. For example, there is no reference to blocked currency trading. I understand that deposits, bank notes, statements showing a balance in a current, deposit or savings account are excluded under paragraph 2. Nevertheless, there is a large trade in blocked currency. For the purposes of the debate I leave out barter, but there is a large trade in bartering which may or may not fall within the definition of paragraph 2.

In order not to weary the Committee I move on to the question of options. With options and futures we run into very serious trouble. Paragraph 7 refers to: Options to acquire or dispose of—

1. (a) an investment falling within any other paragraph of this Part of this Schedule; or
2. (b)currency of the United Kingdom or of any other country or territory".

They are regarded as investments. Presumably options on the Financial Times Stock Exchange index, which are freely traded, and freely traded in New York and Chicago, are investments—or are they not investments? We do not know. Currency options traded between banks, as we learn from paragraph 18 of the schedule because they are dealings in financial institutions, are exempt because the two financial institutions will trade between themselves and therefore be exempt. But if a broker deals with a bank in any of these instruments, it appears that they fall within the schedule.

Again I must emphasise to noble Lords opposite that I have read this schedule several times with great care and I am trying to point out areas where my understanding may be quite wrong, but I have been a practitioner in these markets for about 20 years and it serves to demonstrate that if I cannot understand it, I am not sure how many people outside, without the benefit of great legal expertise, will be able to understand it.

On the question of futures, in regard to paragraph 8 of Schedule 1 I have been chased all over the country. Indeed, at the weekend I was chased to my home in mid-Wales by the chairman of the London Metal Exchange. He pursued me to say that they cannot accept paragraph 8 of Schedule 1 because it does not allow the London Metal Exchange to continue. He asked what he should do. I told him that it is not for the Labour Party to encourage the LME and that it is for him to go to the Government, to talk to the Government and make their point. I said that whether or not the Government accept his point is not my problem but his problem.

Finally, I refer to that part of the schedule dealing with investment business. Everyone will look at this from their own point of view and I looked at this in regard to myself. I declared an interest when the Patronage (Beneficiaries) Measure came before the House recently, that I was the financial adviser to Christ Church College, Oxford. I am also, as I declared at Second Reading, an adviser to the Banco de Bilbao. Therefore I am, I suppose, involved in advising on investments. But I am involved in advising Christ Church on investments not as part of my regular business, but simply because I happen to be a financial adviser to Christ Church. I ask myself whether I should be a member of some self-regulating organisation or something else which would entitle me to do so.

I ask the question with more point because although one of my other colleagues is a former director of a merchant bank and therefore can assume to be in the investment advisory business, my other colleague as financial adviser to Christ Church is no less a figure than the Secretary to the Cabinet. Then I ask myself: is the Secretary to the Cabinet in his capacity as advising on investments—it has all been cleared through No. 10 and it is all perfectly in order—to be a member of some sort of organisation and does he have to be authorised for the position?

The noble Lord, Lord Roll of Ipsden, made a series of observations on Second Reading about the Securities and Exchange Commission. He said that he thought that the SEC had been much maligned. He went on to say that he felt that the balance between the SEC and the various organisations that constitute the New York capital market had broadly slid into the sort of structure that we were trying to create in this Bill. I understood from him and from noble Lords opposite that we were trying to create a practitioner-based control, not control by legislation in detail.

Our solution to this is to try to get back to the Takeover Panel. The noble Lord, Lord O'Brien of Lothbury, referred on Second Reading to its creation. The advantage of the Takeover Panel was that it had enormous authority. That authority derived from the Bank of England, and in those days nobody challenged the authority of the Bank of England. The Takeover Panel was able to give guidance and say, "No, you cannot do this; you can do that, or you can do the other". It it got into trouble, it would make a code, and that code was universally respected. In those days nobody in the City of London would dare to go against the Takeover Panel.

In my view those days are past. Nevertheless it seems to me that in trying to preserve the flexibility of the markets, to allow them to function, we should have a body at the top that carries the same authority as did the Takeover Panel—in other words, the authority of government—but keep flexibility on how these markets should be handled, who issues guidance, and at what point. We should keep that very flexible.

Clearly, we have to have a big stick, and at the end of the day the body that is governing the securities markets must be able to say, "We wish to issue an order; we wish to have an order laid before Parliament because certain people are stepping out of line and we really want to get them back into line and seal up this particular loophole". I do not believe that such orders should be issued by subsidiary bodies without proper consultation with the Houses of Parliament, and our amendment provides for a mechanism whereby that might be done. It provides a mechanism not only for this type of order but indeed for other orders which may be promulgated from time to time by the supervisory body in the securities market. It should be very quick. Indeed, we have set out a procedure as to how it can be made very quick. Nevertheless, it should be properly commented upon by noble Lords and by Members in another place.

In saying all that, I recognise that I am somewhat disturbing the balance of the Bill and I recognise that the Government may well feel that the time has passed for such a radical change in the Bill to be introduced Yet I have to warn the Committee, and I speak as somebody who has been involved in the markets for close on 20 years of my life—and I refer to what my noble friend Lord Lever of Manchester said at Second Reading—that I believe that in this Bill we are in danger of getting all the disadvantages of a Securities and Exchange Commission with none of the advantages. I believe that we need to shift the balance back to a system of practitioner control underneath with a strong statutory body at the top. It is in that spirit that I beg to move the amendment.

Lord Bruce-Gardyne

I should like to say only a few words. I must say that to a considerable extent I am in agreement and sympathy with the points made by the noble Lord, Lord Williams, but I want to home in on one particular aspect of the Bill which I think falls to be discussed under Clause 1; though my noble friend may correct me if I am wrong in this respect.

I must say, first, that apart from the noble Lord's, desire to draw the regulatory procedures back to scrutiny and clearance by both Houses of Parliament under his Amendment No. 46, I found a good deal with which to sympathise in his approach. I found it rather refreshingly different from the approach that 1 seem to remember the last Labour Government were inclined to adopt in matters of regulation. In particular, I sympathise with what the noble Lord has to say about the complexity of Schedule 1. For my part, I confess that I am lost in Schedule 1 and, like the noble Lord, I feel that a great many practitioners will also be lost.

I do not want to delay the Committee at this stage, but the particular point that I wish to raise here is one that seems to me to be a matter of substance. The problem has been drawn to my attention by the Association of Corporate Treasurers. Clause 1(2) states: For the purposes of this Act a person carries on investment business if by way of business he engages in any activity which falls within any paragraph in Part II of that Schedule and is not exluded by Part III of that Schedule". It is the belief of the corporate treasurers—of course, it has been explained to my noble friend's department and has been the subject of extensive discussion with that department—that corporate treasurers will in fact find that their activities are in grave danger of being short circuited by these provisions of Clause 1.

As they see it, the particular problem that arises is in regard to a transaction—for instance, the purchase or sale of a subsidiary company or the acquisition of a substantial interest in a company—in circumstances where, by the definition of his work, a corporate treasurer cannot be sure that he is making that acquisition as a permanency and not with the possibility that in the normal course of his activities in the finance department of a public corporation he may come to sell that investment again. In such a situation he may find himself acting apparently in breach of Clause 1 of this Bill.

I have seen some of the correspondence between my noble friend's department and the Association of Corporate Treasurers and I have studied it with care. My noble friend will correct me if I have it wrong, but the impression that is created is that in the eyes of the Department of Trade and Industry there is no real reason for corporate treasurers to be worried because the Department of Trade would not dream of commencing criminal proceedings under the powers created in this Act, and in particular as a consequence of Clause 1, against corporate treasurers who were merely going about their normal business in that capacity. That is not what the Bill is for.

However, as I understand it, the trouble is that it would be entirely open to a third person to commence civil proceedings for the annulment of a contract which, although it may be a perfectly logical and normal contract of a type that the corporate finance department of a large corporation would expect to transact in the normal course of business, might nevertheless possibly be shown to have been entered into under the terms which put it outside the limits of Clause 1 of this Bill

The consequence of that would be that that contract could be rendered null and void and that an individual who won such a civil litigation could claim restitution of his original sale price, or purchase price for that matter. That would not be because there had been anything invalid in reality in the original contract but because he had discovered that the transaction had not worked out as he had expected, and understandably he wished to seize the opportunity provided by this legislation to retrieve his original error of judgment. As I understand it, the consequence is that there would be real anxiety that these contracts, which are part of the normal business of a corporate treasurer's department, would be open to suspicion as to whether they could be legally entered into at all.

There is a real danger that substantial companies might even be obliged to move the centre of their activities overseas, unless some alleviation can be provided to the operation of Schedule 1 to the Bill in so far as it impinges on a group of this kind. I have thought it advisable to raise the matter at this point because it may well be that Amendment No. 3, in the name of the noble Lord, Lord Hacking, which is under discussion at the moment, goes a long way to meet the point. It would at least be a substantial alleviation if, instead of its referring to "any activity", it was a question of a single transaction which was unlikely or not expected to be repeated.

Finally, I realise that my noble friend has tabled a number of amendments to Schedule 1 which we shall be discussing in due course. Inevitably it has not been possible to establish in full detail what will be the impact of the amendments. As I understand it, the impression of the Association of Corporate Treasurers is that, unfortunately, the amendments do not effectively meet the nature of the problem, although they go some way towards that. It is for that reason that I have not tabled amendments at this stage. I thought it more sensible to hear the explanations of my noble friend in due course when we come to those amendments and then consider whether it is necessary to seek to move further amendments on Report.

Lord Denning

I hope that the Committee will not accept the amendment. It is sensible to have the provision, unless the context otherwise requires", in a long Bill or statute of this kind. As one goes through it one may find that the definition of "investment" does not fit in with some of the later clauses. Unless there is a provision such as this, the court will be faced with a problem of repugnancy: the word "investment" is to mean such and such but it may not fit in with a later clause. It is sensible to have in the statute: unless the context otherwise requires". It is a sensible provision to have in a long statute of this kind.

I add this. The schedule brings in a pattern which I have rarely seen before of paragraphs with notes attached. I should like to know the exact legal standing of the notes. As I read them, they are enactments; part of the statute and not merely notes for guidance. I should like that to be made clear. I have not heard specified what the status of a note is. I should like it made clear that the note is part of the enactment but for the sake of convenience is not put in as a subparagraph. Otherwise, I hope that the Committee will not accept the amendment; it might give rise to more trouble.

Lord Lucas of Chilworth

I am most grateful to the noble Lord, Lord Williams of Elvel, for his opening remarks. This is a long and complicated Bill. He is right when he suggests that there will have to be a good deal of good will on both sides. I was glad to have his assurance that there is that good will on his side of the Committee and I should like him and other Members of the Committee to know that it is also on this side. Indeed, in his opening remarks my noble and learned friend said that we continue to be willing to consider matters that may arise during the course of our proceedings.

We should start by recalling that the principal objective in the Bill is to have a practitioner-based self-regulatory system but within, and with all the force of, a statutory framework. If we start to move away from that first principle, I fear that we shall get ourselves into a good deal of trouble. I do not think that comparisons with the American exchange system are helpful. We have firmly set our face against that system. As I understood it, that was accepted by noble Lords on Second Reading.

The noble Lord expressed difficulty in understanding the schedule and he posed a number of questions. He raised the question of the Paris Racing Club. I am not sure whether he raised the question of that institution and the Oxford college in a mischievous sense, but if the Paris Racing Club's stocks or shares were traded in the United Kingdom, they would have to be traded by an authorised person and conform to the rules. They would fall within the ambit of the Bill. Similarly, if the noble Lord had a paid position with the Oxford college, in which he advised it on investments, I think that that would be considered to be by way of business and he would have to be authorised. I can see no difficulty with that problem.

The noble Lord asked whether the options on stock exchange indices were investments. They are; they fall within the definition of "contracts for differences", which he will see described in paragraph 9 of the Schedule.

The noble Lord asked what will happen after Big Bang; will the precision of Schedule 1 be too rigid? Even the most erudite of commentators does not know what will happen after Big Bang, and I certainly do not. It is precisely because we recognise that new forms of investment business will emerge and new loopholes may need to be closed that we have provided in Clause 2 a power to change the definition of investment business. I agree with him that it would be wrong to enshrine those definitions in primary legislation, without the possibility of amendment. But that is no reason at this time to strike out all the definitions that the Bill contains.

The noble Lord said that his amendments might create a disturbance to the balance of the Bill. They would delete the central definitions in the Bill—the definitions of "investment" and "investments business"—leaving those to be determined later. Not only would that leave the Bill without a central core; it would bring to a halt all the work that is going ahead, with a view to bring the new arrangements fully into force as soon as possible after Royal Assent. Without those crucial definitions, planning becomes impossible. I am quite sure that that cannot be what he wishes.

That is hardly compatible with what is so frequently said in your Lordships' House; that too much is left to rules. I recall the noble Lord, Lord Bruce of Donington, reminding me of that when we had a similar, complicated Bill last year. He asked that more of the Government's intentions should be put on the face of the Bill and less left to rules. I pray that in aid this afternoon.

I do not deny that Schedule 1 is complicated. That is a necessary reflection of the fact that the financial services sector is becoming increasingly complicated and will become more so. Any definition would have to be at least as complicated, wherever it was contained. Nothing would be gained in terms of clarity by adopting the noble Lord's proposal.

We are bringing forward a number of amendments to Schedule 1. We may well need to make further amendments to the schedule on Report in the light of the debate on those amendments and of further comments from practitioners. The amendments, which we shall be discussing a little later, are the practical results of the Government's willingness to listen to and to respond constructively to comments on the Bill. The definitions are most certainly not easy, and it is not easy to decide exactly where the boundaries should be, especially with investment markets and products being so diverse.

My noble friend Lord Bruce-Gardyne asked me about the position of corporate treasurers. The meaning of "engaging in any activity" is raised by Amendment No. 33, which is in a following group of amendments.

5.30 p.m.

Lord Bruce-Gardyne

I apologise to my noble friend and to the noble Lord, Lord Hacking. I am afraid that I was looking at the wrong group of amendments. I was looking at the social security legislation. I accept entirely that the amendment about which I was talking is in a following group.

Lord Lucas of Chilworth

My noble friend and the Committee will no doubt be pleased if I keep my remarks on that point until we reach that amendment. I was glad to have the acceptance of the Bill as it stands by the noble and learned Lord, Lord Denning. He asked me what the status of a note was. A note contained within the provisions of the Bill has statutory force.

I do not think that I can add anything further. I have explained why we need Schedule 1 and the definitions. I have explained that they can be changed by virtue of Clause 2. Clause 2 is in the Bill so that the definitions can be changed, brought up to date and made effective. I urge the Committee to reject this block of amendments.

Lord Grimond

Will the Minister be good enough to confirm one point which arose from his explanation? As I understood him, dealing with the position of the noble Lord, Lord Williams of Elvel, as investment adviser to Christ Church, he said that the test should be whether he receives any remuneration. That is as I understand it. Will he confirm that, because I have been asked by treasurers and others in universities what their position will be under the Bill? On university courts and councils people give a good deal of investment advice free of charge as treasurers. It may be that they are members of firms which indirectly may do business on behalf of the university, but, nevertheless, I should like to confirm, as I understood even before the Minister spoke, that the test of their position is whether they are remunerated, and that that would establish their position under the Bill. Is that right?

Lord Lucas of Chilworth

I used the term rather loosely as meaning "engaging in business". If someone is engaged in that business, whether as a member of a firm or as an individual, presumably he expects to be remunerated. That is how I use the term. The test is whether one is in business. If one is in business, one would have to be authorised. If one belonged to a company or a partnership which was engaged in business, that would come under the terms of the Bill. That company would have to be authorised. We shall come to this matter a little later in the Bill.

It would then be for the company to register with one of the self-regulating organisations. It would then be for that self-regulating organisation to ensure that its rules were carried out. Its rules would ensure that the company conducted its affairs through its individuals in a proper way and in accordance with the rules. If, however, an individual is not within a company, but engages in that activity by way of business, he would have to be authorised. I hope that that gives a rather clearer definition.

Lord Grimond

These individuals are giving advice as a public service. They are not gaining anything from it. They are merely giving their services free of charge because they are knowledgeable people. I wanted to make it clear that those people would not fall within the Bill and would not have to be registered.

Lord Marsh

I wonder whether I may follow that point. I am chairman of a fairly large charity. There are people associated with companies who provide professional services for that charity. Because of the relationships which have grown up between the professional companies concerned and the charity, there are persons who are employees or partners in those professional companies who give their advice free of charge. I am slightly bewildered. I do not know whether the Bill covers people whose remuneration is undoubtedly derived from a company which is providing a financial service for professional fees but who are not in receipt of fees in relation to the advice that they give the charity.

Lord Lucas of Chilworth

If the Committee looks at paragraph 15 of Part II of the schedule on "Advising on investments" it will see: giving, or offering or agreeing to give, advice as to the purchase, sale, subscription for or underwriting of investments or as to the exercise of rights conferred by investments That activity would constitute investment business for which the individual or company would have to be authorised.

Paragraph 21, on page 151, under the heading, Advice given in course of profession or non-investment business states:

• "(1) Paragraph 15 above does not apply to advice—

1. (a) which is given in the course of the carrying on of any profession or of a business not otherwise constituting investment business; and
48
2. (b) the giving of which is a necessary part of other advice or services given in the course of carrying on that profession or business".

If the adviser is not paid, he will not be giving advice by way of business, which is what I sought to establish in my first response to the noble Lord, Lord Grimond.

Lord Williams of Elvel

I am grateful to the noble Lord, Lord Lucas, for clarifying that point. I am still in some doubt as to what the position is. I must declare that I receive no honorarium of any sort from Christ Church for giving it investment advice. I advise it on matters other than pure investment. Nevertheless. I am somebody who by virtue of other occupation:!; is involved in investment business.

Even after following carefully what the noble Lord has said, so far as I can see I and my colleague who is a former director of Morgan Grenfell will fall within the ambit of the Bill, whereas the Secretary to the Cabinet, I fully understand, will not fall within the Bill's ambit. Unless the noble Lord can persuade me otherwise, I think that that is the right interpretation. I hope that the noble Lord will be able to help us on that matter at a later stage of the Bill. As the noble Lords, Lord Grimond and Lord Marsh, pointed out, it puts a number of people who give their services free of charge to institutions, for one reason or another, in considerable difficulties if they fall within this require-ment for registration. I hope that the Minister will be able to come with us a little on that point.

The point made by the noble Lord, Lord Bruce-Gardyne, about corporate treasurers was well taken. It is a point which has been made on a number of occasions and it is right. I should not like him to think, however, that this is a Bill put forward by the Labour Party. As I said in my Second Reading speech, this is not the sort of Bill that the Labour Party, necessarily, would have brought forward. We do not expect to have many Labour votes in the City of London. Nevertheless, the Bill is there, and we shall scrutinise it meticulously and carefully, as is our proper duty as the Opposition.

The noble and learned Lord, Lord Denning, concentrated specifically on my Amendment No. 1 which I regarded, I am afraid, in my innocence, as a paving amendment. If the noble and learned Lord, Lord Denning, objects to the amendment, I am happy not to have it considered. Maybe, it is right that statutes should have the words, unless the context otherwise requires". It is not something that is crucial to the thrust of:he amendments. Instead of moving Amendment No. 1 I would certainly be prepared to move Amendment No. 2.

The noble Lord, Lord Lucas, thought that I might have been rather mischievous in citing the cases that I did. I was not trying to be mischievous. I was trying to raise genuine points at the margin of difficult legislation. It is these points at the margin that point up the difficulty of understanding the legislation. It was not at all in a mischievous spirit that I raised the issues of the Paris Racing Club or Christ Church, Oxford. I hope that the noble Lord accepts that. I accept fully what the noble Lord says about contracts for differences applying to the footsie options. It is simply that the language in which that is couched had, until then, somewhat escaped me.

The question of whether Schedule 1 should be in the Bill or in the form of an initial order is a matter to which the noble Lord addressed himself. He wants it in the Bill. I should like it in the form of an initial order. 1 do not believe that it makes much difference as to how the SIB will plan its activities. It can certainly plan its activities, as it has been doing, on the basis of draft, draft rules and draft orders. I do not believe that this will create any great problem. I was interested to see that the noble Lord called in aid my noble friend Lord Bruce of Donington asking for more to be on the face of the Bill and less to be in rules passed in secondary legislation after the Bill has gone through.

I come back to my central point. It is a point that the noble Lord, Lord Bruce-Gardyne, and I understand and appreciate, coming as we do, if I may say so, from somewhat different ends of the political spectrum. All of us agree, I believe, that what we are looking for, as the noble Lord, Lord Lucas, said, is a strong statutory superstructure—we should like it stronger—and a proper, practitioner-based control underneath which gives proper flexibility in the markets. We believe that the balance of the Bill is not quite right. We believe that the balance could be made better. We should like to test the opinion of the Committee on the matter.

5.42 p.m.

On Question, Whether the said amendment (No. 1) shall be agreed to?

Their Lordships divided: Contents, 80; Not-Contents, 143.

DIVISION NO. 2
CONTENTS
Amherst, E	Jenkins of Putney, L.
Ardwick, L.	John-Mackie, L.
Attlee, E.	Kilbracken, L.
Barnett, L.	Kilmarnock, L.
Birk, B	Llewelyn-Davies of Hastoe, B.
Blease, L	Lockwood, B.
Blyton, L.	Longford, E.
Briginshaw, L.	McGregor of Durris, L.
Brockway, L.	McIntosh of Haringey, L.
Bruce of Donington, L.	Mackie of Benshie, L.
Carmichael of Kelvingrove, L.	McNair, L.
Chitnis, L.	Mais, L.
David, B [Teller.]	Marsh, L.
Davies of Penrhys, L	Meston, L.
Dean of Beswick, L.	Morris of Kenwood. L.
Diamond, L.	Morton of Shuna, L.
Donoughue, L.	Nicol, B.
Elwyn-Jones, L.	Ogmore, L.
Ezra, L.	Phillips, B.
Fisher of Rednal, B.	Pitt of Hampstead, L.
Fitt, L.	Ponsonby of Shulbrede, L.
Foot, L.	[Teller.]
Gallacher, L.	Rea, L.
Gladwyn L.	Rochester, L.
Glenamara, L.	Seear, B.
Graham of Edmonton, L.	Sefton of Garston, L.
Gregson, L.	Shepherd, L.
Grey, E.	Silkin of Dulwich, L.
Grimond, L.	Simon, V.
Hampton, L.	Stallard, L.
Hanworth, V.	Stedman, B.
Hams of Greenwich, L.	Stewart of Fulham, L.
Hatch of Lusby, L.	Stoddart of Swindon, L.
Hayter, L.	Strabolgi, L.
Heycock, L.	Taylor of Blackburn, L.
Hughes, L.	Taylor of Mansfield, L.
Jeger, B.	Tordoff, L.

Underhill, L.	Williams of Elvel, L.
Wallace of Coslany, L.	Wilson of Rievaulx, L.
Wells-Pestell, L.	Young of Dartington, L.
Wigoder, L.
NOT-CONTENTS
Airey of Abingdon, B.	Lindsey and Abingdon, E.
Aldington, L.	Long, V.
Ampthill, L.	Lucas of Chilworth, L.
Auckland, L.	Lyell, L.
Bauer, L.	McAlpine of Moffat, L.
Belhaven and Stenton, L	McFadzean, L.
Beloff, L.	Macleod of Borve, B.
Belstead, L.	Mancroft, L.
Benson, L.	Margadale, L.
Bessborough, E.	Marshall of Leeds, L.
Birdwood, L.	Masham of Ilton, B.
Blake, L.	Maude of Stratford-upon-
Boardman, L.	Avon, L.
Boyd -Carpenter, L.	Merrivale, L.
Brabazon of Tara, L.	Mersey, V.
Brocket, L.	Milverton, L.
Brougham and Vaux, L.	Molson, L.
Broxbourne, L.	Monk Bretton, L.
Bruce-Gardyne, L.	Morris, L.
Buckinghamshire, E.	Mottistone, L.
Caithness, E.	Mowbray and Stourton, L.
Cameron of Lochbroom, L	Munster, E.
Campbell of Alloway, L.	Murton of Lindisfarne, L.
Carnegy of Lour, B.	Napier and Ettrick, L.
Carnock, L.	Nathan, L.
Chelmer, L,	Newall, L.
Coleraine, L.	Norfolk, D.
Constantine of Stanmore, L.	Onslow, E.
Cowley, E.	Orr-Ewing, L.
Craigavon, V.	Pender, L.
Cullen of Ashbourne, L.	Penrhyn, L.
Davidson, V.	Perth, E.
Denham, L. [Teller]	Peyton of Yeovil, L.
Digby, L.	Plummer of St
Dilhorne, V.	Marylebone, L.
Drumalbyn, L.	Portland, D.
Elibank, L.	Rankeillour, L.
Elles, B.	Reay, L.
Elliot of Harwood, B.	Redesdale, L.
Elliott of Morpeth, L.	Reigate, L.
Elton, L.	Renton, L.
Erroll of Hale, L.	Richardson, L.
Faithfull, B.	Romney, E.
Ferrers, E.	Russell of Liverpool, L.
Foley, L.	St. Aldwyn, E.
Fortescue, E.	St. Davids, V.
Fraser of Kilmorack, L	Saint Oswald, L.
Gainford, L.	Salisbury, M.
Gardner of Parkes, B.	Saltoun of Abernethy, Ly.
Glanusk, L.	Sandford, L.
Glenarthur, L.	Sempill, Ly.
Gray of Contin, L.	Shannon, E.
Greenway, L.	Sharpies, B.
Gridley, L.	Skelmersdale, L.
Hailsham of Saint	Stodart of Leaston, L.
Marylebone, L.	Strathcarron, L.
Harmar-Nicholls, L.	Strathclyde, L.
Harvington, L.	Strathcona and Mount Royal,
Henderson of Brompton, L.	L.
Hives, L.	Sudeley, L.
Holderness, L.	Swinton, E. [Teller]
Home of the Hirsel, L.	Terrington, L.
Hood, V.	Teynham, L.
Hooper, B.	Tranmire, L.
Hylton-Foster, B.	Trefgarne, L.
Inglewood, L.	Trumpington, B.
Ingrow, L.	Vaux of Harrowden, L.
Kaberry of Adel, L.	Vickers, B.
Kimball, L.	Vivian, L.
Kimberley, E.	Whitelaw, V.
Kitchener, E.	Wynford, L.
Lane-Fox, B.	Ypres, E.
Lawrence. L.	Zouche of Haryngworth, L
Layton, L.

On Question, amendment agreed to.

5.52 p.m.

Lord Hacking moved Amendment No. 3: Page 2, line 2, leave out ("any activity which falls") and insert ("activities which fall").

The noble Lord said: This amendment directs attention to a problem concerning the definition of the words "carries on an investment business". The amendment which I shall also move as Amendment No. 5 in the Marshalled List directs attention to the same problem, and with the leave of the Committee I shall make my comments on both these amendments as I address the Committee.

The problem arises first of all on the domestic front, if I may describe it in that way, with the definition in subsection (2) of the Bill concerning the carrying on of an investment business by, say, a company which is normally resident in the United Kingdom and which is normally transacting business in the United Kingdom. The definition in subsection (3), which goes to Amendment No. 5, concerns the definition of carrying on an investment business by persons who are abroad but who nonetheless transact business in the United Kingdom. It is plain that, if the Bill is to reach our statute books, persons regularly carrying on investment business in the United Kingdom, whether based here or coming to this country regularly to carry on investment business, should fall under the terms of this Act. There will be no difficulty, I think, in accepting that proposition.

Equally, in my submission, there should be no difficulty in accepting the proposition that a single, one-off transaction, whether carried out by a person or persons in the United Kingdom or person or persons coming from abroad, should not fall under the provision of this Act, for there would be enormous complications for an ordinary industrial company, whose main business has nothing whatever to do with investments, if it should be compelled to become an authorised person and fall under the regulations of the Bill for a single transaction. The same point applies to persons coming from abroad to carry out a single transaction.

The difficulty is that, in seeking to find the right definition, the Bill as drafted reads in this way: a person carries on investment business if by way of business he engages in any activity which falls within the specifications in Schedule 1. As the Bill is now drafted, this would, in my submission, mean that a single transaction, whether carried out by a person or company within the United Kingdom or from abroad, would fall under this definition as set out in Clause 1.

I simply say that this cannot be the intention of the Bill, and if my amendment has not struck the right definition then perhaps the Government and the Minister could look again at the drafting of the Bill and recognise that the problem does exist and give it further consideration. That is indeed my purpose in moving this amendment. I have no intention of dividing the Committee on any definition point. I merely seek the co-operation of the Government in recognising that this problem exists and should be dealt with.

Perhaps I may just give one example of the problem. An industrial company has a joint venture with another company and acquires shares in the joint venture vehicle on behalf of the joint venturer. This would then fall within paragraph 12 of Schedule 1, which is the paragraph dealing with investments. It would therefore not be entitled, in a manufacturing business which has nothing whatever to do with investments, to take itself out under any of the exceptions continued in Schedule 1. I merely give that as an example so that the Committee may see how the problem could arise. It is that type of problem that I seek to draw to the attention of the Government in asking the Minister to look again at the definition of carrying on an investment business.

Lord Bruce-Gardyne

I should like to apologise once again to the noble Lord, Lord Hacking, for jumping the gun on this amendment owing to my misapprehension as to the nature of the grouping on the previous amendment moved by the noble Lord, Lord Williams. Since in effect I have already spoken to this amendment, I do not intend to weary the Committee by repeating my remarks.

I know that my noble friend the Minister has heard the comments I made in this context with particular reference to the position of corporate treasurers, and all I wish to add to what has been said is that I have to confess that it is my impression, from the corespondence that I have seen between my noble friend's department and the corporate treasurers, that it is indeed the intention of the department to catch the single transaction. I believe that unless that is changed it will indeed have the thoroughly undesirable consequences which the noble Lord has referred to in reference to industrial companies and the like, which are not in the investment business as such but which may, in the natural course of their business as industrial companies, be involved in one-off transactions. I shall therefore listen with considerable care and interest to my noble friend's response, and I hope that the optimism of the noble Lord, Lord Hacking, on the point turns out of be justified.

6 p.m.

Lord Lucas of Chilworth

I am grateful to the noble Lord, Lord Hacking, for explaining the purpose of his Amendments Nos. 3 and 5. I am also very glad he acknowledges that there are a great number of difficulties in getting this absolutely right. Perhaps I may say this to the noble Lord. We have been aware of the concerns that have been expressed by the Law Society and the Association of Corporate Treasurers about the use of the word "activity". It has been suggested that this might mean that a person could be regarded as carrying on investment business in the United Kingdom if by way of business he carried out a single transaction within Part II of Schedule 1 to which the exclusions in Parts III and IV do not apply. That is certainly not the intended effect of the Bill; nor do we think that it is the actual effect.

I am advised that the word "engages" carries with it an implication of continuity, or at least of repetition. As a result we believe that the clause should not be construed as meaning that a person is to be regarded as carrying on investment business in the United Kingdom if very occasionally he does something which amounts to an activity within Part II of the schedule and which is not excluded by Parts III and IV. In answer to the point raised by my noble friend Lord Bruce-Gardyne, we have brought forward several amendments to Schedule 1 to meet most of the points raised by the Association of Corporate Treasurers. We do not believe, as the Bill stands, that they will now be caught. If there are still some points of detail where they think that they may inadvertently be caught, we should be very happy to look at this again. We accept that there is still concern about unenforceability provisions in Clause 5. Perhaps when we turn to amendments to Clause 5 I shall be able to say something fairly sympathetic.

If the advice I have is correct—that the word "engages" carries an implication of continuity, or at least of repetition—I believe that is somewhat different from the point about "on occasion". I believe therefore it is fairly clear. I hope that that explanation will satisfy the noble Lord.

Lord Hacking

I am partly satisfied. I say that out of no sense of ingratitude to the Minister. I am certainly satisfied to hear him say that it is not the intention of the Government to deal with the one-off transaction. That was the concern I was expressing to noble Lords when making my comments upon my amendment. However, I am not entirely satisfied with the explanation given by the Minister that "engages" carries some continuity. Perhaps when reference is made to matrimonial engagement there is some intention of continuity there. But in the normal sense of the word, if a person engages in a fight, or engages in a project, that engagement—if it has continuity—has continuity for the completion of that combat or transaction.

With great respect to the Minister—I have not had time to lay my hand on my Concise Oxford Dictionary—I think that he is seeking to impart a meaning into the word "engages", with the exception of the matrimonial engagement, which does not normally exist in the English language. For that reason I should have been much happier to hear the Minister say that he would give the point further consideration.

Lord Bruce of Donington

The noble Lord has confirmed that it was not his department's intention to go for the single transaction, contrary to the concept that was put forward by the noble Lord, Lord Bruce-Gardyne. On the assumption that the noble Lord is not concerned with engaging in the single transaction, is not the easiest way, for the avoidance of doubt, to accept the word "activities" as put forward in the amendment? It seems a simple way of solving the Government's own problem.

Lord Ezra

Like the noble Lord, Lord Bruce-Gardyne, I have been approached by the Association of Corporate Treasurers. They are concerned—in spite of" what they have seen of the proposed Government amendments—about their position under this proposed legislation. The Bill, while seeking to provide proper safeguards for investors nevertheless does not extend those safeguards to the point of frustrating other activities. There is grave concern among these people that some of the things they do in the normal course of their business could be caught. I believe that the amendment proposed by the noble Lord, Lord Hacking, could go a long way to making them feel more confident that they can nevertheless continue in their present activities without fear of the consequences under this legislation.

Lord Silkin of Dulwich

If the Government rest their case on the words "engages in", it seems to me that they are resting it on sand. I agree with the noble Lord, Lord Hacking, that to say that one engages in an activity cannot reasonably be construed as a continuous activity in the sense that the noble Lord the Minister has suggested. At the same time I do not myself think that the plural which the noble Lord, Lord Hacking, seeks to insert cures the difficulty to which he has drawn attention—quite apart from anything else because of the provisions of the Interpretation Act.

It seems to me necessary for the Government to look at this subsection again and to come up with a better solution to the problem. One is tempted to try to draft on one's feet, but if one did so, one would make a mess of it. I should have thought that the term "normal business", or something similar, might help the Government to find a formula which may solve the problem.

Lord Bruce-Gardyne

Before my noble friend replies, may I say that I am very grateful to him for the reassurance he has been able to give. One will obviously want to study that carefully. However, I notice that he first said that "engages in" could not be construed in terms of "very occasionally". He subsequently said that it could not be construed in terms of "occasionally". It seems to me that one needs to be reasonably clear what weight the Government would seek to put on the word "engages" and the frequency which would be involved.

The noble Lord on the Opposition Front Bench has referred to continuity of activity. That is carrying it a good deal further still. I do not know whether at this point my noble friend can specify this a little more clearly. It seems to me that that is one aspect of his reassurance which will need to be carefully scrutinised.

Lord Lucas of Chilworth

I shall resist the temptation that my noble friend Lord Bruce-Gardyne offers me to speculate on my feet. I hoped to satisfy the noble Lord, Lord Hacking, with the description I gave of how we saw the word "engages". He, however, is not satisfied. I also hoped that he might have come up with an alternative, but he has not done so this evening.

I invite the noble Lord, as I invite noble Lords in all parts of the Committee, to help us because, as I said, we have had enormous difficulties. The alternatives proposed to date have as many difficulties as those that Members of the Committee have posed. For example, the noble Lord, Lord Bruce of Donington, asked: why can we not satisfy ourselves with the word "activities"? Referring to "activities" would we think cast some doubt on whether it was necessary to undertake more than one kind of the investment activity listed in Part II of Schedule 1. For example, would someone be carrying on investment business if he only gave investment advice and did not undertake other kinds of investment activity? Therefore, here is another problem, and I think that the noble and learned Lord, Lord Silkin, appreciated that.

I recognise that the noble Lord, Lord Ezra, still has some doubts. Although I underline that there are very many difficulties, I shall certainly give some further thought to see what can be worked out and to see whether we can find a satisfactory alternative. However, I must say that, in all honesty, I cannot promise to bring back something at Report. If I can, I most certainly shall; if I cannot, then the Members of the Committee will appreciate that we have not found a satisfactory alternative.

Lord Hacking

With the assurances of the noble Lord the Minister that he will give this problem further consideration, that he will receive further represent-ations and that the dialogue is to continue, I am only too happy to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendment No. 4 not moved.]

Lord Hacking had given notice of his intention to move Amendment No. 5: Page 2, line 9, leave out ("any activity which falls") and insert ("activities which fall").

The noble Lord said: I have already addressed the Members of the Committee on this amendment, and we have heard the noble Lord the Minister reply that he is prepared to consider it. In view of the comments made by the noble Lord the Minister, it is not my intention to move this amendment.

[Amendment No. 5 not moved.]

[Amendments Nos. 6 and 7 not moved.]

Clause 1 agreed to.

Schedule 1 [Investments and investment business]:

Lord Hacking moved Amendment No. 8: Page 146, line 7, leave out paragraph 1 and insert ("Shares and stock in the share capital of a company.")

The noble Lord said: We now come to the heart of the definition of "investment", and this is the first of a number of amendments that have been tabled by myself and other noble Lords, including the noble Lord the Minister, which relate to the definition of "investment". This is a purist amendment. Paragraph 1 of Schedule 1 currently reads: Shares in the share capital of a company and stock in a company".

Stock, therefore, as drafted, at present is not related to the share capital but to the stock in the company itself. Under that definition this would include stock such as debenture stock and loan stock, which fall to be dealt with under paragraph 2. My amendment, which I have just described as a purist amendment, seeks to make it quite plain that paragraph 1 of Schedule 1 seeks only to deal with the matter of share capital. Hence my amendment reads: Shares and stock in the share capital of a company".

Therefore, I believe that my amendment gets rid of that difficulty and that paragraph 1 can fly under its own flag, as can paragraph 2. I beg to move.

Lord Lucas of Chilworth

The noble Lord, Lord Hacking described his amendment as being purist. For myself, I cannot see any difference in substance between what is in the Bill and the noble Lord's amendment, but if the noble Lord believes that his words express the intention behind the paragraph more clearly, I am quite happy to accept his amendment.

6.15 p.m.

Lord Lucas of Chilworth moved Amendment No. 9:

Page 146, line 21, after ("acknowledging") insert ("or creating").

The noble Lord said: This amendment excludes from the definition of "investment" promissory notes issued in connection with the supply of goods and services. It reflects concerns, which were expressed by, among others, the Association of Corporate Treasurers, that without it activities necessary for the efficient conduct of inland and international trade in goods and services would inadvertently be included within the definition of "investment business". I beg to move.

Lord Lucas of Chilworth moved Amendments Nos. 10 and 11: Page 147, line 15, leave out ("Note") and insert ("Notes) (1)".

Page 147, line 19, at end insert—

(" (2) The reference in paragraph (b) above to a right does not include a reference to a right the exercise of which or failure to exercise which will not or, in the case or a right to vote, cannot result in the person entitled to it acquiring, disposing of, retaining or converting an investment.").

The noble Lord said: I beg to move Amendments Nos. 10 and 11, and to take with them Amendments Nos. 20, 21, 36, 37, 38 and 39.

Lord Bruce of Donington

Amendment No. 21?

Lord Lucas of Chilworth

With the leave of the Committee, I shall move Amendments Nos. 10 and 11, and speak to Amendments Nos, 20, 36, 37,38 and 39.

Lord Bruce of Donington

Perhaps the noble Lord the Minister would clarify the amendments that he is moving. He did say that he would like to move Amendment No. 21, and I am quite happy for him to do so.

Lord Lucas of Chilworth

I think I said that I would speak to it. Perhaps it may be more helpful to the Committee if I took the other group—that is, the amendments beginning with Amendment No. 20—a little later on and now merely dispense with Amendments Nos. 10 and 11, which are a straight-forward pair of amendments. Paragraph 5 of Schedule 1, as drafted, was considered to be wide enough to include such documents as proxy forms, and that certainly was not our intention. These amendments, Nos. 10 and 11, narrow the definition accordingly. If the Committee agrees, perhaps it would be best if I just move Amendments Nos. 10 and 11 at this stage.

Lord Lucas of Chilworth moved Amendments No. 12 and 13: Page 147, line 26, leave out ("or").

Page 147, line 28, at end insert ("; or (c) gold or silver.").

The noble Lord said: These two amendments extend the definition of "investments" to include options on gold and silver. The Bill already applies to gold and silver futures; gold and silver options are also traded and are very similar to futures. It has been suggested to us that bringing them within the regulatory regime will make it easier to sell United Kingdom options abroad, particularly in the United States of America. In the light of these recommen-dations, we suggest that the Bill should be extended to cover both these options. I beg to move.

Lord Williams of Elvel

Could the noble Lord tell us whether the Bill also covers options on other precious metals, such as platinum, and other metals traded on the metal exchange, such as aluminium, copper, tin and others?

Lord Lucas of Chilworth

My understanding is that it does. If by any chance I am wrong, then I shall correct it.

My understanding now is that platinum and other minerals are not included since they come under the heading of "futures".

Lord Williams of Elvel

I am sorry to press the noble Lord on this, but as he knows there is a difference between a future contract and options. There are gold future contracts and there are silver future contracts, and there are gold options and silver options. There are also aluminium futures and aluminium options; platinum futures and platinum options; and, indeed, options, so far as I know, on other precious metals. May I ask for a small clarification of this? May I take my time at the Dispatch Box asking for this information in the hope that advice can arrive from a certain quarter to clarify that issue?

Lord Lucas of Chilworth

I think I was right first time in that I am advised that futures on any metal or other commodity are within the ambit of the Bill, but options on metals other than gold and silver are out. This amendment seeks to extend the definition to include options on gold and silver. I do not think the advice I have given the noble Lord is any different.

Lord Williams of Elvel

In that case would the noble Lord consider extending this amendment at a later stage to include options on platinum and other precious metals, which are indeed traded?

Lord Lucas of Chilworth

I must say yes to the noble Lord because I can think of no very good reason for saying no. We shall certainly give consideration to what he has said.

Lord Hacking moved Amendment No. 14: Page 147, line 29, at end insert—

("Note. Instruments falling within paragraph 4 above do not fall within this paragraph. It is immaterial whether the investments for the time being are in existence or identifiable.")

The noble Lord said: I hesitate to dub this amendment as a purist amendment in view of the response (although the noble Minister accepted my last amendment, which I described as purist) and in view of the lack of enthusiasm with which the Minister treats my purist amendments, but this amendment has some purity because it seeks to perform the same exercise as my earlier amendments; namely, to clearly divide the definitions under paragraphs 4 and 7 of Part I of Schedule 1 so that, in the terms I used just now referring to paragraphs 1 and 2, each of these two paragraphs and the definitions contained in them clearly fly under their own flags.

This amendment seeks that clarification in the form of the addition of a note to paragraph 87. The Committee will see in Schedule 1, Part I, that many paragraphs are bestowed with a note provided by the Minister's department by way of seeking greater clarity for those paragraphs. However, paragraph 7 is one of the few paragraphs that does not carry a note, and in my submission it needs one.

It needs one because paragraph 7 uses the expression "Options to acquire" a share, which could include an option to subscribe for a share. Options to subscribe are, however, covered by paragraph 4 of Schedule 1. It is important that there should be a clear distinction between investments which fall within paragraph 4 but not within paragraph 7, and vice versa. By way of example, sub-paragraphs 5(a) and 17(2) or 19(2) apply to investments falling within paragraph 4 but not to investments within paragraph 7.

Incidentally, the second sentence in the proposed note under paragraph 7 follows the terms of the note which presently appears under paragraph 4. It would seem to be sensible that that second sentence should also be added, but the important one is the first one, namely: Instruments falling within paragraph 4 above do not fall within this paragraph";

that is, within paragraph 7 of this schedule. I beg to move.

Lord Morton of Shuna

In the hope that I might be described as a purist, I support this amendment. It seems essential that things that come under paragraph 4 should not be under paragraph 7 as well, and vice versa. I strongly support the amendment.

Lord Lucas of Chilworth

I assume that the noble Lord wished to deal with Amendment No. 41 at the same time, since they deal with much the same problem—that of overlaps. Amendment No. 41 refers to page 153, line and is concerned with much the same problem of overlap. I am grateful to the noble Lord for raising the matter.

I do not think that in general terms it matters very much whether an investment falls within more than one paragraph. Given the nature of some investments, some overlap may be quite unavoidable; but certainly there are some provisions of the Bill which relate only to particular paragraphs in Part I, and it is clearly important to avoid overlap between paragraphs which are, and which are not, covered by particular provisions. A particular case arises in relation to paragraphs 4 and 7; however, there may be others.

I do not think that the noble Lord's Amendments Nos. 14 and 41 solve the problem in a totally satisfactory way, but I am happy to undertake to consider the point further. Perhaps we could discuss this and come forward with appropriate amendments at Report stage.

Lord Williams of Elvel

I did not realise that the noble Lord, Lord Hacking, was also speaking to Amendment No. 41.

Lord Hacking

No, I was not. I did not interrupt the Minister, but may I address the Committee separately on Amendment No. 41? In view of the reply given by the noble Minister, I am only too happy to withdraw this amendment.

Amendment, by leave, withdrawn.

Lord Boardman moved Amendment No. 15: Page 147, line 37, at end insert—

(" () Any contract for the purchase or sale of currency, other than a contract made or traded on a recognised investment exchange or a contract expressed to be one made for investment purposes, shall be regarded as made for commercial purposes if at least one party to it is a recognised bank or licensed institution within the meaning of the Banking Act 1979.")

The noble Lord said: In the absence of my noble friend Lord Colville, who has to be away for an hour or so, he has asked me to move this amendment, which I gladly do. The Bill in its present form excludes from its provisions contracts for the sale of currencies, or indeed the purchase of currencies, including foreign exchange contracts, if they are made for commercial purposes. A problem in drafting has been to define clearly which transactions are for commercial purposes and which are for investment purposes. I recognise the problem that my noble friend had in trying to find satisfactory wording for this.

The amendment is intended to suggest what I hope might be considered an appropriate wording for making that distinction. It seeks to clarify the position by posing three clear questions. First, if the particular property, which of course is currency in this case, is traded on a recognised investment exchange, it is clearly for investment purposes and comes within the Bill. If the transaction is clearly expressed to be for investment purposes, then again obviously it is for investment purposes and comes within the Bill. But if it is neither traded on a recognised investment exchange nor expressed to be for investment purposes, and if at the time it is made one of the parties to the contract is a bank or licensed institution under the Banking Act, it is deemed to be for commercial purposes and would be outside the terms of the Bill.

This may seem rather complex. Perhaps the easier way of showing the distinction is to say that an ordinary forward currency purchase made by someone so that he can cover goods to be supplied at a future date—a normal trading transaction for a specific purpose—that would be for commercial purposes and was made with a bank or a licensed institution, would be outside the province of the Bill, whereas the purchase of futures on one of the recognised exchanges is clearly within the Bill and would be a trading in investment futures, currency futures, and the like with a recognised exchange. That would be for investment purposes and within the Bill.

I hope that my noble friend may be able to improve on this amendment, but I believe that it shows one method of dealing with this point which is in the Bill itself but which is very unsatisfactory. It gives notes suggesting criteria that can be applied, criteria which I suggest would be extremely difficult, and the amendment proposed by my noble friend clarifies this in a way which I believe would be helpful. I beg to move.

6.30 p.m.

Lord Williams of Elvel

I perfectly understand the motives of the noble Viscount, Lord Colville of Culross, and his noble friend Lord Boardman in moving this amendment. I fully understand that the Bill as drafted poses a major problem in defining what is commercial and what is not commercial. This is the problem that I referred to in speaking to Amendment No. 1 which is bothering the London Metal Exchange and other dealers because the fact of the matter is that dealers, whether in banks (if I may say so to the noble Lord, Lord Boardman), or other institutions, mismatch their forward currency book. Indeed, it is part of the function of a foreign exchange dealer in a bank to mismatch that book.

I am unclear as to whether we are dealing with the dealer who is mismatching on the basis that he wishes to make an investment because he had originally a commercial contract to hedge and he decides to accept that contract, and on the other side he lays that off with somebody else at a different maturity and therefore it becomes an investment contract; or whether we are dealing here in this amendment only with banks which deal only on a spot basis and are required to make a contract for commercial reasons to hedge a foreign currency exposure for, say, an export, as the noble Lord has indicated, and which lay off that contract on exactly the same maturities with other financial institutions; or whether we are dealing with something broader. I am unclear about the whole thrust of paragraph 8 of the schedule, and I am afraid that I am somewhat unclear about the amendment moved by the noble Lord, Lord Boardman.

Lord Denning

I should like to support this amendment. It is quite clear that there will be difficulty in applying these notes as to futures. In view of that this amendment would enable people to solve the problem without any difficulty. So in order to save all sorts of difficulties and arguments in the future it will be a good thing to have this amendment. I hope that the Committee will support it.

Lord Bruce-Gardyne

I too should like to support my noble friend's amendment, but I should like to raise one query about the stipulation that one party is to be a recognised bank or licensed institution. I have the feeling that in the case of commercial transactions of the kind which are designed to be covered by the amendment industrial and other non-financial companies might well not normally have a bank or licensed institution, within the meaning of the Banking Act, as the opposite party in the transaction. Therefore even the amendment as it stands might be drawn too tightly to meet the needs of genuine commercial transactions.

Lord Boardman

I am grateful for the support from the noble and learned Lord, Lord Denning. I note the points made by the noble Lord, Lord Williams, and by my noble friend Lord Bruce-Gardyne. Whether my noble friend the Minister will feel able to extend the definition to meet my noble friend's point I know not. In practice the definition of one party being a bank or a licensed institution under the Banking Act is adequate for all practical purposes. One thing I am quite certain it is desirable to do is to ensure that there is clarity so that people know when these transactions are entered into, whether within the Bill, or the Act as it will be, or outside it. That I hope would be achieved by this amendment or something on similar lines.

Lord Lucas of Chilworth

I am glad that my noble friend Lord Boardman has explained so clearly what is worrying him. However, the proposed amendment would exempt futures contracts for currency whenever one of the parties was a bank or licensed institution, irrespective of the customer and irrespective of the size of the transaction. I think this goes much too far. It appears to me that the amendment proposes to remove from the protection offered to the investor by this Bill any futures contracts in currency entered into by a bank or a licensed deposit taking institution. If they make contracts with private investors, there will be no statutory protection of any kind. As I have said, this goes too far, I think there is a difference because the intention of the Bill is not to interfere with genuine commercial contracts, in the normal sense of a commercial contract which has no investment purpose.

The problem that paragraph 8 seeks to tackle is that many future contracts made for investment purposes (which include hedging and speculation) are identical to forward delivery contracts where the intention of the parties is that delivery is contemplated. The point made by the noble Lord, Lord Williams, and by the noble and learned Lord, Lord Denning, with regard to dealers who mismatch their books and so hedge their commercial contract is that the definitions are designed to provide the basis of the Bill's requirement that those offering the future contracts defined in paragraph 8 will need to be authorised. Paragraph 17(2) clarifies those who do not need to be authorised. But as I said, the amendment goes too far.

I do not accept that the amendment offers the clarity that noble Lords wish. We believe, for example, if one took an agricultural contract for physical commodities, that if they were expressed in the form described in note (3)(c), that would not be conclusive that they are investments, because each of the indications should be interpreted together. You cannot take them separately. The more the indications point towards an investment purpose, or the more they point, as they well might, to a commercial purpose, the stronger is the pointer as to the category of contract. The indications are pointers, but they are not proofs.

I am quite happy to give further consideration to this matter, but I have to say, as I have before, that I can see no easy solution, since we have examined this previously and we have had consultations. In the light of what I have had to say, if any noble Lord wishes to consult even further, let us do that to see whether between us we can find something a little more appropriate for a later stage in the Bill.

Lord Williams of Elvel

Perhaps I may intervene on this point. I agree with the noble Lord, Lord Boardman, that there is a problem here. Personally, I am not entirely happy that his amendment actually deals with it, and in that I join with the noble Lord the Minister. Nevertheless, there is a problem. I think one has to recognise the problem, which is that one starts off with a clear commercial transaction and at the end of the day one may have a series of transactions linked to the original commercial transaction which, in the context of the Bill, defines investment. I think that is the problem which perhaps the Government may like to think about in the intervening period.

Lord Boardman

I am grateful to my noble friend for saying that he will look again at this matter. Certainly we shall see whether, with him we can find some wording which meets his reservations and at the same time meets the very real difficulty which I believe otherwise arises. With that, I beg leave to withdraw the amendment

Amendment, by leave, withdrawn.

Lord Lucas of Chilworth moved Amendment No. 16:

Page 149, line 17, at end insert—

("Note. This paragraph does not apply to the interests of members of an occupational pension scheme in the investments held for the purposes of the scheme.").

The noble Lord said: I beg to move Amendment No. 16, the purpose of which is to make clear that rights under an occupational pension scheme are not to be regarded as investments for the purpose of the Bill. If they were regarded as investments, an employer promoting an occupational pension scheme to his employees or advising his employees as to their rights under a scheme might have to be authorised. That is not what is intended, as I think the amendment makes clear. I beg to move.

Lord Williams of Elvel

This is a useful clarification which the Government are putting forward. I wonder whether there are further clarifications that are required on this particular paragraph, paragraph 11 of the schedule. The noble Lord has pointed out that a member of an occupational pension scheme has an interest in the investments held for the purposes of the scheme but such an interest should not be deemed (in the words of his amendment) to be an investment.

Leaving aside the whole question of the role of trustees and whether they have an interest in occupational pension schemes which, for the purposes of this Bill, should be deemed to be investments, may I perhaps widen the discussion and ask him whether other people who may have rights to and interests in anything which is an investment which falls within any other paragraph of this part of the schedule, will be caught? He talks about members of occupational pension schemes. What about, for instance, heirs under a testament? Suppose that a noble Lord decides to leave in his will an investment which falls within that part of the schedule to his son or his daughter or whoever it may be. Is that to be construed as the son of the daughter having an interest in the investment which falls within this part of the schedule?

I do not mean to raise that in a mischievous way. I am simply trying to illustrate a point that I made on the first amendment: that we have enormous difficulty in construing these points. My noble and learned friend Lord Silkin no doubt will wish to comment upon some of the trustee aspects.

Lord Lucas of Chilworth

As I understand it, there are already provisions with regard to the beneficiaries and I believe they are covered under another Act so far as the transfer of their interests is concerned where a company or an occupational pension scheme is in force. I do not see that there is any difficulty there. The interest merely transfers because they have the right which is set up, I think, under one of the investment protection Acts or, it may be, in one of the company pension and investment Acts. It escapes my mind which Act it is, but I recall that there is provision which determines the various interests of people such as the noble Lord has described.

I am advised that an interest in investments under a will or a trust will constitute an investment, but unless it is or can be bought or sold there would be no investment business; so that the transference to which I referred earlier applies.

6.45 p.m.

Lord Ezra moved Amendment No. 17:

Page 149, line 17, at end insert—

(" . Real property of any type or description, except residential property, wherever situated and whether or not subject to encumbrances.").

The noble Lord said: I beg to move this amendment. It is a very simple one. It aims to bring real property, except residential property, within the scope of Part I of Schedule 1. The reason for that is that a very large amount of money is currently invested in property. It is estimated to be something of the order of £12 billion. So far as pension funds are concerned, some 10 per cent. of their investments are in property. The National Association of Pension Funds is very keen that this form of investment should get the same sort of protection and measure of benefit as come to the safeguards provided for other forms.

I recognise that there is great difficulty in identifying property obtained for investment purposes and property obtained for other purposes. We have simply left out residential property in the proposition, but there could be other exemptions. I hope that in the circumstances the noble Lord will be prepared to have a look at this matter and come forward with some suggestions at a later stage. I beg to move.

Lord Taylor of Gryfe

I should like to support the amendment moved by the noble Lord, Lord Ezra. He has already indicated the volume of investment from pension funds that is in property. It is very considerable. Perhaps due heed should be paid to the respresentations of the National Association of Pension Funds, who have drafted this particular amendment which stands in our names. It is a considerable concern of theirs that in meetings of pension fund trustees, where invariably you have investment managers round the table, you have an investment manager on UK securities, perhaps another one sitting there with international securities, and a property adviser advising the trustees. But while the securities advisers obviously will come within the scope of the Bill and will be supervised, the man who is dealing with property, in which there is a very considerable investment, will be free from any such supervision under the Bill.

It may be said that you take advice from the Royal Institute of Chartered Surveyors—and this amendment is not a reflection on the RICS—but at the same time it should be emphasised that this is a very considerable area of investment which, under the Bill, is not protected and is not covered. For those reasons, I support the amendment moved by the noble Lord, Lord Ezra.

Lord Marsh

I read this amendment with interest and I think everyone will sympathise with the motives behind it. I mentioned earlier that I am chairman of the trustees of a fund which for historical reasons, because it is a very old hospital, is 80 per cent. invested in property. It is invested in small "villages" like Watford, of which it has owned large chunks for several hundred years.

On the other hand, it seems to me to raise a very serious problem, because nowadays any company, whatever the nature of its business, which is contemplating building an office will, in deciding upon the office, have in mind the whole time that it is a very valuable investment in which it is engaging. I am not sure whether that would be included as well, but with virtually every office that is built, the discussions which take place and the decision as to what sort of office to have—whether to include air conditioning and so on—are very frequently determined not by the needs of the office and the company at that time, but by the investment potential at some future date. So having read this amendment, and understanding the desire to remove an anomaly, it seems to me that the solution suggested would create even bigger anomalies.

Lord Morton of Shuna

I should like to support the basic idea put forward by this amendment of the noble Lords, Lord Ezra and Lord Taylor, as they explained it. But I have considerable reservation about the form of wording, especially the exception of residential property which could be a very valuable income-producing investment. Therefore, I merely wish to give general support to the idea without any commitment to the wording.

Lord Lucas of Chilworth

I am grateful to the noble Lord, Lord Ezra, and the noble Lord, Lord Taylor of Gryfe, for their explanation and I am sorry that just before dinner I should, perhaps, strike a jarring note, because I am, in fact, going to advise the Committee to reject this amendment.

The general principle underlying the definition of "investments" in the Bill is that it excludes physical property which a potential purchaser can inspect and which passes under his direct control on purchase. A person wishing to buy a building can have it surveyed and can establish its physical condition, the cost of any essential repairs and the likely maintenance costs. Once he has purchased it, he will be able directly to influence at least that part of its value which relates to its structural condition. This distinguishes real property from investments as defined in the Bill, where the purchaser acquires rights, directly or indirectly, in underlying assets which he generally cannot inspect or control.

Two arguments have been advanced for including real property within the scope of the Bill. The first is, as the noble Lords on the Alliance Benches have stated, that for large fund managers, such as insurance company and pension fund managers, property is an alternative store of value to investments as defined in the Bill, and it should therefore be regulated in a similar fashion. The second is that property is frequently promoted and purchased as an "investment" in the sense of an asset which it is hoped to sell subsequently at a profit.

The problem with both these arguments is that they do not present a case for drawing the line at real property. I think that is the point which the noble Lord, Lord Marsh, made. Fund managers may have other stores of value available, such as works of art. A wide range of things, such as stamps and limited edition porcelain plates, are promoted on the basis that they will rise in value and they are certainly bought in that expectation or at least that hope. It would be wholly impracticable to extend the scope of the Bill so as to cover all these areas.

Furthermore, to include real property within the definition of investments would greatly increase the range of businesses to which the Bill would apply, to no clear advantage. For example, even with an exclusion for residential property—and neither noble Lord has really explained why this should be excluded—the mainstream activities of a large number of estate agents, property management agents, solicitors who undertake commercial conveyancing and all companies of that kind would be brought within the Bill's scope and I must say that at the present time I cannot see the benefit of that happening.

To what sort of rules should they be subject? Clearly, rules drawn up to cover, for example, the management of a portfolio of shares would be wholly inappropriate to the management of an office block as such. In short, we believe that what has been called the "touch and see" principle is the right one to adopt when defining investments. The provisions of the Bill are, I believe, inappropriate for physical objects and real property which pass under the direct control of the purchaser. This has been discussed at some length, but we remain convinced of the inappropriateness of this Bill having real property included, for the reasons which I have given. I urge the noble Lord to withdraw his amendment, but certainly if he does not so wish I would ask the Committee to reject the amendment.

Lord Silkin of Dulwich

I find that reply a little disappointing. I agree with my noble friend Lord Morton that the form of the amendment is not satisfactory. Nonetheless, the difficulty to which it draws attention is a very real one. I speak from experience as a member of the governing body of hospitals which, fortunately for them, had both real property and investments; and also as a former member of the governing body of a large residential estate which then, after the passing of the Leasehold Reform Act, went into equities as well.

The kind of advice that they were getting from two different sources—the experts in real property and the experts in equities—was very similar in kind. They were looking at the same kinds of consideration. They would not have made any distinction between the two. They were not, however, investing in stamps or works of art and would not have considered doing so, so I should not have thought the reality of that comparison a very close one. I hope the Minister will look at the amendment on the sort of basis that I have suggested is the reality. You get bodies which are changing from one to another according to the market and taking the advice of their experts.

Lord Ezra

I am very glad that this issue has been given an airing. It is obviously an omission from the Bill. The noble Lord, Lord Lucas, has explained why it has been left out and other noble Lords have expressed different views. At this stage I should not like to press the amendment, but will reconsider what we do at further stages. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Brabazon of Tara

I think that we have reached a suitable moment to adjourn. In moving that the House do now resume, perhaps I may suggest that we do not return to the Committee stage of this Bill until eight o'clock. I beg to move that the House do now resume.

House resumed.

[The Sitting was suspended from 6.58 to 8 p.m.]

House again in Committee on Clause 1.

Lord Lucas of Chilworth moved Amendment No. 18:

Page 149, line 26, at end insert—

("or with a view to a person who participates in the arrangements buying, selling, subscribing for for underwriting investments.").

The noble Lord said: With the Committee's approval I should like to speak also to Amendment No. 19. The purpose of the first amendment, Amendment No. 18, is to ensure that the provision of deal matching arrangements which relate to investments generally or to a particular class of investment is to be regarded for the purpose of the Bill as an activity constituting investment business. It will have the effect that an investment exchange will be regarded as carrying on investment business and will therefore, if it is not a recognised investment exchange, have to be authorised.

The second amendment simply provides that a person is not to be regarded as arranging deals in investments merely because he makes arrangements with a view to himself dealing with another person—in other words, it removes any overlap between paragraph 12 and paragraph 13 of Schedule 1. The amendment is in response to a point raised by many groups, including the Law Society. I beg to move.

Lord Morton of Shuna

With regard to Amendment No. 18, it would appear to me, perhaps wrongly, that there is a printing error in the last line of the amendment, and that the second "for" should read "or". I assume that that is what is intended. No doubt the noble Lord will be able to tell me because, for for underwriting investments", does not seem to be very good English.

As to Amendment No. 19, to which the noble Lord spoke, my difficulty is to understand what it means. It reads: This paragraph shall not be construed as applying to anything done by a person with a view to another person entering into any such transaction with the first-mentioned person if the latter enters or is to enter into it as principal or as agent for either party". If one tries as a simple person, as I assume myself to be, to give a name to it: anything done by Smith with a view to Jones entering into any such transaction with Smith [I presume] if the latter"— is that Smith again?— enters or is to enter into it as principal or as agent for either party". Who is either party? Is it Smith or Jones? Who is it? It is very difficult to understand: Anything done by Smith with a view to Jones entering into any such transaction with Smith if the latter"— Is that Smith?— enters or is to enter into it as principal or as agent for Smith or Jones"— It is very difficult to understand just what is meant by that amendment, or note or whatever it is. No doubt the noble Lord will clarify that.

Lord Swinfen

I may be somewhat naive but I have not come across a Bill before with notes in it as part of the Bill. I should have thought that this was extremely bad parliamentary drafting. Can my noble friend tell me whether, when the Bill becomes an Act, the note will be part of the law? How is it to be used? It strikes me as most extraordinary.

Lord Denning

I share the amazement at the obscurity of this clause. It certainly ought to be made better as the note is part of the legislation. Let it be made clear at any rate.

Lord Lucas of Chilworth

Three points have been made. The noble Lord, Lord Morton of Shuna, is quite correct in his first point. There is a typographical error. The line should read, buying, selling, subscribing for or underwriting investments". With regard to the second point, I believe in fact that it is "Smith". However, since it is not abundantly clear, the best thing I can do is to take it back and see if we cannot rewrite it so that it is abundantly clear.

With regard to the point made by my noble friend Lord Swinfen, I answered this question when I responded to the point of the noble and learned Lord, Lord Denning, much earlier this afternoon. The note, novel though it may be, is part of the statute.

[Amendment No. 19 not moved.]

Lord Lucas of Chilworth moved Amendment No. 20:

Page 149, line 35, at end insert—

("Notes

1. (1) This paragraph does not apply to
1. (a) advice to the directors of a body corporate in connection with the reorganisation of the capital of the body or of another body corporate in the same group;
2. (b) advice to a person in connection with his formation of a body corporate or establishment of a collective investment scheme;
3. (c) advice as to the legal implications of an offer of investments or as to whether there is a reasonable basis for information given or proposed to be given in connection with such an offer.
2. (2) The reference in this paragraph to rights conferred by investments does not include a reference to any right the exercise of which or failure to exercise which will not or, in the case of a right to vote, cannot result in the person entitled to the right acquiring disposing of, retaining or converting an investment.").

The noble Lord said: I should like to speak also to amendments Nos. 36, 37, 38 and 39, all four amendments being in the name of the noble Lord, Lord Hacking.

Lord Hacking

Perhaps I may interrupt the noble Lord. I think Amendment No. 36 does not fit into this category but Amendments Nos. 37, 38 and 39 do.

Lord Lucas of Chilworth

I am most grateful to the noble Lord. This is a matter of grouping and we can return to the noble Lord's amendment at the appropriate time.

With regard to the Government amendment, we received a number of representations to the effect that the definition of investment advice in Schedule 1 was too broad. It was suggested, for example, that it might include advice about the exercise of voting rights or advice by an accountant about the reasonableness of financial projections in a prospectus. It might include advice to the management of a company about its capital structure. The definition was not intended to be so broad and the amendment to paragraph 15 of Schedule 1 narrows it so as to exclude these and similar activities which cannot in any real sense be considered to be investment advice.

I agree with the proposition underlying the amendments in the name of the noble Lord, Lord Hacking, to which I have just referred. Legal and accountancy advice given to a person in connection with deals in investments which he arranges should not be regarded as investment business. In our view, however, such advice cannot be regarded as itself coming within the definition of making arrangements with a view to someone else dealing. We do not therefore consider that this amendment is necessary.

The noble Lord's other amendments all concern paragraph 21. Here I regret that I cannot agree with the noble Lord's proposals. The first three amendments would greatly widen the exclusion. I do not think that managing investments and arranging deals in investments is a necessary part of a non-investment business or profession. There are already exemptions for trustees and we are proposing to extend them to personal representatives. I think it would create an undesirable loophole to go further. Similarly, we would be opposed to excluding all legal, accountancy or actuarial advice.

The Government amendments already narrow the definition of investment advice so as to exclude advice about matters which are not strictly related to investment. I do not think that we should make any further general exemption, although I have to say that if any Member of the Committee puts forward cogent reasons why we should make any further exemptions, I shall be quite happy to look at detailed points.

The final amendment of the noble Lord, Lord Hacking, would, I fear, actually tend to narrow the interpretation of what is necessary advice. In our view advice which ought properly to be given as a consequence of non-investment business or professional advice is necessary. To suggest otherwise would narrow the concept unduly. I am sure that is not the noble Lord's intention.

Lord Grimond

I rise full well knowing that I am somewhat ignorant of the subject, but like many people who are more learned in the law than I am I now find the state of this Bill considerably confusing. If these amendments are dealt with in the manner suggested by the Government, how does this leave the prospectuses and takeover bids? This seems to be a highly relevant matter, bearing in mind what has happened with Distillers and Guinness. It may not be relevant to this particular part of the Bill, but I had rather hoped that they would fall within the compass of the Bill. It seems to me that they constitute advice and encouragement to people to invest.

Recently we have seen made wild promises which cannot be fulfilled, and I do not see why they should not come within the Bill. However, I am not at all clear, if the amendments are dealt with as recommended by the Minister, whether or not they will be covered by the Bill. I should have thought that they would fall within paragraph 15 in Part II of Schedule 1, but the Government amendment may have so narrowed it that they no longer do so.

I should be grateful for some clarification as to whether the sort of statements made by companies in the newspapers and by circulars to shareholders advising them to accept or reject a takeover fall within the definitions in these amendments and therefore would be subject to the regulations which this Bill imposes.

Lord Hacking

The noble Lord the Minister was kind enough to refer to amendments that I have tabled, and I am more than happy to comment on those amendments at the same time as referring to the Minister's Amendment No. 20. I can tell the Committee that I will be saving any further discussion on Amendments Nos. 37, 38 and 39, tabled in my name, because in view of the amendment tabled by the Minister I shall not be moving them. It was, therefore, most convenient of the Minister to comment on my amendments when speaking to Amendment No. 20.

There are two problems of particular concern to members of my profession—that is, solicitors of the Supreme Court. There are many other problems, but for the purposes of our present discussions there are two problems that arise when solicitors of the Supreme Court, or other professional or non-professional men acting as trustees, are under an obligation under the terms of their trusteeship to transact arrangements which would fall under paragraph 13 and which form one of the definitions in Part II: Activities constituting investment business". This comes under the heading which 1 can conveniently describe as, "Arranging deals in investments."

Concerning the role of trustees there is a certain exemption set out in paragraph 20 in Part III, and I understand the Government will shortly be dealing with that. I do not propose to make any further comments concerning trustees and the application of paragraph 13, and we can therefore leave that over.

That leaves me to deal with the other matter which is of concern to my profession and, I believe, also to the accountancy profession—advising on investments. In his amendment the noble Lord has dealt with the problem of solicitors and accountants giving certain advice, legal and so on, and ancillary advice concern-ing investments. The most convenient course, therefore, would be for me to consider that amendment—because I had no opportunity of considering the Minister's amendment until I saw it on the Marshalled List—and discuss it with the Law Society to see whether it meets the worries that I attempted to cover in my Amendments Nos. 37, 38 and 39. These were designed to protect the professional adviser, such as a solicitor or an account-ant, giving advice on investment matters, from falling under the provisions of the Bill and all that that entails; although I do not know whether I went too far or not far enough.

Therefore, on the basis of the amendments tabled by the noble Lord I leave this matter for further consideration. I am not asking the Minister to consider the matter further, but asking leave, as it were, to consider it further with the Law Society.

8.15 p.m.

Lord Denning

It is quite obvious that paragraph 15 is too wide because it does not protect professional men such as auditors, solicitors, and the like. Amendment No. 20 is a good amendment. There may be questions on the detail of it and so in a way it would perhaps be a good thing to think again a little about it in order to obtain agreement on all sides. However, certainly the objective of the amendment seems to be very good and therefore I support it.

Lord Lucas of Chilworth

I am grateful to the noble Lord, Lord Hacking. I shall, in fact, move the amendment in the fond expectation that the Committee will agree. No doubt the noble Lord will discuss the amendment with us if he finds that it does not meet what he is seeking. I apologise to the noble Lord for including in my opening remarks points which he wishes to raise separately on Amendment No. 36. We can come back to that.

The noble Lord, Lord Grimond, raised one important issue. I am sure he will accept that I do not wish to be difficult, but the prospectuses and offer documents are covered in parts IV and V of the Bill, which we shall reach later. It would perhaps be best for us to consider at that stage the points he raised. With that I beg to move Amendment No. 20.

Lord Bruce of Donington moved Amendment No. 21:

Page 149, line 35, at end insert—

() This paragraph does not apply to—

() Advice given by an auditor in connection with reports required to be given by him under the provisions of the Companies Act 1985;

() Advice given to the directors of a body corporate in connection with the issue by the body of securities of the body or of another body corporate in the same group;

() Advice given to a person who prepares or issues a prospectus or similar document where that person is an authorised person under this Act.")

The noble Lord said: I am sure that the Committee will agree with the noble and learned Lord, Lord Denning, that paragraph 15 of Schedule 1 is far too wide and that the Minister was very wise in his Amendment No. 20 to indicate some qualifications to the broad generality contained in paragraph 15 which refers to, Giving, or offering or agreeing to give, advice as to the purchase, sale, subscription for or underwriting of investments or as to the exercise of rights conferred by investments".

I am most grateful for the efforts of the noble Lord, Lord Hacking, to protect, to some extent, the interests of his own profession, the interests of my profession and, perhaps, of the actuarial profession. I have approached the matter from a different angle, and I must say immediately that the amendment that I propose to move could possibly be a good deal better. We received the amendments of the noble Lord comparatively late last week and the whole bulk of his amendments needed a fair amount of digesting over the weekend. In Amendment No. 21,I am seeking to extend the scope of the noble Lord's amendment which we have just passed, and he will understand that it is done in an endeavour to be constructive and to close some further loopholes that might conceivably have an adverse effect perhaps on the legal profession but most certainly on the auditing profession.

This amendment indicates that paragraph 15, which I have just read to the Committee, should not apply to: Advice given by an auditor in connection with reports required to be given by him under the provisions of the Companies Act 1985".

The noble Lord may inform me that that particular part of the amendment is unnecessary. He may say that nowhere in the proposed Bill is it implied that the Companies Act 1985 ought to have specific mention. He may say that it probably stands on its own feet.

However, we are talking of notes, as the noble and learned Lord, Lord Denning, has indicated; and it is a matter to which the noble Lord, Lord Swinfen, referred. Presumably notes are for the avoidance of doubt and to lay down the principles which should guide the courts—should these matters ever come to court—on the precise construction to be given not only to certain clauses but to certain words. I should have thought that the noble Lord could accept in advance the words that have been put down in respect of the first sub-paragraph.

The next sub-paragraph of my amendment reads: Advice given to the directors of a body corporate in connection with the issue by the body of securities of the body or of another body corporate in the same group".

The noble Lord may perhaps think that this matter is covered by sub-paragraph (b) of his Amendment No. 20, which refers to: advice to a person in connection with his formation of a body corporate or establishment of a collective investment scheme".

The Committee will observe that my sub-paragraph differs from that of the noble Lord's in that it does not refer to, the formation of a body corporate

but to: the issue by the body of securities of the body or of another body corporate in the same group".

The last part of Amendment No. 20 refers to: Advice given to a person who prepares or issues a prospectus or similar document where that person is an authorised person under this Act".

Once again, it will be noted that this particular sub-paragraph supplements but does not duplicate sub-paragraph (c) of Amendment No. 20, to which the Committee has just agreed.

I know that this amendment is a little complex but it is designed to form a coherent whole with the amendment of the noble Lord which the Committee has just accepted. I hope that the noble Lord will agree with it or at any rate that he will agree to consider its implications. In this case, as in a number of other cases, owing to the shortness of the notice that we have had concerning the scope of revisions of this Bill—and the noble Lord himself may be the first person to agree—it may well be that we shall have to refer to it on Report. I beg to move.

Lord Denning

I should like to support this amendment and to take the same point as has my noble friend Lord Bruce of Donington. This is a necessary amendment, because the present words of paragraph 15 are much too wide, but it has to be fitted in with the amendment to which we have just agreed. There is a good deal of overlap at the moment, so perhaps I may suggest that it would be as well not to press the amendment now but to ask the noble Lord, Lord Lucas, to bring in at Report stage a comprehensive clause dealing with this question of professional men's advice.

Lord Lucas of Chilworth

The noble Lord may quite easily have suggested a number of exemptions from the definition of "investment advice" additional to those which we have just been discussing, and of course we discussed the background, purpose and effect when we discussed Amendment No. 10. However, at this time we do not consider that advice given by an auditor is caught. The Government's Amendment No. 20, which we have just discussed, makes clear that legal and accountancy advice given in connection with preparing a prospectus is not investment advice. To write in more specific exemptions might suggest that it was covered and hence that similar activities were covered, and I think that would be unfortunate.

Advice on issuing shares is more marginal. We do not believe that it is covered by the definition of investment advice because of the exclusion for a company which issues its own shares. I think that the noble Lord, Lord Bruce of Donington, supported as he was by the noble and learned Lord, Lord Denning, made the point that the matter is not beyond doubt, and I think it would be quite proper if we gave further consideration to this point in the light of what the noble Lord has had to say. Perhaps, therefore, with that assurance he would care to withdraw his amendment.

Lord Bruce of Donington

I have just one further small query. In his concluding remarks the noble Lord said that his own amendment, Amendment No. 20, dealt with the question of prospectuses. I am perhaps shortsighted, but I did not see any specific reference in Amendment No. 20 to the matter of prospectuses. If I may say so with respect, I think that it is my own amendment, Amendment No. 21, that actually mentions prospectuses.

We are all trying on the most constructive basis to make this Bill as perfect as we can, and I willingly accept the assurance by the noble Lord that this point will be considered further on Report and that in the meantime the noble Lord will give these matters consideration. I ask leave of the Committee to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Hacking moved Amendment No. 22:

Page 150, line 5, after ("principal") insert ("or as an agent, or as a trustee or as a personal representative").

The noble Lord said: Having seen the very large grouping as suggested in the groupings that have been helpfully prepared by the Minister's department, I wonder whether we might conveniently deal with all six amendments—if I have my arithmetic right—at the same time; that is, Amendment No. 22, which I am now moving; Amendment No. 23, standing in my name; Amendment No. 32, tabled in the name of the Minister, and Amendments Nos. 33, 34, 35 and 36, which also stand in my name. That makes a total of seven amendments and not six.

Having thought about the matter, I think it would be convenient, though they do not fit entirely into the—I am looking at the Minister, who is glancing towards me in a somewhat perplexed fashion; but I shall continue unless the noble Lord rises to his feet.

Lord Lucas of Chilworth

Not Amendment No. 36.

Lord Hacking

That is quite right; I have gone one too far. If I may come back to my previous position, my proposal is that the Committee should deal with the six amendments, which, for the sake of clarity, I shall repeat are: Amendments Nos. 22, 23, 32 (No. 32 is the amendment moved by the noble Lord the Minister), 33, 34 and 35.

There have been a number of worries about the role of trustees, personal representatives and in certain cases agents concerning the application of investment activities as defined in Schedule 1, paragraph 13, "Arranging deals in investments", paragraph 14, "Managing investments", and paragraph 15, "Advising on investments". In various ways my amendments attempt to deal with those.

Amendments Nos. 22 and 23 are to paragraph 17, which is the first of the proposed excluded activities; namely, activities when a person is dealing on his own account. I was seeking here to attach not only to deals in which the principal was dealing on his own behalf but to deals in which he was acting as an agent, a trustee or a personal representative. That was the purpose of those amendments. Amendments No. 33, 34 and 35 tackle the problem of the application of the exemption for trustees. The Bill concentrates only on the role of trustees and not of personal representatives or agents.

In an amendment which, unfortunately, I did not have an opportunity to consider before I saw the Marshalled List, the Minister proposes to take out of the Bill paragraph 20 in its entirety and to replace it with a new and much more widely based paragraph which has the title, "Trustees and personal representatives". It seems to me that the appropriate course for the Committee is to hear the Minister on Amendment No. 32. I anticipate that, having heard him on that, I shall not wish to press any of my amendments to which I have drawn the Committee's attention.

I should mention that my Amendment No. 33 is one which should not have passed through the net, before the point is taken against me. It seems to be an attempt to change the title of paragraph 20. It is not an appropriate amendment. I intended that it should apply to the second line down in the paragraph, which refers to "trustee", and not to the title, "Trustees". In any event I should be debarred from attempting to move it on that technical point.

I hope that those observations are helpful. Subject to other Members of the Committee wishing to participate in the discussion, I would wish to hear what the Minister has to say about Amendment No. 32.

8.30 p.m.

The Lord Advocate (Lord Cameron of Lochbroom):

We have received a number of representations suggesting that paragraph 20, which is the object of the amendment in my noble friend's name, was too narrow. On reflection we agree that in order properly to discharge his functions a trustee or a personal representative will have to engage in certain activities within paragraphs 13 and 15. It is to that end that Amendment No. 32 is directed.

When the amendment was being drafted we took the view that an exclusion from paragraph 12 was not necessary because trustees and personal representa-tives deal as principals and therefore benefit from the exclusion in paragraph 17. However, since the amendment was tabled it has been suggested that some trustees (in particular bare trustees) deal as agents and not as principals, and that of course is part of the point to which Amendments Nos. 22 and 23 are directed. We are looking into that point. If on further consideration it is concluded that an exemption from paragraph 12 is desirable, an amendment to that end will be brought forward.

I think that Amendment No. 32 meets most of the points raised by the noble Lord, Lord Hacking, in his amendments. The only amendment on which I would take issue with him, perhaps, is No. 35, in which he proposes to delete the provision which removes a trustee's exemption if he is paid for managing investments in addition to whatever he is paid for acting as trustee. The purpose of this provision is to ensure that a professional man who provides the service of managing investments is subject to authorisation and regulation under the Bill, even if he does not hold himself out as providing such a service, and additional remuneration is simply a convenient test of determining whether he is acting just as a trustee or instead is providing a service of managing investments. I would suggest to the Committee that that test should be retained.

Perhaps with that explanation and the undertaking that I have given in relation to paragraph 17, the noble Lord will feel able to withdraw his amendments.

Lord Silkin of Dulwich

I was hoping that the noble and learned Lord would give a more detailed explanation of the wording of Amendment No. 32 than merely to say that there had been representations and it has been drafted to meet them. Unfortunately, not having been a party to those representations I am not wholly clear as to what they were and what the amendment seeks to do in relation to them.

There are one or two points that puzzle me directly, in addition to the general question of the meaning of the amendment. Perhaps I may deal with them most easily by referring, as other Members of the Committee have done, to a position that I hold as one of two executors and trustees of a will, where the other one is an accountant. As part of his task he prepares annual accounts, for which he is remunerated out of the estate by virtue of his functions as accountant. In the course of carrying out those duties he gives investment advice, I suppose, strictly speaking, to me, although perhaps to some extent to the beneficiaries. He and I act upon that advice if I agree with it. He does not get remunerated separately for giving that advice, because his duties as accountant, and what he is paid for that, embrace the concept that he will give that advice from time to time. Does he come within the exclusion? If I act together with him, following his advice, do I come within the exclusion?

Lord Cameron of Lochbroom

I think I can satisfy the noble and learned Lord that in accepting the advice he would not be acting with him; the advice would be given to him and he would be acting as a trustee.

The issue about the individual who receives remuneration would depend upon the capacity in which he receives the remuneraton. If he is a so-called professional trustee, who may be paid a higher fee than other trustees by virtue of his investment expertise, he would not benefit from the exclusion. If they were not remunerated separately but merely as a trustee, they would not require to be authorised and would fall within the exclusion. That is the point that I was making earlier to the noble Lord, Lord Hacking, as a means of determining the difference between a trustee who is excluded and the person who offers his services as trustee on the basis that he can give investment advice to the trust.

Lord Hacking

I am grateful to noble Lords who have participated in the debate and to the noble and learned Lord the Lord Advocate. On the undertaking given by the noble and learned Lord the Lord Advocate kindly to reconsider the problem of a bad trustee and how he acts in the capacity of an agent, I am only too happy to withdraw this amendment, which I now formally do, and not to move any of the other amendments to which I have drawn the Committee's attention.

Amendment, by leave, withdrawn.

[Amendment No. 23 not moved.]

Lord Lucas of Chilworth moved Amendment No. 24:

Page 150, line 11, after ("as ") insert ("engaging in the business of").

The noble Lord said: I beg to move Amendment No. 24 and with it to speak to Amendments No. 25, 26, 27 and 29. I do not think I need detain the Committee long with a detailed exposition of the effect of these amendments all of which result from representations which have been made to us by the Association of Corporate Treasurers and others. They have all suggested that the Bill inadvertently catches within the definition of "investment business" the ordinary commercial activities of corporate treasurers. Those activities are concerned solely with the financing of the commercial activities of non-investment business. In general, the Government accept that they should not be brought into the scope of the Bill.

A blanket exemption for the activities of corporate treasurers would go too wide. It would enable them to engage in what on any interpretation would be regarded as investment business without authorisation and the protection for investors that that brings. Such persons clearly engage in a wide range of activities to which the provisions of the Bill are inappropriate but which on the current wording would be caught. The amendments therefore seek to exclude those activities from the scope of the Bill. We believe that the amendments meet the great majority of substantive concerns which have been put to us by the association and others. We are prepared to consider any further representations as to the precise scope of the relevant provisions, if that is required. I beg to move.

8.45 p.m.

Lord Williams of Elvel

I must confess that I am at a disadvantage here because we did not receive the Government's groupings of this series of amendments. I did not realise that the noble Lord was going to speak to Amendments Nos. 24 and 29, which seem to raise certain issues. If we did receive them, they have been mysteriously omitted from the copy that I have. If the noble Lord, Lord Brabazon, doubts me, I will show him the copy that I have in my hand.

Amendment No. 24 is an amendment to Schedule 1, paragraph 17(1)(b). As I understand it, the Government suggest that somebody not to be excluded from paragraph 12 has to hold himself out as engaging in the business of buying investment as opposed to buying investment. I should welcome the noble Lord's comments on this because I wonder whether "engaging in the business of excludes individuals who might, for one reason or another, decide that they wished to take somebody out of their position on a particular share or particular investment. In order to be de-excluded, I suppose I have to say, does it mean that there is a difference between somebody who, in the original text, holds himself out as buying investment, including selling (which is perfectly proper for me as an individual to do) and somebody who holds himself out as engaging in the business of: buying investments with a view to selling them which it is not proper for me to do? I am unclear as to whether individuals who may or may not wish to deal are affected by the amendment. I am asking for clarification rather than anything else, as I am sure the noble Lord understands. We have received the amendments rather late in the day and I am merely asking for information.

May I refer to Amendment No. 29, as the noble Lord also spoke to that amendment? Again, I am asking for clarification. I understand that there is a difficulty where a different number of companies or bodies corporate, as in the Bill, are in the same group. The problem that I have with the amendment is the definition of "group". I can understand that a "group" is simple if it is a series of wholly-owned subsidiaries of one company, because the accounting procedures and the tax treatment normally adopted between fellow subsidiaries are simple and well established.

I start to have a problem if the same group includes companies which may be subsidiaries under companies legislation but are perhaps only 51 per cent. owned or are controlled as to the board of directors, which is still a Companies Act definition of a subsidiary. There the accounting procedures are different.

I wonder how minorities may be affected in such a group and whether the Government have considered the position of directors representing outside minorities; what their position will be under the exclusion of dealings or investment business conducted by such groups, and whether the amendment, as proposed, goes as far as it should in defining those important matters.

Paragraph 18(1) (b) of Amendment No. 29 refers to participators in a joint enterprise. I ask the noble Lord for clarification on what is a joint enterprise. I have read page 5 of the Marshalled List, paragraph 25a, which states: In this Schedule 'a joint enterprise' means", and I am still uncertain whether a joint enterprise can include an enterprise in which one body corporate can take a minority position with an individual or series of other bodies corporate and still benefit from the provisions of the amendment.

I apologise to the noble Lord for putting my questions in that slightly confused manner, but it seems to me that the amendment raises many issues on which I should be grateful for clarification.

The Deputy Chairman of Committees (Earl Cathcart)

As we have moved into discussion on Amendment No. 29,I should like to say that there is a misprint on page 5 of the Marshalled List. About halfway down, before it says: Page 153, line 32, at end insert—25a", it should indicate that this is Amendment No. 44A. This will be taken after Amendment No. 44.I should have said that sooner had I known that we were discussing Amendment No. 29 on this occasion.

Lord Williams of Elvel

I apologise to the Lord Chairman. I did not have the list of groupings. Until the noble Lord rose I did not know that he was going to speak to that amendment.

Lord Bruce-Gardyne

Obviously I shall be anxious to listen carefully to my noble friend's response to the debate on this group of amendments. As regards Amendment No. 24, we seem to be back to the whole question of what is signified by engaging in a business, which we have discussed previously. How occasional has the activity to be in order for the person to be described as "unengaged"? I am not sure that this, in itself, carries us much further than our earlier discussion.

What particularly worries me is the true scope of Amendment No. 29. According to the Association of Corporate Treasurers to whom, as my noble friend pointed out, Amendment No. 29, in particular, is addressed, paragraph 12 would still catch, even given Amendment No. 29, an astonishing variety of fairly run-of-the-mill corporate operations, including the buying and selling of investments with surplus funds of a company or subsidiary companies, associated companies or joint ventures, and the buying and selling of strategic share stakes in companies whether private or public.

Then there is the question of the acquisition of a private company. I realise that my noble friend has introduced Amendment No. 31 which, I think I am right in saying, we are not discussing with this group. But, here, too, there seems to be the feeling that this would not cover a situation such as the possibility—which again, one would have thought was in the normal range of corporate activities—of a business like ICI buying 25 per cent. of a private company from individual shareholders. It may be better that this is discussed under Amendment No. 31.

I cite these as examples of what I am led to understand are activities that would still fall, even with the passage of Amendment No. 29, under the hammer, if I may so express it, of paragraph 12. This would apply even, I am told, to the making of takeover bids. I believe that we have had rather too many takeover bids. I am not necessarily an enormous enthusiast of some of the gargantuan schemes in which our ingenious merchant banks have been making what one might call a decent living in recent months, but it cannot be right that through paragraph 12 we should be in danger of invalidating such reasonably normal corporate activities as that.

Finally, as I understand it, we are still in a position where the caveat on the giving of advice as to exercise of rights conferred by investments would make it impossible, or, at least, would make it hazardous, for companies to advise their shareholders as to the action that they should take in a takeover situation. I cannot believe that it is genuinely the Government's intention that the remit of the Bill should go as wide as this. It seems to be the view, certainly of the corporate treasurers—I accept, of course, that they may be wrong—that notwithstanding Amendment No. 29, all these sorts of perfectly normal and generic corporate activities could be strung up on paragraph 12. I feel that the Government have to look at this matter with some care, just as we shall want to look with greater care at the amendments that my noble friend has introduced in this group. If it were felt necessary to try to amend and improve, it would be more logical, in my judgment, that we should seek to do so at Report stage. My noble friend may be able to give us some reassurance on these points.

Lord Lucas of Chilworth

I wish first to apologise to the noble Lord, Lord Williams of Elvel. It is obvious now that the introductory speech that I made was far too brief. I shall therefore go back and speak in a little more detail. This might remove some of the noble Lord's doubts, and, also, I think answer most of his questions and probably those, too, of my noble friend.

This is an odd group of amendments, but the amendments have a common theme. All involve the position of persons whose activities would, on the basis of the definitions in the Bill, fall within the definition of investment business but who are not carrying on the kind of business it is the purpose of the Bill to regulate.

Paragraph 17 of Schedule 1 excludes from the scope of paragraph 12, dealing in investments, certain transactions entered into as principal. Broadly speaking, the intention is that where a person enters into transactions only as principal (as opposed to as agent), he is not to be regarded as carrying on investment business unless his conduct is such that he is in effect making a market in investments or he regularly solicits people other than investment businesses to buy or sell investments. The amendments to paragraph 17 extend this exclusion by narrowing the circumstances in which these exceptions apply.

Paragraph 17(1) concerns transactions by a person as principal in investments within paragraphs 1 to 6 and, so far as relevant to those paragraphs, paragraph 11 of Schedule 1. These investments are referred to as "securities". Paragraph 17(1) has the effect that a person buying or selling securities as principal is not to be regarded as carrying on investment business, unless in doing so he does any of the things in headings (a), (b) and (c). The amendments do not affect heading (a), which is concerned with committed market-makers. Heading (b) is concerned with occasional market-makers. The amendment to this part of the sub-paragraph has the effect that a person will be regarded as within its scope (and hence within the definition of investment business) only if he holds himself out as engaging in the business of buying investments with a view to selling them. This is considerably narrower than the present provision, which it has been suggested could, for instance, have caught a non-investment company with a short-term cash surplus to invest, which held itself out in the market as being willing to buy an investment with a view to selling it within a certain period.

Heading (c) is concerned with persons who, while not falling within (a) and (b), regularly solicit unauthorised persons for the purpose of dealing in investments. The amendments to this part of the sub-paragraph have the effect that a person dealing as principal is not to be regarded as carrying on investment business by reason only that he regularly solicits for the purpose of dealing in investments through authorised persons, exempted persons, members of the same group as himself, participators with him in a joint enterprise, or persons outside the United Kingdom whose ordinary business involves them in engaging in investment transactions.

Paragraph 17(2) is concerned with investments within paragraphs 7 to 10 and, so far as relevant to these paragraphs, paragraph 11, which are referred to in this note as "contractual investments". Paragraph 17(2) as drafted has the effect that a person is not to be regarded as dealing in investments by reason only that he enters into transactions concerning contractual investments as principal with an authorised person.

There is no need for exclusions corresponding to those described at paragraph 3(c) and (d) above because of the provisions of the new paragraph. New paragraph 18A excludes from the definition of investment business certain activities concerning members of the same group and participants in a joint enterprise. The effect of paragraphs 18A(1) and (2) is that a person is not to be regarded as engaging in the activity of dealing in investments by reason only that he enters into transactions as principal with another body corporate in the same group or with another participator in a joint enterprise (if the transaction is for the purpose of that joint enterprise). Such persons are referred to for the purposes of this note as "connected persons".

A person is not to be regarded as engaging in the activity of dealing in investments by reason only that he enters into transactions as agent for a connected person unless, if the transaction involves a security, the agent engages in an activity within paragraph 17(1)(b) or (c) or if the transaction involves a contractual investment. Thus the effect is that anything done by a person as agent for a connected person is treated for the purposes of the Bill as though it were done by that person as principal; and he is required to be authorised only if he would have been so required had the transaction been entered into as principal.

Paragraph 18A(3) has the effect that a person is not to be regarded as making arrangements for deals in investments by reason only that he makes arrange-ments with a view to another body corporate within the same group dealing in investments, or another participator in a joint enterprise dealing in investments for the purpose of the joint enterprise. Paragraph 18 A(4) has the effect that a person is not to be regarded as managing investments by reason only that he manages investments belonging to another body corporate in the same group or another participator in a joint enterprise where the investments are managed for the purposes of the joint enterprise.

Paragraph 18A(5) has the effect that a person is not to be regarded as giving investment advice by reason only of giving advice to another body corporate in the same group or another participator in a joint enterprise where the advice is given for the purposes of the joint enterprise. Paragraph 25A defines the terms "joint enterprise" and "participators" for the purposes of the above provisions.

I realise that that is a rather lengthy statement and I think that perhaps we will need some little time to study the subject. I should certainly be happy to consider, when noble Lords opposite have had an opportunity of studying it, whether there are major points outstanding, but perhaps I may answer one or two specific questions that have arisen.

The noble Lord, Lord Williams, asked about the position of an individual who buys investments with a view to selling them. That position will depend on how he holds himself out. If, for example, he holds himself out as being engaged in the business of buying investments in order to sell them, then he will be caught. If he holds himself out as a private individual who is interested in buying with a view to selling, he will not be caught.

The noble Lord has asked me, "What is a group?" I am happy to explain it once again. "Group" is defined in Clause 173(1) and can include companies in which there are minority holdings, but we consider that anything done within a group is a matter for the members of that group which can be decided by the directors of the member companies and that it is not something with which the Bill need be concerned.

My noble friend Lord Bruce-Gardyne spoke about engaging in the business and he referred particularly to paragraph 17(1) as amended. This is indeed different from the formulation in Clause 1. A person who holds himself out as engaging in the business of buying and selling investments would have to be doing rather more than buying and selling investments occasionally and holding himself out as doing so. He would actually have to hold out the purpose of his business as being to buy investments with a view to selling them if he were to be caught by the terms of paragraph

Lord Silkin of Dulwich

I am grateful to the Minister, and on that point I should like to ask him whether this is not relevant to the whole question of continuity which we were discussing on an earlier amendment. Is it not the case that the difference between the situation here and the earlier situation is precisely the holding out to which the Minister referred in that particular paragraph and in paragraph (c), the regular soliciting, which again imports the idea of continuity, so that merely "engaging in" is not enough; there must be either a holding out of irregularity. Ought not that principle to apply to the earlier matter which the Minister will be looking at again?

Lord Lucas of Chilworth

The noble and learned Lord is quite right, and since I agreed to look at this matter and consider what we mean by "engages", of course we will take that point on board.

My noble friend spoke about the worries of corporate treasurers. I do not in fact believe that nearly as much business is going to be caught as the association suggests. But, as I said earlier with regard to the point which the noble Lord, Lord Ezra, made we would be quite happy to look further at anything that the association wish to bring forward.

In my earlier remarks—which unhappily have proved to be no more nor less than introductory— said that we should be prepared to consider any further. representations as to the precise scope of the relevant positions. As I have rattled through a great number of points raised—I do not think the noble Lord, Lord Williams, anticipated an answer in quite that form— think that it would be as well if I made at unconditional offer to listen to anything that might be raised in this matter with a view to making it a little clearer.

Lord Bruce-Gardyne

My noble friend has made a most handsome offer which I am sure will be accepted with alacrity. I am bound to admit that 1 hope he understood the full import of his explanation of the amendments more clearly than I did. I begin to wonder, when I try to engage in rather feeble efforts to improve my own personal portfolio, whether I shall not have to find an SRO to shelter under.

However, I am sure that the assurance that my noble friend has given, that we can look at these matters again carefully and in some detail between now and Report stage, is highly desirable. I am sure that it is much better to do that than to try and arrive on our feet at appropriate definitions of the precise meaning of "engagement". All that one can say at this stage is that it is clearly not the kind of activity that the Church goes in for.

Lord Williams of Elvel

I am most grateful to the Minister for his unconditional offer to look at all this again. I am bound to say that I cannot understand the difference between an individual who holds himself out as buying and selling investments and an individ-ual who holds himself out as engaging in the business of buying and selling investments. However, that is probably my stupidity rather than the drafting of the Bill.

The whole question of what is a connected person is very complicated. In my view it is insufficiently defined in Clause 29, but I shall not make detailed comments. I agree with the noble Lord, Lord Bruce-Gardyne. The Government have very kindly said that they will take this whole question back and look at it again and come back with something perhaps more intelligible at Report stage.

Lord Lucas of Chilworth moved Amendments Nos. 25 to 27:

Page 150, line 12, leave out (" (other than authorised persons) ").

Page 150, line 14, at end insert ("and those persons are not confined to authorised persons, exempted persons, members of the same group as himself, participators with him in a joint enterprise and persons outside the United Kingdom whose ordinary business involves them in engaging in activities falling within Part II of this Schedule.").

Page 150, line 20, leave out ("an authorised person") and insert ("or through an authorised person, an exempted person or a person outside the United Kingdom whose ordinary business involves him in engaging in activities falling within Part II of this Schedule.").

The noble Lord said: I have just spoken to Amendments Nos. 25,26 and 27, which I beg to move en bloc.

Lord Lucas of Chilworth moved Amendment No. 28:

Page 150, leave out lines 21 to 37.

The noble Lord said: This amendment is related to the new clause on listed money institutions which it is proposed to add after Clause 40 and the new schedule to which that clause refers.

I have to confess that there is an assumption here that the later amendment will be accepted in one form or another. I have to apologise to the Committee for the very late tabling of the new clause and schedule. It was due to last minute comments which we received on our proposals which necessitated further drafting changes.

Lord Williams of Elvel

I apologise for interrupting. I did not quite hear to which new clause the noble Lord was referring. Can he refer us again to the new amendment?

Lord Lucas of Chilworth

It is proposed to add a new clause after Clause 40. That is Amendment No. 113. I was apologising for the lateness of tabling the new clause. That was due to last minute comments which necessitated further drafting changes. I was going to say that it was a further demonstration of the flexibility of the Government in these matters.

I know that noble Lords will not have had time to study the new clause and the schedule. It might be for the convenience of the Committee to defer consideration of them and this amendment until we reach them in their proper place, which I hope will be on Wednesday of this week. The proposals on which the new clause and schedule are based have been the subject of extensive consultation, and the approach we are proposing has been generally welcomed, although there have been many comments on points of detail.

The new clause and the schedule supersede paragraph 18 of Schedule 1. The exemptions made in that paragraph have been criticised as being too narrow. Our new proposals go wider both as regards the parties eligible to benefit and the kind of transactions covered. We can obviously consider the detail later, but on the assumption that even with consideration of the detail those later amendments will be accepted I would ask the Committee to agree to this paving amendment. I beg to move.

9.15 p.m.

Lord Williams of Elvel

On the basis that the noble Lord describes, I think that we are perfectly happy to postpone discussion of these matters until a later stage. I notice that on page 25 of the Marshalled List, after Clause 40, there is something called "Listed money market institutions". No doubt when we come to it we shall discuss what listed money market institutions means, because some of us are in great doubt as to whether there is such a list and on what basis it is compiled. But I agree with the noble Lord that we will discuss this matter when the time comes.

The Deputy Chairman of Committees

In calling Amendment No. 29,I must repeat what I said earlier. There is a misprint on page 5 of the Marshalled List, half-way down, where it says "page 153, line 32, at end insert… 25a". That should be a separate amendment, but at the present moment I am not absolutely clear what the correct number of that amendment should be. I look to the Minister to clarify that point, please.

Lord Lucas of Chilworth moved Amendment No. 29:

Page 150, line 37, at end insert—

("Groups and joint enterprises.

18A.— (1) Paragraph 12 above does not apply to any transaction which is or is to be entered into by a person as principal with or, subject to sub-paragraph (2) below, as agent for, another person if—

1. (a) they are bodies corporate in the same group; or
2. (b) they are participators in a joint enterprise and the transaction is or is to be entered into for the purposes of that enterprise.

(2) Where the transaction is or is to be entered into by a person as agent sub-paragraph (1) above does not apply—

1. (a) if the investment falls within any of paragraphs 1 to 6 above or, so far as relevant to any of those paragraphs, paragraph 11 above and the agent engages in any activity to which paragraph 17(1)(b) or (c) above applies; or
2. (b) if the investment is not as mentioned in paragraph (a) above and the other party to the transaction is a person who is neither an authorised or exempted person nor a person outside the United Kingdom whose ordinary business involves him in engaging in activities falling within Part II of this Schedule.

(3) Paragraph 13 above does not apply to arrangements which a person makes or offers or agrees to make with another person if—

1. (a) they are bodies corporate in the same group and the arrangements are with a view to another body corporate in that group entering into a transaction of the kind mentioned in that paragraph; or
2. (b) they are participators in a joint enterprise and the arrange- ments are with a view to another participator in the enterprise entering into such a transaction for the purposes of that enterprise.

(4) Paragraph 14 above does not apply to a person by reason of his managing or offering or agreeing to manage the investments of another person if—

1. (a) they are bodies corporate in the same group; or
2. (b)they are participators in a joint enterprise and the investments are or are to be managed for the purposes of that enterprise.

(5) Paragraph 15 above does not apply to advice given by a person to another person if—

1. (a) they are bodies corporate in the same group; or
2. (b) they are participators in a joint enterprise and the advice is given for the purposes of that enterprise.").

The noble Lord said: I have already spoken to this amendment. I beg to move.

Lord Williams of Elvel

I am sorry to intervene at this point, but I do not think I understood from the noble Lord—and I am sure it was by omission rather than intention—exactly what the definition of a "connected person" is for the purposes of this amendment. The noble Lord referred to connected persons in his presentation of this amendment. I posed a number of questions about who is in the same group as whom, and what are joint enterprises, and the noble Lord's reply concerned connected persons. I should be grateful if the Minister could give us a definition as to what he means by connected persons.

Lord Lucas of Chilworth

My noble and learned friend advises me that I used the shorthand term. They are bodies corporate in the same group or they are participators in a joint enterprise, who enter into a transaction for the purpose of that enterprise. I hope that that helps the noble Lord.

Lord Williams of Elvel

I am very grateful to the noble Lord the Minister, but that is, if I may say so, an absolutely circular response. Originally, when I realised that the noble Lord was speaking to Amendment No. 29, I asked the noble Lord for the definition of "a group" in paragraph 18A(l)(a), which says: they are bodies corporate in the same group", and for the definition of "a joint enterprise" in paragraph 1 8A(1)(b). The response I received was "connected persons", and I am led back to the original wording of the amendment. Perhaps I can be given some further help on this matter so that I can try to understand what the Government propose.

Lord Lucas of Chilworth

On page 141 of the Bill, in Clause 173, which is the interpretation clause, at line 23 the noble Lord will find: 'group', in relation to a body corporate, means that body corporate, any other body corporate which is its holding company or subsidiary and any other body corporate which is a subsidiary of that holding company".

Lord Williams of Elvel

I am most grateful to the noble Lord; I had read that passage. I should like to ask the same question as I asked before. If a body corporate is part of a group in the sense as described on page 141,I assume that it is a subsidiary of a company under the meaning of the Companies Act. A subsidiary under the meaning of the Companies Act is either where the equity is over 50 per cent. held by the holding company, or where the board of directors is controlled by a company. Those are the two definitions under the Companies Act. My question is: what happens when all these dealings take place by companies, which may be part of the group for the purposes of this Bill, which may be 20 per cent. owned by a company but that company has power to appoint the whole board of directors, or which may be 50.1 per cent. owned by a company? What happens to the minorities? Are they treated fairly? Are there any guarantees? What are the accounting provisions between one member of the group and another?

I am sorry to press the noble Lord on this but it is important to establish the relationship, because in accounting terms it makes a tremendous amount of difference whether a company is 100 per cent. owned or 51 per cent. or 49 per cent. or 30 per cent. owned May I press the second question? What is a joint enterprise? I do not see any definition in Clause 173 of a joint enterprise.

Lord Lucas of Chilworth

I do not know whether I can really help the noble Lord any further . So far as this schedule is concerned we find on the Marshalled List that there is an interpretation of what "a joint enterprise" means. It means: an enterprise into which two or more persons ('the participators') enter for commercial reasons related to a business or businesses (other than investment business) carried on by them; and where a participator is a body corporate and a member of a group each other member of the group shall also be regarded as a participator in the enterprise. It is entirely up to the directors to look after all the shareholders, and company law protects the minority. That is no different from any other problem concerning minorities.

I have done the best I can to answer a number of questions. The noble Lord will accept, I know, that in some of the detailed points he has raised I do not know the answer this evening. I can promise him though, that before he has breakfast tomorrow morning he will know the answer.

Lord Williams of Elvel

I hope that the noble Lord will not telephone me at home.

The Deputy Chairman of Committees

I have now been advised that the next unnumbered amendment, which reads "Page 153, line 32, at end insert", must be numbered Amendment No. 44A and must be taken in that order, but of course it may be grouped as desired. I shall now call Amendment No. 30, Lord Lucas of Chilworth.

Lord Lucas of Chilworth moved Amendment No. 30:

Page 150, line 43, leave out ("following persons, that is to say") and insert ("persons mentioned in sub-paragraph(aa) below or the holding of such shares of debentures by or for the benefit of any such persons.

(aa) The persons referred to in sub-paragraph (1) above are—").

The noble Lord said: When this matter was raised in another place my honourable and learned friend undertook to consider whether amendments were necessary or desirable to clarify the position of employers operating employees' share schemes, and trustees involved in such schemes. This amendment, coupled with the amendments we are proposing on the activities of trustees more generally, will make it clear that the employer will not have to be authorised to operate such a scheme and that the trustees will only be required to be authorised if they hold themselves out as providing, or are separately remunerated for, investment services over and above their duties as trustees. I beg to move.

Lord Cameron of Lochbroom moved Amendment No. 31:

Page 151 line 17, at end insert—

("Sale of private company

1. —£ (1) Paragraphs 12 and 13 above do not apply to the acquisition or disposal of, or to anything done for the purposes of the acquisition or disposal of, shares in a private company, and paragraph 15 above does not apply to advice given in connection with the acquisition or disposal of such shares, if—
1. (a) the shares carry 75 per cent. or more of the voting rights attributable to share capital which are exercisable in all circumstances at any general meeting of the company; and
2. (b) the acquisition and disposal is, or is to be, between parties each of whom is a body corporate, a partnership, a single individual or a group of connected individuals.
2. (2) For the purposes of subsection (1) (b) above "a group of connected individuals", in relation to the party disposing of the shares, means persons each of whom is, or is a close relative of, a director or manager of the company and, in relation to the party acquiring the shares, means persons each of whom is, or is a close relative of, a person who is to be a director or manager of the company.
3. (3) In this paragraph "private company" means a private company within the meaning of section 1(3) of the Companies Act 1985 and "close relative" means a person's spouse, his children and step-children, his parents and step-parents, his brothers and sisters and his step-brothers and step-sisters.")

The noble and learned Lord said: This is an amendment the subject matter of which was foreshadowed in the Government's White Paper in that it was said that the definition of investment business would exclude the sale of a company as a whole. The purpose of the amendment is to exclude from the definition of investment business the activities of transfer agents and similar businesses who arrange, or procure, the sale of substantially the whole of the share capital in private companies satisfying certain conditions.

As my honourable and learned friend said in another place when this subject was discussed, there are difficulties when one starts to try to define this apparently straightforward concept more precisely. An exclusion limited to the sale of all the shares in a company from one individual to another would be nugatory because more than one person might be involved in either side and not all the shares might be sold. On the other hand, too wide an exclusion would risk opening up a major loophole. The formula proposed in the amendment seeks to strike a satisfactory balance. In particular it would exclude from the scope of the Bill the vast majority of sales of private owner-managed companies. But we should be perfectly content to consider any representations which might be made as to the precise scope of the exclusion. I beg to move.

Lord Williams of Elvel

I am most grateful to the noble and learned Lord the Lord Advocate for indicating that he is prepared to consider represent-ations, because this particular amendment seems to raise a number of problems. He is quite right in saying that it is a very complex issue. As I understand it, if a private company is sold as to 74 per cent. of its voting capital, it does not come into the exclusion. This seems to be a rather odd circumstance where one has to get 76 per cent, rather than 74 per cent, or 75.1 per cent. rather than 74.9 per cent, in order to qualify for the exclusion. Having said that, I feel that on our side we should like to think about this, to read what the noble and learned Lord the Lord Advocate has said, and not oppose the amendment at the moment.

Lord Bruce-Gardyne

I admit that I am slightly mystified by what my noble and learned friend the Lord Advocate has said about the loophole that would be opened up by going below the 75 per cent. limit. I referred to this in my intervention on Amendment No. 29. I do not want to labour the point further, but it does not seem to answer the problem which I should have thought was a not wholly uncommon occurrence, where a publicly quoted company might wish to take in the course of its business a significant minority share purchased from individual shareholders in a private company. One needs only to think of examples (usually in public companies, though not always) such as the Whitbread umbrella. I am not arguing whether that is a necessary or desirable arrangement. But the important point is that it does not seem at all logical on the face of it that such arrangements should be invalidated as a sort of by-blow of this legislation. I very much agree with the noble Lord, Lord Williams, that this is another matter that I should have thought your Lordships would need to consider with some care again as before.

Lord Cameron of Lochbroom

Obviously I take note of what the noble Lord opposite and my noble friend have both said on this matter. I have indicated the intention with which this new paragraph is brought forward in dealing with a particular problem. My noble friend might care to consider again to whom we are looking in this matter of exclusion, transfer agents and the like. I shall study with care what both noble Lords have said. Our minds are not closed, as I have indicated, and we should be happy to receive representations on this matter.

Lord Williams of Elvel

I am grateful to the noble and learned Lord the Lord Advocate for what he has said. I hope he will consider this whole matter in the light of the pertinent comments that the noble Lord, Lord Bruce-Gardyne, has made. However I must tell him that this is a Government Bill. We are the Opposition. It is no good the noble and learned Lord saying that we should make suggestions, my noble friends should make suggestions, everybody should listen to what is happening. The Government have to come out with a sensible proposition and put it before your Lordships. Then we shall look at it, discuss it, and, if necessary, vote upon it. It is up to the Government to take this back and have another look at it. I agree with the noble Lord, Lord Bruce-Gardyne, that as it at present stands it will catch a great many transactions which are perfectly sensible and innocent.

9.30 p.m.

Baroness Seear

My Lords, I hesitate to intervene. I am an absolute fool in these matters but I should like to ask a question of the noble Lord who will have to deal with this Bill when it becomes an Act. As I listen to this debate, in this most learned and expert company nobody seems to understand—least of all on the Government Benches—what it is we are trying to do. If we here do not understand it, what hope is there that the public will understand it when it is passed into legislation. I do not wish to be frivolous about this, but it seems quite absurd that almost nothing that has come up since I have been sitting here has been understood by this side of the Committee; and I am bound to say, judging from the comments on the other side of the Committee, that those Members do not seem to understand it either. This is surely no way to legislate, unless we are legislating solely for people in the upper echelons of the financial world, and the rest of the general public, the 99.9 per cent., are not going to have to take any notice of it. What is the real position?

Lord Cameron of Lochbroom

I trust that when I opened the debate I made absolutely clear what was the purpose. We think that putting the limit of 75 per cent. of the shares which have voting rights, or 75 per cent. of the voting rights, in all the circumstances is the right point at which to set the exclusion. I have listened to what has been said, in particular by my noble friend Lord Bruce-Gardyne, who suggests that perhaps that might be made wider. But we shall have to consider this further, and that I have undertaken to do.

The Deputy Chairman of Committees

In calling Amendment No. 32,I have to remind the Committee that if it is agreed to, I cannot call Amendments Nos. 33, 34 and 35.

Lord Cameron of Lochbroom moved Amendment No. 32:

Page 151, leave out lines 18 to 23 and insert—

("Trustees and personal representatives.

20.— (1) Paragraph 13 above does not apply to anything done by a person as trustee or personal representative with a view to—

1. (a) a fellow trustee or personal representative and himself engaging in their capacity as such in an activity falling within paragraph 12 above; or
2. (b) a beneficiary under the trust, will or intestacy engaging in any such activity.

• unless that person is remunerated for what he does in addition to any remuneration he receives for discharging his duties as trustee or personal representative.

(2) Paragraph 14 above does not apply to anything done by a person as trustee or personal representative unless he holds himself out as offering investment management services or is remunerated for providing such services in addition to any remuneration he receives for discharging his duties as trustee or personal representative.

(3) Paragraph 15 does not apply to advice given by a person as trustee or personal representative to—

1. (a) a fellow trustee or personal representative for the purposes of the trust or estate; or
2. (b) a beneficiary under the trust, will or intestacy concerning his interest in the trust fund or estate,
• unless that person is remunerated for doing so in addition to any remuneration he receives for discharging his duties as trustee or personal representative.").

The noble and learned Lord said: I have already spoken to this amendment. I beg to move.

[Amendments Nos. 33 to 35 not moved.]

Lord Hacking had given notice of his intention to move Amendment No. 36:

Page 151, line 23, at end insert—

("(20A) Paragraph 13 above does not apply to legal or accountancy or actuarial advice which is given as ancillary to the services (as specified in paragraph 13) made or offered by authorised persons".).

The noble Lord said: In view of the statements made by the Minister and by the noble and learned Lord the Lord Advocate when I moved my Amendments Nos. 22 and 23, and in view also of the noble Lord the Minister moving Amendment No. 20, which has been taken by the Committee, I shall not be moving this amendment, or the following three amendments.

[Amendment No. 36 not moved.]

[Amendments Nos. 37 to 39 not moved.]

Lord Ezra moved Amendment No. 40:

Page 151, leave out lines 35 to 46.

The noble Lord said: I beg to move Amendment No. 40. It is a very brief amendment and a relatively simple one. It deals with the question of newspapers which under Part III of the schedule it is proposed should be excluded from the effects of this legislation. I think it was the noble Lord, Lord Bruce of Donington, who at the Second Reading drew attention to the quite considerable influence that newspapers have, particularly in their City columns, on people's investment decisions. They go far wider than brokers' circulars, analysts' reports, tip sheets and so on. Therefore, it seemed to the noble Lord, and it certainly seems to me, to be questionable whether newspapers should be excluded, in so far as they give financial advice, from the impact which other advisers will feel under the legislation. I beg to move.

Lord Taylor of Gryfe

We have been discussing complicated matters in relation to this Bill in the last two or three hours, and we now come to a relatively simple issue of principle. I hope that the Minister will be as accommodating in relation to this simple issue as he has been on the other matters which have been under consideration. My noble friend Lady Seear has asked that we be quite clear what we are about, and what the Bill is about is consumer protection. The basic purpose of this Bill is to protect the investor in the situation in which we now find ourselves.

The representations on this amendment come from the National Consumer Council, which is much concerned about the position of newspapers which advise on investment. For the purposes of this Bill, the publisher of a tip sheet should be defined as "an investment business", but the journalist who makes the recommendation with regard to the purchase of shares and investments in general will be excluded from the Bill. I am sorry that the noble Lord, Lord Bruce-Gardyne, is not in his place, because, just as he made friendly references to the earnings of merchant banks, I was about to return the compliment and make some reference to the decent men who offer financial wisdom in the daily or weekly press.

However, we have reached a stage in dealing with investments where there is now widespread investment, thanks to the privatisation of British Telecom, and the average chap who reads the average paper is almost as interested in the affairs of the stock market as he is in Newmarket. Therefore, I suggest that he looks for advice and turns to the financial page, where he gets advice on what he should invest in and on how the journalist sees the markets. The man who issues tip sheets which are circulated is regarded as engaging in investment business, but the much more popular distribution of financial advice in the press is exempt. Therefore, I believe that we have to be very careful, in a period of wider share ownership, when there is a broader interest among the public in financial journalism, about excluding that category of advice. So I invite the Minister to be as accommo-dating to this relatively simple amendment as he has been in the complicated procedures that have preceded it. I beg to support the amendment.

Lord Bruce of Donington

We should like to support this amendment. One of the purposes of this Bill was put very succinctly to me by a leader of one of the prospective SROs, who shall be nameless and who said to me, "You know, Lord Bruce, the people we are trying to protect ultimately are the Aunt Agathas of Weston-super-Mare. The small investors are, in the final analysis, the people we want to protect."

The attitude of Her Majesty's Government towards the small investor is slightly exaggerated from time to time for political purposes and, in some cases, verges on the euphoric. There is a general sympathy, which we feel is quite genuine, on the part of Her Majesty's Government towards the small investor.

Let us take the Aunt Agathas of Weston-super-Mare. They do not have at their disposal investment analysts. Many of them indeed do not have nearby stockbrokers. Many of them cannot afford what to many may seem to be the exorbitant sums that are paid for the alleged tip sheets. On whom do they rely? They rely on the financial correspondents of the daily press, some of whom are extremely reputable people with very good reputations. It has not been entirely unknown for financial correspondents to be represented both in this Chamber and indeed in Her Majesty's Government. They are most reputable people. But not all of them live up to that high standard. One does not want to go into invidious examples—indeed, 1 would not wish under the protection of privilege in this Chamber to name names—but we all know of cases where financial advice has been given in newspapers that has not been entirely unconnected with the relationship of that correspondent with the person who desires the price of the shares to go up. I repeat: it is not entirely unknown.

This amendment is designed to maintain and buttress the reputation of the very good financial correspondents and financial tipsters in the daily press, the most distinguished of whom do not need the protection because they are very honourable men. I am quite sure that distinguished journalists who have occupied the role would wish their reputation to be maintained.

An ordinary financial correspondent who is busily recommending shares tends to take a degree of personal responsibility for what he writes. Possibly he can in some cases even read a balance sheet and profit and loss account properly and be able to derive the correct conclusions from his reading of it. Some who are prudent would, before they made any forecast or recommendation, probably get on to stockbroker friends of theirs in order to fortify the views that they had already formed, in which case they would be able to give on an informed and honest basis the kind of advice which, through the very powerful columns of the newspapers, they offer to prospective investors. This I am quite sure is what the most reputable of them do.

But that still does not, I am afraid, exclude a practice that has grown up—although, I am happy to say not very extensively—of letting in the occasional rogue who, on the basis of an association with an interested party who wants the shares to go up or to go down, allows this advice to become coloured for entirely ulterior motives. If what I have said is true and the bulk of financial correspondents occupy a very responsible position in our society and have the highest reputation, no newspaper is at risk by this clause being deleted. It is only if they are fearful about this practice to which I have referred, and which at any rate I prefer in my naĩve fashion to believe is not widespread, that they need bother about the exclusion of newspapers from this particular privilege. We must bear in mind the terrific influence of the national press and the very considerable reliance that is placed on it by investors who do not know how the City works, are not accustomed to studying complicated graphs and do not have their own personalised computer that they can plug in to the network.

I only hope that for the protection of these people the Government will consider accepting the amendment.

9.45 p.m.

Lord Grimond

Before the Minister replies I should like to support all that has been said in favour of the amendment. To my mind it is the most important amendment that we have discussed today. Until now we have largely been discussing sophisticated matters for the protection of people who should be able to look after themselves because they have highly paid advisers and access to the best information. We now come to the nub of the Bill, which is the small or new investor.

I do not propose to repeat what has been said but it is obvious that what appears in the papers is of prime importance to such people. It must also be remembered that the Bill is removing one of their main protections—distinction between a broker and a jobber. I am not certain that all investors will appreciate what the result of that might be.

In addition to supporting what was said by my noble friends and by the noble Lord on the Opposition Front Bench, may I ask this question? Under paragraph 22(2) the Secretary of State may certify that a publica-tion should not fall within the Bill, as I understand it. As far as I can see, there is no daily or weekly paper which would not be entitled to certification. Under paragraph 22(1) the only publications which will fall within the Bill are those which lead people to invest in a particular investment. Therefore, as I see it, there is no daily or weekly paper which would not be entitled to certification that it falls outside the scope of the Bill. I shall be glad to learn whether that is how the Government interpret it.

I repeat that if this Bill is really intended to encourage wider shareholding and to protect the small investor, it is far more important to look at what is said in the City columns and in the advertisements for unit trusts, and so on, which appear in all the papers, and at the tips given in every paper, from the most popular dailies up to the Financial Times, than it is to introduce very sophisticated protection for people who really ought to be able to protect themselves.

Lord Lucas of Chilworth

Perhaps I could start by reminding the Committee of what the noble Lord, Lord Taylor of Gryfe, said. He asked us "to be very careful about excluding newspapers". I should like to suggest to the Committee that we should be very careful before approving a statutory requirement for newspapers to obtain authorisation before they can publish a City column. Such authorisation would make them subject to the conduct of business rules.

Since we have business rules, that would govern the sort of advice they could give, the basis of their recommendations, and so on. I suggest to the Committee that such rules would be entirely appro-priate for a broker's circular but they might inhibit an investigative journalist. We must be extremely cautious about going down such a road because I believe we could be moving quite easily on to the slippery slope towards press censorship.

I listened very carefully to the noble Lord, Lord Bruce of Donington. If I may be slightly humorous for a moment, I thought that Aunt Agatha came from Wigan and not from Weston-super-Mare; but perhaps she comes from a variety of places. Yes, we are trying to ensure that Aunt Agatha, from wherever she may come, gets unbiased advice and can read a newspaper without being induced to invest in this or that project at the whim of a financial journalist, though the noble Lord paid tribute, as I do to the integrity of the vast majority of financial journalists.

Yes, of course there can be abuse, but I think in fact that this is best dealt with by the newspaper industry itself. After all, we are considering a Bill which is about self-regulation and I believe we can put upon the newspaper industry an element of self-regulation. I must confess that I very much welcome the Press Council's declaration of principle on 6th June setting out guidelines for financial journalists and their editors. I do not know how many Members of your Lordships' Committee have had sight of that declaration, but I urge your Lordships to read it because I believe it is very good. The final paragraph, paragraph 6, states: The Press Council will be ready to deal with complaints from any source that newspapers, periodicals or journalists have acted in breach of the spirit of the declaration or these guidelines, and holds itself free to initiate inquiries into apparent breaches of them without complaints having been made to it". I shall be quite happy to place a copy of that declaration in the Library for the reference of the Committee.

I believe that since 6th June editors and journalists have supported the spirit of that declaration, as many of them did before. The Government believe that it would be wrong, given these quite positive steps by the newspaper industry itself, to bring investment advice contained in newspapers within the scope of the Bill.

That is not to say that newspapers can print what they like without any legal constraints. If a statement in a newspaper, magazine or journal, contravened Clause 44 (which is the clause dealing with misleading statements), it would be an offence, and as with other aspects of the law a newspaper will be responsible for what it prints and subject to any constraints and penalties that the law may provide. But I suggest that to bring newspapers within the scope of the Bill would in effect subject them to a system of prior licensing which I think would be a new and very unfortunate departure.

The noble Lord, Lord Grimond, suggested that there is no paper or publication which would not be entitled to a certificate under paragraph 22(3). I think we have to look at the principal purpose of the publication. If, as is the case with tip sheets, their primary purpose is to convey recommendations about particular investments, they will not benefit from the exclusion and will not be entitled to a certificate under paragraph 22(2): but I believe that others. whose primary objective is of course to disseminate news about the City, personalities, people and so on, are different.

Lord Silkin of Dulwich

I am somewhat puzzled by what the noble Lord said about the certificate. As I understand the position, a certificate is a complete protection but if one does not have a certificate that does not mean that one is unprotected. As 1 understand paragraph 22(1), as a newspaper one can still show that one falls within the exception under paragraph 22(1). What is the point of this certificate procedure? Why not leave it to the newspaper to be able to establish one way or the other?

Lord Lucas of Chilworth

It is for the Secretary of State to make the decision as to whether the publication should be certificated. That is a natural piece of protection.

Lord Silkin of Dulwich

As I understand it (and the Minister will correct me if I am wrong) if the Secretary of State does not do so and complaint is made, the newspaper can still show to the appropriate person, whoever it may be—whether it be the court or anyone else—that it falls within the provisions of Clause 22(1) and that it is excepted.

Lord Lucas of Chilworth

The noble and learned Lord is quite right.

Lord Taylor of Gryfe

The Minister indicated that the Press Council was the appropriate protection agency. Anyone who has followed the procedures and reports of the Press Council over the years will recognise that it has no statutory authority whatsoever and is regularly disregarded by the newspapers of this country. It can publish nice little reports and censures from time to time, but we are talking about protecting people's investment. To say that that responsibility should devolve to a code of practice by the Press Council is totally inadequate. The consequences of removing the exemption would be that newspapers would have to ensure that any advice that they give on investment is neither fraudulent nor reckless. That is the purpose of the amendment. It seems to me to be completely desirable and to be operating in an area where protection is necessary.

The noble Lord, Lord Bruce of Donington, quoted instances of where financial journalists—we are not talking about the gossip columns of the financial pages; the tittle-tattle of the day—give investment advice. That is the important point. It is in that direction that the amendment is proposed. It has been known for a financial journalist to make a lot of money from recommending certain shares in which he was interested and selling them later at an appropriate stage. That has happened in journalism in the United Kingdom. It is in order to protect us from such activity that the amendment is proposed. I leave it to my noble friend Lord Ezra to say just a word or two more.

Lord Ezra

My noble friend Lord Grimond put his finger on the point. We are now getting to the nub of the issue, which is the protection of the small investor. I find myself getting confused about the question of certification. It seems that those who are not certificated can still plead in accordance with the clause that they were perfectly entitled to print what they did on city matters.

I am not therefore absolutely clear where newspapers such as the esteemed Investors Chronicle come in. Would it have to be regarded as a journal which is primarily concerned with giving advice about investments? I believe that there is considerable obscurity in the measure. But there is no obscurity about the need for the Bill, as it will be finally enacted, fully to protect the interests of the small investor. This would be one way to do that. Therefore I propose that we test the opinion of the Committee.

Lord Bruce of Donington

The Minister mentioned codes of practice. In the advertising sphere, I am afraid that we can still cite many cases where, despite the numerous codes, they have not been kept. The purpose of the legislation is to lay down a regulatory framework within the law so that parameters can be established within which the various self-regulatory organisations, and so on, function. I should have thought that there was every reason to support the amendment. In regard to any breach of Clause 44, can the Minister say who is to initiate the prosecution?

10 p.m.

On Question, Whether the said amendment (No. 40) shall be agreed to?

Their Lordships divided: Contents, 21; Not-Contents, 44.

DIVISION NO. 3
CONTENTS
Airedale, L.	Morton of Shuna, L.
Bruce of Donington, L.	Pitt of Hampstead, L.
Elwyn-Jones, L.	Ponsonby of Shulbrede, L.
Ezra, L. [Teller.]	Seear, B. [Teller.]
Graham of Edmonton, L.	Silkin of Dulwich, L.
Grey, E.	Simon, V.
Grimond, L.	Stoddart of Swindon, L.
Kirkhill, L.	Taylor of Gryfe, L.
McIntosh of Haringey, L.	White, B.
McNair, L.	Williams of Elvel, L.
Meston, L.
NOT-CONTENTS
Bauer, L.	Limerick, E.
Belhaven and Stenton, L.	Long, V.
Belstead, L.	Lucas of Chilworth, L.
Boardman, L.	Lyell, L.
Brabazon of Tara, L.	Margadale, L.
Brougham and Vaux, L.	Mountevans, L.
Butterworth, L.	Murton of Lindisfarne, L.
Caithness, E.	Orkney, E.
Cameron of Lochbroom, L.	Redesdale, L.
Campell of Croy, L.	Renton, L.
Carnock, L.	Romney, E.
Craigmyle, L.	Saltoun of Abernethy, Ly.
Davidson, V.	Sandford, L.
Denham, L. [Teller.]	Shannon, E.
Elliot of Harwood, B.	Skelmersdale, L.
Elliott of Morpeth, L.	Stodart of Leaston, L.
Glanusk, L.	Swinton, E. [Teller.]
Glenarthur, L.	Terrington, L.
Gray of Contin, L.	Trefgarne, L.
Hacking, L.	Trumpington, B.
Harmar-Nicholls, L.	Wise, L.
Hives, L.	Wynford, L.

Resolved in the negative, and amendment disagreed to accordingly.

10.7 p.m.

Lord Hacking moved Amendment No. 41:

Page 153, line 11, at the insert—

("(1A) For the purposes of determining into which paragraph of Part I of this Schedule an investment falls, no account shall be taken of features of the investment which are ancillary to its principal feature or features.").

The noble Lord said: We turn again to the problem of overlap. As the Committee may remember, I drew attention to the question of overlap in moving Amendment No. 5. The overlap there was between paragraphs 1 and 2 of Schedule 1 to the Bill. On that occasion, the Minister kindly accepted my amendment. I drew attention again to the overlap problem when we were considering Amendment No. 14. There, the overlap problem was between paragraphs 4 and 7. On this second occasion the Minister kindly said that he would give the matter consideration. I hope therefore that he will at least give consideration to this my third amendment that relates to the problem of overlap.

As the Bill is drafted, it is quite possible for an investment to fall within more than one paragraph, even though it may principally fall under one paragraph. For that reason—I can do no better than refer to the terms of my amendment—I ask: For the purposes of determining into which paragraph of Part I of this Schedule an investment falls, no account shall be taken of features of the investment which are ancillary to its principal features.

I need not go again into the problems that arise out of overlap. There is different treatment in the exception clauses and so forth to the definition clauses that form Part I of Schedule 1. Without going into further detail, I would ask the Committee to accept that there is a problem here of overlap. I hope that the Minister will be able at least to give it favourable consideration.

Lord Williams of Elvel

We must be grateful to the noble Lord, Lord Hacking, for moving this amendment. There is a genuine problem here, and it is not simply a question of overlap. It is a question of the number of SROs (if I may use that abbreviation in this early stage of the Bill) to which various people have to belong in order to satisfy the different criteria. A number of people in the City of London are extremely worried that they may have to belong to a whole succession or series of SROs. If the Government found some way of eliminating not only the overlap on investments but also the consequential overlap on belonging to SROs and being able to conduct business in those investments, I think the whole City would benefit. I support the noble Lord, Lord Hacking, in this amendment, although I am bound to say I have problems with his wording. The expression "ancillary" causes me difficulty.

Lord Lucas of Chilworth

The undertaking I gave earlier in discussing Amendment No. 14 applies in this case as well, and I shall consider, between now and Report stage, what amendments are necessary to remove the undesirable overlap between the paragraphs in Part I of the schedule. I must say, however, that I certainly do not extend at this stage such consideration to any other overlaps so far as SROs are concerned. I think it would be best to wait until we discuss SROs before I commit myself am further than I should wish on the overlap as it applies in this particular case.

Lord Hacking

While I am grateful to the noble Lord, Lord Williams, for drawing attention to the overlap problems in relation to SROs my amendment was directed to a smaller frame and I am therefore grateful to the noble Lord the Minister for his willingness to consider it. Upon that basis I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Renton)

Before calling Amendment No. 42, 1 should like to point out that the line reference should be to line 24 and not to line 28 as printed on the Marshalled List.

Lord Hacking moved Amendment No. 42:

Page 153, line 24, after ("debentures") insert ("or debenture warrants"):

The noble Lord said: What the noble Lord the Deputy Chairman has said puts me in a slight difficulty, but with the Committee's indulgence I have no doubt I shall get over it. I had recognised that line 28 was not the right line and I made a note that it should have been line 29. However, since I do not. intend to press this amendment, or indeed Amendments Nos. 43 and 44, I am content to leave it as a mystery as to whether it was line 29 or the line to which the noble Lord the Deputy Chairman directed the Committee's attention.

This amendment, and Amendments Nos. 43 and 44, deal with the definition of debenture warrants. In paragraph 25(3) of the schedule it is stated that the company shall not be regarded as disposing of its own shares when it issues them or issues share warrants, viz., options to subscribe for shares. If the company were regarded as disposing of its shares in those circumstances, it would be treated as carrying on an investment business and thus would need to be authorised. Paragraph 25(3) makes a similar provision in respect of the issue of debentures but does not extend these to the issue of debenture warrants, viz., the options to subscribe to debentures. The purpose, therefore, of these amendments is to make similar provision in respect of debenture warrants. I beg to move.

The Deputy Chairman of Committees

May I say to the noble Lord, Lord Hacking, that having considered the matter while he was speaking I feel that the reference should perhaps be to lines 24 and 29.

Lord Hacking

I am happy to follow the guidance of the noble Lord the Deputy Chairman.

10.15 p.m.

Lord Williams of Elvel

Again I am grateful to the noble Lord, Lord Hacking, for introducing this thought. I suppose that there could be warrants to subscribe for debentures; and that we are probably talking here about convertible debentures rather than straight debentures. If we are talking about convertible debentures—if there are such instruments: I have never heard of them but there could easily be such warrants in the future—then clearly the noble Lord, Lord Hacking, is right that this should be in the Bill.

Lord Lucas of Chilworth

Whether it is line 24 or line 29 I do not think matters too much this evening. In principle I am quite content to accept the proposal that underlines these amendments. It would certainly be quite sensible to add a reference to debenture warrants. With regard to convertible debentures, I am not sure about that.

I do not want to upset the noble Lord, Lord Hacking. His amendments are defective—I think he implied as much. If I give him a positive assurance that we shall take away the points that he and the noble Lord, Lord Williams, make, give further consideration to all these matters and bring forward amendments on Report, I hope that will meet with the Committee's approval.

Lord Hacking

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 43 and 44 not moved.]

The Deputy Chairman of Committees

There should be at the bottom of page 7 on the Marshalled List a note of Amendment No. 44A, but, as was mentioned by my predecessor in the chair, Amendment No. 44A has been printed on page 5, just below the middle of the page, and is an amendment to page 153, line 32, at end to insert the words as printed. That amendment, therefore, is unnumbered and printed out of sequence, but I now call it as Amendment No. 44A.

Lord Lucas of Chilworth moved Amendment No. 44A:

Page 153, line 32, at end insert—

25a. In this Schedule "a joint enterprise" means an enterprise into which two or more persons ("the participators") enter for commercial reasons related to a business or businesses (other than investment business) carried on by them; and where a participator is a body corporate and a member of a group each other member of the group shall also be regarded as a participator in the enterprise.").

The noble Lord said: No doubt Members of the Committee will recall that we got ourselves into something of a tangle some hour or two ago when I was speaking to Amendment No. 24A and at that time spoke to Amendment No. 44A, which I now beg to move.

Lord Williams of Elvel

I wonder if the noble Lord can tell us whether the expression "a joint enterprise" will figure in any future version of this Bill that the Government may produce, and whether it has any precedent in other companies legislation? If so, can he say what that precedent is and what it means, or is it just an expression invented for the purposes of this Bill?

Lord Lucas of Chilworth

The answer to both questions in short is, no, I cannot. But I shall do so.

On Question, amendment agreed to.

On Question, Whether Schedule 1, as amended, shall be the first schedule to the Bill?

Lord Graham of Edmonton

Before we agree to Schedule 1,I should be grateful if the Minister would take on board some points that I wish to make, and perhaps reply to them. These are very important to the Co-operative Movement, on whose behalf I declare an interest.

In Schedule 1 on page 146 of the Bill we have a note to which, for the benefit of those interested, I ought very briefly to refer. Paragraph 1 says: Shares in the share capital of the company and stock in a company. Note. In this paragraph 'company'… does not include an open-ended investment company or any body incorporated under the law of, or of any part of, the United Kingdom relating to building societies, industrial and provident societies or credit unions. First, it is quite clear that co-operative societies, which are registered under the Industrial and Provident Societies Acts, are clearly excluded from requiring authorisation.

As regards other parts of capital that are used by co-operative societies—and primarily, besides share capital, there is loan capital—as I understand it (and I should be grateful if the Minister could confirm my understanding) in paragraph 2 we are dealing with debentures. It says: This paragraph shall not be construed as applying ‖(b) to a banknote, a statement showing a balance in a current, deposit or savings account". Quite clearly, as regards debentures and, in the co-operative context, as regards loan capital, this is a question of definition. In this case what we can regard as deposit balances are excluded from the definition of investments in paragraph 2. In order that the Minister can satisfy the point I wish to make, the key factor is whether the promotion of them by the relevant society is to be regarded as investment activity and therefore requiring authorisation.

In this respect I simply want to draw attention to the interpretation clause on page 153, where, at line 22, it says: (3) A company shall not by reason of issuing its own shares or share warrants, and a person shall not by reason of issuing his own debentures, be regarded for the purposes of this Schedule as disposing of them or, by reason of anything done for the purpose of issuing them, be regarded as making arrangements with a view to a person subscribing for or otherwise acquiring them or underwriting them". Therefore, it seems to me that a very satisfactory position has been reached as regards co-operative societies. It appears that the Bill has accommodated the situation of industrial and provident societies offering and promoting their own shares and loan capital, and, in effect, they have achieved exclusion from the authorisation process of this particular Bill.

I should be very grateful indeed if the Minister would confirm to me that my reading of the Bill and my understanding of the intentions of the Government (for which again I express gratitude) are as I have indicated.

Lord Lucas of Chilworth

I am very grateful to the noble Lord, Lord Graham, for putting his points so succinctly. I can confirm, and am glad to confirm, that his understanding on all three points is correct. The co-operative funds, the industrial and provident societies' shares, are not covered by the definition of investments and therefore do not come within the scope of the Bill.

Lord Hacking

Before we agree that Schedule 1 shall be the first schedule to the Bill, perhaps I may raise one matter concerning the definition of futures, which is set out in paragraph 8 of Schedule 1. When the noble Lord, Lord Boardman, moved the amendment of the noble Viscount, Lord Colville of Culross, Amendment No. 15, concerning futures, we had some discussion on this point, and therefore I do not intend to invite the Members of the Committee to travel over that ground again. I raised this at Second Reading but the problem remains, and that is that there is considerable concern over the definition of "futures" and how the present definition of "futures" could extend to what is described as "physicals" as well as futures which clearly fall under investment business and fall under the provisions of this Bill.

As long ago as 11.45 a.m. on 30th January of this year when Standing Committee E in another place was considering this Bill, the Under-Secretary of State, Mr. Howard, said then that the Government were seized of the problem of the definition of "futures" for the purposes of the Bill, and recognised that there may be scope for improvement in that definition.

The noble Lord the Minister responded after I raised the matter at Second Reading when he summed up the debate, and my memory is that he showed still an interest in looking at the problem of this definition. But the fact is that some six months ago the Government recognised that there was a problem about the definition of "futures", and the fact is that thus far nothing has been done about it.

This is of concern to the City and those engaged in commodities, and in particular in the Joint Exchanges Committee. For that reason, because we have not succeeded in covering it today, I draw it again to the Committee's attention and ask the noble Lord the Minister whether, among the many other things he has agreed to give further consideration to, he will give consideration to this. It is a matter of concern for the reasons I have explained.

Lord Lucas of Chilworth

The noble Lord, Lord Hacking, is right. The definition of "futures" in the Bill in paragraph 8 on pages 147 and 148 is difficult. My honourable friend the Under-Secretary of State in another place during Committee on 30th January acknowledged the possibility of improving upon that definition. We have approached in a constructive frame of mind, various proposals that we have received. For example, it is sensible to distinguish between futures contracts and spot contracts, where delivery is immediate or follows within a few days.

We have also established that not all futures contracts require that a price is agreed upon when the contracts are made. Contracts are frequently made between brokers and clients expressed as a contract between principals, under which the price is to be determined by the price at which a matching contract is executed by the broker on the market floor.

Furthermore, it appears to be common practice in a number of markets for futures contracts to allow quality and quantity tolerances to determine the price in the event of delivery. I and my honourable friend are considering these matters further and we hope to have more consultations and bring forward necessary amendments at Report stage.

Lord Williams of Elvel

I am grateful to the noble Lord, Lord Hacking, for raising this matter and to the noble Lord, Lord Lucas, for his response. I hope that he and his honourable friend will consult the London Metal Exchange which has a major problem with this part of the schedule.

Schedule 1, as amended, agreed to.

Clause 2 [Power to extend or restrict scope of Act]:

[Amendment No. 46 not moved.]

Lord Lucas of Chilworth moved Amendment No. 47:

Page 2, line 21, at end insert ("or the carrying on of such business in the United Kingdom.").

The noble Lord said: In speaking to Amendment No. 47 may I also speak to Amendment No. 50. Both these amendments are consequential upon government amendments made to Clause 1 and Schedule 1 in another place. These amendments were mainly concerned with the carrying on of an investment business in the United Kingdom. Since those amendments to which I have referred have been accepted by another place and do not appear to be in contention in the Committee this evening, it would appear that they are purely consequential, and therefore I beg to move Amendment No. 47.

On Question, amendment agreed to.

10.30 p.m.

Lord Hacking moved Amendment No. 48:

Page 2, line 22, leave out subsection (2) and insert—

("(2) An order under this section which extends the meaning of investment or extends the activities that are to constitute the carrying on of investment business—

1. (a) if the Secretary of State certifies that he considers it essential in the interests of investors that it has immediate effect, shall be laid before Parliament after being made and shall cease to have effect at the end of the period of twenty-eight days beginning with the day on which it is made (but without prejudice to anything done under the order or to the making of a new order) unless before the end of that period the order is approved by a resolution of each House of Parliament;
2. (b) in any other case, shall not be made unless a draft of it has been laid before and approved by a resolution of each House of Parliament.").

The noble Lord said: I believe this amendment to be one of some importance. It concerns the role of Parliament when the Government of the day wish to extend the meaning of "investment"—a matter that we have considered in some detail throughout this Committee—or the meaning or the extent of activities which constitute the carrying on of an investment to business.

Under Clause 3(2), as I have indicated, the means of dealing with these two problems are set out. The extension of the meaning of these terms could have significant consequences. If a person who was not authorised under the Bill entered into an agreement the subject matter of which was an investment, that agreement would be unenforceable by him. If the definition of "investment" could be extended with immediate effect on the making of an order, unauthorised persons could easily enter into agreements without realising the subject matter was within the expression "investment", or at least until some time later when they sought to enforce their agreement. Although there is power for a court to allow enforcement of investment agreement if a person reasonably believed that his entering into an agreement contravened the restrictions of the Bill, it is doubtful how far the court would allow a person to take advantage of his ignorance of the law.

It will be appreciated that statutory instruments can frequently be made without great publicity being given to their full effect. It will also be appreciated that statutory instruments sometimes have effects not intended by their draftsmen. To ensure that there is an opportunity for adequate consultation and publicity for orders extending the meaning of investments or investment business, I am proposing in this amendment that no order shall be made unless a draft has been approved by Parliament. This is the purport of my amendment which is set out in subsection (2)(b). Incidentally, this follows the procedure that is proposed in Clause 43(2) of the Bill.

It has to be recognised that there may be occasions when the Secretary of State is obliged to act immediately, but that should be subject to a special procedure to cover such a situation. That is how I have come to table subsection (2)(a) of my amendment, which deals with the special procedure when it is essential as certified by the Secretary of State in the interests of investors that these meanings or the extensions of these meanings should have immediate effect. Incidentally, the drafting of paragraph (a) follows in general terms the drafting of Clause 11(6).

I began by saying that I thought this amendment was one of some importance. We all know that statutory instruments do not get the scrutiny of this Chamber or of another place, and we all know that sometimes that can have a wide effect of which neither this Chamber nor another place gets proper notice. It is simply that the amount of scrutiny we can give to parliamentary legislation does not give us time to be alert to and follow the many statutory instruments that Ministers publish during the currency of a year. I beg to move.

The Deputy Chairman of Committees (Viscount Simon)

I have to point out to the Committee that if this amendment or the alternative amendment, No. 49, is agreed to, I shall not be able to call Amendments Nos. 50 and 51.

Lord Morton of Shuna

As the noble Lord, Lord Hacking, has said, this is an important amendment. It is an important area of the Bill and it is important in our view on this side of the Committee that any amendment to what is to be the definition of "investment" should be fully studied by Parliament. Therefore, I would support this proposal.

Amendment No. 51 would appear still to be possible, with respect to the noble Viscount the Deputy Chairman, because it could be added to Amendment No. 48 since Amendment No. 48 ends with, and Amendment No. 51 starts with, the same word, "Parliament". I do not know whether the noble Lord, Lord Meston, wishes to move that amendment.

Lord Meston

I would venture to suggest that my Amendment No. 51 could stand, whatever happens to Amendments Nos. 48 and 49. Amendment No. 51 is concerned with parliamentary power to amend what might in itself be an amending statutory instrument. It is really on a different point altogether.

Lord Lucas of Chilworth

I am responding, I hope quite rightly (and the noble Lord, Lord Hacking, will correct me if I am wrong), to Amendment No. 48 and Amendment No. 53, since Amendment No. 53— Page 2, line 39, at end insert ("and may contain such provisions having retrospective effect as the Secretary of State thinks necessary or expedient.")"— is concerned with much the same subject area. I hope the noble Lord would agree. Perhaps at this time I could say to the noble Lord, Lord Meston, that his Amendments Nos. 51 and 126 can stand on their own although they have some bearing. This is important; I recognise that. I fully endorse everything that has been said about the need for prior consultation before any changes to the definition of "investment" or "investment business" are made.

It would be the Government's intention to undertake such consultation in all normal circumstances. It would also be the Government's intention to give adequate notice before any changes are brought into effect. Although this clause does provide that orders adding things to the definition shall come into force when made, it does not follow that the change needs to come into effect immediately.

The order could provide that the change be made with effect from some future date, and I should like to assure the Committee that this would be the normal practice. There may be some occasions, as the amendment itself recognises, when an immediate change in the definition is necessary in the interests of investors, perhaps to meet some unexpected development with serious consequences for investors or to prevent forestalling. Such occasions will be rare, but I think provision needs to be made for them, as the Bill itself does.

The Government's objectives and, I believe, the noble Lord's objectives are the same. But we do not believe that the amendment is necessary in order to achieve them. I am sympathetic to the concern which lies behind the second amendment, but I cannot commend to this Committee a provision which would allow the Secretary of State to amend retrospectively the legal definitions of "investment" and "investment business".

Perhaps, instead, I could draw the attention of the noble Lord, Lord Hacking, and that of the Committee, to the provisions of Clause 5 of the Bill. This clause deals with the civil consequences of contravening Clause 3. In particular, subsection (3) provides that a court may in certain circumstances allow an investment agreement to be enforced, even though it has been entered into by a person who should have been authorised but was not, and even though such an agreement would under the clause normally be unenforceable by the unauthorised person. The discretion that is given to the court should ameliorate many of the problems which may arise for those carrying on investment business during any period before an order made under Clause 2 comes into effect. We do, however, accept that the discretion given to the court by that clause may not be wholly satisfactory to do justice to all the parties involved.

I shall be explaining to the Committee, when we come to consider amendments put down by the noble Lord and others to Clause 5, that the Government are willing to consider the need for amendments to this end, but I do not believe now that the solution is to provide retrospective powers. I hope that the noble Lord, Lord Hacking, will withdraw his amendment, but if he does not I shall certainly wish to recommend to the Committee that his amendment be rejected.

Viscount Colville of Culross

Before the noble Lord, Lord Hacking, replies to that, since I, too, have an interest in Clause 5 and in what my noble friend has just said, I hope that we shall be a little careful about this. The words in brackets in paragraph (a) of Amendment No. 48 in the name of the noble Lord, Lord Hacking, talk about the parliamentary changes being, without prejudice to anything done under the order", which I think is then envisaged as having been subsequently cancelled.

There are a number of fairly complicated results of carrying out some kind of investment enterprise, or any transaction which counts as being investment business, and it is very important that there should not be a grey area to which neither the existing provisions in Clause 5 as they stand apply, or, at any rate, necessarily apply, nor is the situation clearly equivalent to that which it would have been if the order which is cancelled had not been made. In other words, there is a period of time during which transactions will be made under this amendment which will be neither one thing nor the other, and from everybody's point of view that is an extremely unsatisfactory system, even if you do not go so far as to provide in Amendment No. 53 for anything to be retrospective. I do not think the same point necessarily arises. You still have an intermediate area to which, in the end, nothing applies at all. I hope therefore that the noble Lord will not persist in that.

Lord Hacking

I do not intend to press this matter to a Division. It requires further consideration. I take the point that the noble Viscount, Lord Colville, made, but I would make the same point in reference to the drafting of Clause 2, because the effect is for orders to have immediate effect, although they can then cease to have effect after 28 days unless approved by each House of Parliament. If I understand that correctly, there is also the grey area, to which the noble Viscount referred, in the drafting of the clause, Therefore, it seems that the right thing for the Committee to do if to invite me—and I do not need the invitation, because I will do it anyway—to withdraw my amendment, but also to invite the noble Lord the Minister to look again at the drafting of Clause 2 and the consequences that can arise, as drawn to our attention by the noble Viscount, Lord Colville. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 49 not moved.]

Lord Lucas of Chilworth moved Amendment No. 50:

Page 2, line 24, after ("business") insert ("or the carrying on of such business in the United Kingdom").

On Question, amendment agreed to.

10.45 p.m.

Lord Meston moved Amendment No. 51:

Page 2, line 30, after ("Parliament") insert

("or is so approved with an amendment or amendments to which both Houses have agreed").

The noble Lord said: With the Committee's permission I should like to speak also to Amendment No. 126, which is in identical terms. The point and purpose of these amendments are, I hope, obvious. At the heart of these amendments is a point of principle of some importance not just to this Bill but to the whole present method of legislating in this country. Perhaps I may dwell on the general point for a moment. Clause 2 of the Bill is a typical example of modern enabling legislation. In fact it is a particularly good example because it gives us both common forms of subordinate legislation. Having provided in subsection (1) that: The Secretary of State may by order amend Schedule 1 to this Act", it goes on to provide in subsection (2) that certain categories of order require an affirmative resolution. It then provides in subsection (4) that other categories of order are to be the subject of the negative resolution procedure. That is a good example of the practice of modern governments and of their draftsmen.

It must be accepted that as a matter of practical necessity there has to be enabling legislation but, quite obviously, the more there is, the greater the bulk of the concealed iceberg of subordinate legislation. This growing reliance on generalised enabling legislation and on delegated legislation creates in my view special problems as well as some disquiet in a democratic society.

Perhaps I may touch on a point mentioned by my noble friend Lady Seear earlier this evening. For both lawyers and laymen alike there is a basic problem of clarity, a problem in deciding what a Bill or an Act means if the intention of Parliament is not clearly foreshadowed by the primary legislation itself. It is now quite difficult in many cases to see how a Bill will work in practice if all one is told is that regulations will be made or an order will be laid. The noble Lord, Lord Lucas, will have heard that complaint uttered not least in proceedings on the Insolvency Bill through which we laboured some time ago.

The other problem thrown up is the relative weakness of the procedures for parliamentary scrutiny of delegated legislation—a point on which the noble Lord, Lord Hacking, touched a few moments ago. First, there are the limitations imposed by the conventions as to what this Chamber in particular should or should not do. Secondly, the only real scrutiny comes, as I understand it, from the Select Committee on Statutory Instruments, which looks at the technical proprieties of a particular order or instrument and not at the overall merits of that piece of subordinate legislation.

More importantly, perhaps, there is also the relative weakness of the negative resolution procedure itself. First and foremost it is an inflexible procedure; it is all or nothing. Parliament can annul an order, but it cannot amend an order. The result is that in practice attempts to invoke the negative resolution procedure are, generally speaking, infrequent; they rarely succeed; and if they are successful, the usual result is simply a re-presentation of the draft order, perhaps in a modified form.

These amendments propose a form of delegated legislation which is amendable by Parliament, or at least by a parliamentary committee. It is not a novel idea. I think there have been in this century 14 Acts which have conferred this amending power, the last one being in 1962. Indeed, I cannot claim any credit for the wording of this amendment. It is borrowed, word for word, from an amendment moved in 1976 on similar arguments more eloquently expressed by the noble Lord, Lord Elton, on the Public Lending Right Bill.

I venture to suggest that the idea is workable. Its feasibility is discussed very clearly, for those Members of the Committee who might be interested, in a memorandum by the noble Lord, Lord Henderson of Brompton, which is found annexed to a report of the Joint Committee on Delegated Legislation in 1971–72. These amendments will give some useful flexibility and will gently tip the balance a little away from the Executive and towards Parliament. I beg to move.

Lord Morton of Shuna

I support this amendment, and as I seem to have been provided with the same information as the noble Lord, Lord Meston, I merely refer also to the document and to Section 15 7(1) of the Government of Burma Act 1935, of which I am sure the noble Lord, Lord Lucas, is well aware. This gave power for Parliament to amend draft orders, and I understand was used in that way. I support the amendment.

Lord Lucas of Chilworth

My understanding is that it is the Government of India Act that might possibly be the most adequate precedent, but I do not think that we will get too far tonight by pursuing that.

The noble Lord, Lord Meston, seeks to introduce what I think we are all agreed is a virtually unprece-dented element into our proceedings—a power to amend secondary legislation laid before this House and another place. May I suggest that the procedures of your Lordships' House would require considerable revision if such a power were to be introduced. What would be the position if another place amended an instrument differently from your Lordships' House or chose to throw out an amendment on which this House was insisting? There would have to be an agreed procedure to be used on such occasions, and I suggest to the Committee that this would make the procedure for handling such secondary legislation very much like the procedure for a Public Bill.

As for the particular circumstance in which the noble Lord tables his amendment, I put this to him. The power to amend Schedule 1 by instrument is intended to provide a flexible means of coping with changes in investments. It should help to prevent this legislation being outflanked and made out of date because of the ingenuity of the financial services sector in devising new forms of an investment medium which may fall outside the terms of the existing schedule. Such an instrument will be essentially on technical matters.

Your Lordships' House may refuse secondary legislation laid before it for affirmative resolution. The Government, should they wish to proceed with the instrument, would then have to take account of comments made in your Lordships' House in presenting a revised instrument. The end effect within our existing procedures would be for an amended instrument to be approved.

The noble Lord, Lord Meston, supported as he is by the noble Lord, Lord Morton of Shuna, has raised an important question but it has ramifications which are extremely complex and it is a question which I suggest, with all sincerity, is impossible to resolve in our proceedings today, or perhaps in our proceedings over the next week or two; in fact, I would say within the context of this Bill. It is for those reasons that I invite the noble Lord to seek another way of introducing what he proposes. I do not think that the precedents he has quoted will help us very much, and I see extreme difficulty in introducing such a point in this Bill.

Lord Williams of Elvel

Before the noble Lord sits down, may I ask him whether he recognises that there is a problem in secondary legislation being produced which amends via the negative procedure the primary legislation which your Lordships' House is passing?

Lord Lucas of Chilworth

I have frequently from this Bench and even more frequently when I was sitting on that side of the Chamber, argued the various cases for affirmative or negative resolution. I accept that there are difficulties, but with all the difficulties of the practices which your Lordships have applied for some long time, I would suggest to the Committee that on balance the system works really quite well.

Lord Meston

I had a small bet with myself that somebody would mention the Government of Burma Act, and indeed in the same year there was a Government of India Act, so both were right. One has to keep a sense of proportion about subordinate legislation. In many respects it is a necessary evil. But what I have proposed in this amendment is not unprecedented. There is a fairly respectable list of Acts which have conferred on Parliament a power to amend. It fell into disuse not because it was a bad procedure but because it was potentially inconvenient to the executive arm of Government.

I venture to suggest that the Bill that we are considering this evening is precisely the sort of legislation that would benefit from the power that I have put forward to the Committee in this amendment. Like any form of Parliamentary scrutiny, it would require certain safeguards and a measure of constraint, but certainly it is possible to have a flexible and feasible form of Parliamentary scrutiny along the lines that I have suggested.

I venture to suggest to the noble Lord, Lord Lucas, that he greatly exaggerates the problems of my proposal. Such an amending power in this sort of Bill is very desirable, particularly if the legislation is to last a long time, and in those circumstances probably it is very useful for Parliament to be able to have another look at it in the light of changed circumstances.

Of course I shall consider the implications of what the noble Lord, Lord Lucas, has said. I hope that he will consider the implications of this amendment. As we all agree, they go wider than the immediate confines of this Bill. The topic will not go away, but for the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 52 not moved.]

Lord Hacking had given notice of his intention to move Amendment No. 53:

Page 2, line 39, at end insert ("and may contain such provisions having retrospective effect as the Secretary of State thinks necessary or expedient.").

The noble Lord said: The Minister has already passed some comments on this amendment of mine, although thus far I have not introduced the argument in support of it. However, since I am having to argue retrospectively, as it were, I draw attention to the problem that arose during our last discussion, when we were considering my earlier amendment, Amendment No. 48.

Arising directly out of Clause 2(2) there is the problem in this Bill of orders having immediate effect. There is also the further consequence that some of those orders will cease to have effect after 28 days. Therefore we have the problem of stranded persons who have entered into transactions in the interim period, and it may well be that powers are needed for retrospective legislation and retrospective primary legislation.

For that reason, although I intend not to move the amendment, unless any other Member of the Committee wishes now to speak, I would ask the Government to consider the matter again. It seems to be quite plain that, as drafted, Clause 2(5) does not contain any power for transitional provisions to have retrospective effect. That is a lacuna. For that reason I would urge the Minister to continue to give the matter further consideration.

Since no other Member of the Committee wishes to speak, and as I am speaking retrospectively to the Minister's remarks, I shall not move the amendment.

[Amendment No. 53 not moved.]

Clause 2, as amended, agreed to.

House resumed.