Lords Sitting of 23 July 1986

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Leicester.

Farming and the Countryside Week
Baroness Sharples: My Lords, on this very happy day I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what activities were organised during the Farming and the Countryside Week.
The Minister of State, Ministry of Agriculture, Fisheries and Food (Lord Belstead): My Lords, 33 events were held on farms in England which provided farmers and the general public with an opportunity to see a wide range of countryside conservation subjects being undertaken on farms.
Baroness Sharples: My Lords, I thank my noble friend for that reply. In view of the success of Farming and Countryside Week, can he say whether that experiment will be repeated in future years?
Lord Belstead: My Lords, I am grateful to my noble friend for her question. We think it was successful; more than 10,000 farmers, members of the general public, schoolchildren and general interest groups visited the 33 events that were held. We certainly should like to repeat it either in whole or in part. We must look at our budget to see whether that will be possible.

Underground Stations: Escalators
2.36 p.m.
Lord Nugent of Guildford: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they will ask London Regional Transport what arrangements they can make to keep the escalators of the underground stations in regular working order.
Viscount Davidson: Yes, my Lords, we shall continue to mention that matter in our discussions with London Regional Transport's board and management, but ultimately it is their responsibility.
Lord Nugent of Guildford: My Lords, I thank my noble friend for that Answer, which has more courtesy than substance in it. Is he aware that there are two new escalators that connect the Bakerloo line to the District line at Embankment Station which were installed about two years ago, and that one of them has been
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shut away completely and the other has been stationary for about a month? That is very much to the inconvenience of passengers trying to connect from one line to another. Will my noble friend ask LRT to give a little attention to those matters for the convenience of its passengers?
Viscount Davidson: My Lords, I understand from LRT that one of the escalators was taken out of service because of the station modernisation works currently under way. It is expected to be back in use in the autumn. Unfortunately, the second escalator had to be taken out of service temporarily because of the failure of the handrail tracks. Those have now been replaced and I gather that it is hoped to have the escalator working again today. The escalator concerned is only two years old and I believe that its premature failure is a matter that LRT is taking up with the manufacturers.
Lord Nugent of Guildford: My Lords, is my noble friend aware that I can confirm that the escalator is working today? I am most grateful to him for his obvious influence in the matter; it was very much to my convenience this morning in travelling to this place.
Viscount Davidson: My Lords, I was aware that LRT hoped to have the escalator working today, but I am not aware that there is any direct connection between the fact that it is working and the fact that my noble friend is asking his Question today.
Lord Grimond: My Lords, is the Minister aware that added importance is given to this matter by the fact that, in this age of high technology, it has taken as long to install lifts at one station on the Underground as it did in the days of the horse and cart to build the whole Central line?
Viscount Davidson: My Lords, that is probably due to the fact that the Central line was built in the days of the horse and cart.
Lord Underhill: My Lords, does the noble Viscount realise that as much as I should like to take this opportunity to criticise some operations of LRT, believing that the decision to transfer responsibility to it was wrong, I appreciate the problems that exist? For instances, at Liverpool Street Station the escalators have been out of operation for months because of the reconstruction work there, and one has to go out into the open air in order to make a connection. Having said that, since there are so many complaints about escalators breaking down, I wonder whether there is any problem with regard to the saving of money, shortage of staff, or a lack of skilled personnel.
Viscount Davidson: My Lords, the replacement programme that is under way at the moment is massive. It is not a matter of lack of funds; on the contrary—the Government's policy of reducing demands on revenue subsidies has made more money available for capital investment. The replacement of the escalators is a very complicated job that takes a lot of time. Much of the work has to be done at night. The problem is that although LRT's policy is to invite

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tenders from private contractors for major repairs and renewals, only a limited number of companies are interested in tendering for such highly specialised work.
Lord Broxbourne: My Lords, is it not a sad paradox that at Westminster Station in the capital city of this country, at the heart of the Commonwealth, there is neither lift nor escalator and aged legislators are left to toil up the stairs?
Viscount Davidson: My Lords, it sounds a little like "Upstairs, Downstairs". I shall certainly convey my noble friend's remarks to the chairman of LRT.
Baroness Seear: My Lords, may I ask why the work must be done at night if the escalators are not in action?
Viscount Davidson: My Lords, I was referring to the maintenance work.
Baroness Elliot of Harwood: My Lords, one of the escalators at Sloane Square has broken down and I asked one of the attendants yesterday why that had happened. He told me that it was because the spare parts came from Germany and that there were no spare parts available. Is that true?
Viscount Davidson: My Lords, I have absolutely no idea.

Metropolitan Police Recruits: Acceptance Time
2.42 p.m.
Lord Allen of Abbeydale: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government, in view of the need to strengthen the Metropolitan Police, what steps are being taken to reduce the average time of nine months which it now takes before a successful applicant to join is finally accepted.
Viscount Davidson: My Lords, the commissioner is well aware of the need to process applications to join the force as quickly as possible and keeps his procedures under constant review. I understand that improvements made over the last year have contributed towards a 50 per cent. increase in the number of recruits attested in the first six months of this year compared with the same period last year. Some of the causes of delay are beyond the commissioner's control.
Lord Allen of Abbeydale: My Lords, it is obviously important to take the greatest possible care over selection, but even so I learnt with something approaching incredulity, in reply to a Written Question of mine that the process of dealing with applications averaged 39 weeks. Grateful though I am
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to the noble Viscount for his Answer, I am afraid that it falls some way short of giving complete enlightenment.
Therefore, may I ask whether the young people who apply to join the force are told at the outset that they will have to wait eight, nine or 10 months before they know their fate? Has any estimate been made of the number of promising applicants who, as the months go by, find that they simply cannot afford to wait any longer or get fed up and withdraw their applications?
Viscount Davidson: My Lords, the figure of 39 weeks was the average figure for the intake of recruits who joined the force last January. Figures for earlier intakes are not available. The 50 per cent. increase in the number of recruits attested in the first half of this year strongly suggests that the average elapsed time has decreased.
The delay in individual cases in that particular intake ranged between 24 and 77 weeks. Many applicants are therefore processed rather more quickly than the average figure would suggest. The Metropolitan Police are well aware of the need to streamline their procedures wherever possible and are taking steps to ensure that that is done.
Lord Inglewood: My Lords, can my noble friend inform the House what sort of interval exists when men apply to our provincial police forces? It would be helpful to know whether or not the figures given for the Metropolitan Police are typical for England.
Viscount Davidson: My Lords, I am afraid that I do not have figures for the provincial forces. However, I can say further to the noble Lord, Lord Allen, that there are certain factors under the commissioner's control. One factor is the time taken to make inquiries about applicants and to interview them; and the second is the time which elapses before a successful candidate can join an intake. There are other factors outside the commissioner's control.
Lord Mellish: My Lords, is the noble Viscount aware that I asked a Question some time ago about the training period for police? The noble Viscount assured me that it was being cut down and that it was not as long as it used to be. That was very encouraging. Is the noble Viscount further aware that the establishment figures he gave recently are very pleasing indeed in that today we are not far away, for the first time in many years, from the Metropolitan Police having the numbers required?
I pose again a question which I doubt the noble Viscount can answer. In the event of the Metropolitan Police reaching the establishment figure, would he then kindly tell Sir Kenneth Newman that he has permission to ask for more?
Viscount Davidson: My Lords, the commissioner has already been told that he will be able to have increases of up to 1,850 in the operational strength of the force over the next four years. The commissioner is making every effort to reach the new establishment figure as quickly as possible. He cannot give any firm guarantees, but he aims to reach the new figure by the end of March next year.
Lord Rochester: My Lords, 24 weeks may be shorter than the average period, but is not a delay of 77 weeks much longer?
Viscount Davidson: Yes, my Lords, but that is probably due to the fact that the period of notice required by the applicants' existing employers can be as much as four months and the fact that some applicants are in the final year of university or college. There is also the time taken by the provincial forces to carry out some of the initial work on applicants living outside the Metropolitan Police district.
Lord Mishcon: My Lords, while sharing completely the description given by the noble Baroness, Lady Sharpies, of this being a happy day, I have, I hope, no intention of drawing your Lordships' attention to the period of time mentioned in this Question. Does not the noble Viscount the Minister agree that the answers he has given about time relate to the time between an application and acceptance of the application as against the time between application and joining the force, which is a very different time indeed? Is the noble Viscount aware that in regard to the time between application and acceptance there have been periods as short as 12 weeks and as long as 65 weeks, and that applications vary so much that to take an average is terribly misleading?
Viscount Davidson: My Lords, I am most grateful to the noble Lord, Lord Mishcon. I cannot say anything other than that I agree with him.
Baroness Masham of Ilton: My Lords, in view of the vast, increasing problem of illegal drugs, may I ask the Minister what is the increase in the drug squad in the Metropolitan Police area?
Viscount Davidson: My Lords, I gave the answer to that question some time ago and I am afraid that I cannot find it. However, there has been an increase.
Viscount St. Davids: My Lords, is the noble Viscount aware that there is a method of shortening this period? I am sure he knows that the actual training to be a policeman takes a fairly long time. Could not an applicant at least start on this training and have a few weeks of it, which would do no harm to the public or to the applicant, while his application was still being considered? If he is rejected, no harm will have been done, and if he is accepted the period will have been considerably shortened.
Viscount Davidson: My Lords, all I can do is to draw the noble Viscount's views to the attention of the commissioner.
If I may be allowed to say so, I have now found the answer to the question asked by the noble Baroness, Lady Masham of Ilton. Another 50 officers will be attached to the drug squad.

Nicaragua: United States Policy
2.53 p.m.
Lord Hatch of Lusby: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they have made any representations to the United States Administration regarding its decision to provide extra funds for the "contras" for their attempts to overthrow the elected government of Nicaragua.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords, We discuss all important issues with the United States Government Recently my right honourable and learned friend the Foreign Secretary and I had comprehensive discussions with Ambassador Philip Habib, President Reagan's special envoy to Central America. Details of such conversations are confidential.
Lord Hatch of Lusby: My Lords, does the noble Baroness agree that this support for the "contras" in Nicaragua is an example of state supported terrorism against the people of a sovereign state? Is she aware that the decision was taken just at the most delicate moment, when there was at least a possibility of the peace treaty that was prepared by the Contadora Group being signed by Nicaragua?
Baroness Young: My Lords, we have made clear quite consistently that we have our own policy on Central America. We have advocated a political solution to the problems of Central America on the basis of the Contadora objectives. I should like to make it quite clear that the "contras" are in fact Nicaraguans who have resorted to armed struggle against their own government.
Lord Cledwyn of Penrhos: My Lords, I wonder whether the noble Baroness can help the House by defining the policy of Her Majesty's Government toward the "contras" in Nicaragua and the decision of the United States Administration to support the "contras". Do Her Majesty's Government approve of the policy of the United States Administration on this point, given that the Government of Nicaragua are a democratically elected government? Secondly, there have been reports of a scheduled date for the ratification of the Contadora treaty. Can the noble Baroness say a word about this? Was it successful?
Baroness Young: My Lords, it may be helpful to remind the noble Lord, Lord Cledwyn, and other noble Lords that the United States Senate has still to act over the allocation of the funds in aid to the "contras". However, as I have already made clear, we have consistently advocated a political solution to the problem of Central America on the basis of the Contadora objectives and so far as I know no date has been set for a final signing of the Contadora Act. We do not consider that the problems of the region can be solved by armed force and we ensure that the United States Government are made aware of our views.
Lord Molloy: My Lords, can the noble Baroness at least inform the House whether in the discussions that have been held with Mr. Philip Habib there has been expressed apprehension at the attitude of the United States to Central America? If that has been done, is it possible to convey to the President of the United States Britain's misgivings about US attitudes and behaviour toward certain Central and South American states?
Baroness Young: My Lords, I have made clear the Government's view on this matter.
Lord Wilberforce: My Lords, may I ask the noble Baroness whether it is the intention of Her Majesty's Government to urge on the United States the necessity of complying with the decision of the International Court of Justice that was given in the case of the United States against Nicaragua, in which most of the activities of the United States in supporting interests in Nicaragua were condemned in strong terms by the great majority of the judges?
Baroness Young: My Lords, in answer to the question of the noble and learned Lord, Lord Wilberforce, adherence to the rule of law is fundamental to our foreign policy. We are still studying the reasoned and lengthy judgment of the court, but we have consistently made it clear that we advocate a political rather than a military solution to the problems of Central America.
Lord Hatch of Lusby: My Lords, is the answer to the question that was asked by my noble friend Lord Cledwyn that the date set for the peace treaty was 8th June and the decision of the American Congress sabotaged any chance of it being agreed? Can the noble Baroness state the attitude of Her Majesty's Government to the summary made by one of the leading Latin American experts in Washington who when describing this decision of Congress said:
"The new money will make no differences in bringing about a military defeat of the Sandinistas but it will allow the 'contras' to widen their war in the more remote parts of the country, causing death and destruction in their wake"?
Baroness Young: My Lords, the answer to the first part of the noble Lord's supplementary question is, no. The answer to the second part is that the Government really have to pay attention to what the United States Government are saying and not to the unnamed spokesman.

Business
Lord Denham: My Lords, it may be for the convenience of the House if I announce that the Committee stage of the Financial Services Bill will be adjourned at approximately 7 p.m. for approximately one hour and that during this adjournment the Third Reading of the Building Societies Bill will be taken.

Lords' Expenses
2.56 p.m.
The Lord President of the Council (Viscount Whitelaw): My Lords, last Thursday the noble Lord, Lord Cledwyn, asked me how the decision of the House of Commons last Wednesday on secretarial allowances will affect the Motion passed in this House on the same subject. In reply I said that following consultations through the usual channels I would make a statement to the House this week. The facts will be familiar to all your Lordships. Resolutions were tabled in each House to increase secretarial allowances
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by 6 per cent. and these were debated last Wednesday. This House agreed to the resolution; another place amended their Motion before agreeing to it. This had the effect of increasing the allowance payable in that House by 52½ per cent. for 1986–87. Obviously, this gives rise to a considerable anomaly.
As I have already announced, the whole question of secretarial allowances in both Houses has already been referred to the Top Salaries Review Body. I think that the Top Salaries Review Body is also very well placed to consider the anomaly that has now arisen. On behalf of your Lordships' House I shall ensure that it is asked to do so and that evidence is placed before it to enable it to carry out this function. I understand that the Top Salaries Review Body may be able to report by January 1987 and that any decision made on the basis of its report could be laid before your Lordships' House for agreement soon thereafter. I hope that noble Lords will agree that this is the most satisfactory way of proceeding in this matter.
Lord Cledwyn of Penrhos: My Lords, we are very grateful to the noble Viscount for responding so readily and courteously to my inquiry last week. I welcome his reference to the TSRB and the expectation of a report in January with a response from the Government soon thereafter. As he will understand, it is nonetheless unfortunate that after having supported the Motion proposed by the Deputy Leader of the House, the noble Lord, Lord Belstead, we are confronted with a new situation following the vote in another place. This is the anomaly referred to by the noble Viscount.
This increases the disparity between the two Houses. Of course we recognise that there must be a disparity between the Houses for obvious reasons. For example, we have no constituencies, while every honourable and right honourable Member in the other place has a constituency with all the responsibilities that that implies. On the other hand, the volume of work and the hours of attendance in this Chamber have increased substantially and must be taken into account especially when we consider the subsistence element as well as the secretarial element. I am bound to say to your Lordships that I regard the subsistence element as being more significant and of more importance in this House than the secretarial element. Comparatively speaking, subsistence paid to the noble Lords in this House is modest, especially for London-based Peers. I shall be most grateful if the noble Viscount will comment on this question of subsistence and tell us whether there is any possible development in this particular area and whether that will be studied by the TSRB when it proceeds with its work over the next few weeks.
Baroness Seear: My Lords, from these Benches we also should like to thank the noble Viscount for making this Statement and to say that we agree that this is much the most appropriate way of dealing with the slightly absurd situation which has arisen. Nonetheless, perhaps I may ask the noble Viscount whether this means that the 6 per cent. that we had agreed will in fact come into force as arranged, or whether we shall have to wait until the TSRB produces its report in January. May I also add, not as from these

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Benches but speaking as a former member of the TSRB, that having had the reference to the body, it would be rather a good idea if; exceptionally, the Government then accepted the recommendations?
Viscount Whitelaw: My Lords, I am grateful to both the noble Lord and the noble Baroness for their comments. With regard to what the noble Lord said, it has to be accepted that another place must make its own decisions. It would be wrong for me in all the circumstances, and in view of much that has been written in the press, to make any comment on what it decided to do, though your Lordships may be able to guess what that comment might be if I did!
The noble Lord asked about subsistence allowance payable in your Lordships' House. That is quite different from anything given in another place and it is very much more in our own hands. At present subsistence allowances are, depending on claims, up to £47 a day for night subsistence and £19 a day for day subsistence. In 1984, the House agreed that increases in the subsistence rates should be linked to increases in the equivalent Civil Service rates. Last year, that arrangement produced an increase of 10 per cent. The 1986 uprating, based on the same equivalent Civil Service rates, is currently being determined and will probably have been decided by the spill-over. Up-rating takes effect from 1st August. I understand that the accountant will be able to pay in arrears any increase which may be awarded.
In answer to the noble Baroness, I think that I am right in saying that, as the House has passed the secretarial allowance, the 6 per cent. comes into effect from 1st August. It is always useful to be given the answer at the last moment! I should otherwise have said that it comes into effect now.
I sympathise a good deal with the noble Baroness in what she said about the TSRB, as one who from time to time gave evidence before it when she was a member. I hope that what she asks will be possible, but I can give no guarantee.
Lord Taylor of Blackburn: My Lords, why is it taking so long for the TSRB to answer a query that seems simple to so many of us?
Viscount Whitelaw: My Lords, I am slightly at a loss to answer that. I thought that the TSRB had only just had the question put to it and it was about to consider it.
Lord Taylor of Blackburn: My Lords, if it is not to reply until January, the consideration will be taking six months, and that is a long time.
Viscount Whitelaw: My Lords, I understand now what the noble Lord is saying. The TRSB has to take evidence both from another place and from here and consider it. If it produces the answer in that time, that is as quickly as I think we can expect. I shall make what representations I can that it should be quicker, but that is what I am advised and it would be wrong for me to encourage expectations beyond what can be achieved.
Lord Nugent of Guildford: My Lords, is my noble friend aware that there is a distinct difference between what is provided for this noble House and for the Commons? Here, we simply make claims for expenses to be refunded. What they amount to depends for each one of us on our personal circumstances and judgment. In the Commons, the situation is totally different: they are allowances. We are talking simply about a refund of expenses. I cannot see how the 6 per cent. increase could possibly interfere with anyone. It is more than the increase in the cost of living in the past year. As most Peers, in any event, claim rather less than the totals that are allowed because their expenses do not reach that amount, it seems to me that there should be no difficulty here at all.
Viscount Whitelaw: My Lords, I am grateful to my noble friend. What he says is correct. Another place has different problems and different circumstances and it would be totally wrong for me to comment on them. There was a time when I had some responsibility for these matters. Since I had that responsibility I have to say that some of the actions of another place have departed somewhat from what I should believe to be the best way of going had I still been there. But as I am not there, that does not matter in any way at all. I totally accept what my noble friend says so far as we are concerned.
It is important for us to accept that today this House is bearing a much heavier load than ever before. If noble Lords wish to blame the Government and myself, they are entitled to do so. This House has much more correspondence and there is much more pressure put on it. But, equally, what my noble friend says is perfectly correct. Members of this House are reimbursed in accordance with expenses incurred, which is very different from the other place.
Lord Marsh: My Lords, as a general point, and given the noble Viscount's wide experience in the area, will he recognise that most Members of your Lordships' House are not paid at all, but that expense allowances which far exceed salaries would be totally unacceptable anywhere outside the Palace of Westminster?
Viscount Whitelaw: My Lords, your Lordships have been most reasonable and modest in what you believe to be the way of carrying on the business of the House in circumstances very different from how it was originally proposed that it should work. I believe that the country as a whole will see that the costs of running this House and the reimbursement of your Lordships' expenses are in the circumstances most reasonable, taking into account the considerable amount of work that the House does on what I have to say is a voluntary basis. I am not speaking for myself but for a large number of other Members of the House. This is something which I think is widely recognised, and I am glad that your Lordships feel it right that that should be so.
Lord Marsh: My Lords, may I make the point that I recognise totally that Members of your Lordships' House do an enormous amount of work totally free, except for expenses? I am simply asking whether, if

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they were salaried, as in other parts of the building, it would be justifiable to have expenses which are so far in excess of salaries, whereas in your Lordships' House even the very people who are salaried have limited expenses.
Viscount Whitelaw: My Lords, I am sorry if I slightly misunderstood the point that the noble Lord was making. What he says is perfectly true. But from what I divine from what he is saying, I think that if I went too far down the road that he is suggesting I might be getting near to criticising some of the things that another place is doing and I have gone as near to that already as I should.
Lord Mellish: My Lords, I apologise to your Lordships as a new boy for making any comment at a time like this, but for 34 years I had experience of the problems in another place and I appreciated very much the way in which the noble Viscount, who was then the Leader of the House of Commons, did a first-class job. I put that on record.
An anomaly was mentioned by the Leader of the Opposition. May I pose some more problems? I am just observing the scene, but another anomaly I find is this. On the Opposition Front Benches are many noble Lords who speak as shadow spokesmen in opposition to Ministers on the Government Front Bench. For example, on the Gas Bill, some of my noble friends had to be equally well briefed and spent many long hours on the Opposition Front Benches, and yet for that they get nothing whatsoever—no remuneration and, so far as I know, no other acknowledgment. Is it not about time that the anomalies created by the differences between the two Front Benches and who is paid were cleared up? The noble Viscount will understand that I am impartial, because I have no hope of ever sitting on anyone's Front Bench.
Viscount Whitelaw: My Lords, I should be careful before going too far in responding to the noble Lord. I fully accept that there are certain difficulties. A limited number of my noble friends have enormous responsibilities in looking after the affairs of more than one department in your Lordships' House. I hope that some day somebody may realise that they, too, are not wholly recognised. I should like to say only that.
Lord Molloy: My Lords, is the noble Viscount aware that his qualities of leadership have been recognised by everybody in this House? Many of us believe that he has strong qualities of trade union negotiation and of trade union leadership. Will he use those qualities on our behalf in places where he needs to do so? We all have complete confidence in him.
Viscount Whitelaw: My Lords, I am grateful to the noble Lord. People have all sorts of views about me which I read in the press from time to time. I find many of them fairly inaccurate. If I have qualities of leadership, I am glad because that is what I am put here for on behalf of your Lordships. I shall seek to use those qualities. However, over a very long life, nobody seems to have thought that I had the qualities of a trade union leader.
Lord Glenamara: My Lords, will the noble Lord bear in mind the effect which I think the televising of the House has had on our postbags? Is he aware for example, that my postbag is bigger than it was 10 years ago when I was a Member of Parliament? I think that the same applies to many noble Lords.
Viscount Whitelaw: My Lords, that was one of the problems to which I was referring when I said that the load on your Lordships and the extra amount of attention paid to your Lordships' business imposed a considerable extra burden on many Members of the House. I fully accept that.
Lord Winstanley: My Lords, will the noble Lord accept, bearing in mind the amount of time that we now have necessarily to spend in the House, that the time is now coming when noble Lords should receive some assistance in having their wives visit them in London in the same way that Members of another place have assistance for that purpose?
Viscount Whitelaw: My Lords, we are straying a long way beyond the matters about which I initially started to answer. The facilities available to your Lordships and your Lordships' wives have been under discussion by various bodies. With regard to your Lordships and our refreshment arrangements, we have many accommodation problems. Everybody is trying to solve them and to help in what is inevitably a difficult matter. If we do not have the accommodation sufficient to do all the things that we want to do, there is almost no way to overcome the problem. We are still seeking to see whether we can do something to effect improvements.

Aberystwyth Harbour Bill
The Earl of Listowel: My Lords, on behalf of my noble friend the Chairman of Committees, I beg to move that this Bill be now read a second time.
Moved, That the Bill be now read a second time.—(The Earl of Listowel.)
Lord Elwyn-Jones: My Lords, perhaps I may express the hope that the House will give unanimous support to this highly important piece of legislation.
On Question, Bill read a second time, and committed to a Select Committee.

Financial Services Bill
3.13 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 again resolve itself into Committee on this Bill.
Moved, That the House do now again resolve itself into Committee.—(Lord Lucas of Chilworth.)
On Question, Motion agreed to.
House in Committee accordingly.
[The LORD AIREDALE in the Chair.]
Clause 3 [Persons entitled to carry on investment business]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 54:
Page 3, line 6, at end insert—
("() No person who is authorised to carry on investment business in "managing investments", "advising on investments" or "establishing etc. collective investment schemes" shall be authorised at the same time to carry on investment business in "dealing in investments" or "arranging deals in investments".")
The noble Lord said: The amendment seeks to address itself to an important problem which faces the financial services industry, and that is the problem of a conflict of interests. I accept at the outset that the amendment is imperfect and that if it were accepted by the Committee it would involve a series of consequential amendments which I have not set down. I accept also that it would involve certain problems of timing, which I shall come to later, and certain problems of definition of conflicts to which I shall come later.
The fundamental principle that I wish to assert in moving the amendment is that the duties of those who set themselves up to manage other people's money are towards the people whose money they manage and not to anybody else. There is a fiduciary duty here which the Committee should appreciate.
Until now in the City of London and elsewhere, we have lived with a system where organisations such as merchant banks and others have various activities. As we go forward and as the Bill is enacted, they will undoubtedly be extending those activities. I should like to select two activities among many which I regard as being in fundamental conflict. The first is dealing in securities and acting in a finance corporate capacity for clients in advising underwriting takeovers, and the second is investment management, by which I mean money management on behalf of other clients. Generally speaking, the two sets of clients are different.
A number of merchant banks and other organisations have sought to solve that conflict of interest by erecting what is known as the Chinese wall, under which on an informal basis those who are in charge of managing investments do not talk to those in the same organisation who are dealing and who have corporate finance responsibilities or they have gone a little further and set up separate companies one of which is an investment management company and the other is the bank or other organisation which does the dealing and carries on the corporate finance activity.
There are those of us who feel that the whole concept of the Chinese wall is one which bears serious examination. A number of people feel that that distinction does not work in reality. I am not for a moment impugning the honour and honesty of people who work in the City of London. In many cases, that informal arrangement has worked and continues to work, but there are some fairly spectacular cases where it has not worked.
If I may address four aspects of the problem, I should start by saying that where an organisation, be it a merchant bank, a stockbroker or, in the modern term, a financial conglomerate, has directors who are common to both the investment management side and the corporate finance and dealing side—in other words where a top company has directors who are
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responsible to the shareholders for the profits of the whole organisation—it seems to me to put them in an impossible position if, on the one side, they are not allowed to know what their investment management department is doing or on the other side, they are not allowed to know what their corporate finance department is doing. Indeed, in those circumstances it is extremely difficult to be a director of such an organisation and to perform the proper responsibilities of a director under the companies legislation.
The second aspect of the problem is in marketing investment advisory or investment management services. There are many cases—I speak from very personal experience—where investment managers seek to obtain business on the grounds that they have access to good deals that come out of the dealing operations or corporate finance operations with which they are associated. I shall not quote cases, and I shall not name names, because it would be improper in this Committee to do so. Nevertheless, it is true that organisations market their investment advisory services at least in part on the basis that they have access to privileged information from the other sides of the business of which they are part.
The third aspect of the problem is that the marketing, not only of investment management services but also of corporate finance services on the other side, involves, as I know again from personal experience, being able to persuade a prospective client that the investment department of a bank or the investment department of a broker has substantial underwriting power in its own right. Merchant banks will go to a prospective client—indeed, I have done it myself—and say "You know, we have an investment management department that handles £5 billion, £2 billion or £3 billion, or whatever the figure is, and you understand we have substantial underwriting capability in that". It is a plus factor when the bank or broker in question is selling corporate finance services. The conflict of interest is again absolutely clear.
The last aspect of the problem with which I should like to deal is the fiduciary nature of those in investment management. We have, in the past, defined the duties of trustees in pension funds and in other trusts. Parliament has defined the relationship of life insurance funds—that is to say, the funds that are set aside for the beneficiaries of a life policy. These are segregated clearly in the legislation. We have not, in legislation, any sense of the trustee relationship that should exist between an investment manager and the person on whose behalf he manages those investments. I believe that it is time that the Committee addressed this problem.
Our solution is to have separation of ownership between investment management companies and companies that deal or act as underwriters or corporate finance advisers. I realise that this is a radical proposal. I realise that it would upset a great number of people in the City of London who have built much of their business on exactly the conflicts of interest that I have tried to describe. I realise that it would take time to achieve.
It is no good passing legislation and expecting what I am suggesting to be achieved tomorow. There would have to be a timetable, saying that within five years,

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three years or whatever period may be decided there must be a separation of ownership between the different functions. There would have to be some definition of cross-share holdings, the level of interest that, for instance, a dealing organisation or corporate finance organisation might hold in an investment trust, or in a unit trust management company, or other investment management bodies.
Finally, there would have to be recognition of the fact that overseas operators would not come within United Kingdom jurisdiction and might be able to evade what we are seeking to achieve. I recognise these problems. Nevertheless, the problem of conflict of interest is one that will be exacerbated by the passage of the Social Security Bill, which has left this Chamber, and the Building Societies Bill that we are to consider later this evening and that we expect to leave the House this evening.
The problem is exacerbated because there will be, probably rightly, an attempt to engage the attention of many people who, until now, have not put their money under management with an organisation, to do so; in other words, to market services of an investment nature. It seems to me that if that is going to happen—I do not believe that there is any way the Committee can stop it happening if the various Bills that I have mentioned are enacted—the independence of investment management must not only be there, for the reasons that I have specified, but must also be seen to be there. I believe that anything else would be wrong and deceptive of those whose money a number of institutions will try to attract under management.
Schedule 1 to the Bill, in fact, defines investment businesses in a very convenient form for this amendment. I have not used Schedule 1 in referring to my amendment. I have simply taken the titles out of Schedule 1 because, at the time I drafted the amendment, I did not realise that Schedule 1 would still stand part of the Bill. Nevertheless, Schedule 1 is part of the Bill. And had I been drafting this amendment yesterday, as opposed to the day before yesterday or whenever it was, I would probably have referred to Schedule 1.
The specific activities that I have listed in the amendment correspond to the investment businesses under Schedule 1. So the Government appear to me to be moving towards a clear distinction between the different types of business that I have outlined. We would like to see them moving a little further and saying that there must be, and there should be, a complete separation of ownership, in the course of time and in conditions that remain to be determined, so that the fund management, the money management, can properly be a trustee relationship between the manager and the client on whose behalf he is managing the funds. We shall therefore get away once and for all from the question of conflict of interest. We shall do away once and for all with the Chinese wall that has given rise to so many difficulties. I beg to move.
Lord Denning: I wish to support the principle that underlies the amendment. It has been well settled in law for at least 100 years or more that no person should have an interest conflicting with his duty. It is
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for the simple reason that he is not able to do his duty properly if he has an interest of his own or in any other way. There are often cases in the courts involving a director of a company, perhaps the director of a buying company but also a selling company. How can he act properly in relation to any transaction of buying or selling between those companies? It is not only a matter of buying and selling. There is the question of an agency and the like. There have been dozens of cases.
It has been argued that somehow the City of London manages to deal with the situation. And so it does. If a director of one company is interested in a transaction, he does not sit or vote on the matter in which he is concerned. In this Chamber one ought at least to disclose an interest if one is going to be affected in the argument. In the courts we have had many cases of the problem of common directors of two companies. How does one solve it? Somehow the City of London manages it reasonably well. The person who has an interest takes no part in the discussions. That shows well the integrity and honesty of the City of London, but will it not be very difficult in this new situation? Can the City of London manage with bamboo walls, or Chinese walls, or whatever they are called? Ought we not to have the principle stated somehow?
I am not sure that this can cover all the ground, but is it not a matter for close consideration, perhaps by further amendment to the Bill or the schedules, to make it clear that no person, or shall I say, no company—because one may not have common directors; that might be a way out of it—in investment or other business shall have an interest conflicting with his duty? He ought not to be able to wear his investor's hat one moment and to take it off the next moment and wear his dealer's hat. I support the principle of the amendment.
3.30 p.m.
Lord Grimond: I should like to say that I very strongly support this proposed amendment. As the noble Lord, Lord Williams, has pointed out, there are obvious difficulties about it. I imagine that as drafted it would defeat the whole purpose of the Big Bang. I am not sure that would be a bad thing, but it would certainly arouse strong feelings in the City. As I undertand it, it would affect the operations of many people concerned in the City, even under the present regime. Therefore, as the noble Lord says, it may be a matter which has to be thought over very carefully and brought in after further discussion.
However, like the noble Lord, I am not impressed by the promise of Chinese walls. As somebody has already said, every Chinese wall has a grapevine growing up it, and it is very difficult to believe that they will enforce this absolute separation which is vital if conflicts of interest are to be avoided.
It must also be said that while the City of London has in general had an extremely high reputation, and investors have been able to rely upon the senior partners of the major firms, and upon the Bank of England, to ensure that their interests are looked after, it is not so clear to me that this will now continue. For one thing we have had the instance in Lloyd's and

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Johnson Matthey which shows that there are people in the City who are prepared to go a very long way to make money. We have also the example of what has been going on in America, where the most reputable banks and other financial firms have been breaking the law in a perfectly monstrous but unashamed fashion. The City of London will become more and more international and I am afraid that we cannot rule out the possibility that these habits will spread to it.
Therefore, once again I feel that the small investors do not have adequate protection under this Bill as it stands at present. I would welcome any move such as this to ensure that they are safeguarded against conflicts of interest and that over and above the safeguards which are incorporated in the Bill there is a clear legal obligation that people shall not indulge in operations in which one interest clearly clashes with another. That may be a matter of great difficulty. It may be a matter which would cause the City grave difficulty. But if we want to extend investment in this country, as we do, I think that it is absolutely vital to ensure that the reputation of the City is upheld and to ensure that the ordinary investor gets a square deal.
Lord Harmar-Nicholls: It is very difficult to be against the arguments that the noble Lord who introduced this amendment has put forward. If it is the view that things could happen if certain people were prepared to move from the proper standards, one can always in theory find a good reason for saying that nothing is safe anywhere at any time. I therefore do not and cannot argue against the particular points as they have been put by the noble Lord and supported by other noble Lords.
However, my instinct is against this. My instinct is against statutory intervention in these matters. I do not believe that by making it a crime—which is what statutory intervention does—it will achieve what the noble Lord, Lord Grimond, said he wants: that is, to encourage investment in this country and to encourage confidence in the City of London which is a very important part of this nation's income. We may reach the situation where we disillusion people about the overall integrity of the City of London by saying that we have to have these statutory protections, which we have never had before. When that reputation was being built and when we were the centre of international investment and financial leadership we did not have a problem because we enjoyed confidence throughout the world and encouraged people to feel that those who were actually in the driver's seat could be trusted.
There will always be people who will try to take advantage of knowing two sides of an argument. However, to be both a director of an investment company and a money manager does not necessarily automatically cause a conflict. It is possible for people to dissociate their knowledge of one sphere of their life and activities from that of another. If one wants good, experienced money management, for instance, it is not a bad thing to have it done by people who know the other side of the coin. If one makes it statutory that they must be confined to the one narrow aspect, I do not believe that the attraction of investment and the general good will will be as good as it is now.
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I am all for finding some way of removing the apprehensions that certain people may have because of certain things that have happened. But to make it a statutory obligation will, I am convinced, undermine what we want more than anything else. We want to retain our country, and the City of London in particular, as the centre of these activities.
With regard to the rogues—as the noble and learned Lord, Lord Denning mentioned—who will take advantage of the conflict of interest, they will get round the statutory obligation whatever one does; or they will try to. One will never have perfect protection by statutory means for the standard that one requires. In trying to do so we may be undermining the confidence we need so that an activity which has been continuing for a century or more can expand in the way we would wish.
Lord Denning: I sympathise a great deal with that view. One does not want to hamper business. It is being done very well at the moment. The City of London has done very well on the whole. Perhaps it can continue to do so without statutory intervention which I gather is what is desired.
Lord Tryon: I must quickly add my voice to this debate. This amendment has a very large element of overkill in it. It is fascinating to discuss this matter, but if the amendment were to be carried, the effects would make so-called Big Bang look like a very small squib indeed. It is tremendously radical. I think that the noble Lord, Lord Williams, admitted that.
I spent many years dodging from one side of a Chinese wall to another. I made a declaration of interest at Second Reading. I shall not do so again. However, I spent many years as investment director of a merchant bank. I do not want any impression to be left with noble Lords that Chinese walls do not work in well-ordered societies; and most of them are very well ordered. It was not unusual for one to be in possession of information which was market sensitive as a result of one's directorship of the main board of the merchant bank company. But it was quite possible—and it worked very well in the merchant bank that I was then with, and in many others—that one could carry out one's duties perfectly well without rushing over to the investment department to tell them to stop dealing in that share or to mind their eye in this, that or the other. It works, provided that the senior positions in the City are filled by honest men, and I believe that on the whole they are.
Lord Lucas of Chilworth: I really am most grateful to the noble Lord, Lord Williams, for the manner in which he has explained to the Committee what lies behind his amendments. Certainly if by his amendment he intended to emphasise that there must be regulatory provision to ensure that a business authorised to give investment advice does not improperly use its position to influence customers to use its other services, then I do not think that I would dissent from that objective. There should be proper regulatory provision for preventing conflicts of interest, and we believe that Clause 45 provides just that regulatory provision.

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My noble friend Lord Harmar-Nicholls said that things could happen, and I think that the Committee will understand what he meant by that remark. That they can happen but should happen within the rules is perfectly correct. Certainly the rules suggested by Clause 45 provide for the kind of flexibility for which I think we are all looking. The rules of which we are thinking will require information obtained by an authorised person in the course of one part of his investment business to be withheld from a person employed in another part of that business. That can be found in Clause 45(2)(h).
The principles for rule-making in Schedule 6 make clear the importance attached to the need for the rules to make proper provision to ensure that authorised persons do not put their interests before their clients and that they act fairly between them. Rules of self-regulating organisations and professional bodies must provide at least equivalent protection. If a business breaches such a rule, it will be open to disciplinary action up to and including—for gross breaches—withdrawal of authorisation; and if anyone suffers loss or is adversely affected as a result of such a breach, he may sue under Clause 57 of the Bill.
However, this amendment seeks to alter the way in which investment businesses are organised to prevent the same authorised person from carrying on certain types of investment activity under the same authorisation, and it imposes a criminal sanction for such a breach. We believe that criminal offences should be defined clearly and precisely. Vagueness about the boundaries of a criminal offence should, so far as possible, be avoided. Nor should criminal offences be created unless they are clearly necessary. The amendments that we are discussing would create criminal offences which do not meet either of those tests. The boundaries between the different types of investment business defined in the amendment are inevitably blurred, and it could be possible unwittingly to stray across the boundary between what was permitted and what was not.
No one has yet demonstrated why a criminal offence is needed here. It has not been suggested that the system of rules and the civil and disciplinary sanctions which the Bill provides for breach of such rules are inadequate. The rules will require an authorised person to have an effective Chinese wall. His compliance with those requirements will be monitored by the appropriate supervisor, and discipline and civil sanctions will follow a breach. Those sanctions will be underpinned by the criminal law in that if a person transgresses the rules seriously enough, he will lose his authorisation. He will then be committing a criminal offence if he continues to carry on investment business. However, the criminal offence will then be the straightforward one of carrying on business without authorisation. We believe that this reliance on civil and disciplinary sanctions with criminal sanction only as the ultimate back-up is the best way of achieving the objective.
I certainly agree with the noble Lord, Lord Williams, in that a person who manages a client's funds should owe a duty to that client, but the amendment is not necessary to achieve that. A person managing someone else's funds acts really in an agency
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capacity, and agency law imposes specific obligations on him to act in the interests of his clients and to subordinate his own interests to those of his client. As my noble friend Lord Harmar-Nicholls said, I think that it would be extremely damaging to the United Kingdom's competitiveness as a financial centre to impose by statute artificial restrictions on the kinds of business in which companies may engage.
I think it is notable that countries where such restrictions are imposed have in general lost business to those where they are not imposed. I thought that in his opening remarks the noble and learned Lord, Lord Denning, was somewhat in favour of the amendment. I am not quite sure whether I understood him correctly because later, in an intervention, I rather took the view that he agreed with my noble friend Lord Harmar-Nicholls.
Lord Denning: That is quite right. In view of the good arguments of my noble friend Lord Harmar-Nicholls, I changed my mind.
3.45 p.m.
Lord Lucas of Chilworth: Then I think that I have understood the noble and learned Lord aright, because the conduct of business rules—and this can be found in paragraph 4 of Schedule 6—must make provision for subordination of the authorised person's interests to those of the client. I do not believe that of itself separate ownership does not guarantee that conflicts of interest can be avoided. An unscrupulous operator (and I think that the noble Lord, Lord Tryon, said this) could easily arrange for the business to be conducted separately and yet in such a way that those separate businesses could work together to the detriment of clients. I welcomed what the noble Lord, Lord Tryon, said.
Perhaps the Members of the Committee will allow me to recall what the noble Lord, Lord O'Brien, had to say about the efficacy of Chinese walls during the course of our Second Reading debate. The noble Lord was talking about the challenges that the City would face after the Big Bang and as a result of the Financial Services Bill. The noble Lord said that he hoped,
"that the present inhabitants of the City will be equal to the challenge facing them. From long experience, I should be surprised if they are not".—[Official Report, 11/7/86; col. 606.]
I believe that that is really what the noble Lord, Lord Tryon, was saying. I take comfort from the comments of both noble Lords; they are comments by men with a wealth of experience in the City. I believe that both noble Lords are right. I do not think that it is necessary for us to have this amendment in the Bill. I believe that there is adequate provision to look after the interests of the investor, which is the purport of the Bill, and I would urge the noble Lord opposite to withdraw his amendment.
Lord Williams of Elvel: I am most grateful to the noble Lord, Lord Lucas, for his response, and I am also most grateful to noble Lords who have joined in this debate. I am bound to say that I found the first intervention by the noble and learned Lord, Lord Denning, rather more to my taste than his second intervention, and I am sure that the noble and learned Lord will understand why.

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I believe that in his first intervention he made a very important point, which answers the point made by the noble Lord, Lord Lucas, when he quoted the noble Lord, Lord O'Brien of Lothbury, on Second Reading, that up to now things have probably gone all right. However, we are moving into a different era, and I am quite uncertain whether what has happened—and I refer to the remarks of the noble Lord, Lord Tryon—20, 15 or 10 years ago, or even three weeks ago, will be relevant after 27th October. This, I think, is a major problem we have to address.
The noble Lord, Lord Grimond, very kindly supported what I had to say, but pointed out, quite rightly, that there were great difficulties in the amendment, and I accept that this is what I would call in a curious way an amendment in principle. I accept at the outset that it is not something which can go as it is worded into the Bill. Nevertheless, it is a principle on which we can feel either for or against.
The noble Lord, Lord Harmar-Nicholls, said it was difficult to be against the sentiments I was putting forward, but his instinct was against statutory intervention. This whole Bill is about statutory intervention. We are trying to make rules. As I understand it, we have so many clauses and so many schedules which are trying to make rules, which are trying to set up a statutory framework for the whole business; and if it is not that, I do not know what we are talking about.
The noble Lord, Lord Lucas of Chilworth, said in reply that there were certain powers under the Bill which would satisfy the points I have in mind. I am bound to say to him that he was in fact making my argument for me, because I said at the outset that I thought the position of directors—and this is what the noble and learned Lord, Lord Denning, said in his first intervention—became intolerable when they were directors of organisations which were essentially in conflict. This is a point which is absolutely central to the amendment I am moving, and I am afraid it is no good simply saying that we can do this or that and that directors must do this or that. There is a basic and inherent conflict which one cannot get away with unless one adopts the principle in my amendment.
The noble Lord, Lord Lucas of Chilworth, also said that we should define clearly and precisely what is and what is not a criminal offence. I certainly would agree with him in that. In the amendment we are talking about authorisation, and, as he rightly pointed out, anyone who does business who is not authorised commits a criminal offence. I am not talking about making it a criminal offence to do one investment business and another investment business in the terms of the amendment; I am simply saying no one shall be authorised; and it is the authorisation question to which I am addressing myself.
Again, I come back to the principle that there is an inherent conflict of interest. But I believe that we have a chance here to set a standard for ourselves and, indeed, for the rest of the world. If I may say so, the United States came very near to doing this in the late 1960s and early 1970s, when there was a draft Securities Act, and it was only the arrival of, I think, President Nixon in power which stopped that Act from taking effect. But they were moving very far in that direction at that time, and I believe there is
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nothing inherently wrong in this. Indeed, I think there is something inherently right in it. I recognise the defects of the amendment. I recognise that it will take time and will need considerable study if the proposals that are enshrined in the amendment are to be put into effect. Nevertheless, I wish to press this amendment.
3.53 p.m.
On Question, Whether the said amendment (No. 54) shall be agreed to?
Their Lordships divided: Contents, 80; Not-Contents, 116.

DIVISION NO.1

CONTENTS

Addington, L.

Listowel, E.

Airedale, L.

Llewelyn-Davies of Hastoe, B.

Ardwick, L.

Lloyd of Hampstead, L.

Barnett, L.

Longford. E.

Blyton, L.

Mackie of Benshie, L.

Bottomley, L.

McNair, L.

Briginshaw, L.

Mais, L.

Brockway, L.

Mishcon, L.

Brooks of Tremorfa, L.

Molloy, L.

Bruce of Donington, L.

Morris of Grasmere, L.

Burton of Coventry, B.

Nicol, B.

Caradon, L.

Northfield, L.

Carmichael of Kelvingrove, L.

Oram, L.

Cledwyn of Penrhos, L.

Phillips, B.

David, B.

Ponsonby of Shulbrede, L.

Davies of Penrhys, L.

[Teller.]

Dean of Beswick, L.

Prys-Davies, L.

Denington, B.

Rea, L.

Ennals, L.

Rhodes, L.

Ewart-Biggs, B.

Rochester, L.

Ezra, L.

Seear, B.

Fisher of Rednal, B.

Sefton of Garston, L.

Gallacher, L.

Shackleton, L.

Gladwyn, L.

Shepherd, L.

Glenamara, L.

Silkin of Dulwich L.

Graham of Edmonton, L.

Stallard, L.

Grimond, L.

Stedman, B.

Hacking, L.

Stewart of Fulham, L.

Hampton, L.

Stoddart of Swindon, L.

Hanworth, V.

Strabolgi, L.

Hatch of Lusby, L.

Taylor of Blackburn. L.

Henniker, L.

Taylor of Mansfield. L.

Houghton of Sowerby, L.

Tordoff, L. [Teller.]

Hughes, L.

Underhill, L.

Jenkins of Putney, L.

Wallace of Coslany, L.

John-Mackie, L.

Walston, L.

Kagan, L.

Wells-Pestell, L.

Kearton, L.

Wigoder, L.

Kilbracken, L.

Williams of Elvel, L.

Kirkhill, L.

Winstanley, L.

Leatherland, L.

NOT-CONTENTS

Ampthill, L.

Cameron of Lochbroom, L.

Auckland, L.

Campbell of Alloway, L.

Bauer, L.

Carnegy of Lour, B.

Belhaven and Stenton, L.

Carnock, L.

Beloff, L.

Coleraine, L.

Belstead, L.

Colville of Culross, V.

Benson, L.

Cork and Orrery, E.

Blyth, L.

Cranbrook, E.

Boardman, L.

Crawford and Balcarres, E.

Brabazon of Tara, L.

Crawshaw, L.

Brougham and Vaux, L.

Croft, L.

Broxbourne, L.

Davidson, V.

Bruce-Gardyne, L.

De La Warr, E.

Butterworth, L.

Denham, L. [Teller.]

Caithness, E.

Denning, L.

227

Dilhorne, V.

Mersey, V.

Drumalbyn, L.

Middleton, L.

Effingham, E.

Milverton, L.

Ellenborough, L.

Monk Bretton, L.

Elles, B.

Montagu of Beaulieu, L.

Elliot of Harwood, B.

Morris, L.

Elton, L.

Mottistone, L.

Fairhaven, L.

Mowbray and Stourton, L.

Faithfull, B.

Munster, E.

Fortescue, E.

Nugent of Guildford, L.

Fraser of Kilmorack, L.

O'Brien of Lothbury, L.

Gisborough, L.

Orkney, E.

Gray of Contin, L.

Pender, L.

Gridley, L.

Perth, E.

Grimston of Westbury, L.

Radnor, E.

Hailsham of Saint

Rankeillour, L.

Marylebone, L.

Reigate, L.

Halsbury, E.

Renton, L.

Harmar-Nicholls, L.

Rochdale, V.

Henley, L.

St. Aldwyn, E.

Hives, L.

St. Davids, V.

Holderness, L.

Sanderson of Bowden, L.

Home of the Hirsel, L.

Sandford, L.

Hooper, B.

Seebohm, L.

Hylton-Foster, B.

Selkirk, E.

Inglewood, L.

Sempill, Ly.

Kimball, L.

Shannon, E.

Kinloss, Ly.

Sharples, B.

Knollys, V.

Skelmersdale, L.

Lane-Fox, B.

Slim, V.

Lawrence, L.

Strathcarron, L.

Layton, L.

Sudeley, L.

Long, V.

Swinton, E.[Teller.]

Lothian, M.

Terrington, L.

Lucas of Chilworth, L.

Teviot, L.

Lyell, L.

Tranmire, L.

McAlpine of Moffat, L.

Tryon, L.

McFadzean, L.

Ullswater, V.

Mancroft, L.

Vaux of Harrowden, L.

Masham of Ilton, B.

Vivian, L.

Massereene and Ferrard, V.

Westbury, L.

Maude of Stratford-upon-

Whitelaw, V.

Avon, L.

Wilberforce, L.

Merrivale, L.

Young, B.

Resolved in the negative, and amendment disagreed to accordingly.
4.2 p.m.
Clause 3 agreed to.
Clause 4 agreed to.
Clause 5 [Agreements made by or through unauthorised persons]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 55:
Page 3, line 33, after ("entitled") insert ("either").
The noble Lord said: I beg to move Amendment No. 55 standing in my name and that of my noble friend Lord Morton of Shuna. It may be for the convenience of the Committee if I speak also to Amendments Nos. 56, 57, 58 and 59. I understand that they are grouped.
Lord Lucas of Chilworth: I think I heard the noble Lord aright—Nos. 55, 56, 57, 58 and 59.
Lord Williams of Elvel: Yes. Perhaps I may speak to Amendments Nos. 55 and 56, because I have no particular comments to offer on the amendments tabled by the noble Viscount, Lord Colville of Culross. The thrust of Amendments Nos. 55 and 56 is as a result of a submission to us from the Law Society of Scotland. They adhere to the view that they expressed
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in a memorandum of observations to Parliament that greater latitude should be given to the courts to decide the extent to which the other party should be entitled to restitution in cases where an investment agreement is entered into in contravention of subsection (3). I should be grateful if the Government would consider the concern of the Law Society of Scotland. I beg to move.
The Lord Advocate (Lord Cameron of Lochbroom): I have listened to the noble Lord and I have read the submission made by the Law Society of Scotland. It seems to me that there may be material which will require further consideration arising out of it in that a court's discretion, in the event that a party applies to the court, is limited simply to recovery of money or other property paid or transferred under the agreement, which is in terms of Clause 5(1) to be held to be unenforceable against the other party.
The only addition that the clause provides for is of course interest on any such money, bearing in mind that that definition of the property that has passed is to be read along with subsection (5) which deals with the position where the property has been transferred to a third party, in which event it is to be the value at the time of the transfer under the agreement.
I am happy to be able to indicate to the Committee that we would wish to look not only at the matters that are raised in the amendments in the noble Lord's name but also at the points which appear in the remaining amendments to which the noble Lord referred, Amendments 57 to 59.
Lord Williams of Elvel: I am grateful to the noble and learned Lord the Lord Advocate. It is not for me to cross swords in any way with Scottish lawyers. I have to apologise for the absence of my noble friend Lord Morton of Shuna, and I am grateful to the noble and learned Lord for his assurance that he will take these points away and look at them. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 56 not moved.]
The Deputy Chairman of Committees (Lord Airedale): I have to point out that if Amendment No. were agreed to, I could not call Amendments Nos. or 59.
Viscount Colville of Culross Viscount Colville of Culross moved Amendment No. 57:
Page 4, line 10, leave out from beginning to end of line 13 and insert
(" on the application of the person mentioned in sub-paragraph (i) of that paragraph, that the person mentioned in sub-paragraph (ii) of that paragraph should, for the purposes of that transaction, be treated as if he had not been in contravention of that section").
The noble Viscount said: I hope that there has not been some confusion about this matter, and I certainly do not want to cross swords with the noble Lord, Lord Williams of Elvel, about it, but I thought that the groupings had been done separately and that my amendment was going to be taken independently because it is on a slightly finer point than the two that have just been discussed.
This amendment relates to a situation where there will be three parties involved. There would be the

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investor, an authorised or an exempted person—a bank, stockbroker, or something of that sort—and there would be somebody who had persuaded the investor to suggest that the investment transaction should take place. That third person should have been either authorised or exempted but was not, and was acting in contravention of the provisions of this Bill and consequently was not entitled to make the suggestion in the first place and is indeed subject to a criminal offence, as my noble friend Lord Lucas mentioned just now.
The Bill as drafted, dealing with this situation, says something about it in Clause 5(3)(b). There it puts a burden of proof upon the various people who would be involved when the investor said that he was entitled to recover his money because the person who introduced him to the situation was not either authorised or exempted. Burdens of proof have quite a lot to do with the way in which cases are decided. It is difficult to prove a negative, and that is what the Bill at the present moment requires should be done by the stockbroker, the bank, or whoever it is.
There is a similar situation under the Consumer Credit Act 1974. If persons who ought to be licensed as credit brokers under that Act introduce arrangements or agreements, there is a system whereby the people concerned can go to the Director General of Fair Trading and he has, as it were, a discretion on the facts of the case whether to allow the transaction to persist or to disallow it. I should have thought that in the enormous variety of circumstances that could arise in this sort of situation it would be better to leave it to the discretion of the county court or, I suppose, if it is a big enough case, the High Court. 1 should have thought that the judges would be just as good at that as the Director General of Fair Trading, and that is what this amendment does. It requires that an application should be made and then it is in the discretion of the court.
My noble and learned friend Lord Cameron has said that this is another of the matters that he is prepared to consider. I hope he will consider that analogy that I have described because I imagine it has worked well since it is run by the department whose representative here is my noble friend Lord Lucas, and it has presumably been going for the past 12 years without any great problem. Therefore if that is a sensible solution I suggest it should be used on this occasion as well. I beg to move.
Lord Bruce-Gardyne: I should like to support my noble friend Lord Colville on this amendment. I should declare an interest as a director of the Trustee Savings Bank. In common with the Committee of London and Scottish Bankers, the Trustee Savings Bank strongly supports this amendment and the change which my noble friend has proposed, I think for the reasons that he has explained.
All I should like to add in this context is that it seems to me that this also comes back to the discussion we had on Monday night on Schedule 1. When we were discussing the interpretation and the weight to be laid upon the phrase "engaging upon a business" my noble friend replying from the Front Bench gave as his belief that "engaging upon a business" involved something more than very occasionally doing so. Here I revert to
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the subject matter we were discussing on Schedule 1—the representations from the Association of Corporate treasurers, to whom his department pointed out that where corporate treasurers, for example, were acting in the normal commercial course of their activities, it would clearly not be a question of the Department of Trade embarking upon criminal proceedings against them.
However, I raised the question that as I understood it an individual could seek to have annulled a transaction which had been entered into in good faith by another party because it turned out subsequently that the transaction had not worked out as he wished it to do, simply because he could claim that the other party could not establish qualification under paragraph 12 of Schedule 1 to this Bill. In replying, my noble friend said that this was where the question of the onus of proof would arise under this clause and this particular amendment. It seems to me that if my noble and learned friend could accept this amendment moved by my noble friend Lord Colville, this would go a considerable part of the way to alleviate anxieties on that score.
4.15 p.m.
Lord Cameron of Lochbroom: I am grateful to both my noble friends for what they have said in explanation of this amendment. While making clear that I am happy to take it away to look at in the light of those remarks, I should set out that the object of Clause 5—apart from providing a remedy for investors who are affected by the carrying on of investment business unlawfully—is to impose some obligation on an authorised business to take care that none of its investment agreements arise because of the involvement of an unauthorised person. Thus, for example, if a business regularly uses introducers it ought to make sure that those who need to be authorised because of the nature of their business have secured authorisation. I think my noble friends will understand that that is the purpose at which subsection (3)(b) is aimed.
We are trying to secure the proper balance by seeing that the investor does not suffer and is able to secure adequate recompense and, at the same time, that authorised businesses are not unreasonably penalised by having agreements entered into in good faith deemed unenforceable. I take from the gist of what my noble friend Lord Colville said that really he is looking perhaps to give more discretion to the court in this matter. I am conscious of the advantage of doing so, both for the reasons I referred to earlier when replying to the noble Lord opposite and also concerning this point. I shall carefully consider what has been said on this matter.
Viscount Colville of Culross: I am grateful to my noble and learned friend. I should have thought that if any investment broker regularly had an introducer as part of the scene and did not check out that he was properly authorised there could not be any question but that he ought to have his transaction disallowed. The difficulty is where the client comes along at the instance of an unauthorised introducer about whom the investment dealer knows nothing at all. It is those circumstances which cause some anxiety. My noble

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and learned friend has said that he will look at this matter. I am grateful to him, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hacking Lord Hacking moved Amendment No. 58:
Page 4, line 11, leave out ("neither knew nor ought to have known") and insert ("did not know").
The noble Lord said: As Amendment No. 59 is closely related to Amendment No. 58, with the leave of the Committee I shall address the Committee on both amendments. These amendments attempt to tackle again the discretion that ought to be given to the courts when dealing with agreements which for one reason or another are unenforceable, although they have been entered into in good faith by the parties. It has already been established in this Committee that Clause 5 makes agreements unenforceable if entered into by unauthorised persons. It also makes them unenforceable, even if they are entered into by authorised persons or by exempt persons, if for one reason or another that agreement otherwise falls into contravention of the terms of the Bill.
When considering the court's discretion, we turn to Clause 5(3)(b). The court is entitled in the exercise of its discretion to apply the test as to whether the party seeking to enforce the investment agreement knew or ought to have known that the agreement was unenforceable at the time it was made.
My amendment seeks to apply a simpler test and in doing so gives a wider discretion to the court—a factor that the noble and learned Lord the Lord Advocate welcomed just now in relation to the amendment moved by the noble Viscount, Lord Colville. The wider discretion, therefore, that my amendment seeks to give is to remove the words,
"neither knew nor ought to have known"
and to base the court's discretion on the much simpler test of whether the party seeking to enforce the discretion did not know that the agreement was unenforceable. It then goes on to give a wider berth for the court also in applying the test that in the circumstances it would be just and equitable to allow the agreement still to be enforceable notwithstanding that there has been some illegality in the sense that it has not fallen strictly within the terms of the Bill.
I suggest to the Committee that we give the court that wider discretion which, incidentally, would also include applying the test of whether the party who is seeking to enforce this agreement should have known or ought to have known that there was some illegality about it. So it incorporates the test that is set out in the statute, but gives a wider area of discretion to the courts. I hope therefore that the Government will consider my amendment with favour. I beg to move.
Lord Cameron of Lochbroom: Again, the noble Lord has raised a point giving more discretion to the court. I think that I would have to say that I would be cautious in perhaps going along the road that he suggests of removing the words "ought to have known" from paragraph (b), the problem being that if you have simply contained in that paragraph reference to knowledge, it may well be thought that the reference
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to imputed knowledge is not available to the court in exercising its discretion. Certainly I would say that a business which blindly shuts its eyes to the fact that the business has been introduced by someone who had no authority is, I suggest, in like case as a business which does know, and particularly when we are thinking about a remedy for investors who are affected by that particular transaction.
Certainly the indication of discretion as based upon the just and equitable basis is something which I should be very happy to look at. It perhaps narrows the point and gives the court a more obvious indication of what is being looked at in the way of exercising its discretion than does the amendment of my noble friend Lord Colville of Culross. These are all matters which I should be very happy to look at in the light of what has been said.
Lord Silkin of Dulwich: The noble and learned Lord the Lord Advocate began his remarks by saying that he would wish to be cautious about removal of the phrase, "ought to have known". I hope that he will be very cautious indeed about that. It seems to me that that would very much reduce the effectiveness of this provision. While there may well be a good case for Amendment No. 59, or something on the lines of the principle of Amendment No. 59, giving the court powers which reflect the justice of the situation, it does not seem to me at any rate that that should be confined to the region to which Amendment No. 58 would confine it—the situation where there was knowledge but not imputed knowledge.
Lord Hacking: I have heard the Committee's observations, including the observation of the noble and learned Lord, Lord Silkin. In view of the willingness of the noble and learned Lord the Lord Advocate to give consideration at least to my Amendment No. 59, I am only too happy to withdraw Amendment No. 58 and, in a moment, not to move Amendment No. 59.
Amendment, by leave, withdrawn.
[Amendment No. 59 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 60:
Page 4, line 31, at end insert ("and is not excluded by Part HI or IV of that Schedule.").
The noble and learned Lord said: This amendment ensures that if a person carries on business in contravention of Clause 3 but also carries on investment business which he may lawfully carry on by virtue of the exclusions in Part III and IV of Schedule 1, only those investment agreements which he has entered into unlawfully will be unenforceable. The amendment is consequential upon certain amendments made earlier in another place to Clause 1 and Schedule 1. I beg to move.
On Question, amendment agreed to.
Clause 5, as amended, agreed to.
Clause 6 [Injunctions and restitution orders]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 61:
Page 4, line 39, leave out ("or, in Scotland, an interdict").
The noble and learned Lord said: For the convenience of the Committee I shall speak also to Amendments Nos. 62, 159 and 160. These are all technical amendments which are designed to clarify certain of the provisions of the Bill which bring it into line with the terminology more commonly used in the Scottish legal system. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 62:
Page 4, line 40. at end insert ("or, in Scotland, and interdict prohibiting the contravention").
On Question, amendment agreed to.
Clause 6, as amended, agreed to.
Clause 7 agreed to.
Clasue 8 [Self-regulating organisations]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 63:
Pager 6. line 21, after ("by") insert ("making and ")
The noble Lord said: I beg to move Amendment No. 63, which stands in my name on the Marshalled List. It may be for the convenience of the Committee if I speak also to Amendments Nos. 64 and 65. We are here dealing with the self-regulating organisations. These amendments are designed to elicit a response from the Minister by way of clarification. As I understand it, the self-regulating organisations will be entitled, subject to certain restrictions, to make rules as well as to enforce rules. It seems to me that that is a clarification which needs to be made in the Bill.
Then in Clause 8(3) there is the expression in brackets about,
"rules (whether or not laid down by the organisation itself)".
That seems to presuppose that the organisation may be enforcing rules which are not laid down by itself. I wonder whether that is exactly what the Government want to say—whether they wish to say that the SIB has powers under certain clauses that we shall come to later to change the rules, and therefore those rules cannot be considered as being laid down by the organisation itself; or whether they have anything else in mind that I do not know about.
My original point is that the rules of a self-regulating organisation should be laid down by the organisation itself and can be changed by a certain procedure which the Bill describes, but that the self-regulating organisation is not in a position to enforce other rules. If my understanding is wrong, I should be most grateful if the Minister could help me on that.
Amendment No. 65 again seeks to address itself to the same point: where rules may or may not be laid down by the organisation itself, so guidance may or may not be laid down by the organisation itself. Again, I should be grateful if the noble Lord the Minister could help me on whether a self-regulating organisation will be in a position to support guidance in some way laid down by somebody else. I beg to move.
Lord Lucas of Chilworth: I am grateful to the noble Lord for making it clear that he is seeking further information. Certainly we envisage that the SROs will
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make their own rules and, as he so rightly points out, there are provisions as to what those rules shall contain. We shall later discuss the SROs' rules alongside those of the head body, the SIB.
SROs will have the responsibility of enforcing their own rules, but they cannot of course enforce those rules of another organisation even if their member belongs to that other organisation. I think that was largely the point the noble Lord was seeking to elicit. Certainly the guidance that SROs are expected to give have to be supported by the rules and so in effect, although they do not have the same statutory backing that the rules have, they could or should be taken as being part of the rules.
4.30 p.m.
Lord Williams of Elvel: I wonder whether I may ask for a little more help from the noble Lord. Do I take it that the expression,
"(whether or not laid down by the organisation itself)"
might refer to the rules of the SRO which are imposed in some way by the Secretary of State or the SIB? I fully understand that, but in that case it seems to me that, by virtue of the clauses we shall come to later, they are in effect to be laid down by the organisation itself. From what the noble Lord said, it seemed to me that those words are redundant, but perhaps he can help us on that point.
Lord Lucas of Chilworth: I am sorry if I misunderstood the noble Lord. Perhaps I can make it a little clearer by saying that the noble Lord's second amendment deletes the reference in the definition of an SRO's rules and changes it to refer to rules laid down other than by the organisation itself. That reflects the fact that SROs may incorporate into their rulebooks rules made by another body, in which case of course they then enforce their own rules. Some may wish to incorporate into their rules accountancy standards or other kinds of rules. The clause, as drafted, makes clear that if they do so those standards and those rules become part of the SRO's rules for the purposes of the Bill.
They may have rules and guidance which apply only to matters not related to investment business. For example, they may provide other facilities for members and they may have rules about their use. The definition of rules and guidance in subsections (3) and (4) of Clause 8, which we shall be dealing with, restricts the definition for the purposes of the Bill to rules and guidance which are relevant to matters regulated by the Bill and not to those which are not encompassed by the Bill.
Lord Williams of Elvel: I am sorry to keep on wearying the Committee with this question. If an SRO incorporates into its rules accountancy standards or anything else, as I would understand it, those rules are laid down by that SRO. Therefore the expression,
"(whether or not laid down by the organisation itself)"
is redundant. That is the point I was trying to make. Either the rules are made by the SRO, from whatever source they come, whether it is from the Institute of Chartered Accountants or anybody else, or they are not made by them. What was worrying me was that

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the SROs, under the Bill as drafted, do have some curious power which I have seen defined to enforce rules which may be laid down by somebody else. I do not see how an SRO can have rules laid down by somebody else, unless it is by the Secretary of State or the SIB.
Lord Lucas of Chilworth: In fact, that is exactly the point. It is the rules that could be laid down by the Secretary of State or the designated agency, as, for example, in Clause 50, which we will come to, dealing with clients' money. I am very sorry that I did not make it abundantly clear.
Lord Williams of Elvel: I am now clear on what this means, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 64 and 65 not moved.]
Clause 8 agreed to.
Clause 9 [Applications for recognition]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 66:
Page 7, line 19, leave out ("or other legible form").
The noble Lord said: Again, this is an attempt to clarify what is meant by "or other legible form". I understand that the phrase occurs in a number of statutes, but is it possible that rules are made other than in writing or in a language other than English—ancient Sanskrit, for example? Can the noble Lord help me on this?
Lord Lucas of Chilworth: The point we have in mind here is that guidance may not be issued only in a written document. With modern technology, guidance may be stored on computers with the facility to call it up on a screen when it is necessary to refer to it. We did not find it very easy to find the right words to explain the concept, and perhaps the words we have chosen are not altogether satisfactory. However, I think they convey the intention clearly enough: at least I hope they do.
Lord Harmar-Nicholls: If one has in mind computers, I do not think that "legible" is the right word. I think that something a little more in keeping with what we mean by the use of a computer ought to be found if at all possible.
Lord Boyd-Carpenter: Can my noble friend say whether there is any precedent for this form of words in a statute?
Lord Lucas of Chilworth: If memory serves me right, I think we embraced this form only a few weeks ago when we were discussing the Patents, Designs and Marks Bill, because of the change in technology which was envisaged in that area. We were talking at that time about a register. The old statute implied a register which was in a book that could be looked at and photocopied. During the passage of that Bill we enlarged it so as to include a computer printout; so I think that there is already a precedent accepted.
Lord Boyd-Carpenter: If I may follow that up with my noble friend, would it exclude a document where handwriting was used—and here I must declare an interest—which is difficult to read?
Lord Silkin of Dulwich: If I may leave the area of semantics and come to the area of practicalities, I wonder why this is confined to that which in any form is legible. Why not any guidance, whether it be legible or not?
Lord Lloyd of Hampstead: I wonder whether I may suggest that the appropriate word might be "intelligible" rather than "legible".
Lord Harmar-Nicholls: Or even the word "identifiable", if it might be identified by picture, by computer or whatever it is. I do not think "legible" is the right word. Doctors would not have a chance.
Lord Lucas of Chilworth: A number of suggestions have been made. As I said, I am not sure that we actually found the right wording. I think the intention is quite clear to the Committee. Suppose I invite the Committee to accept that intention. Of course we will look to see whether we can find a better word, but I have a suspicion that at the end of the day we will find another word and then some other Member of the Committee will find that objectionable and suggest yet another one. That sort of thing frequently happens in this kind of area.
Lord Silkin of Dulwich: I wonder whether it is right that the intention is quite clear. With respect, it certainly is not clear to me. As it stands, whatever word you use it would seem to be intended to rule out guidance that is given verbally. Is that what is intended and, if so, why?
Lord Lucas of Chilworth: One would expect, because of the very nature of the arrangements one envisages for SROs, that word of mouth would not transmit easily. Mistakes are made, and if SROs are going to do their job properly one would expect them to put in some kind of documentary form or legible form which can be referred to and not easily forgotten.
Lord Boardman: At the risk of prolonging this discussion, may I suggest to my noble friend that we miss all those words out and we just have "a copy of any guidance issued", without referring to writing or "legible form"? They seem to me to be quite unnecessary.
Lord Lucas of Chilworth: I am grateful to my noble friend Lord Boardman. As I said earlier, we shall have another think about it, but I believe that the intention is quite clear.
Lord Williams of Elvel: I am most grateful to the Minister. We have had a very interesting debate. The more the debate goes on, the more matters of substance seem to arise out of what appeared originally to be an entirely semantic problem. I think there is a problem of substance as to how guidance is to be issued by SROs, and I take issue with the noble

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Lord in saying that SROs will have to put everything in writing. The whole point about practitioner-based legislation is that there is a lot of guidance given verbally, and it is right that it should be so. But on the noble Lord's assurance that he will look at the wording again, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 agreed to.
Clause 10 [Grant and refusal of recognition]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 67:
Page 7, line 33, leave out subsection (3).
The noble Lord said: I move this amendment simply to express a concern which a number of people have in the City of London, that they will have to belong to a great number of SROs in order to carry on the business that they carry on at present. I shall be grateful for any guidance that the Minister can give us on how many SROs there will be, and whether it will be necessary for everybody to join every one, in order to continue to do the business that they do at present. It is an area which is causing a certain amount of confusion at the moment, and any guidance that the noble Lord can give us would be welcome. I beg to move.
Lord Lucas of Chilworth: It is envisaged that there will probably be five or six SROs. This depends entirely on the range of products that each organisation is intending to cover. It may be that an SRO will deal with a very narrow band of products which do not encompass all the activities of one of its members, in which case, yes, certainly, a member may have to join more than one. It is designed in that way so that the SROs can properly enforce the area which they have chosen to represent as an organisation.
It would be quite wrong of course if the membership of one SRO which had a specific activity had the responsibility of enforcing the rules of another organisation which the original SRO's member may wish to join. It may be a little cumbersome and a little expensive, but it will certainly be necessary for some authorised persons to belong to more than one. I think it is only the conglomerates which would probably need to join more than one, or possibly three or four. The way matters are shaping up, we see that most people deal with only one kind of investment business, and therefore their activities would be looked after by the one organisation.
Lord Williams of Elvel: I am grateful to the noble Lord. In moving this amendment I ought, as it were, to have redeclared the interest I declared on Second Reading, that I am on the national board of a Spanish bank. That particular Spanish bank has one branch in London, and apparently finds itself having to join four SROs for the different activities in which it engages. That is the point which I wish to bring to the noble Lord's attention. It seemed to be slightly unreason-able. But having said that, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 68:
Page 7, line 37, at end insert ("or an exempted person in respect of that business.").
The noble Lord said: This amendment corrects an oversight. A member of a recognised self-regulating organisation may also be an exempted person for certain types of business. This amendment provides that he is not to be precluded from carrying on the business in respect of which he is exempt by the organisation's "scope" rule. I beg to move.
On Question, amendment agreed to.
4.45 p.m.
Lord Ezra Lord Ezra moved Amendment No. 68A:
Page 7, line 40 after ("regard") insert ("to the desirability of restricting the number of recognised self-regulating organisations and").
The noble Lord said: I beg to move this amendment, which links up with the point raised by the noble Lord, Lord Williams of Elvel, in moving Amendment No. 67. It is obviously desirable that the number of SROs should be limited to the minimum necessary. It is, after all, one of the objectives of this Bill that, while providing proper safeguards for investors, there should not be undue encumbrance on practitioners. It is known that the SIB, which will eventually, presumably, be taking on these responsibilities, is seeking to reduce the number of SROs by creating mergers. Six have been talked about, but there may be five or even four. I should have thought it would help to achieve that desirable objective if this wording were introduced into this clause. I beg to move.
Lord Lucas of Chilworth: I readily accept—and I have sought to demonstrate our acceptance—the desirability of keeping the number of SROs to the minimum, but it has to be consistent with the effective regulation of the whole range of investment business. The purpose of Clause 10(4) is to allow the Secretary of State, or the designated agency, to refuse recognition on the grounds that there is no need for it, having regard to the existence of other organisations which are, or are likely to be, recognised. We have always expected that one of the factors to be taken into account is the desirability of keeping the numbers down, though there will also be other factors.
For example, it may be that in a particular area regulation would be more effective if it were divided among two organisations rather than one, or it could be that tidier demarcations between the areas regulated could be achieved if three organisations rather than two were recognised. I would be hesitant about letting the desirability of restricting numbers, as such, be the basis of the recognition decision. We believe that the existing provision, enabling recognition to be refused on the grounds that it is not necessary, is sufficiently flexible to allow due weight to be attached to the considerations to which the noble Lord, Lord Ezra, has drawn our attention, as well as other considerations of the type to which I have referred. I hope that that explanation is sufficiently wide to explain why I am going to suggest to the noble Lord that his amendment is not necessary and to invite him to withdraw it.
Lord Ezra: I am grateful to the noble Lord for saying that he agrees with the principle underlying this amendment. It may well be that it is in the wrong place. It may even be that it does not need to be explicitly stated. But I should have thought it was in the interests of all concerned that the number of SROs should be kept down to the minimum. Having aired this point, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 10, as amended, agreed to.
Schedule 2 [Requirements for recognition of self-regulating organisation]:
Viscount Colville of Culross Viscount Colville of Culross moved Amendment No. 69:
Page 154, line 8, leave out ("to") and insert ("which may").
The noble Viscount said: I see that this amendment has been grouped with Amendments Nos. 70 and 71. They are actually slightly separate points; but if it is for the convenience of the Committee, I shall deal with them together, provided that my noble friend gives me two answers because there are two points. The first one is essentially a matter of drafting. It relates to paragraph 1(3) of the second schedule, and the matters that are to be taken or should be taken into account by an SRO when it is making its own rules. The point is very simple. In Clause 26, the Secretary of State, or I suppose the SIB, is given a collection of matters that have to be looked at. One of them, in subsection (3), is the question of people who will be employed by or associated with the applicant for the necessary authorisation. That is absolutely right and I am not in any way trying to alter the Government's intention in this or in either of my other two amendments.
The difficulty comes in the wording of the schedule. In Clause 26, the Secretary of State is allowed discretion as to whether or not to take the point concerned into account. However, if one examines Schedule 2, in paragraph 1(3) it appears that the self-regulating organisation must take it into account because of the phrase that is used. I do not suppose that such is intended. I imagine that the same discretion exists as with the SIB. However, if that is so, it ought to be spelt out. There will be circumstances when, for instance, the SIB could not possibly know about the persons who will be employed by or associated with the business.
My second point concerns, on the face of it, a matter of drafting. However, it is important. In paragraph 3 of Schedule 2, the SRO must provide in its rules for protection,
"at least equivalent to that afforded",
essentially, to those given under the SIB rules. However, the SIB will not be making rules in all the areas that SROs will be covering in their own rules. What is more, the SIB may not be sufficiently quick to spot changes in rules that the SROs themselves would like to make to keep up with the way in which business develops.
If one uses the word "equivalent" it presumes that there is in the first place an SIB rule to which the SRO's rules will be equivalent. I do not believe the Government intend that to be so. I believe the Government mean that the SROs should have rules
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that are no less advantageous but that they do not require something similar in the SIB's rules that can then be photocopied, as it were, by the SROs.
The two points to be considered are, first, that if the SIB does not make rules that are specifically required for the SRO's areas of activity, then it will not be possible to have anything that is equivalent. Secondly, there is the matter of change. I wish in no way to reduce the protection that is being given by the Bill; I simply want to make it more workable and flexible. I hope that my noble friend will be able to help in respect of both points. I beg to move.
Lord Lucas of Chilworth: I am grateful to my noble friend Lord Colville for grouping his amendments. He asked me particularly to give two answers. I am delighted to do so. The first answer is yes, and the second answer is no. Perhaps I could be a little more helpful. What I mean is that, yes, I am happy to accept my noble friend's first amendment because it really is a helpful clarification, and I am grateful to him for it.
However, as to my noble friend's second and third amendments, I do not believe that they would have any substantive effect. The test provided for in paragraph 2(1) of Schedule 2 is that the recognised self-regulating organisation's rules must provide at least the standard of investor protection that is provided by the rules made by the Secretary of State or by the probable designated agency. In other words, the standard of investor protection provided by the rules must be as high as or higher than that provided under the rules of the Secretary of State or the designated agency. As I understand it, that is also the intention of my noble friend's second amendment, and I hope he will agree on reflection that his amendment is not really necessary.
The rules with which the organisation's rules will be compared will be corresponding ones made under Chapter V—that is, the rules concerning the kind of investment business with which the organisation is concerned. If the Chapter V rules make different provisions for different cases—for example, by making less onerous provisions for transactions with a sophisticated investor—then so may the organisation's rules do the same. Again, as I understand the matter, that is the intention underlying my noble friend's third amendment.
I do not believe that there is any substantive difference between us. My noble friend will recall that some little while ago, he discussed with me the exact meaning of the word "equivalent" or "equivalence". I draw his attention in particular to paragraph 3(1) of Schedule 2, at line 23 on page 154 of the Bill, which makes mention of
"investors protection at least equivalent to that afforded".
That implies that there is movement; that there is not a totality of equivalence but that the protection must be no less than that afforded under Chapter V and may be higher. It must be at least equivalent to Chapter V protection. I hope that that explanation is satisfactory to my noble friend, and that he will find it sufficiently so not to move his two other amendments.
Lord Bruce of Donington: The noble Viscount has afforded the Committee an opportunity of discussing paragraph 1(3) of Schedule 2, which states that:

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"The matters to be taken into account under the rules in determining whether a person is a fit and proper person must include those that the Secretary of State may take into account under section 26 above".
The noble Lord will be aware that I have expressed some anxiety in your Lordships' House on occasion about the distinct possibility, amounting to a probability, that people will seek membership of SROs, or will seek the authorisation of the Secretary of State—and more likely the former—who are themselves resident outside this country. They may seek, possibly under a respectable guise or by reason of a shareholding in a concern in this country, to apply for authorisation, albeit indirectly.
The question I have to ask the Minister is this: what kind of liaison is being established between the Secretary of State and the SIB, and through the SIB to the SROs, to determine the extent of the matters that are to be taken into account? The Secretary of State normally has far more resources to ascertain the authenticity and desirability of aliens seeking to come to this country under the cover of respectable organisations than have either the SIB or the SROs. To what extent will the position be safeguarded? To what extent will information be exchanged concerning matters of that kind?
Lord Lucas of Chilworth: I recall the noble Lord, Lord Bruce, raising this point by way of a Parliamentary Question a few weeks ago. I said at that time that every person would have to be authorised. A person may be in a recognised professional body today, which might offer automaticity. Such a person may apply to a self-regulating organisation on his own account, or he may seek direct authorisation. Whichever route the person takes, and even if he is an existing member of, for example, a recognised professional body, it will be for that recognised professional body to satisfy itself that newcomers, and all those in existing membership, have the right qualities and qualifications.
Of course there will be a day-to-day relationship between the designated authority and the SROs. The relationship of the Secretary of State's department and my department would not be quite so close, although from time to time it would be absolutely necessary for the department to engage in consultation with the designated agency. So there is a sufficent intention—it is certainly not set down in the Bill that they shall meet at certain prescribed times—to ensure that the rules are adequate.
The Secretary of State has an overriding discretion with regard to the designated agency's rules, and the designated agency's rules will have to cover all the particular businesses covered by SROs, otherwise no comparision could be made between the SRO's rules and the designated agency's rules: in other words, the head rules as such. The SRO's rules must provide for any relevant matter relating to any of the persons specified in Clause 26(3). They all have to be taken into account.
In Schedule 2, paragraph 7, and Schedule 5, paragraph 5, and others, there is a provision for the regulatory bodies to co-operate one with another and also for developing contacts with overseas regulators for an exchange of information.
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I genuinely understand what lies behind the question put by the noble Lord, Lord Bruce of Donington. It goes back a long way and I believe that it is a very genuine concern. I should like the noble Lord to consider tomorrow exactly what I have said. If he has a particular example rolling in the back of his mind, I should be grateful if he would instance it to me. I can then look at it and give him a categorical answer. I do not think that is possible during the course of our Committee proceedings.
5.p.m.
Viscount Colville of Culross: As regards Amendment No. 69, it is enormously agreeable to find a form of words that appeals to my noble friend. I hope that they will now go into the Bill.
As to the other two amendments, I hope my noble friend can help me further. I do not think it matters whether we have the word "equivalent" or some other adjective in the Bill provided his department acts in a sensible way. My noble friend will be able to tell the Committee about this because it is a matter of administration, not law. Is my noble friend's department going to recognise SROs who include in their rules matters that are not encompassed by what the SIB has put down?
Is my noble friend's department going to continue the recognition of an SRO, and not revoke it under Clause 11, if, because the type of business or the way the business is carried out is changed, the SRO includes in new rules things that the SIB has not got round to? That is the substance of the matter. Nobody is trying to do anything to put an obstacle in the way of protection for investors. All that is being thought about at the moment is the way that the schedule is drafted which indicates that a blueprint will be necessary from the SIB before the SRO can make a rule or change its rules.
If the department is not going to pay any attention to that and is going to allow the SROs to make sensible rules and amendments to their rules to deal with exigencies and circumstances—and I shall continue for a moment so that my noble friend can read the note just handed to him—there is no problem whatever in having the word "equivalent". My objective is to make it sufficiently flexible to keep up, in the case of any particular SRO, with what happens in the business world. If my noble friend can give an assurance about that, it is perfectly acceptable to leave the schedule as it is.
Lord Lucas of Chilworth: The SROs can alter their own rules, and provided any alteration makes a provision over and above the designated agency's rules then of course everything is perfectly all right. It is for the SIB, as the regulatory authority, to advise the Secretary of State of the acceptance of a self-regulatory organisation. It is not for the Secretary of State so to do. It will be for the SRO to satisfy the SIB in the event of there being no SIB rule to which the SRO's new rule can be compared. It will not be able to bring it into force until it has the necessary authority, which may well mean the SIB having to change its rules.
We come a little later—I cannot recall the clause—to the challenge which can be made with regard to the rule-making procedures. I think that

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might be the better place to discuss what happens if the SIB does not accept an SRO rule. I hope that is helpful.
Viscount Colville of Culross: I suspect that it is not, but perhaps we can come back to it later. I think that my noble friend has confirmed the fears that if an SRO wishes to change its rules to meet some new facet of business and the SIB has not got round to considering it, the SRO will not be able to do it under the way the schedule is amended until the SIB itself has been moved into action to take some equivalent activity. That cannot be sensible because if the SRO is going to be responsible for the rules which deal with the sort of investment business within its own sphere, it is going to be much better equipped to bring up to date the changes that need to be made. It should not have to wait for the SIB to get round to doing something similar. It ought to be able to do it without being blocked.
The purpose is to provide protection for the investor. What I think my noble friend is saying is that the SROs will not be able to provide adequate protection under their own rules until the SIB has made an equivalent change. If that is wrong, it is extremely important that that should be said now. I see my noble friend is shaking his head. Perhaps he would like another opportunity to clarify the matter.
Lord Lucas of Chilworth: I apologise to the Committee if I have not made myself clear—and it is obvious that I have not done so. Provided an SRO makes rules in addition to and over and above the basic ones contained in the SIB rules, it can do so without let or hindrance. Therefore, the SRO's have the flexibility which I think my noble friend is seeking.
Viscount Colville of Culross: I am grateful to my noble friend. That explanation is very much better and clearer, and I should like to read the whole passage to see whether this matter is taken up under the Clause referred to. Meanwhile, since we are dealing with Amendment No. 69, I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 70 and 71 not moved.]
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 72:
Page 154, line 42, at end insert ("in respect of investment business of a kind regulated by the organisation.").
The noble Lord said: For the convenience of the Committee, I shall speak at the same time to Amendments Nos. 75, 105, 251 and 267. I shall refer also to Amendments Nos. 73, 74 and 76 which also apply to Schedule 2.
This group of amendments tidies up some of the requirements for recognition or designation under the Bill. The first amendment clarifies the scope of paragraph 4(1) of Schedule 2. It makes clear that while a recognised self-regulating organisation has to monitor and enforce compliance with directly applicable rules which apply when a member is carrying on investment business of a kind with which the organisation is concerned, it does not have to monitor and enforce compliance with rules to which a member is subject simply because he is also directly authorised.
The other Government amendments all concern the bodies to whom monitoring functions can be delegated by the bodies regulating investment business under the Bill. At present these bodies are specified in lists included in the relevant schedules, but it is already becoming clear that it may be desirable for monitoring to be delegated to persons who are not on the various lists; for example, in the case of a foreign business it would be its own domestic regulator. It may well be that other bodies will emerge in the course of time who are capable of performing this monitoring function. It therefore seems preferable to delete the lists and to permit the delegation of the monitoring function to any person or any body who is able and willing to perform it. Of course, it will be for the Secretary of State or the designated agency to be quite satisfied that that person or that body in question is in fact able and willing and that the arrangements are adequate for effective monitoring. With that explanation I hope that the Committee will be able to accept these amendments. I beg to move.
Lord Ezra: Included in the grouping which the noble Lord mentioned are three amendments in the names of my noble friend Lord Taylor of Gryfe and myself; namely, Amendments Nos. 73, 74 and 76. I believe that they are all in line with what the noble Lord has just told us.
The intention of Amendments Nos. 73 and 74 is simply to make sure that the enforcement aspect is not lost sight of in sub-paragraph (2) at the bottom of page 154. The purpose of Amendment No. 76 is to make it absolutely clear that a separate monitoring and enforcement body could be established if it were thought fit to carry out these functions. That is not in fact stated in sub-paragraph (3) at the top of page 155. We believe that this amendment will be entirely in line with what the noble Lord has just said.
Lord Lucas of Chilworth: When I said that I intended to speak to these amendments I rather wanted to suggest to the Committee that we resist these three amendments, but I thought that it might be preferable for the noble Lord to explain what he had in mind before I over-guessed him perhaps. These three amendments would permit the enforcement as well as the monitoring function of recognised self-regulating organisations to be delegated to another body. I can see the force of the argument that these SROs, in the absence of any other pressures, might in some cases at least tend to be too lenient toward their own members in the interests of good relations. But in fact the Bill contains safeguards which are designed to prevent this. For instance, the governing body will have to include a significant independent element if it is to satisfy the requirements of paragraph 5 of Schedule 2. That in itself should help to prevent any drift toward leniency.
Of course, behind all this will be the powers of the agency to withdraw recognition fully under Clause 11, partly under Clause 13, or indeed to seek a compliance order from the courts under Clause 12. We hope and, frankly, expect that these powers will rarely, if ever, be used, but they are there of course if they are needed.
There is a need to avoid overlapping supervision in appropriate cases. That is why the Bill provides for monitoring to be undertaken on behalf of a self-

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regulating organisation by another body. This would allow monitoring to be delegated to a joint body of the kind proposed by the noble Lord. But I believe that enforcement and discipline must remain the responsibility of the SRO itself. Were it otherwise, both the authority of the organisation over its members and its responsibility or indeed its ability to uphold standards of investor protection in our view would be quite seriously weakened. I suggest to the Committee that the effect of the noble Lord's proposals would be the very opposite of what he is seeking to achieve.
5.15 p.m.
Lord Ezra: In order to avoid any confusion in my mind, may I take it in regard to Amendment No. 76 that if the word "enforcement" were left out, the noble Lord will accept it? Where it seems to me that sub-paragraph (3) is deficient is that it does not give a sufficiently wide range of options.
Sub-paragraph (2) states that:
"The arrangements for monitoring may make provision for that function to be performed on behalf of the organisation … by any such body or person as is mentioned in sub-paragraph (3) below".
But sub-paragraph (3) does not suggest an independent body, which is obviously one option.
Lord Lucas of Chilworth: I can respond to the noble Lord's invitation only perhaps by saying that I am quite prepared to have a look at the suggestion. I should like to do this with more advice to hand than I have this afternoon, though I do not believe that this amendment is at all necessary because anybody can now carry out this function. However, I shall of course have a look at it with the best will in the world.
Lord Bruce of Donington: I think that the noble Lord has spoken to Amendment No. 75. The noble Lord will be aware that his amendment, Amendment No. 75, is quite sweeping in the sense that the original paragraph 4(2) read:
"The arrangements for monitoring may make provision for that function to be performed on behalf of the organisation (and without affecting its responsibility) by any such body or person as is mentioned in sub-paragraph (3) below who is able and willing to perform it".
The noble Lord will observe that at sub-paragraph (3) these bodies are listed in some detail. I shall not weary the Committee by repeating them. The noble Lord is moving for the deletion of all those particulars relating to the Bank of England and so on and wants simply to put in its place:
"other body or person who is able and willing to perform it".
May we have some indication as to the noble Lord's thinking behind that proposal and why he now finds it necessary to make the definition more general and much wider?
Lord Lucas of Chilworth: Frankly, I do not think I can go any further than my original remarks. I said then that it had become very clear to us that it would be very difficult for monitoring to be delegated to persons not on a list; for example, in the case of a foreign business. Because things are changing so fast, it seems totally undesirable to have a firm list which would then have to be altered. It is far better in the case
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which I instanced of a foreign business to look for its domestic regulator to be the body. Other bodies could quite easily emerge in the course of time. That is exactly what I said. So long as they can demonstrate a capability of performance, they should be allowed to get on with it.
The safeguard is that the monitoring has to be effective. Even if that function were delegated as a condition for recognition, the designated agency would have to be totally satisfied that the SRO's arrangements for monitoring, as it has now been sub-contracted, are still effective.
I do not think that I can add any more. This is only an expansion of what I said at the outset. I do not think that the noble Lord needs to fear that any authority will be lost by a sub-contractor organisation. It falls back at the end of the day on the SRO to ensure that the monitoring is effective.
On Question, amendment agreed to.
[Amendments Nos. 73 and 74 not moved.]
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 75:
Page 154, line 45, leave out from ("any") to end of line 8 on page 155 and insert ("other body or person who is able and willing to perform it").
On Question, amendment agreed to.
Lord Ezra Lord Ezra had given notice of his intention to move Amendment No. 76:
Page 155, line 3, after ("are") insert ("a monitoring and enforce-ment body established and operated only for the purposes of monitoring and enforcing functions delegated to it such as are mentioned in sub-paragraph (2) above, ").
The noble Lord said: On the understanding that the noble Lord will have a look at the point raised, I shall not move the amendment.
[Amendment No. 76 not moved. ]
Viscount Chandos Viscount Chandos moved Amendment No. 77:
Page 155, line 19, after ("unless") insert ("at least one third of).
The noble Viscount said: With the leave of the Committee, I propose to speak also to Amendment No. 78. I hope that the Committee will find these two brief amendments simple and self-explanatory. I think that the presence of lay members on SRO governing bodies is important and can be seen as a central part of the principles of self-regulation on which the Bill is founded. If we go back to the agreement in 1983 between the then Secretary of State for Trade and Industry and the chairman of the Stock Exchange, one of the three specific concessions agreed by the Stock Exchange at that point was the appointment of lay members of the Stock Exchange Council.
In view of the importance of that principle, my noble friends and I find the phrasing in the Bill, "a sufficient number", a little vague and perhaps potentially unhelpful to SROs in determining the composition of their governing bodies. It is also a central point for the public in establishing their confidence in the SROs.
A ratio of 2:1 between professionals and lay members seems to be on a rule-of-thumb basis about right, although there is no magic in that proportion. This is an important point and I think that the Bill

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would benefit from the specific requirement that at least one-third of the members be effectively lay members and not involved directly in the business which the SRO is set up to monitor. I beg to move.
Lord Graham of Edmonton: I had intended to raise this matter on the Question whether Schedule 2 should be agreed to, but perhaps when the Minister deals with the amendment he can tell the Committee where the Government see a place for those employed in the industry on the governing body. Paragraph 5 of the schedule talks about:
"The arrangements of the organisation with respect to the appointment, removal from office and functions of the persons responsible".
The noble Viscount talks about what he considers to be a proper balance of the interests affected by the work of and the conduct of business rules appertaining to the SRO. Those employed in the business are as entitled as any other element affected by the business to be heard or at least to have their opinions considered.
When the Minister deals with the question of the balance on the governing body and whose interests should be represented, I hope that he can deal with that point also, rather than taking up time with it on the Question whether the schedule should be agreed to. Hundreds of thousands of individuals in financial services may be affected. I have in mind not merely insurance agents or members of bona fide trade unions. They may be members of other bodies or they may be working as individuals. The powers that be, company directors and senior officials, may well be able to look after themselves, but the employees are entitled to access to the governing body in order to influence particularly the conduct of business rules. I hope that the Minister can deal with that when replying to the amendment.
Lord Lucas of Chilworth: I accept fully what the noble Viscount and the noble Lord say about the importance of having effective independent representation on the governing bodies of SROs to help to prevent them from becoming cosy clubs (which I think is an expression that has crept into our discussions) and to ensure that proper account is taken of the interests of users and of the public. Paragraph 5 of Schedule 2 seeks to achieve that objective by making it clear that effective independent representation will be required, while leaving it open to individual SROs to decide the detailed composition of their governing bodies.
The amendment seeks to impose a precise numerical requirement that the independent members—the noble Viscount used the term "lay members", but I am sure that we mean the same thing—should constitute a third of the membership of the governing body or any other body which exercised effective control. He said that there was no magic about the proportion of one-third. If he will allow me to say so, I could not have put it better.
Lord Grimond: The amendment says "at least one-third". It is not precise.
5.30 p.m.
Lord Lucas of Chilworth: The noble Lord is right. I was merely quoting the noble Viscount, who said that there was no great magic about a third. I agree. As a general statement, I would not differ from the proposi-tion that something like a third of the members should be independent. The SIB has said that, if powers to recognise SROs are transferred to it, it will expect them to have a number of independent individuals of high standing in appropriate positions on their governing bodies. It has explained that it is thinking in terms of about one-quarter to one-third of the members of the governing body being independent of the organisation. I welcome that statement. I think that the Committee will probably welcome it also.
The Bill does not impose specific numerical requirements because it seems to us right to leave it to organisations to decide on the precise composition of their body in the light of particular circumstances and needs, provided always of course that the basic requirement of securing a proper balance is met.
A specific requirement for a stated percentage of the governing body to represent particular interests would be undesirably rigid. It would involve deciding into which category an individual fell. For example, if one-third of the governing body had to be made up of independents how would an accountant who did some work for members but who was otherwise independent be regarded? What about the non-executive director of a member company who had been appointed to that company because of his wide knowledge and independent judgment? Would he qualify as an independent member or would he have to be grouped with the members' representatives, even if not elected by them as one of their representatives?
We must avoid the situation in which somebody with no relevant experience may be appointed merely to make up the number of independents or satisfy a certain category of independents. We think that the quality of the people appointed is rather more important than the precise numbers.
The provisions as they stand in the Bill avoid that problem by requiring that there is a sufficient number of independent persons. Even if there is doubt about how an individual may be classified, the Secretary of State or the designated agency would be able to look at the constitution of the governing body in the round when determining whether there was a sufficient number of independents to secure the proper balance for which we are all looking. That is the balance between the interests of the organisation or its members and the interests of the public. I believe that that is a preferable approach.
I am grateful to the noble Lord, Lord Graham. He made the point that the governing body should include employees' representatives. SROs are concerned with the interests of investors in those investors' dealings with investment businesses, not necessarily—I do not wish to be too harsh about this—with the relations between employers and their employees. There is a fundamental difference. I do not think therefore that it would be appropriate to require employee representation on governing bodies. That is the difficulty one has when deciding into which category a person of sufficient high standing, knowledge and so on should

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fall. I do no believe that there is any suggestion of discrimination. Again, I come back to the generality that we have left the SROs to determine their own governing body within a rather wider framework.
Lord Graham of Edmonton: Good industrial relations figure more prominently now than ever before. There is a need for those employed in a business to be satisfied about the conduct of that business by those who have executive authority who should take into account the needs and views of those employed in the business. I merely want to leave that on the record for those who will study with care what the Minister and other Members of the Committee have said. I believe a case can be made out for that. We are looking for individuals of high standing and ability. Many employees of a company or business have been employed in it for many years. Many of those serving in the higher echelons of companies may well have served for a short time only. They may be clever and able and they will certainly be able to make a contribution.
I merely wish to leave on the record the fact that when SROs meet, their members should pay due regard to the fact that good employee relations are better obtained if employees consider that their interests are taken into account.
Lord O'Brien of Lothbury: I hope that it is not out of order for me to intervene on what the noble Lord, Lord Graham, has said. From my long experience in the City, I have come to the conclusion that industrial relations in that part of our economy are in a far healthier state than those in any other part. Trade union intervention has been small. I do not think that there is any case for having trade union or employee representation on a body that is designed for a specific purpose. It should fulfil that purpose, and to do so it does not need representatives; it needs effective executives.
Lord Boyd-Carpenter: I agree wholly with what has just been said about trade union and employee representation, but I am less happy about the use of the word "sufficient". I ask my noble friend who is about to reply whether he will say: sufficient for what? If one is laying down something in a statute which the courts may have to consider, surely the courts should be given some guidance as to what is the purpose, sufficiency for which in numbers is required by the clause. It is not clear to me.
Lord Lucas of Chilworth: Before the noble Viscount whose amendments we are discussing replies, would it be helpful if I responded to the points which have been put to me? I understand what the noble Lord, Lord Graham, wishes to get on the record. Equally, I appreciate what the noble Lord, Lord O'Brien, had to say. I do not think that there is any difference. In the Bill, we are not seeking, in any shape or form, to introduce any point about industrial relations. I think that the noble Lord wanted to make the point so that SROs and others can take note of what he feels about the matter. There is no doubt that this little debate on that point will bring it to their attention without in any way upsetting the position that the noble Lord, Lord O'Brien, puts to us.
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My noble friend Lord Boyd-Carpenter asked, as he so frequently does, a blunt question about "sufficient". It is a matter of its being sufficient to secure a proper balance between the interests of the organisation or its members and the interests of the public. It is therefore for the SROs, with guidance from the SIBs, to determine where that balance is to be struck. It could be different for different SROs. That is why 1 have suggested to the noble Viscount that we should not be specific about numbers.
Lord Silkin of Dulwich: The Minister has clearly and admirably defined what is meant by "sufficient". Might not words similar to those which he has used be inserted into the schedule at the next stage of the Bill?
Viscount Chandos: I should like to thank the noble Lord, Lord Lucas, for his response, though there are still some aspects of the matter which concern me. I shall make a few comments on the intervention of the noble Lord, Lord Graham. In this case, there is a danger of trying to kill two birds with one stone and to use the Bill to ensure and safeguard the position of employees in the financial services industry.
However, there is, I believe, still something extremely useful that we can consider arising from the comments of the noble Lord, Lord Graham. It is the composition of the governing bodies relative to the seniority of the nominees from member companies. In a very complex and fast-changing industry, there is often a deeper understanding of some of the problems at a relatively junior level within an organisation. Many industry associations and working parties, looking at the problems emerging in the market, actually comprise people who are not all that senior in the organisations in which they work. This is a matter that could fairly be borne in mind.
I was concerned by what the noble Lord, Lord Lucas, said. It seemed to me that in trying to get away from the cosy club syndrome—that was, I think, his phrase—the example that he gave of whether a non-executive director of a member firm was really independent or not seems potentially to raise valid concerns on the part of the public as to whether the independent representation on the SRO's governing body is really sufficient to ensure a proper balance. I accept that the more precisely one defines a minimum representation of independent members of the governing body, the more precisely one has to define who is independent. We have to face the fact, however, that in very complex markets a self-regulatory organisation, with a majority of members who come from the industry, will, if given the chance, limit the number of independent members because it will make life easier. It will be able to discuss the problems in shorthand without going through the laborious process of explaining some of the problems and some of the market practices to people who are genuinely independent and inexperienced in those markets. It is for that sort of reason that I am concerned that the general phrase of a sufficient number of independent members to ensure proper balance is not really helpful to the SROs' governing bodies in resolving conflict between an efficient and smooth-running governing body and one that has adequate representation of independent members.

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I was encouraged, however, to be reminded of the SIB's guidelines on minimum representation of between a quarter and a third. That, if anything, reinforces my view that the Bill should include a minimum requirement of, say, 25 per cent. rather than one-third. I wonder, in the light of those comments, whether the noble Lord, Lord Lucas, has anything to add.
Lord Lucas of Chilworth: The only addition that I can offer the Committee is to reiterate that it has always been the intention that governing bodies should include a significant independent element. Frankly, we believed that this was implicit in paragraph 5(1). At Committee stage in another place a large number of amendments was proposed, all seeking to set a precise formula for the constitution and all including an explicit reference to independent members. In response to pressure on this point we inserted paragraph 5(2) which, we believed, brought out much more explicitly the requirement for independent members.
I suggested in my earlier remarks why we wanted to resist precise numbers. I have to tell the noble Viscount that I now invite the Committee to reject his amendment for the reasons I have given. Frankly, we do not wish to see any precise number, whether given in fractional terms or in percentage terms. We do not believe that this would serve the interests of the investors, the members, the RSROs and all the bodies to which I have referred.
Viscount Chandos: In the hope that the SIB success-fully enforces the guidelines mentioned by the noble Lord, Lord Lucas, and despite maintaining some reservations, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 78 not moved.]
Schedule 2, as amended, agreed to.
5.45 p.m.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 79:
After Schedule 2, insert the following new schedule:

SCHEDULE
("REQUIREMENTS FOR RECOGNITION OF PROFESSIONAL BODY
Statutory status
1. The body must:—

(a) regulate the practice of a profession in the exercise of statutory powers; or

(b) be recognised (otherwise than under this Act) for a statutory purpose by a Minister of the Crown or by, or by the head of, a Northern Ireland department; or

(c) be specified in a provision contained in or made under an enactment as a body whose members are qualified to exercise functions or hold offices specified in that provision.

Certification
2.— (1) The body must have rules, practices and arrangements for securing that no person can be certified by the body for the purposes of Part I of this Act unless the following conditions are satisfied.

(2) The certified person must be either—

(a) an individual who is a member of the body; or

(b) a person managed and controlled by one or more individuals each of whom is a member of a recognised professional body and at least one of whom is a member of the certifying body.

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(3) Where the certified person is an individual his main business must be the practice of the profession regulated by the certifying body and he must be practising that profession otherwise than in partnership; and where the certified person is not an individual that person's main business must be the practice of the profession or professions regulated by the recognised professional body or bodies of which the individual or individuals mentioned in subparagraph (2)(b) above are members.

Safeguards for investors
3. The body must have rules regulating the carrying on of investment business by persons certified by it; and those rules must in respect of investment business of any kind regulated by them afford to investors protection at least equivalent to that afforded in respect of investment business of that kind by the rules and regulations for the time being in force under Chapter V of Part I of this Act.
Monitoring and enforcement
4.—(1) The body must have adequate arrangements and resources for the effective monitoring of the continued compliance by persons certified by it with the conditions mentioned in paragraph 2 above and rules, practices and arrangements for the withdrawal or suspension of certification (subject to appropriate transitional provisions) in the event of any of those conditions ceasing to be satisfied.
(2) The body must have adequate arrangements and resources for the effective monitoring and enforcement of compliance by persons certified by it with the rules of the body relating to the carrying on of investment business and with any rules or regulations to which those persons are subject under Chapter V of Part I of this Act in respect of business of a kind regulated by the body.
(3) The arrangements for enforcement must include provision for the withdrawal or suspension of certification and may include provision for disciplining members of the body who manage or control a certified person.
(4) The arrangements for enforcement must be such as to secure a proper balance between the interests of persons certified by the body and the interests of the public; and the arrangements shall not be regarded as satisfying that requirement unless the persons responsible for enforcement include a sufficient number of persons who are independent of the body and its members and of persons certified by it.
(5) The arrangements for monitoring may make provision for that function to be performed on behalf of the body (and without affecting its responsibility) by any other body or person who is able and willing to perform it.
Investigation of complaints
5. The body must have effective arrangements for the investigation of complaints relating to—

(a) the carrying on by persons certified by it of investment business in respect of which they are subject to its rules; and

(b) its regulation of investment business.

Promotion and maintenance of standards
6. The body must be able and willing to promote and maintain high standards of integrity and fair dealing in the carrying on of investment business and to co-operate, by the sharing of information and otherwise, with the Secretary of State and any other authority, body or person having responsibility for the supervision or regulation of investment business or other financial services.").
The noble and learned Lord said: In speaking to this amendment, I should like, with the leave of the Committee, to speak also to amendments Nos. 84, 84A, 86 to 92, 104, 128, 139, 141, 144, 145, 148, 163, 164, 171, 174, 219, 226 to 229, 232, 233, 238, 245, 340, 346 to 348, 354 to 356, 361, 363 to 368, 382, 385 to 387, 389, and 392 to 400.
I wish that I could be as brief in what I have to say, but it would be helpful, I believe, to give some background to the overall purpose of the amendments. The Government recognise that a large number of professional people—solicitors, accountants, surveyors and so on—engage in investment business incidentally to the practice of their professions.

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Indeed, in some cases, the investment business that they carry on has come to be regarded as an ancillary service that someone practising the profession in question is widely expected to provide. Clearly, there has to be a system of regulation for investment business carried on in this way. But it did not seem to us necessary that many thousands of professionals should be effectively forced into joining recognised self-regulating organisations if other arrangements could be equally effective. In particular, it seems sensible to build on the professional monitoring and disciplinary arrangements that the main professional bodies already have if this could provide adequate investor protection. That principle underlay our original proposals and indeed has not changed.
Clauses 15 and 16 as originally drafted provided for the authorisation of individual members of recognised professional bodies who were practising their profession on their own account or in partnership. This was because, at present, membership of such bodies is generally confined to individuals and the bodies' disciplinary sanctions are generally available only against individual members. However, it has been suggested that it would be desirable to allow in the Bill for the authorisation of other forms of practice, particularly corporate practices. The Royal Institute of Chartered Surveyors already allows its members to practise in corporate form. The Committee will be well aware that there are similar developments under way in other professional bodies. The Government accept that it would not be desirable to stand in the way of such developments. The first two new clauses, Amendments Nos. 84 and 84A, allow authorisation to be conferred on corporate practices as well as partner-ships and individuals practising on their own account. This apparently simple change—
Lord Bruce of Donington: The noble and learned Lord referred to the first of the two new clauses and mentioned Amendment No. 84. Is he dealing, too, with Amendment No. 79 to which I understand he is speaking?
Lord Cameron of Lochbroom: I think that Amendment No. 79 is a schedule. It is unfortunate that on the Marshalled List the schedule comes before the clauses. I am very grateful to the noble Lord.
The first two new clauses allow authorisation to be conferred on corporate practices as well as on partner-ships and individuals. This apparently simple change necessitates a large number of amendments to take account of the fact that the firm certified by a recognised professional body may not itself be a member of the body, although it must be subject to the body's rules.
The second purpose of the amendments is to clarify and extend the requirements for recognition. Some critics have suggested that the special regime for professional bodies will be what is sometimes termed a "soft option". We have always made clear that that was not our intention. The Committee will recognise that the new schedule—which is the amendment to which I am immediately speaking—includes many requirements which are derived from the correspond-ing provisions of Schedule 2 for recognised self-
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regulating organisations. I particularly should like to draw the Committee's attention to paragraph 3. It is there made clear that the investment business rules of the body must satisfy the same equivalence test as the rules of recognised self-regulating organisations. I also draw attention to paragraph 4 which sets out the requirement for compliance of the rules to be effectively maintained and enforced.
The third main change is introduced by the third new clause, which is Amendment No. 88. That gives the Secretary of State or the designated agency an intermediate sanction, short of revocation under Clause 19, against a recognised body which fails to comply with a requirement for recognition or, indeed, with any obligation, such as an obligation to provide information to which it is subject by virtue of the Bill. The sanction is a powerful one. If a recognised body were to disregard an order of the court, it would be in contempt and liable to punishment accordingly.
It will also not have escaped the Committee's attention that while there are close similarities between the provisions relating to recognised professional bodies and those for recognised self-regulating organisations, there are two major provisions relating to the latter which have no parallel for recognised professional bodies. These are the provisions in Clause 13 for the Secretary of State or designated agency to change the rules of a recognised self-regulating organisation's rules in certain circumstances; and secondly, the immunity from liability in damages which is conferred by Clause 156.
The reason for these differences in both cases is the same. Recognised professional bodies will be regulating a limited range of investment activities on a limited scale. The power to change a recognised self-regulating organisation's rules is designed for use in circumstances where a major new abuse needs to be dealt with rapidly. But given the limited kind and scale of the business the recognised professional bodies will be regulating, it seems unlikely that such circumstances will arise in their case. Similarly, there seems to be much less risk of major claims against the body of the kind that we feared in the case of recognised self-regulating organisations and which persuaded us that it was desirable to provide immunity in their case. It would certainly be anomalous, I suggest to the Members of the Committee, to provide these bodies with immunity in relation to regulation of incidental aspects of their members' business when they do not have it, and indeed do not appear to have needed it, in relation to the regulation of their main professional business.
These amendments represent the outcome of detailed consultation with the professional bodies which are most likely to apply for recognition. I believe that they are now in general satisfied with them. They will enable a greater range of businesses to be authorised by this route while ensuring fully adequate protection to investors. I beg to move.
Lord Denning: May I say how much this is to be welcomed. There is the tendency nowadays in some professional bodies for them to attain corporate capacity. I think that is dealt with in one provision with regard to the Law Society which has not been put into effect yet. If these professional bodies are to come

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in as recognised professional bodies, it is certainly very important that there should be rules attaching to them that are properly enforced.
If they conduct investment business, it must be only incidental to their main business. I remember cases in the past where solicitors used to carry on investment business on a large scale. Defendants have come before the courts saying that they were not really solicitors but moneylenders; they are caught by the moneylenders Act. We had many cases of that kind. They are to involve themselves in investment business, or to advise on investments, only when it is incidental to their main professional activity. It is therefore very important that there should be proper rules to regulate the way in which they conduct any incidental investment business. I believe those provisions are here.
With regard to the self-regulating organisations, the new Clause 156 expressly states that they are not to be liable for damages for negligence. It is their legal immunity. On Second Reading we said how good that was to enable the self-regulating bodies to be able to carry on without fear of actions for negligence being taken against them. Although it is not yet provided in Clause 156—the immunity is only at the moment for the self-regulating organisations—I expect an amendment will come later for the immunity also to apply to these self-regulating professions.
Subject to those details it seems to me that this amendment to put professional bodies on a basis so as to be properly regulated is most desirable.
6 p.m.
Lord Bruce of Donington: I should like to endorse in general what the noble and learned Lord has just said about the desirability of proper rules and regulations being laid down which cover those prospective recognised professional bodies who may apply to the Secretary of State for recognition. But before doing so I have to issue a mild protest. This is a non-controversial Bill. It is highly technical. The amendments which we are now discussing, including Amendments Nos. 79, 84, 89 and so on, came into our hands only very recently—in my own case last Friday. This does not give adequate opportunity to study them in very great detail. I have spent many hours seeking to trace them through myself. My own way of proceeding is not normally slow, but I have not yet completed the task.
The noble and learned Lord listed a series of amendments to which he was speaking which exceed the list with which we were originally provided. He announced the amendments to which he was speaking so fast that I found it impossible to list them while he was talking. This is not a satisfactory position. I quite understand that in a Bill of this kind the Government have to do their best to respond to the representations that were made in Committee in another place. They must have time to phrase the appropriate amendments to give effect to the undertakings that were given in Committee in another place. I also fully understand that in that process it is necessary to consult the prospective recognised professional bodies to see whether a suitable accommodation can be
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arrived at between those bodies and the Government, bearing in mind that it is the Government's responsibility to govern and that they must not devote themselves exclusively to those sectional interests that quite properly represent their views to them. Here, I must declare an interest in that I am a member of the Institute of Chartered Accountants, which is one of the prospective bodies applying for recognition.
I am bound to say that so extensive are the amendments, which cover additions to schedules, then switch to amendments to clauses and then switch to new clauses after existing clauses, that it makes the Bill very difficult to comprehend as a whole. Therefore, it is certainly the case that these matters will have to be discussed far more extensively on Report than would otherwise have been the case. It would have been far better if the Government had not rushed this Bill so as to get its Committee stage completed before the Recess. The Bill is not a controversial Bill in the ordinary party sense of the term, and one really cannot see the urgency for this highly complex measure being pressed through at such a speed, and necessitating late sittings.
I shall refer only to three or four of the amendments on which I have some observations to make. I would refer the Committee to Amendment No. 79, and specifically to paragraph 2(3), which says:
"Where the certified person is an individual his main business must be the practice of the profession regulated by the certifying body and he must be practising that profession otherwise than in partnership; and where the certified person is not an individual that person's main business must be the practice of the profession or professions regulated by the recognised professional body or bodies of which the individual or individuals mentioned in subparagraph (2)(b) above are members".
I hope that the precise meaning of that is very clear to us all. However, I would refer to the noble and learned Lord's initial observation that we have to take into account surveyors of incorporated practices, and, with respect, I am bound to point out to the noble and learned Lord that this particular section carries no reference to incorporated practices. It may well be that further consideration will have to be given to that part of the schedule.
As regards Amendment No. 84, I am happy to inform the noble and learned Lord that so far as I can see, we are in agreement with him. It does not appear—at any rate now—to call for any special treatment. Turning to Amendment No. 86, which deals with an amendment to Clause 18, perhaps I may read to Members of the Committee the wording of the proposed subsection (2A) which is incorporated in the amendment. It states:
"The body must have rules which impose acceptable limits on the kinds of investment business which may be carried on by persons certified by it and the circumstances in which they may carry on such business and which preclude a person certified by that body from carrying on any investment business outside those limits unless he is an authorised person otherwise than by virtue of the certification or an exempted person in respect of that business."
With the greatest possible respect and in complete sympathy with the noble and learned Lord's general intention, I would make the observation that that is not drafted with the utmost clarity. Perhaps I may ask the noble and learned Lord to say what they cannot do and list it as A, B, C, D, and E. In that way, I think that the noble and learned Lord will probably achieve exactly the same purpose but in a less convoluted manner.

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Turning to the remaining amendments—or those that I could hear, because the noble and learned Lord read out the list very rapidly—I am bound to say that I think it is only fair that the recognised professional bodies concerned should be given an opportunity, once the Government have passed these amendments, of reviewing their effect in its totality against the ever-changing nature of the Bill itself. In that way adequate opportunity may be given to re-examine these matters on Report and, if necessary, to make more detailed amendments at that particular stage, though I sincerely hope that that will not be necessary.
I know that the noble and learned Lord is very pressed in relation to these particular matters, but perhaps I may urge him that when the proceedings on Committee are completed he takes steps to ensure that the printed text of the Bill as amended in Committee is made available with the utmost speed, so that the consultations to which I have referred may take place within adequate time before the Report stage, and so that at the Report stage we can amend those particular amendments which so far we have not had an opportunity of considering in detail.
Lord Ezra: I should like to associate myself with the mild strictures indicated by the noble Lord, Lord Bruce of Donington. We are here presented with over 50 amendments by the Government en bloc, and at such short notice it is very difficult for us to give them proper consideration. Those of us who prepared ourselves for the debates on this Bill have taken a great deal of trouble to consult outside organisations of relevant knowledge and experience so as to guide us in making a proper contribution to these debates. To be presented with these 50 amendments in this way has made it quite impossible for any sort of consultation. Therefore, I can only agree entirely with the noble Lord, Lord Bruce, that, when the Bill is amended in the light of the discussions at the Committee stage, we should have plenty of time to take the amended version to our various advisers. That means that inevitably we shall have a longer Report stage than might otherwise have been necessary.
Lord Cameron of Lochbroom: I have obviously taken note of the remarks that have been made about the tabling of amendments. I understand that the main amendments were tabled last Tuesday and that briefing notes on the government amendments have been made available through the Whip's office. The briefing note on this group of amendments has been available for some days and it spells out all the consequential and transitional provisions that are included in this group as well as the substantive provisions. However, obviously I take note of what has been said by noble Lords opposite.
Perhaps I may just respond to one or two of the detailed points which were raised. As regards immunity, which I think was raised by the noble and learned Lord, Lord Denning, that would be deferred until we come to Amendment No. 358. Paragraph 2(3) in the schedule deals with the intention that these bodies should only certify and regulate practices which undertake investment business incidental to their profession. I think that the noble Lord, Lord Bruce, was concerned about the matter of authorisation of bodies corporate, and that can be found in subsection '2) of Amendment No. 84.
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So far as the substantial number of amendments is concerned—and I am sorry I read out the list at such length—in fact the main and very substantial proportion of them are simply amendments which showed references from members of these bodies to certified persons in the later clauses of the Act. Certainly I would hope that with the Recess, when they are incorporated within the Bill as amended, there will be ample time for consultation with professional bodies. I would simply say that it is the main amendments to which the noble Lord opposite spoke particularly which present, as it were, the full meaning of these amendments.
Lord Bruce of Donington: In the case of contentious legislation I have been known to express myself somewhat forcibly on the arguments that are involved. In this particular case, I think it will be agreed that I raised a very mild protest at the way in which this whole business has been handled. The noble Lord opposite offered no contrition in respect of that. The noble Lord seemed to think that because some of the amendments were available last Tuesday, and the explanatory notes and the remainder of the amendments arrived on Friday, that is somehow adequate time; or at any rate that is what he implied. Having expressed my objections mildly, I must now express them strongly. This is not the way in which the Committee should be treated on a Bill of this kind, and I express the hope at least that some expression of contrition will come from the Government for the way they have treated the Committee over the whole of the Bill so far.
Lord Cameron of Lochbroom: I obviously regret that the noble Lord feels as strongly as he does. His was a mild protest at the start, and I merely took note of it. Certainly I regret that the noble Lord did not have sufficient time. Of course, these matters are dealt with through the usual channels. I merely pointed out that we have endeavoured to assist by making the Notes on Clauses available. However, I take note of what the noble Lord has said.
On Question, amendment agreed to.
Clause 11 agreed to.
Clause 12 [Compliance orders]:
6.15 p.m.
Lord Silkin of Dulwich Lord Silkin of Dulwich moved Amendment No. 80:
Page 9, line 36, after ("steps") insert ("including any alteration to its rules proposed by the organisation where the Court is satisfied that such alteration would result in the rules satisfying subsection (3) of section 10 or the requirement in question, as the case may be.)").
The noble and learned Lord said: I beg to move Amendment No. 80 standing in my name and that of my noble friend Lord Williams of Elvel. I am glad to say that, with the permission of the Committee, I wish to speak only to Amendments Nos. 81, 82 and 83.
These amendments are concerned with Clauses 10, 11, 12 and 13 of the Bill. Clause 10, the Committee will recall, is the clause which provides for the grant and refusal of recognition in the form of a recognition order to an SRO, and lays down certain conditions for that recognition. Clause 11 provides for the power of

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the Secretary of State to revoke the recognition order where the conditions concerned have not been complied with either by action or by the rules of the organisation.
Clause 12 comes to a different method of dealing with the same situation in that it provides that the Secretary of State, instead of revoking the recognition order under Clause 11, may make an application to the court under Clause 12. It goes on to provide that if the court decides that the requirement has not been met, or the condition not satisfied, then it may order the organisation to take such steps as the court directs for securing that the requirement or condition is satisfied, or the obligation complied with, as the case may be.
Clause 13 provides yet a third possible way of dealing with this situation in that the Secretary of State, instead of using his powers under Clause 11 to revoke, or Clause 12 to make an application to the court, may direct the organisation to alter, or may himself alter, its rules to bring it into compliance with the requirements. That clause then provides that if the SRO fails to comply with that direction, the Secretary of State may go to the court and obtain an order by way of mandamus or, in Scotland, specific performance, requiring the SRO to give effect to the direction.
This clause provides a futher recourse to the court, in this case by the SRO itself. Under subsection (5), it provides that an SRO whose rules have been altered in this way may apply to the court. It also provides that if the court is satisfied that the rules without the alteration satisfy the requirements mentioned, or alternatively that other alterations proposed by the organisation would result in the rules satisfying the requirement, then the court can set aside the alteration or the direction, as the case may be, and it can order the organisation to make the alteration proposed.
I shall come to subsection (8) later, because it is not wholly or directly connected with the point I am now making. One has a number of different methods by which the matter can be put right where one has the situation of a requirement not being met in the rules. What is peculiar about this group of clauses, particularly Clauses 12 and 13, is that there are a number of different methods of reference to the court which seem to provide different results.
Thus, on the application of the Secretary of State to the court under Clause 12, one has a power in the court to require the SRO to take such steps as the court directs to secure the requirement is complied with. In the case of Clause 12, one has, first of all, provision for an order by way of mandamus and, following that, provision for the SRO itself to apply to the court, and for the court then to allow alterations to be made to the rules, not necessarily those which the Secretary of State requires, but alterations which the SRO itself thinks would give effect to the compliance with the requirements where the court agrees. But that power is not provided for in Clause 12, and I am not altogether clear why.
The amendments to which I am speaking now, and that which I am moving, No. 80, seek to assimilate these various procedures to one another so that, first of all, there is no duplicity of court proceedings. In
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relation to Clause 12, for example, if the Secretary of State uses the mandamus provision, it enables the SRO upon that provision to ask the court for whatever remedies can be made in any of these clauses. It excludes altogether the provision which enables the SRO to go to the court. Take the view—which I suggest is the right one—that if you have a mandamus provision so that the Secretary of State is required to go to the court, if the SRO does not wish to comply with the direction, if it does not think it right to comply with the direction, then upon the application for the mandamus it ought to be possible for the court to exercise all the powers that it otherwise could to order that the rule be altered, or that it be in accordance with the direction of the Secretary of State, or that it be altered in accordance with the proposal put forward by the SRO, provided that the court is satisfied that that would fulfil the purpose.
I should be grateful if the noble and learned Lord the Lord Advocate, who I imagine is to reply, or the noble Lord the Minister, if he is to reply, would explain why it is thought necessary to have so many different recourses to the court in these clauses, and whether one could not simplify it in the sort of way—I do not say necessarily exactly as I propose in my various amendments—which follows the principle of avoiding both an excess of litigation and also different forms of litigation which may produce totally different results.
The remaining amendment is Amendment No. 83. That is on slightly different lines from those I have spoken to up to now. It refers to a subsection that I find very odd. It is the subsection in Clause 13 which makes this provision:
"The fact that the rules of a recognised organisation have been altered by or pursuant to a direction given by the Secretary of State or pursuant to an order made by the court, under this section shall not preclude their subsequent alteration or revocation by that organisation.",
that is to say, the self-regulating organisation.
You have a direction by the Secretary of State saying, "Alter your rules", or an order by the court saying, "Alter your rules". The SRO must do so; but under subsection (8) it can then make a new alteration apparently going back to the first provision of the rules. On the face of it it looks as though one can have a perpetual game of ping-pong between the SRO and either the Secretary of State or the court, as the case may be. I am sure that is not intended, but that is how it appears to read. I should be grateful if the Minister could explain the point of that. I beg to move.
Lord Lucas of Chilworth: I am quite sure that the noble and learned Lord opposite will appreciate that in legal matters I certainly do not have any of the knowledge or indeed wealth of experience that he has, but I shall do my best to explain our intention in these arrangements. Perhaps I may turn in my explanation to the noble Lord's first amendment in the group. It might be helpful were I to say that the powers of the court under Clause 12(2) already allow it to give a direction of the kind specified in the noble Lord's amendment. Therefore, I do not think that anything is to be gained here.
Perhaps I may now turn to Amendments Nos. 81 and 82, the first two to Clause 13. They relate to the mechanism by which a recognised self-regulating

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organisation may ask the court to set aside a rule change made by the Secretary of State or designated agency. I think it is important to bear in mind that the provisions of this clause have to strike a delicate balance. On the one hand, it is I think generally agreed that the Secretary of State or designated agency must have the ability to move quickly to change an organisation's rules when investor protection requires it.
On the other hand, if the organisation is to maintain authority over its members and the prestige necessary to attract the right kind of personnel it will need to fulfil its role, it must have a considerable degree of autonomy and must feel itself free of day-to-day interference. The provisions of this clause we believe strike the right balance between these objectives, but they do have to be viewed as a package. As a package they have been accepted by both the SIB and the self-regulating organisations which are so arranging their affairs so as formally to apply for recognition. Therefore, all of them have been brought along with this, and they have accepted this package.
Any change to one of the elements of the package would upset the balance. The change that the noble Lord proposes would be particularly damaging as it would deprive the self-regulating organisation of its right to ask the court to review a rule change imposed by SIB. To get a review it would have to defy SIB and wait for SIB to take action against it. This would hardly be conducive to good relations. It would leave the investors without the benefit of the rule change in the meantime.
So far as Amendment No. 83 is concerned (the third amendment to Clause 13) I ought to start by explaining the purpose of subsection (8). The real purpose here is to prevent a rule, once changed by the Secretary of State or designated agency, from being set in stone despite later changes in circumstances in which a change would be not only acceptable but positively desirable. If a recognised self-regulating organisation were to use this provision in an attempt to frustrate a change of rule imposed by the Secretary of State or designated agency, there would be a number of safeguards available.
For instance, an application could be made to the court under Clause 12 for an order directing the organisation not to change the imposed rules; and I understand that a breach of such an order would constitute contempt of court. And, of course, behaviour of this kind by a self-regulating organisation would form grounds for the revocation of its recognition under Clause 11. We believe that these sanctions will be an adequate safeguard against abuse of the ability to change rules by virtue of subsection (8).
It must be recognised that the variety of ways of referring to the court is important. These routes were quite intentional. The provisions are intended to deal with different circumstances. The availability of mandamus or specific performance in Clause 13 is to ensure that the Secretary of State's direction is enforce-able. Quite frankly, we hope that it never would happen, that an SRO would defy a direction and trigger the proceedings. But the three different routes all have different, but at the same time,
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complementary purposes, and that is the reason it is set down in this way. I hope that is helpful to the noble and learned Lord, Lord Silkin.
6.30 p.m.
Lord Silkin of Dulwich: I am grateful to the Minister for his explanation. He has explained—I am not sure whether wholly satisfactorily: I shall need to read what he has said in the Official Report before making my mind clear on that—the need for a number of different ways of reaching the court. I am still not wholly convinced that could not be simplified and if it can it is clearly desirable to simpify it. However, we shall look at that. What 1 do not think he has answered is why there should be different varying remedies in relation to the powers of the court when one reaches the court. In other words, why, by whatever route one reaches the court, should not the court have exactly the same powers under each of these clauses? It is manifest from the provisions set out, which are different in the clauses concerned, that it must be intended that there should be different remedies according to which route is taken. That I do not follow and I hope the Minister will undertake (even if he feels that the agreed balance prevents him from entering the number of different ways of approaching the court) to consider that to see whether it can be simplified so that the same remedies are available in each case.
Lord Cameron of Lochbroom: Perhaps I may assist the noble and learned Lord. I think the reason for what appear to be different remedies is that if one deals with Clause 13, one is dealing with an application by the Secretary of State to enforce an order or a direction which he himself has made. Therefore, it is appropri-ate as I understand it in English procedure to seek a mandamus and in Scotland an order for specific performance.
Clause 12 deals with different situations, not the failure to obey a direction of the Secretary of State, but a failure to satisfy a requirement or a failure to comply with an obligation under Clause 12(1). In those circumstances in which the failure may have arisen, it must mean that the court must have a certain discretion about how it is to secure that that require-ment is satisfied or that that obligation is complied with. Hence one finds in subsection (2) that the discretion given is a discretion to the court to take such steps as the court directs to secure the object which is that the requirement is satisfied or the obligation complied with. In certain circumstances it may simply be a direction, but in other circumstances one could see that it would set out specific steps that have to be taken; a much more specific order.
Lord Silkin of Dulwich: I thank the noble and learned Lord for that helpful explanation. At the same time the dispute between the Secretary of State or the SIB, as the case may be, and the SRO may precisely be whether the rule that has been made brings the SRO into compliance with the requirements. The SRO says "Yes", the SIB says "No", and the SRO says "We shall adhere to our rule. We do not agree with you". They may be right. They are then taken to court by way of mandamus and that at that stage they cannot

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say to the court. "We are prepared to amend our rule in a way which we think, if there is any doubt at all, will bring it into conformity". The court has no power to order that that amended rule be substituted. That is the major point I have in mind. I hope the noble and learned Lord the Lord Advocate will look at that. On the assumption from his appearance he is prepared to do so, I ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 agreed to.
Clause 13 [Alteration of rules for protection of investors]:
[Amendments Nos. 81 to 83 not moved.]
Clause 13 agreed to.
Clause 14 agreed to.
Clause 15 [Authorisation by membership of recognised professional body]:
On Question, Whether Clause 15 shall stand Part of the Bill?
Lord Cameron of Lochbroom: I spoke to the new clauses which are contained in Amendments Nos. 84 and 84A and in the light of those I beg to move that Clause 15 shall not stand part of the Bill.
Clause 15 disagreed to.
Clause 16 [Professional bodies]:
On Question, Whether Clause 16 shall stand part of the Bill.
Lord Cameron of Lochbroom: In like manner I beg to move that Clause 16 shall not stand Part of the Bill.
Clause 16 disagreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 84:
After Clause 16, insert the following new clause:
Authorisation by certification by recognised professional body. ("Persons authorised by recognised professional bodies.

.—(1) A person holding a certificate issued for the purposes of this Part of this Act by a recognised professional body is an authorised person.

(2) Such a certificate may be issued by a recognised professional body to an individual, a body corporate, a partner-ship or an unincorporated association.").

The noble and learned Lord said: Amendments Nos. 84 and 84A have already been spoken to.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 84A:
Insert the following new Clause:
("Professional bodies.

.—(1) In this Act a "professional body'' means a body which regulates the practice of a profession and references to the practice of a profession do not include references to carrying on a business consisting wholly or mainly of investment business.

(2) In this Act references to the members of a professional body are references to individuals who, whether or not members of the body, are entitled to practise the profession in question and, in practising it, are subject to the rules of that body.

(3) In this Act references to the rules of a professional body are references to the rules (whether or not laid down by the body
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itself) which the body has power to enforce in relation to the practice of the profession in question and the carrying on of investment business by persons practising that profession or which relate to the grant, suspension or withdrawal of certificates under this section, the admission and expulsion of members or otherwise to the constitution of the body.

(4) In this Act references to guidance issued by a professional body are references to guidance issued or any recommendation made by it to all or any class of its members or persons seeking to become members, or to persons or any class of persons who are or are seeking to be certified by the body, and which would, if it were a rule, fall within subsection (3) above.").

On Question, amendment agreed to.
Clause 17 agreed to.
Clause 18 [Grant and refusal of recognition]:
[Amendment No. 85 not moved].
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 86:
Page 12, line 39, leave out from ("that") to end of line 18 on page 13 and insert ("the requirements of subsection (2A) below and of Schedule (Requirements for recognition of professional body) to this Act are satisfied as respects that body.
(2A) The body must have rules which impose acceptable limits on the kinds of investment business which may be carried on by persons certified by it and the circumstances in which they may carry on such business and which preclude a person certified by that body from carrying on any investment business outside those limits unless he is an authorised person otherwise than by virtue of the certification or an exempted person in respect of that business.").
The noble Lord said: Amendments Nos. 86 to 90 have already been spoken to.
On Question, amendment agreed to.
The Deputy Chairman: I cannot now call Amendment No. 86A.
Clause 18, as amended, agreed to.
Clause 19 [Revocation of recognition]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 87:
Page 13, line 27, leave out ("any of the requirements of subsection (2) of that section are") and insert ("section 18(2A) above or any requirement of Schedule (Requirements for recognition of professional body) to this Act is").
On Question, amendment agreed to.
Clause 19, as amended, agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 88:
After Clause 19, insert the following new clause:
("Compliance orders.
.—(1) If at any time it appears to the Secretary of State—

(a) that subsection (2A) of section 18 above or any requirement of Schedule (Requirements for recognition of professional body) to this Act is not satisfied in the case of a recognised professional body; or

(b) that such a body has failed to comply with any obligation to which it is subject by virtue of this Act,

he may, instead of revoking the recognition order under section 19 above, make an application to the court under this section.
(2) If on any such application the court decides that subsection (2A) of section 18 above or the requirement in question is not satisfied or, as the case may be, that the body has failed to comply

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with the obligation in question it may order the body to take such steps as the court directs for securing that that subsection or requirement is satisfied or that that obligation is complied with.
(3) The jurisdiction conferred by this section shall be exercisable by the High Court and the Court of Session.").
On Question, amendment agreed to.
Clause 20 [Notification requirements]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 89:
Page 13, line 36, leave out subsections (1) to (3) and insert—
("(1) The Secretary of State may make regulations requiring a recognised professional body to give him forthwith notice of the occurrence of such events relating to the body, its members or persons certified by it as are specified in the regulations and such information in respect of those events as is so specified.
(2) The Secretary of State may make regulations requiring a recognised professional body to furnish him at such times or in respect of such periods as are specified in the regulations with such information relating to the body, its members and persons certified by it as is so specified.
(3) The notices and information required to be given or furnished under the foregoing provisions of this section shall be such as the Secretary of State may reasonably require for the exercise of his functions under this Act.
(3 A) Regulations under the foregoing provisions of this section may require information to be given in a specified form and to be verified in a specified manner.
(3B) Any notice or information required to be given or furnished under the foregoing provisions of this section shall be given in writing or in such other manner as the Secretary of State may approve.").
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 90:
Page 14, line 14, after ("but") insert ("(a)").
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 91:
Page 14, line 18, at end insert ("; and
(b) notice need not be given in respect of any rule or guidance, or rules or guidance of any description, in the case of which the Secretary of State has waived compliance with this subsection by notice in writing to the body concerned; and any such waiver may be varied or revoked by a further notice in writing.").
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No.92:
Page 14, line 19, after ("of) insert (", or of regulations under,").
On Question, amendment agreed to.
Lord Hacking Lord Hacking moved Amendment No. 93:
Page 14, line 19, at end insert ("and shall not be actionable except at the suit of the Secretary of State".).
The noble Lord said: I am sorry to stop the Committee in its grand gallop through so many amendments, but perhaps I may ask the Committee to pause for a short time on Amendment No. 93 which stands in my name. Clause 20 requires that recognised professional bodies notify the Secretary of State if they prohibit one of their members from carrying on an investment business or rescind such prohibition. Subsection (5) states:
"Contravention of this section [or any regulations made under it] shall not be an offence".
Previously, subsection (5) stated that a contravention would, however, be actionable at the suit of any person who suffered loss or was otherwise adversely affected. The latter provision was deleted, as I understand it, during the passage of the Bill in another place.
Subsection (5) is now silent as to whether the contravention is actionable. However, in view of the absence of any penalty for contravention, it is likely, I submit, that as a matter of general law a person who suffers loss as a result of a breach of statutory duty would have a right of action against a recognised professional body. If no immunity is granted to recognised professional bodies—and this is a subject to which the noble Lord, Lord Bruce, and I will come back again in this Committee—on the lines of the immunity afforded to SROs, it is important, in my submission, that subsection (5) should make clear that no right of action arises against a recognised professional body in respect of a contravention, at least in so far as the general public are concerned. That is the purpose of my amendment. I beg to move.
Lord Denning: I hope that later on it will not be actionable at all, that there will be immunity similar to that for SROs for professional bodies, that is, immunity from civil action. In case that is not carried at a later stage, I would certainly welcome this amendment. It should not be actionable except at the suit of the Secretary of State. In other words, I hope that later on it will not be actionable at all. Meanwhile, let this pass through.
Lord Cameron of Lochbroom: When this clause was amended in another place, we deliberately did not go further, say, expressly to remove remedies which were available at common law. I would suggest to the Committee (as I stated earlier) that we would be going too far in doing this in regard to the recognised professional bodies. There may be some doubt as to whether such remedies would be granted to an individual, but it should be open to someone who is suffering loss as a result of a failure to notify—for example, one thinks of a member whose name has been omitted from the register of authorised persons—to seek a remedy from the courts.
If the amendment were accepted he would be deprived of that option and his only recourse in those circumstances would be to persuade the Secretary of State to act; and it might be difficult to see why in such circumstances the Secretary of State should have any interest to secure that. For those reasons, I would suggest to the Committee that this amendment should not be accepted. Perhaps the noble Lord might like to think about what I have said and perhaps withdraw it.
Lord Denning: I think that later on when, after Amendment No. 156, we come to deal with the liabilities of recognised professional bodies, the real debate can take place.
Lord Hacking: I readily adopt the proposal by the noble and learned Lord, Lord Denning, that the appropriate time to come back to this subject—and I do not accept the argument presented by the noble and learned Lord the Lord Advocate; but perhaps I may

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leave that aside for a moment—will be when we come to Clause 156. So, may the gallop continue! I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20, as amended, agreed to.
Clause 21 [Authorised insurers]:
6.45 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 94:
Page 14, line 28, at end insert—
("provided that such investment business is conducted in the same manner as it would be if that body were a member of the relevant self-regulating organisation")
The noble Lord said: I beg to move Amendment No. 94 which stands on the Marshalled List in my name and that of my noble friend Lord Bruce of Donington. It may be for the convenience of the Committee if I were to speak also to Amendment No. 95.
We are here dealing with insurance companies and (in Amendment No. 95) friendly societies which, to a certain extent, come outside the provisions relating to authorised persons conducting investment business. There has been considerable debate about whether these companies or friendly societies should be within the ambit of the Bill. The Government decided that they should not be within the ambit of the Bill. Nevertheless, there is a certain amount of feeling in various quarters that the rules which apply to other people who are conducting similar investment business should apply to insurance companies and to friendly societies.
I am sure that noble Lords opposite are aware of the controversy that surrounds this matter. I believe that insurance companies and, equally, friendly societies ought in some measure—and our amendments try to stipulate in what measure—be required to set rules which ensure that the conduct of their investment business is exactly the same and is conducted on the same lines as if they were members of the relevant self-regulating organisation. I beg to move.
Lord Lucas of Chilworth: I shall do my best to give the noble Lord some explanation because I fear that the amendments are based on a misunderstanding about how the insurance companies and the friendly societies are treated under the Bill. Both these organisations, the insurance companies and the friendly societies, are already subject to statutory systems of authorisation and regulation. These are designed to protect the policyholders from the risk of their insolvency. Clearly, there will continue to be a need for such regulation after the regulatory system in this Bill has come into effect.
The treatment of insurance companies and friendly societies in the Bill reflects the need to integrate in a sensible fashion parallel systems of authorisation and regulation where the activities covered are common and central to the business of insurance companies and friendly societies.
Clauses 21 and 22 of the Bill now provide automatic authorisation for, respectively, insurance companies and friendly societies whose activities fall within the
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scope of the Bill. This automatic authorisation is provided for two reasons. First, as I have sought to explain, there are already regulatory systems for these businesses and they already have to satisfy the authorities about their fitness to carry on the business. Once authorised, they will be subjected to stringent supervision, in the case of insurance companies, by the Secretary of State, and, and in the case of friendly societies, by the Chief Registrar of Friendly Societies.
We believe that it would not be desirable if insurance companies and friendly societies were to be placed in a position in which they had to satisfy more than one authorising body in order to carry on their business. In particular, it would be unfortunate if there were to be any conflict between the requirements for authorisation under the Bill and the regulation of the solvency of insurance companies and friendly societies.
The second reason arises out of our European Community obligations. There is a Community directive which lays down how bodies carrying on insurance businesses should be authorised and regulated. We have, as I have said, such authorising and regulatory systems for insurance companies and friendly societies, but we could not impose a further authorisation requirement because the directive prohibits any restrictions on the establishment of insurance businesses except those required or permitted by the directive itself. It follows therefore that making the further requirement which the noble Lord seeks would be contrary to our obligations under the Community directive.
The amendments and the way in which the noble Lord, Lord Williams, presented them and his justification seem perhaps misconceived in that insurance companies and friendly societies are not exempt from all rules made under the Bill. They receive automatic authorisation, but will still be subject to regulation. Schedules 8 and 9 to the Bill restrict the rule-making power over insurance companies and friendly societies so as not to interfere with the system for the regulation of their solvency; but there remains a substantial area in which the rules will apply.
In particular, the marketing and promotion of policies by insurance companies and friendly societies will be regulated under the Bill. That will be so whether or not the company or the society is a member of a self-regulating organisation. If it is not, rules made by the Secretary of State or the designated agency will apply. I think that is fairly straightforward. I noticed the noble Lord winced at one moment and I think I can guess why, but I believe he will find that fairly clear in regard to the need to meet our obligations in the Community.
Lord Williams of Elvel: I am most grateful to the noble Lord for I find it admirably clear; but it does not answer the point I was trying to make. The noble Lord will be aware that there has been extensive correspon-dence between the chairman of the City Capital Markets Committee and the noble Lord's honourable friend on the question of how insurance companies manage their investments. His honourable friend in another place has indicated, I think, that there will be some form of letter or assurance under these arrange-

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ments to make sure that, even though they get automatic authorisation, insurance companies will be required to conduct their investment management more or less similarly to other organisations.
What I am seeking to do is to make sure that this is absolutely crystal clear because, as the chairman of the City Capital Markets Committee has pointed out in the correspondence with the noble Lord's honourable friend, which has lasted quite a long time, to have certain investment management businesses carefully controlled under the authorisation principle and to have others given automatic authorisation without having similar rules creates an imbalance. It means that many people who manage great volumes of funds are not necessarily bound by the same rules as those who are managing investments as authorised persons. That is the point I was trying to make.
Lord Lucas of Chilworth: I am grateful to the noble Lord. I suggest to him that since there is an amendment down in my name (No. 260) which puts forward proposals for dealing with the way in which insurance companies manage their funds, it might be better if we were to discuss the particular point which the noble Lord, Lord Williams, is now raising when we come to my amendment rather than connect it with the way in which insurance companies and friendly societies generally are dealt with in the Bill, which is really what his amendment seeks to do.
Lord Williams of Elvel: I am very happy to discuss this question at whatever point the noble Lord the Minister seeks to discuss it. In fact, as he will notice, I have put down another amendment to one of the schedules which seeks to achieve the same thing. I am perfectly happy to discuss it when we reach Amendment No. 260. I would only plead in my defence that these amendments are coming along at a very rapid rate and sometimes it is rather difficult to catch up with all the Government amendments that are coming through.
I apologise to the noble Lord the Minister if I have raised a point which properly should be dealt with after Clause 115. In the light of what the noble Lord has said, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 21 agreed to.
Lord Williams of Elvel: I am sorry to interrupt at this stage, but did I also understand the noble Lord to say that there was a subsequent Government amendment tabled on similar lines as regards friendly societies, as well as insurance companies?
Lord Lucas of Chilworth: No; it is to deal only with insurance companies.
Lord Williams of Elvel: Then, with the leave of the Committee, I should like to discuss the question of the funds of friendly societies, because I would make exactly the same arguments about friendly societies and the way they manage their funds.
The Deputy Chairman of Committees (Lord Nugent of Guildford): In order to get the Question before the committee, I shall call Amendment No. 95, so that the noble Lord, Lord Williams, can address his remarks to that.
Clause 22 [Registered friendly societies]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 95:
Page 14, line 40, at end insert ("provided that such investment business is conducted in the same manner as it would be if that body were a member of the relevant self-regulating organisation")
The noble Lord said: I am most grateful to the noble Lord the Deputy Chairman of Committees. The arguments are essentially the same. I do not want to go through the speech I have made which the noble Lord the Minister told me was quite out of place and which he said I should make at a later stage. Nevertheless, even at this stage I must make this point about any organisations such as friendly societies which manage very large volumes of funds. While perhaps they should not be subject to the same rules—because I understand what the noble Lord the Minister has said about automatic authorisation—they should at least have rules regarding their investment management which are consistent and coherent with those which pertain in the case of authorised persons. Having made my speech, I am afraid for the second time, I beg to move.
Lord Lucas of Chilworth: I would prefer to take this point on board when we discuss the insurance companies, purely and simply because I think there will have to be much greater consideration of the need for similar provisions for friendly societies. Up to now we have not thought that the need was similar to that of insurance companies. The noble Lord, Lord Williams, makes the point that in his view there is an equal need. I will just have to take that on board and give further consideration to it.
Lord Williams of Elvel: I am most grateful to the noble Lord the Minister for his words, and in the light of his assurance that he will take this on board and that we will discuss it at a later stage of the Bill I beg leave to withdraw my amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause 22 shall stand Part of the Bill?
Lord Graham of Edmonton: I am sorry to appear tiresome, but the Minister will recall that during the Second Reading on 1lth July, at col. 632, I made a brief reference to Clause 22. What I understood, following exchanges in the Standing Committee between the Minister in charge of the Bill and my honourable friend Bryan Gould, was that some clarity and understanding had been reached on the import of Clause 22 to friendly societies, because that is what the clause deals with, and also to those friendly societies which have what are known as branch societies, where they are not only centralised, but have in addition many branches.

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The Minister will recall that he was kind enough to say at col. 654 of the Official Report of 1lth July 1986:
"I understand that officials in my department have today written to the friendly societies liaison committee concerning the authorisation of the business of branches of friendly societies, which was the point of concern. The letter seeks to assure them that Clause 22 authorises such business. No doubt if the noble Lord has further questions he will come back to us, perhaps directly rather than by way of amendment".
As the Committee knows, and as the Marshalled List indicates, this matter is not important enough to put down amendments and I merely seek clarification.
I understand that correspondence has taken place but that the friendly societies liaison committee would very much like the Minister to indicate that nothing in Clause 22 is intended to affect the relationship of branch societies with the order, the nature of that relationship being governed by the Friendly Societies Act 1974. If the Minister can indicate that that is correct and has his approval, that will certainly be satisfactory to the friendly societies.
7 p.m.
Lord Lucas of Chilworth: I am most grateful to the noble Lord, Lord Graham, for indicating his intention to raise this point about the impact which the provisions of this Bill—in particular, Clause 22—will have purely on the relationship between the central office and the branches of orders of friendly societies. It is not the intention that this provision should alter that relationship. I think all that the noble Lord, Lord Graham, wants from me is that assurance, which I gladly give.
Lord Graham of Edmonton: I am most grateful.
Clause 22 agreed to.
Clause 23 [Operators and trustees of recognised schemes]:
On Question, Whether Clause 23 shall stand part of the Bill?
Lord Williams of Elvel: I should like to seek clarification on something which I am afraid I do not understand; it is on Clause 23(b). From the Notes on Clauses and from what is in the Bill, I think I understand Clause 23(a), but I do not quite understand how an authorised person under Clause 78 can be authorised to conduct,
"investment business which is carried on by him in connection with or for the purposes of that scheme".
It seems to me a very wide definition of an authorisation that is given to somebody under a collective investment scheme, which Clause 78 refers to as an overseas scheme. I wonder whether the noble Lord the Minister could very kindly help me on that point.
Lord Lucas of Chilworth: I shall try to help the noble Lord. This clause is essential to give effect to our obligations under the undertakings for collective investment in the transferable securities directive. It
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confers on the operator or trustee of a collective investment scheme, which is authorised in another EC member state in accordance with the provisions of that directive and recognised under Clause 78, automatic authorisation in respect of two categories of investment business.
The directive that was adopted last year is intended to harmonise the laws applying to certain collective investment undertakings, in order to facilitate intra-Community trade. However, when selling units in another member state the operator must comply with local marketing laws.
The directive will be implemented in this Bill. Clause 78 provides for the recognition of UCITS based in other member states which satisfies the require-ments of that clause. The requirements will limit the application of that clause to UCITS which come within the scope of the directive, though it would be possible to extend the use of that clause to other collective investment undertakings, subject to future harmonisation directives. Recognition under Clause 78 may be refused only where the manner in which the units are to be marketed breaches our marketing rules.
The automatic authorisation under this clause follows the requirements of the directive, and the automatic authorisation is limited to only that kind of investment business. If, however, they conduct other investment business not connected with the operation of the UCITS scheme, then the operator or trustee must obtain authorisation under one of the other ways provided by the Bill. It is because the authorisation is so limited that, by virtue of Clause 78, the application to them of the conduct of business rules under Clause 45 is similarly limited.
The clause extends to activities carried on,
"in connection with or for the purposes of that scheme".
In addition to providing authorisation under the Bill actually to operate the scheme, the clause also covers any investment activities which are a necessary and incidental part of operating the scheme. They must arise directly from the operation of the scheme. An example might be a share exchange scheme operated by a UCITS operator—where shares may be exchanged for units of UCITS. That would not be part of operating the scheme, but would be in connection with its operation. The conduct of business rules would extend to these incidental activities, and that is provided for in Clause 78(7). I think that that answers the specific question that the noble Lord raised.
Lord Williams of Elvel: Not quite. I am sorry to come back to the noble Lord. Does the noble Lord mean that any operator of a scheme approved under Clause 78 in a Community country can conduct any investment business as defined in Schedule 1 to the Bill, so long as it is,
"in connection with or for the purposes of that scheme?"
In other words, can he deal, can he underwrite, can he procure underwriting, can he procure dealing and can he do all the things that are listed in the schedule as investment businesses, if he is an authorised person under the clause?
Lord Lucas of Chilworth: Yes, he can do those things provided, as I have already said, that it is part of the scheme. It has to be related to that. I do not think I can expand any further, because one would have to find a situation where the activity was conducted away from the scheme, in which case the person would not be able to operate. He can do all the things that the noble Lord suggests, provided that it is in connection with the scheme.
Acting as trustee of a scheme could, under the terms of the scheme, result in the trustee or the company to which the noble Lord referred undertaking investment activities. Provided that what the trustee does is in connection with the operation of the scheme, the directive to which I have referred prevents us from requiring that person to be separately authorised.
In fact, it is likely that the trustee's activities would be in connection with the buying and selling of securities, or acting in the capacity of a principal. Those are activities which are not to be caught by the Bill, except in certain circumstances which I do not think are likely to occur. However, though unlikely, it is conceivable that by being authorised under Clause 23 the operator or the trustee could do things in connection with the operation of the scheme which can only be undertaken by authorised persons.
Because of the limit in Clause 78(7) the conduct of business rules would not apply. As an example, there might be an offer made to the general public to buy shares for the scheme. It is unlikely that such would ever occur. Unit trust managers and others buy shares in quantity on the markets and they do not go around making such private offers. However, even if that were to occur, the ordinary rules on cold calling would apply, although the advertising provisions of the conduct of business rules would not.
That in turn would not mean that the designated agency could take no action. There are various powers under Chapter VI that could be used if it was considered that investors' interests were at risk. They could prevent the UCITS operator from continuing to advertise for shares. So an effective action could be taken to deal with any situation that might arise. In addition, the United Kingdom authorities would be able to take up the matter with the home state authority under the terms of the directive. The fact that a UCITS operator had advertised for shares in a way that was considered to put investors' interests at risk would undoubtedly call into question the fitness of the person to continue to be involved in that operation.
Lord Williams of Elvel: I am most grateful to the noble Lord. I do not want to weary the Committee with my argument, but I shall summarise if I can the stage that we have reached. I shall take the example of Robeco, which is a Dutch unit trust. As I understand it, Robeco would be recognised. Its operator would therefore be automatically authorised. As a Dutch unit trust, Robeco's operator would be allowed to conduct investment business in connection with or for the purposes of Robeco MV. Specifically in Clause 75 of the Bill, the Government wish to place restrictions on the activities of authorised unit trust schemes in the United Kingdom. So the operator of a Dutch unit trust
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could do all sorts of things under the Bill which the operator, if one may put it like that, of a United Kingdom unit trust would not be able to do. Am I clear about that, and is my understanding correct? If it is, perhaps we shall have to accept it, but it does seem rather an odd situation.
Lord Morris: I hope that I may be helpful, but I doubt it. I believe that the underlying purpose of the provision is that it is restrictive in that the trustee or the operator of the scheme has a fiduciary duty to those who benefit from the scheme to ensure that he stays strictly within the terms of the scheme, and that paragraphs (a) and (b) are observed. I am sure that is understood. I am not absolutely certain how that fits in with Clause 78 because I have become rather lost, but I believe that the fundamental reason for the provision is as I have described it.
Lord Lucas of Chilworth: My noble friend may be absolutely right, but I fear that I did not quite manage to put the two together. The noble Lord, Lord Williams, is not correct in his understanding. The case that he quoted could not benefit from Clause 23 because it is not part of the undertakings for the collective investment and transferable securities scheme itself. I am given to understand that they dc not belong.
Foreign UCITS are controlled by their own home authorities. That is a directive requirement. So at the end of the day—and this is the point where the noble Lord opposite was wrong—there will be no disadvan-tage to a home-based unit trust as against a foreign-based unit trust because the directive is binding across all members. The foreign UCITS are controlled by the home authorities. We would have to be satisfied—and because we have the directive, we are already satisfied—that the home control was equally good as our own control. So the companies would be on a level footing.
The noble Lord, Lord Williams, indicates his dissent. He must make his point much clearer. I have tried very hard and I have given four different answers.
Lord Bruce of Donington: Quite so.
Lord Lucas of Chilworth: I have given four supporting answers. It is no use the noble Lord, Lord Bruce, laughing like that. The noble Lord, Lord Williams, has raised a number of issues and I have given him answers to each of them. I suggest to the noble Lord that he has not made his point clear enough for me to give the answer which he is seeking.
Lord Williams of Elvel: I am sorry if my expositior has been less clear than the Minister requires. I shall read in Hansard what he has said. I still believe that there is a serious point here to which the noble Lord would do well to give his attention.
Clause 23 agreed to.
The Deputy Chairman of Committees: If no noble Lord has an objection, I propose to put the Question, That Clauses 24 and 25 stand part of the Bill.
Clauses 24 and 25 agreed to.
Lord Skelmersdale: In moving that the House do now resume I suggest that we do not return to this Committee stage until a quarter past eight. I beg to move.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Rate Support Grants Bill
Brought from the Commons; read a first time, and to be printed.

Building Societies Bill
7.16 p.m.
Lord Brabazon of Tara: My Lords, I beg to move that this Bill be now read a third time.
When I moved the Second Reading of this Bill I expressed the hope that its central purpose—to reform and modernise building society legislation, and to give the societies new freedoms—would not be a controversial one in your Lordships' House. I am glad to say that, in the main, that has turned out to be the case. However, it has not stood in the way of the close and detailed scrutiny that the Bill has merited and has received.
I should like to thank all those who have played a part in our proceedings. I am grateful to the noble Lord, Lord Williams of Elvel, for the contructive way in which he has led for the Opposition on much of the Bill. I am grateful also to the noble Lord, Lord Barnett, for what I understand may have been among his last speeches from the Opposition Front Bench. We on this side shall miss his contributions, but we wish him well for the future.
There have been many interesting and authoritative contributions from noble Lords on all sides of the House with closer experience than I of building society matters. I must mention in particular my noble friend Lady Gardner of Parkes, who so ably moved a series of amendments on Report, and my noble friends Lord Selkirk, Lord Campbell of Croy, and Lord Plummer for their contributions throughout our proceedings. One noble Lord who spoke to nobody's brief but his own was of course the noble Lord, Lord Houghton of Sowerby. His trenchant contributions enthralled us, and I am glad that the Government were able to accept at least one of the amendments that he tabled.
I owe a particular debt of gratitude to my noble and learned friend the Lord Chancellor for tackling the thorny question of conveyancing. The noble Lord, Lord Foot, spoke with eloquence on those provisions. I should mention also my noble friend Lord Morris for his carefully thought out contributions both on that
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subject and on other parts of the Bill. Finally, I thank my noble friend Lord Skelmersdale for his help and support throughout the passage of the Bill in your Lordships' House.
While the debate during Committee and Report naturally tended to concentrate on the more contentious issues such as conveyancing and the conversion to company status, it is worth recalling now those many other provisions that have been welcomed on all sides. I refer to the fuller and improved services that the societies will be able to offer their members, the greater contribution they will now be able to make to the development of the nation's housing, the improved competition that will follow between building societies and others, and the improved arrangements for supervising the societies' custody of their investors' money.
The Bill will give building societies the ability to develop and evolve in a changing world. I believe that it leaves your Lordships' House in better shape than when it arrived. I beg to move.
Moved, that the Bill be now read a third time.—(Lord Brabazon of Tara.)
Lord Williams of Elvel: My Lords, we on this side of the House express our gratitude to the noble Lords, Lord Brabazon and Lord Skelmersdale, for the way they have conducted the proceedings on this Bill. It is an extremely complex measure and we have had some very interesting debates, but we have always felt that we have had the best possible co-operation from the Government Front Bench and I should like to record our appreciation of that fact.
So far as the Bill itself is concerned, I agree with the noble Lord that it is probably a better Bill on leaving this House than when it arrived. Nevertheless, we have certain reservations about it, as the noble Lord, Lord Brabazon, will have recognised from our debates. We are particularly concerned that the mutuality of the building societies should be preserved. We are concerned about the whole question of what I call the secondary market in mortgages. We are concerned still about the relationship between auditors and their clients; although the noble Lord was kind enough to accept one of our amendments on the subject which made some improvement. Nevertheless, it is an abiding matter of concern, as we shall see when we come to other Bills.
We still take the view that, over time, building societies will need to develop in the direction of the German mortgage banks and use the wholesale market more than the retail market. We believe that in the course of time the same kind of competition for retail deposits will break out among building societies and banks as broke out among banks and led to the closing down of many branches, and indeed to many amalgamations. It comes as no surprise to hear the announcement today that the Leeds Building Society is trying to merge with another building society in Yorkshire. We think that this is a feature of the future of building societies.
In expressing gratitude and reservations that we have about the Bill, we are nevertheless glad that the Bill has passed through your Lordships' House with

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good debate and co-operation from all sides. As my honourable friend Dr. McDonald said on Third Reading in another place, we wish the building societies well and we hope the Bill will enable them to move ahead in the right, sensible and cautious manner which we think they should.
Lord Campbell of Croy: My Lords, as this Bill leaves your Lordships' House, I should like to draw attention to two points. First, this is the first new legislation for building societies for about 100 years. Previous Acts have been virtually re-enactments of earlier arrange-ments. Secondly, the Bill, with cautionary and prudential provisos, enables building societies to carry out new functions which will promote competition in markets and enable them to carry out more services for the public. That is for the benefit of the general public and their convenience. I remind the Committee that it has been estimated that about half the adult population of the country is a saver or a borrower with a building society; so this is a measure which really does affect the general public.
I particularly congratulate the Members of the Government who have handled this Bill—my noble friends Lord Brabazon and Lord Skelmersdale. They have had the task of explaining the Government's intentions, answering questions about parts of the Bill—sometimes at very short notice—and dealing with amendments in quick succession. They have performed a great service in helping the House with the Bill. They carried out those tasks diligently and effectively. A particular burden has fallen on my noble friend Lord Brabazon who has been speaking in this House for the Treasury.
I should also like to join my noble friend Lord Brabazon in what he said about the noble Lords, Lord Barnett and Lord Williams who made sure that the important relevant matters about the Bill were raised and discussed. I too am sorry that the noble Lord, Lord Barnett, is going to the BBC, and therefore presumably has to be muzzled or at any rate can no longer speak from the Opposition Front Bench. We were of course for many years together in another place.
The Government adjusted the programme to provide a second Committee day, although at one time that looked absolutely impossible. I know that the building societies will be grateful that it has now been made possible for enactment of the Bill to take place before the other place goes into Recess at the end of this week. Provided nothing unexpected happens, that looks to be the position. I am grateful to my noble friend the Chief Whip because I know the problems he has had in trying to get a number of major Bills through this House. Both he and the Opposition Whips had to find this extra time and arrange the stages at appropriate intervals. I acknowledge that achievement because, on Second Reading I pointed out that there would be a great difference for the building society movement between completion this week and just missing completion and having to wait for three or four months—which would have been the effect for the building societies so far as concerns the
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commencement dates. As the societies have to deal with special meetings and all kinds of other procedures, the fact that they will shortly be able to see where they are will be extremely helpful to them.
The debates in your Lordships' House, and the differences of opinion that have take place, have not followed party political lines. The noble Lord, Lord Houghton, followed his own path, and there was much experience and logic in what he had to say. All points were clearly and cogently argued and discussed. It is now up to the building society movement to do the best it can for the British public with the new mandate and new powers it will have.
7.30 p.m.
Lord Houghton of Sowerby: My Lords, may I first of all say how much I agree with the concluding remarks of the noble Lord, Lord Campbell of Croy, and how much I appreciate the kind references to me by the noble Lord, Lord Brabazon.
We have been well served by both Front Benches during the debates on this Bill. I am grateful for all the courtesy I received during my interventions, which were probably too frequent and too long. However, for a number of years I have felt very keenly about much relating to building societies.
We must also remember that this is one of the major Bills of the Session. It is one of the longest and heaviest Bills. It rivals the Finance Bill, which we have just received, and that is always a good basis for comparison. There are 285 pages, containing 126 clauses and 21 schedules.
I felt at one stage that we were coming under a little pressure. When we were concluding the first day of the Committee stage some impatience was expressed by noble Lords—and if not impatience, anxiety—about the progress of the Bill. However, I should like to point out the strange career that this Bill has had in recent months. At this season of the year your Lordships' House is the whipping boy of Parliament and we suffer greatly. We are suffering now and are going to be here longer than the other place and come back from the Recess earlier. That is the pressure we are under.
The strange fact is that this Bill was introduced in another place on 19th December, 1985. It went into Standing Committee which had its first meeting on 21st January with the second meeting on 25th February. There was then a long waiting period. It took over three months for the next stage of the Bill to be reached in another place. It was not until 4th June that the Report and Third Reading of this Bill were taken both on the same day.
I think we can guess at what was happening in those three months. The Government found so much in the original Bill which was subject to criticism and suggestion by the Building Societies Association that I think those three months must have been taken up by reconsideration of much in the original Bill. Certainly large government amendments were put down for the Report stage in another place on 4th June. The Bill came to us on' 20th June and our first day of Committee took place on 3rd July and the second day on 10th July. The Report stage was last Friday and

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today we are at Third Reading. This great and complicated Bill is today reduced to supper break status. Another important Bill, the Finance Bill, is reduced to Friday morning status this week.
This is the humiliation of parliamentary procedure on great measures of state. As the noble Lord, Lord Campbell, reminded us a moment ago, this is the first major Bill for 100 years to review the functions and powers of building societies. I shall not make any complaints now. There has perhaps been a surprisingly small amount of parliamentary interest in this Bill, probably because of its complexity and because only those of us who have worked with and for building societies have been attracted to its many provisions. When Members of both Houses have declared an interest, more frequently than not that interest has been an honorary and unpaid one, for which they received one free lunch a year if they were lucky. I was one of those people and I know how valuable the vice-presidents have been to the Building Societies Association over the years.
As the noble Lord, Lord Campbell, and other noble Lords, have said, with the passing of this Bill we are starting a new era in the life and times of building societies. They will take quite big leap forward in providing ancillary financial services and, as regards the larger societies, unsecured money lending business which is already attracting considerable funds from overseas and into which the Building Societies Association wish to enter.
This is a principal purpose of the Bill and concerns me most this evening. So I hereby give up my self-appointed role as the lord protector of the security of tenure of boards of building societies, which I have been undertaking all through the discussions on this Bill. I now cast them adrift to the tender mercies of shareholders who possess votes but have no share, and to the big black crow known as the Building Societies Commission, the beating of whose wings will be heard in every building society boardroom for many years to come. I wish them well—I really do—but I am bound to say that in doing so I bid farewell to my own part in a movement in which I have spent so long, now that it has become really and truly an industry.
Movements which have generated a satisfying spirit of common endeavour are being absorbed into the motivations of the new age. Building societies, trustee savings banks and friendly societies all began as grass-roots collectives. They showed the way for commercial enterprise to come in and operate on a larger scale, very often more efficiently. But is it not ironic that while trustee savings banks, co-operatives and building societies were showing the way forward, those who built up the work and prosperity of those voluntary societies had no share whatever in the equity? All have carried the movement forward to be enjoyed by others and in a few cases it has been lost on the way. That is the end of my lamentations.
The range, limits, curbs and controls of the societies are numerous and complex. The Building Societies Commission has been given wide powers, but in some material matters even its judgment has to be submitted for the approval of both Houses of
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Parliament or be subject to the procedure of negative approval of both Houses. The Treasury and Parliament are therefore in the forefront of the background and they will certainly have a good deal to say to building societies in the course of their development. I think that the network of checks and balances, however irksome to the management, will be of great benefit to the societies during the rather long transitional period that lies ahead. They will retain the confidence of the public while gaining qualifications and experience in a wider field of financial wizardry.
The effect of changes brought about by the Bill, coupled with the forces of change already at work, gives rise to considerable speculation about the future. I am an avid reader of everything that comes from building societies, including the journal of the Chartered Building Societies Institute. The first thing that my eye saw when I looked at the current issue was that three new mergers were announced this week. One of them concerned a society of which I am a member. It is the first that I have heard of it. However, that is a sign of the times. In all three cases, it looks as though the merger is to establish a building society which will have an asset qualification. They want to go into the bigger category.
As regards the future, I was interested in a speech made by Mr. Leslie Priestley, who is the chief general manager of the TSB England and Wales, when he spoke at the Building Societies Association conference. He said:
"Based on the rationalisation of the industry to date, and in parallel with experience in the world of banking, it seems likely that by the year 2000 there will be no more than five major societies, with a maximum of 20 smaller ones, who will probably be operating in partnership with other financial organisations".
That is his prediction. Small may be beautiful, but beauty fades and we have to console ourselves with that well-known comment, "You can't stop progress".
To begin with, the societies will have to pick their way through their numerous opportunities. The strain on their staff will be heavy and the need for the recruitment of expertise will be strong. When societies begin their new activities, members such as myself will want to know the route that they will follow. It seems that in this wider field of opportunity there will be profits and losses to be made. It appears that the losses of subsidiaries will have to be borne by the societies. Yet one might ask: where do the profits go? This is one of the reasons for strict control. I should be much comforted to know that the societies are much more eager to devote their resources to the provision of housing to rent than to use them to enter the field of uneasy lending to people on reasonable incomes but who have no visible security.
I presume, as I asked the Minister earlier, that the societies must change their rules in numerous ways before they can proceed further. I hope that the period of apathy of large numbers of members of societies will end and that we can question our respective societies on their intentions. I hope that the communication between the boards and their members will be much better in future than it has been in the past. Some important questions of policy will have to be decided.
The other day a young lady of 18 told me that she was going to buy a car. The bank was willing to lend

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her the money, and she said that it was better to go to the bank, which charged only 5 per cent., than to take up hire purchase, where the rate was 8 per cent. I asked her what were the terms of the loan. It was £1,000 over two years repaid by instalments of £70 a month. I thought that with O-levels she should be able to calculate the true rate of interest.
Are the building societies going into that business? If so, they will have a choice between the going market rate, which may be nearer 25 per cent., or lending at a lower rate, with all the implications that that carries. They would certainly be competitive, but they have a limit on the resources that they can devote to such lending.
I was interested to note that in the same speech, Mr. Priestley said:
"Although half of the loans made by banks and finance houses were for car purchase"—
listen to that, my Lords!—
"at least 40 per cent. related to the home, for such things as central heating, double glazing, kitchens and bathrooms; a market to which the societies might feel they had a natural right of access".
I can only hope that the building societies will be prudent and cautious in the use of that new field of lending and have regard to their name, their traditions and one of the purposes which, as my noble friend Lord Williams of Elvel said, should be their main interest.
In general, in the past 30 years or so we seem to have gone through the welfare state and the subsidy state and now we are in the borrowing state. We have the PSBR to set the example; the personal mortgage borrowing requirement following on; and the financing of consumer credit, which is both pressing and profitable and amounts to many billions of pounds. We are told that industry is in need of investment. There are proposals to repatriate profitable investments in the United States and to bring them home to put into British industry. I hope that industry will get the investment that it needs. The market in financial transactions is growing so fast and is so profitable that it is difficult to imagine how industry can compete.
If I could see that the Bill contributed anything whatsoever to the nation's wealth, earning capacity or even a great deal to the building of houses to rent, I should be happy about it and welcome it. As long as industrial investment is likely to have a lower return than the interest that people are prepared to pay for money to spend on themselves, the country will continue to be in difficulties. Financial institutions are springing up all over the place, and they are putting the building societies under pressure. Financial transactions are a growing business, but factories continue to close.
7.45 p.m.
The Earl of Selkirk: My Lords, I am glad that the noble Lord, Lord Houghton, mentioned the story of the Bill, but he utterly forgot one thing. It is a magnificent example of the flexibility of our constitution. Many people never thought for a moment that we should have Royal Assent by August, but we stand a reasonable chance of that. That is because we have an extremely flexible constitution.
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This is an important Bill. Let there be no illusion. The standard of living in this country today depends more on building societies than on governments. That is a bold statement but it is just about true, and we should recognise the significance of that.
I thank the Government especially for their close consultation with those engaged in the business. I know of no Bill that has been examined more closely by those who work in the area and by the Government. I wish that they would do that more extensively on a number of other Bills that I can think of.
Looking a little further ahead, do we really think that the will of Parliament can be expressed and serve the best interests of the public only in 300 pages? But we continue to make such assumptions day after day in this House. Sometimes the Government should consider whether there is a better way to serve the public interest with greater brevity and clarity. I endorse what my noble friend Lord Campbell of Croy said, particularly concerning the care and the clarity with which the Government have dealt with the many complicated issues on the Bill. The House is greatly indebted to them and I thank them very much. I wish the Bill every good fortune and I hope that it will come into operation at the beginning of August.
Lord Gallacher: My Lords, I intervene briefly in no sense to detract from the significance of the Bill which your Lordships are about to pass, but rather to draw attention to what I regard as a piece of fiscal impartiality which will flow following the passing of the Bill on to the statute book. I refer to the impact of the new powers being given to the building society movement to make unsecured loans upon credit unions and in particular to what I regard as the probable demise of the credit union movement as a result of those powers unless certain action is taken by the Government to achieve what I have already described as fiscal impartiality between the two movements.
So far as legislation is concerned the credit union movement in Britain has been in existence only since 1979. It is severely restricted by the Act of that year in the matter of the rates of interest which it may pay to lenders, on the one hand, and the rates which it can charge to borrowers on the other. While those rates of interest, which are variable by order, were realistic in 1979 when the Act was passed, as a result of more expensive money they have become increasingly unrealistic and, as a consequence, the credit union movement now faces a building society movement which has complete freedom to fix both its borrowing and its lending rates. As I say, under Clause 16(8) of the Bill, there is further freedom to give unsecured loans to the extent of £5,000, or even more if subsequently that figure is varied by order.
I have written to the Treasury about that and I had a fairly dusty answer from one of the Ministers in that great department of state. It would appear that the basis for not doing anything to ease the problem is that the Minister is somewhat disappointed with the returns of certain building societies already registered. On making inquiry I found that the credit union movement, which is a shoestring organisation and totally insignificant in terms of the building society movement, made the mistake, unlike the Rochdale

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pioneers of a century ago, of seeking to interest the deprived and needy classes in the movement, as a consequence of which the Chief Registrar of Friendly Societies is dissatisfied with the way in which certain of those credit unions have been keeping or not keeping their books, as the case may be. While the Minister has said to me that once existing credit unions put their house in order he may be prepared to do something about it, he has said nothing about the restrictions which are currently imposed on those who would like to form credit unions but who are in no way able to do so by reason of the limitations on interest rates to borrowers and to lenders.
I hope that the Minister will bring this matter to the attention of his right honourable friend in another place. My plea is that, coincident with the passing of this Bill onto the statute book, action should be taken to ensure equality of opportunity and competition between the building society movement and the credit union movement, because it would be a great pity if an organisation which Parliament, with all-party support, as recently as 1979 decided should have legislation to enable it to flourish, is now doomed to die merely because this Government choose to give building societies the freedom which they currently deny to credit unions.
I echo what has already been said round the Chamber in support of the Bill. I regard the building society movement as a shining example of voluntary endeavour to the world. I hope that under the additional powers now being given to it, it will continue to flourish.
Lord Brabazon of Tara: My Lords, it only remains for me to thank all noble Lords who have been so kind about my noble friend Lord Skelmersdale and myself during the passage of the Bill. I shall draw the remarks of the noble Lord, Lord Gallacher, to the attention of my right honourable friend the Chancellor and the Chief Registrar of Friendly Societies. I cannot say any more than that at the moment.
On Question, Bill read a third time.
Lord Brabazon of Tara: My Lords, I beg to move that this Bill do now pass.
Moved, That the Bill do now pass.—(Lord Brabazon of Tara.)
On Question, Bill passed, and returned to the Commons with amendments.
Lord Skelmersdale: My Lords, I beg to move that the House do now adjourn during pleasure until 8.15 p.m.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.54 to 8.15 p.m.]

Financial Services Bill
House again in Committee.
Clause 26 [Grant and refusal of authorisation]:
Viscount Chandos Viscount Chandos moved Amendment No. 96:
Page 16, line 23, at end insert—
("() Notwithstanding subsection (2) above, the Secretary of State shall refuse the application if he considers that it is unnecessary due to the existence of one or more such organisations which are concerned with investment business of a kind with which the applicant is concerned and which have been or are likely to be recognised under section 10 above.")
The noble Viscount said: The purpose of the amendment is to give the Secretary of State or the designated agency the power to require a firm to use the relevant self-regulating organisation to gain authorisation rather than to register directly with the designated agency. Reviewing the precise wording of the amendment, I should say at this stage that I would prefer perhaps to have said that the Secretary of State shall have the right to refuse rather than shall refuse. Nevertheless, I hope that the import of the amendment can still be considered. It seems to me vital that we do not allow an easy escape route for firms to register with the SIB as a soft option if they believe that the SRO that covers the area of their business is too tough for their taste. Self-regulation must be wholehearted if it is to work effectively. An over-easy option for firms to register direct with the SIB would weaken the whole principle of self-regulation.
There is also the question of whether the SIB can have the resources to cope with any significant volume of direct registration or, if it does have those resources, whether it is inefficient through the duplication of facilities that the SROs have been set up to provide. In short, I believe that this amendment would strengthen the hand of the designated agency of the SIB in handling applications that may be seeking to circumvent the effective exercise of the SROs' powers and that, in turn, it would strengthen the SROs' ability to bring some of their more difficult members, or potential members, to heel. For that reason I beg to move the amendment.
Lord Cameron of Lochbroom: I am aware that the noble Viscount is echoing views expressed by his honourable friends in another place on this point. I would suggest that the power that is sought is unnecessary for the proper function of the regulatory system. It is expected that most businesses will choose to become authorised through membership of a SRO. Indeed, these bodies form the cornerstone of practitioner-based regulation. Those SROs now in the process of formation are being created at the initiative of practitioners who are making their contribution to the development of effective regulation in their area of expertise. These bodies, with their strong practitioner input, will be close to the market place.
I am confident that most businesses will see SRO authorisation as the most practicable route for them. At present there is no evidence to the contrary. I should say that SROs will be private bodies exercising powers over their membership by the contractual agreement between them. If powers are taken which could in effect, as here, be used to direct individual businesses to join SROs, I would strongly suggest that the status of these bodies will be affected. I do not believe that they should be forced to consider, and regard as fit and proper to admit to membership, applicants who are not keen to become members.

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The noble Viscount spoke about wholehearted self-regulation. I would accept that. However, that requires that all the participants in SROs are of the same mind; otherwise there would be cause for friction. I would suggest that a successful SRO depends on members who will be ready to co-operate with the spirit as well as the letter of the rule. An unwilling member who would prefer direct authorisation to SRO membership may well not have that kind of attitude.
There is also the fact that a business may feel that a SRO is not the right body to regulate its activities: for instance, that its charge is excessive, or its rule book or methods present problems for that particular business's activities. So why in that circumstance should the agency be able to upset the business's commercial judgment and force it to apply to a SRO? That is not supplying an easy escape route; it is facing, I suggest, proper commercial realities.
I realise that there is concern among some conglom-erates that they may have to join several SROs for various aspects of their business, and it is suggested that this would be costly and bureaucratic. But the SIB have made proposals for the creation of a lead regulator which would be responsible in particular for handling overall financial surveillance and this should minimise duplication of effort and over-bureaucracy. Even conglomerates should find SRO membership a convenient route for authorisation.
It is suggested that if many businesses were to seek direct authorisation, the system might become inefficient. Certainly, the agency would have to take on more staff both to consider applications and to monitor businesses thereafter. I do not believe that that would swamp the agency and make the system unworkable. By building up its resources and with extra staff the agency would cope. I would hope and expect, however, that most businesses will join SROs; but if they do not, the system that we are proposing is flexible enough to deal with them.
With those comments I hope that the noble Viscount feels able to withdraw his amendment; otherwise I must invite the Committee to reject it.
Viscount Chandos: I should like to thank the noble and learned Lord the Minister for that reply. I was aware of the problem of forcing firms to become unwilling members of SROs. We have to face the fact that some firms are potentially unwilling members of the whole self-regulatory and supervisory system that is being set up. It seems to me that if we are to avoid the risk of somewhat wasteful duplication of facilities, it might be preferable to have firms become unwilling members of the SRO rather than unwilling members of the SIB, imposing a strain on the SIB's resources to allow that direct representation. Nonetheless, I fully accept that the Government are aware of the problems of conflict inherent in this area and I therefore beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 97:
Page 17, line 9, after ("one") insert ("and the partnership shall notify the Secretary of State of any change in the partners").
The noble Lord said: I beg to move Amendment No. 97, standing in my name and the name of my
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noble friend Lord Morton of Shuna, in the words as on the Marshalled List. This is a fairly straightforward amendment which attempts to clarify a point which may be missing in the Bill as presently drafted. I beg to move.
Lord Cameron of Lochbroom: I would agree with the noble Lord that it is important for changes in partner-ship to be notified to the regulator. I would suggest that the powers already in Clause 48—that is to deal with notification regulations—will enable just that end effect to be achieved. The Secretary of State or the agency will be able to make regulations about notification of specified events and I would certainly expect changes in a partnership to be covered by those regulations.
Failure to comply will be a breach of rules and would make the partnership liable to all sanctions available under the Bill, ranging from a reprimand to, in an extreme and persistent case, perhaps even suspension or revocation of authorisation. Perhaps with that explanation the noble Lord might see fit to withdraw his amendment.
Lord Williams of Elvel: I am most grateful to the noble and learned Lord the Lord Advocate for his response. Can we take it from what he said that such a provision will form part of the regulations that will be imposed?
Lord Cameron of Lochbroom: Obviously, I cannot give an undertaking. As I have said, I would expect that regulations would require notification of changes. What has been said in Committee tonight I have no doubt will be noted in other quarters.
Lord Williams of Elvel: I thank the noble and learned Lord the Lord Advocate. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 26 agreed to.
Clause 27 [Withdrawal and suspension of authorisation]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 98:
Page 17, line 30, at end insert ("or has contravened any prohibition or requirement imposed under this Act").
The noble and learned Lord said: In moving this amendment, with leave and for the convenience of the Committee, I shall speak also to the following amendments—and I hope that this time the list is correct: Amendments Nos. 99, 102, 103, 155 to 158, 161, 168, 183, and 196 to 198. These amendments extend the circumstances in which the Secretary of State or agency may consider taking action. They will have the discretion, however, whether or not to act. In certain cases the clauses provide for the authorised person concerned to have his case referred to the tribunal or to make representations. I shall be happy to explain the amendments in more detail, but perhaps noble Lords will feel that that is sufficient. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 99:
Page 17, line 33, at end insert—
("() Where the holder of the authorisation is a member of a recognised self-regulating organisation the rules, prohibitions and requirements referred to in paragraph (b) of subsection (1) above include the rules of that organisation and any prohibition or requirement imposed by virtue of those rules; and where he is a person certified by a recognised professional body the rules, prohibitions and requirements referred to in that paragraph include the rules of that body which regulate the carrying on by him of investment business and any prohibition or requirement imposed by virtue of those rules.").
The noble and learned Lord said: I have just spoken to this amendment. I beg to move.
On Question, amendment agreed to.
Clause 27, as amended, agreed to.
Clauses 28 and 29 agreed to.
Clause 30 [Authorisation in other member State]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 100:
Page 19, line 22, leave out from the first ("business") to end of line 23.
The noble Lord said: I beg to move Amendment No. 100 which stands in my name. It may be for the convenience of the Committee if I speak also to Amendment No. 101, in the words as on the Marshalled List. Again, these two amendments are designed to elicit certain clarity from the Government as to what exactly is intended in the Bill. Clause 30(1)(c) refers to,
"investment business of any particular kind".
I should be grateful if the noble Lord could clarify what exactly that means. If it does not mean anything, I think it should be omitted.
With regard to Amendment No. 101, on page 20 the Bill says:
"the absence or revocation of such a certificate shall not be regarded as indicating that those requirements are not complied with".
I am not quite sure that it is right to say that the absence of a certificate "shall not be regarded" as doing anything at all. I think it would be better to put it in a slightly more positive form. I beg to move.
8.30 p.m.
Lord Cameron of Lochbroom: I appreciate that the noble Lord opposite regards this as a probing amendment. Clause 30 fulfils a European Communities treaty obligation. It provides that a person from another member state is authorised to carry on investment business in the United Kingdom on a services basis—that is, a person from another country without a permanent place of business here—provided that he is authorised to carry on some or all kinds of investment business by his home state and provided that the law under which he is authorised affords investors in the United Kingdom protection at least equivalent to the Bill's provisions concerning the granting and revocation of authorisation. I think that that explains the first point about the phrase "of any kind".
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The second matter is simply that the amendment which the noble Lord has tabled would of course enable the Secretary of State to make a final judgment on whether the equivalence test is met, but under the treaty a person is entitled to do services business here if the test is met, and that of course is a matter of fact which is ultimately for the courts and, if necessary, the European Court to decide. That is why the qualification to the certificate that it cannot be final, that it must be subject to the qualification of the court's final decision, has been included. With those explanations, I hope that the noble Lord opposite will feel able to withdraw his amendments.
Lord Williams of Elvel: I am most grateful to the noble and learned Lord for his response. I accept that his explanation of what is in the Bill as at present drafted is a requirement of European directives. I think that I shall have to read what the noble and learned Lord has said, consider it and perhaps return to this whole question of how people who are authorised in the Community to do certain things can be authorised either automatically or not, or under certain circumstances, in the United Kingdom to do certain things. This is a question to which we shall return at a later stage of the Bill. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 101 not moved.]
Clause 30 agreed to.
Clause 31 agreed to.
Clause 32 [Termination and suspension of authorisation]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 102 and 103:
Page 21, line 10, after ("information") insert ("or has contravened any prohibition or requirement imposed under this Act").
Page 21, line 19, leave out from ("rules") to end of line 21 and insert (" , prohibitions and requirements referred to in subsection (1) above include the rules of that organisation and any prohibition or requirement imposed by virtue of those rules; and in the case of a person who is certified by a recognised professional body the rules, prohibitions and reqirements referred to in that subsection include the rules of that body which regulate the carrying on by him of investment business and any prohibition or requirement imposed by virture of those rules.").
The noble and learned Lord said: With the leave of the Committee, I beg to move Amendments Nos. 102 and 103, which I spoke to when I dealt with Amendment No. 79.
On Question, amendments agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 104:
Page 22, line 2, after ("or") insert ("certification by a").
The noble and learned Lord said: I beg to move Amendment No. 104. I spoke to this amendment when I moved Amendment No. 79.
On Question, amendment agreed to.
Clause 32, as amended, agreed to.
Clauses 33 to 35 agreed to.
Schedule 3 [Requirements for recognition of investment exchange]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 105:
Page 156, line 27, leave out from ("any") to end of line 31 and insert ("other body or person who is able and willing to perform it").
The noble Lord said: I spoke to this amendment when I moved Amendment No. 72. I beg to move.
On Question, amendment agreed to.
Schedule 3, as amended, agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 106:
After Schedule 3. insert the following new Schedule—

(SCHEDULE
LISTED MONEY MARKET INSTITUTIONS
PART I
TRANSACTIONS BY LISTED INSTITUTIONS WITH OTHER LISTED INSTITUTIONS OR THE BANK OF ENGLAND
1.—(1) This Part of this Schedule applies to any transaction between a listed institution and another such institution or the Bank of England in respect of any investment specified in sub-paragraph (2) below if—

(a) in the case of an investment within any of paragraphs (a) to (d) of that sub-paragraph, the transaction is not regulated by the rules of a recognised investment exchange; and

(b) in the case of any other investment specified in that sub-paragraph, the transaction is not made on such an exchange or expressed to be as so made.

(2) The investments referred to above are—

(a) a debenture or other instrument falling within paragraph 2 of Schedule 1 to this Act which is issued—

(i) by a recognised bank or licensed institution within the meaning of the Banking Act 1979 or a building society incorporated in, or in any part of, the United Kingdom; and

(ii) on terms requiring repayment not later than five years from the date of issue;

(b) any other debenture or instrument falling within paragraph 2 of Schedule 1 to this Act which is issued on terms requiring repayment not later than one year from the date of issue;

(c)loan stock, or any other instrument, falling within paragraph 3 of Schedule 1 to this Act which is issued on terms requiring repayment not later than one year or, if issued by a local authority in the United Kingdom, five years from the date of issue;

(d) any certificate or other instrument falling within paragraph 5 or 11 of Schedule 1 to this Act and relating to an investment within paragraph (a), (b) or (c) above;

(e) an option falling within paragraph 7 of Schedule 1 to this Act and relating to—

(i) an investment within paragraph (a), (b) or (c) above;

(ii) currency of the United Kingdom or of any other country or territory; or

(iii) gold or silver,

(f) rights under a contract falling within paragraph 8 of Schedule 1 to this Act for the sale of—

(i) an investment within paragraph (a), (b) or (c) above;

(ii) currency of the United Kingdom or of any other country or territory; or

(iii) gold or silver,

(g) rights under a contract falling within paragraph 9 of Schedule 1 to this Act by reference to fluctuations in—

(i) the value or price of any investment falling within any of the foregoing paragraphs; or

(ii) currency of the United Kingdom or of any other country or territory; or

(iii) the rate of interest on loans in any such currency or any index of such rates.

2.—(1) This Part of this Schedule also applies to any transaction between a listed institution and another such institution or the Bank of England by which one of the parties agrees to sell or transfer an investment falling within paragraph 2 or 3 of
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Schedule 1 to this Act if by the same or a collateral agreement that party agrees, or acquires an option, to buy back or re-acquire that investment or an equivalent amount of a similar investment within twelve months of the sale or transfer.
(2) For the purposes of this paragraph investments shall be regarded as similar if they entitle their holders to the same right; against the same persons as to capital and interest and the same remedies for the enforcement of those rights.

PART II
TRANSACTIONS BY LISTED INSTITUTIONS WITH PERSONS OTHER THAN LISTED INSTITUTIONS OR THE BANK OF ENGLAND
3. This Part of this Schedule applies to any transaction between a listed institution and a person other than such an institution or the Bank of England in respect of any investment specified in paragraph 1(2) above if the conditions in paragraph 4 below are satisfied.
4.—(1) Subject to sub-paragraph (6) below, the condition; referred to above are as follows.
(2) The consideration for a transaction in respect of an investment falling within any of paragraphs l(2)(a) to (d) above must be not less than £100,000.
(3) The value or price of the property in respect of which an option within paragraph 1 (2)(e) above is granted must be not lest than £500,000.
(4) The price payable under a contract within paragraph 1(2)(f) above must be not less than £500,000.
(5) The value or price the fluctuation in which, or the amount the fluctuation in the interest on which, is relevant for the purposes of a contract within paragraph 1(2)(g) above must not be less than £500,000.
(6) The above conditions do not apply if the person entering into the transaction has in the previous twelve months entered into another transaction with the same person, being a transaction in respect of an investment specified in paragraph 1(2) above in the case of which those conditions were satisfied
5. This Part of this Schedule also applies to any transaction between a listed institution and a person other than another such Institution or the Bank of England by which one of the parties agrees to sell or transfer an investment falling within paragraph I or 3 of Schedule 1 to this Act if—

(a) by the same or a collateral agreement that party agrees, or acquires an option, to buy back or re-acquire that investment or an equivalent amount of a similar investment within twelve months of the sale or transfer, and

(b) the consideration for the sale or transfer is not less than £100,000.

(2) Paragraph 2(2) above applies also for the purposes of this paragraph.
6. The monetary limits mentioned in this Part of this Schedule refer to the time when the transaction is entered into; and when the consideration, value, price or amount referred to above is not in sterling it shall be converted at the rate of exchange prevailing at that time.").
The noble Lord said: I beg to move Amendmen No. 106, and for the convenience of the Committee should like to speak to Amendments Nos. 113 and 123. With the agreement of the Members of the Committee, I should also like to speak to Amendment No. 106A being moved in the name of the noble Viscount, Lord Chandos, which is an amendment to Amendment No. 106.
I realise that this is a new schedule. It is of some length and I shall try to encapsulate what we are trying to do as best I can. The amendments to which I an speaking reflect the decision announced by my honourable friend the Economic Secretary in May. 1. was that the Bank of England should regulate the wholesale money, bullion and foreign currency markets. The behaviour of these markets is closely connected with the money supply, and the Bank of England as part of its economic responsibilities, has by tradition been closely involved with them and has generally supervised them.
Under the Bill as it was originally drafted some of these activities in these markets were covered by the Bill and others were not. I do not think that Members of the Committee would agree that this is an altogether satisfactory position. On reflection, it was decided that the Bank should be made responsible for these markets. The Government will be publishing a consultative document about their future regulation in the autumn.
As a consequence of this decision and in order to reduce supervisory overlap, the Economic Secretary announced that the Bill would be amended so as to remove from regulation under it certain transactions in the wholesale market undertaken by institutions, subject to supervision by the Bank under the new arrangements. These amendments implement that undertaking. They have been the subject of widespread consultation with interested parties; their general approach has been welcomed. We have sought to meet the detailed difficulties which have been drawn to our attention. However, we shall be happy to look at any further points which may arise when all those concerned have had the proper opportunity to study these amendments in detail.
Perhaps it might be helpful if I outline the main features. First, it applies only to institutions on a list which will be drawn up by the Bank of England. In order to ensure proper accountability, the criteria for admission to the list and arrangements for additions to it and removals from it will be subject to approval by the Treasury. The list is expected to include all those banks, building societies and licensed deposit-takers who are competent to operate in these markets, together with other institutions which satisfy the Bank that they are fit and proper so to do.
The exemption applies to certain transactions in the investments which are traditionally regarded as money market instruments. These are short bonds and debentures, including certificates of deposits; also currency futures and options, bullion futures and options, contracts for differences on interest rates, currency and other money market investments. For the benefit of noble Lords who are as unfamiliar as perhaps I am with some of the terminology—and I do not think that there are very many in the Committee right now—perhaps I should explain that a "repo" is an agreement to sell investments subject to an arrangement to buy them back at an agreed future date. I suppose that they could most simply be regarded as the equivalent of secured lending.
Transactions in relevant investments between two institutions, both of which are on the Bank's list or between such an institution and the Bank of England are exempt, whatever the size of the transaction. Such institutions will be large, professional operations well able to look after themselves and subject to Bank supervision. In the case of transactions between an institution on the list and someone else, the exemption applies only if the size of the transaction exceeds the limits set out in the new schedule or if it is with a person who can be treated as a wholesale counter-party. The size limits are deliberately set high: £100,000 sterling for transactions in bonds and debentures, and £500,000 sterling for futures and
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options. So the ordinary private investor is not deprived of the protections provided by the Bill. It is only wholesale market transactions which are to be exempted, and they will then come instead under the supervision of the Bank of England.
But even wholesale market operators sometimes need to do small deals. This is why the schedule provides that where a person has entered into at least one transaction over the prescribed limits within the previous year, he may be treated as a wholesale counter-party, and subsequent transactions with him are covered by the exemption, whatever the size.
I fear that I have spoken rather quickly and at some length, but I recognise I may well not have been able fully to explain the amendments. These are complex matters. The development of the markets and of new investment products has blurred the old distinctions between the straightforward money market instruments such as certificates of deposit and securities. These amendments seek to move the dividing line between the areas regulated by the Bank of England and those regulated under the Bill. The principle behind the move is widely supported. The dividing line inevitably is arbitrary. Everyone will have their own views about the details and, of course, matters will change. That is why Amendment No. 183 adds the new subsection to those listed in Clause 43 so as to ensure that amendments can be made by order if in future they are found to be necessary.
Before I sit down, I should say something about the amendment to the new schedule which is in the name of the noble Viscount, Lord Chandos. His amendment seeks to extend the exemption to a broker who is on the bank's list, who arranges transactions between two institutions not on the list if both those institutions were wholesale counter-parties so far as the broker was concerned. We think that this would be a sensible extension of the exemption. We are not sure that the wording suggested is totally satisfactory, but I can give the noble Viscount an undertaking to deal with what lies behind his amendment, as we see it, and bring forward an amendment which is acceptable. Of course, we will be in touch with him about it at a later stage.
The Deputy Chairman of Committees (Lord Alport): There is an amendment to Amendment No. 106 —Amendment No. 106A.
8.45 p.m.
Viscount Chandos Viscount Chandos moved, as an amendment to Amendment No. 106, Amendment No. 106A:
After Schedule 3, at end insert—
("7. This Part of this Schedule also applies to any transaction effected or arranged by a listed institution pursuant to paragraph 13 of Schedule 1 of this Act with or between persons other than listed institutions if such transaction would, if made between each of the persons with or between whom the transaction is effected or arranged and the listed institution, have been the transaction to which this Part of this Schedule would have applied.").
The noble Viscount said: The amendment to Amendment No. 106 moved by the noble Lord, Lord Lucas of Chilworth, is an important amendment and one which I think we should welcome unequivocally. I am delighted to hear (and I am very grateful to the noble Lord) that in principle what I am trying to

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achieve in Amendment No. 106A is acceptable to the Government. Again, looking at the wording of my own amendment, I feel this one is worthy of Groucho Marx on a good day, so I welcome the assistance of the noble Lord in trying to refine the wording to something that is perhaps easier for all of us to understand.
If I may take this opportunity to raise one or two points on Amendment No. 106 the role of the Bank of England is clearly a sensible and logical one in taking responsibility for supervising a broad range of instruments and markets that are related to the money markets. But this raises the question to which other noble Lords have already referred this evening—that of the lead regulator. I think it would be most important to try to clarify, if possible, the extent to which the Bank of England will follow the recommendations of the registered SROs as to acceptable firms to join the category of listed institutions not otherwise regulated by the Bank of England.
I think it would cause considerable problems if, in this instance, the Bank of England attempted to apply its own requirements on matters such as capital adequacy to firms which were not otherwise within its supervisory ambit. Clearly, one of the purposes of this Bill is to establish the concept of "level playing fields" for capital adequacy between different institutions subject to different SROs or different regulatory regimes. But nonetheless there will probably be variants, and I hope that those variants will still be accepted even where firms are being granted position under the title of listed institutions.
In passing, the area of "repo"—repurchase contracts—is one that should be included in the instruments that are subject to this schedule. But we should bear in mind nonetheless—this is something that I know the Bank of England is very conscious of—that the "repo" market in United States Government securities has been a graveyard for firms and an area of very substantial losses.
Finally, perhaps unintentionally in the drafting of this amendment the exemption that I think is from the Gaming Act 1845 that is being introduced in Clause 58 is unfortunately lost in the case of listed institutions operating in these markets; at least that is my understanding of this amendment. Given that that was a valuable exemption or clarification of the position where contracts for differences were questionably covered by the Gaming Act, if my understanding is correct, I would certainly hope that at a later stage it might be possible for that to be corrected. However, with the reassurances of the noble Lord, Lord Lucas of Chilworth, that the Government will use their best efforts to improve the wording of Amendment No. 106A, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Viscount Colville of Culross: With respect, the Motion that my noble friend has moved about the insertion of the new schedule is still before the Committee, and I hope I may be allowed to ask him some questions about it. I wished to leave this until after the amendment of the noble Viscount had been dealt with, and perhaps it would now be convenient for the Committee if I were to ask him some questions.
The Deputy Chairman of Committees: We are now back on the original amendment, and therefore it is perfectly in order.
Viscount Colville of Culross: I hope my noble friend Lord Lucas of Chilworth will forgive me for throwing these questions at him, but he will appreciate that this amendment has not been available to us for very long. Indeed, he talked about the possibility of further consultations and response to views put forward.
If I may, I should like to ask my noble friend three questions. First of all, as he said, there will be certain bodies, such as building societies and banks, which, in relation to the sort of investment transactions that are spelt out in his new schedule, will be exempted persons for that purpose and that purpose only. The very strong probability is that they will also be authorised persons for large quantities of other investment transactions.
If they are authorised persons, they will fall within various rules to be made by the SIB, or, I suppose, by one of the SROs, and will then come under Clauses 44 and 45 and the schedules we have already discussed. If they are to be exempt for the purpose of these money market transactions, what is the point of that exemption unless there is an undertaking at this stage that the SIB or the SROs will not make rules affecting them in relation to these very transactions? If that were to happen there would be no object in making them exempt. They would still be subject to rules and the exemption would have no effect.
Can my noble friends tell the Committee whether or not the SIB will be making rules about these very matters which would automatically then bring the persons, the organisations, the banks, whatever it is, who would otherwise be exempt, into the whole realm of being authorised persons and subject to the rules made thereby? That is the first point. In other words, is there going to be a complete differentiation between the rules made by the Bank of England, as is envisaged in this series of amendments, and rules made by the SIB so that they will not interfere with each other, they will be mutually independent?
The second question relates to the financial limits to which my noble friend referred in Part II of the new schedule. He said that they were intended to be somewhat on the high side, I think. I wonder why, when he refers to the wholesale market, for instance in relation to certificates of deposit, his department has chosen £100,000? The way that this was dealt with recently in the Finance Act 1984 related to the level above which the banks no longer automatically deducted tax from deposits placed with them.
The limit that was placed in Section 27 of that Act and in the eighth schedule, paragraph 3(8), was £50,000. That was thought, a matter of only two years ago, to be an adequate definition of the wholesale market for the purposes of certificates of deposit, which is one of the examples that my noble friend gave of the type of investment that this new schedule is supposed to be dealing with. Indeed, it obviously does, because it is one of the ones listed in Schedule 1 to the Bill. Why then have a different standard for the wholesale market as between the Finance Act of two years ago and the Bill now before us? That is the second question.

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The third question is something that I think my noble friend would be happy to deal with immediately. The new clause that he has spoken to, which is Amendment No. 113, not only deals with the actual tansaction—and he will see this in subsection (1) of his new clause—but also deals with "anything done for the purposes of that transaction. That presumably includes advice given leading up to somebody deciding whether or not they are going to embark upon that transaction.
How on earth is anybody giving that service going to know whether or not the person whom he is advising is going to limit himself to £100,000, or £500,000, particularly if the advice is being given in relation to a number of different transactions? If you have these words in then it seems to me that the whole question of the limit is difficult to understand. There is no way in which the person giving that advice can tell whether at that stage he is or is not exempt. He does not know whether he is going to be subject to a whole collection of different rules which will be made if the transaction that ultimately turns out to take place is below the limit now in the schedule.
Those are some of the points that have occurred to people I have been speaking to immediately upon looking at the new schedule. I hope that my noble friend does not think that they are hostile criticisms. They are not intended to be that at all. The undertaking that was given in another place has been admirable fulfilled, and nobody wishes to belittle that, but nevertheless there are still some details that need dealing with.
Lord Williams of Elvel: The noble Lord, Lord Lucas, in introducing this seems to have presented us with a new Bill. I was grateful to him when he said that a consultative document on this schedule would be issued. I hope that it will be issued before the Report stage in your Lordships' House, because we now have a completely new list in addition to other lists which are there under the Banking Act and other Acts such as the Companies Act. We have another list of money market institutions which the noble Lord defined in rather broad-brush terms. We on our side are interested to know exactly who qualifies for this list and what are the criteria for getting on this list, because obviously membership of this list confers considerable benefits on those who are there.
Having read through the schedule I share the doubts of the noble Viscount, and I also have, in addition to the noble Viscount's questions—and as he said these are immediate questions, they are not questions on reflection—doubts as to whether options as expressed in the new schedule are in fact money market instruments at all. After all, options are dealt with in the commodity exchanges. That is not by any definition a money market or a wholesale operation. Options are dealt in internationally. I have doubts about whether money brokers are going to be involved in this. Where do they fit into this whole equation?
With the noble Viscount, Lord Colville, I have doubts about the limits. After all, on the question of an option, £500,000 is not a very large amount. A number of operators on the London Metal Exchange
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will go in for options of that amount without any problem whatsoever.
All I can say is that we look forward to the consultative document. We wait to see what this all really means, what is the thrust of this new schedule. I understand clearly that there is, if I may say, a turf problem between the Bank of England and the Department of Trade and Industry. I understand that that turf problem has to be resolved. I obviously appreciate the Government's efforts in trying to resolve it, but until we have had clarification in the consultative document of what this all means I do not think I can comment further. I shall reserve my comments for the Report stage when it comes.
9 p.m.
Lord Lucas of Chilworth: Perhaps at the outset I may clear up something that may have been my misunderstanding. I said that the Government would be publishing a consultative document about their future regulation in the autumn. If the Committee will be kind enough to check Hansard they will see that I was talking about the Bill as originally drafted, and that some of the activities in the foreign bullion and wholesale markets and so on were covered by the Bill and others were not. I said that this was not an altogether satisfactory position and that on reflection it had been decided that the Bank should be made responsible for these markets. The Government will be publishing a consultative document about their future regulation in the autumn. We are not proposing to publish a consultative document about Amendment No. 106. Perhaps I should say here and now that we have already published that document in the form of Notes on Clauses, which I am sure the Committee will find helpful in giving consideration to what we have been discussing.
My noble friend Lord Colville asked me one or two questions, and I certainly did not think of them in any way in hostile terms. On the question of the SIB rules, the banks and so on, most banks will need to be authorised. We certainly would not expect the SIB or the SROs to make rules about the wholesale market transactions which would apply to exempt persons even if those persons were authorised by an SRO for another activity. The banks, SIB and SROs will in any case be co-operating. Indeed under the Bill they are required to co-operate about drawing up rules. So I do not think there will be any difficulty there.
On monetary limits, the moment when my noble friend started introducing tax schedules struck a little note of horror in me. I wonder whether I may put it to my noble friend this way? Limits are inevitably arbitrary. They were set high in this instance because only one transaction over the limit makes a client a wholesale counter-party for the following year. If we lowered the limits, perhaps down to the figure of £50,000 (which is the tax limit in the Finance Act 1984 to which he referred), we believe we should have to tighten up the definition of wholesale counter-party. So, frankly, a balance here had to be struck. On practical grounds we believe it preferable to have a very high limit but a rather more relaxed definition of "wholesale counter-party" than the other way round, which I hope gives my noble friend a real explanation

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of why the £100,000 and the £500,000 sterling figures were chosen.
My noble friend also asked whether the new clause in Amendment No. 123 includes advice and if so—
Viscount Colville of Culross: It was Amendment No. 113.
Lord Lucas of Chilworth: I am obliged to my noble friend—how this proposed transaction will be covered? The monetary limits are only relevant to the first deal with the wholesale counter-party. It is unlikely that any person advising others will confine himself to advice on these instruments. In practice we think there is no problem. If my noble friend can see a problem, as I said in my opening remarks, we should be very glad to talk further about it, because, as the noble Viscount acknowledged, we want to get this huge improvement as correct as we possibly can. I should be only too happy to engage in discussions between now and Report if that would help any member of the Committee.
Lord Williams of Elvel: I am most grateful to the noble Lord for his explanation. I am sorry, as he corrected me in my interpretation of what he said about a consultative document, that gloom suddenly descended upon the Chamber. Indeed gloom descended on me. I had rather expected that we were to receive a document which would explain the details of all this. However, I am grateful for his assurance that he will consult other parties. Perhaps I can issue myself an invitation as one of those who might be consulted as I might have something constructive to offer.
On Question, amendment agreed to.
Clause 36 agreed to.
Clause 37 [Clearing houses]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 107:
Page 24, line 36, at end insert ("or off the exchange if the rules of the clearing house so allow").
The noble Lord said: This is a simple amendment to try to extend the ability to operations which are off the Exchange but nevertheless form part of the clearing house activities. This happens frequently in a number of markets and I hope the noble Lord will find no particular difficulty with this.
Lord Lucas of Chilworth: Simple the amendment may be, but I have to confess to questioning whether it is necessary because the clause as it stands covers arrangements with a recognised investment exchange for transactions effected on the exchange. I realise that there is a type of transaction—in colloquial parlance, "off exchange dealing"—which takes place outside normal trading hours, for example. But on a well-run exchange—here I pause for a moment because I remind the Committee, if I may, that all recognised exchanges will be required to be well run—there are rules on reporting, clearing and so on which apply to such deals. I suggest therefore that the existence of
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these rules means, for the purposes of the Bill, that, however transactions are referred to colloquially, deals are effected on the exchange and are therefore covered by those rules to which I have referred. Therefore I do not believe that the amendment is necessary and I ask the noble Lord, Lord Williams, wherher perhaps on reflection he might like to withdraw it.
Lord Williams of Elvel: I am referring in particular to deals concluded on the commodity exchanges and, particularly on the London Metal Exchange. We do not know whether when the LME joins ICCH the contracts which will be dealt in outside what is known as the Memo (the 90-day basic contract which is dealt in on the ring) will be cleared in a clearing house or not. It seems to me that the clearing house may decide that, although they are not dealt in on the ring, they may well be part of the operations in the clearing house. Therefore the expression "on the exchange" is perhaps too narrow for that purpose. This is what I had in mind; but if the noble Lord assures me that that will be covered, then I am very happy to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 37 agreed to.
Clause 38 [Grant and revocation of recognition.]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 108.
Page 25, line 27, leave out ('and') and insert—
(" () has adequate arrangements and resources for the effective monitoring and enforcement of compliance with its rules or, as respects monitoring, arrangements providing for that function to be performed on behalf of the clearing house (and without affecting its responsibility) by another body or person who is able and willing to perform it;")
The noble Lord said: I beg to move Amendment No. 108 and with it perhaps I may speak to Amendment No. 110. The amendments impose additional requirements which have to be satisfied if a clearing house is to be recognised under this Bill. These requirements are similar to some of those which an investment exchange must satisfy if it is to be recognised. I am quite sure that the Committee will agree that a clearing house which is to benefit from the status of recognition should have proper arrangements for enforcing and monitoring compliance with its rules and should be able and willing to promote high standards of integrity and to co-operate with other supervisors. That is the purpose of these amendments. I beg to move.
On Question, amendment agreed to.
Lord Hacking Lord Hacking moved Amendment No. 109:
Page 25, line 28, after ("provides") insert ("or is able to provide")
The noble Lord said: As has already been expressed in Committee by the noble Lord the Minister, the Bill enables the Secretary of State under Clause 38 to declare a clearing house to be recognised for the purposes of the Bill. The Bill then sets out certain requirements that have to be met by a clearing house applicant to get his recognition under the Bill. Those conditions are set out in subsection (4), which has two paragraphs, (a) and (b). If the Minister moves his Amendment No. 110 (which I anticipate he will be

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moving shortly) and it is accepted by the Committee, there will be a third condition under a new paragraph, paragraph (c) as I anticipate it will appear in the Bill.
These conditions are as follows: First—and I am reading from subsection (4)(a)—that the applicant
"has financial resources sufficient for the proper performance of its functions".
I now read from subsection
"provides clearing services which would enable a recognised investment exchange to make arrangements with it that satisfy the requirements of Schedule 3 to this Act."
Then there is the proposed third condition under subsection (4)—and I read from Amendment No. 110—
"is able and willing to comply with duties corresponding to those imposed in the case of a recognised investment exchange by paragraph (5) of that Schedule".
My concern is—and this is the reason I move this amendment—that during the currency of the applica-tion the applicant to the Secretary of State has to show that he is providing clearing services; and this—unless the noble Lord, the Minister can help me and help the Committee and indicate that the presumption I am making is wrong—will if my presumption is not wrong, effectively exclude newcomers who are not currently providing clearing services but who have the capacity to do so.
My amendment seeks to give the Secretary of State power to grant recognition not only when the clearing house applicant is providing clearing services but is able to provide them. It is significant, if I may say so, that in the Minister's amendment the proposed third condition under subsection (4) actually uses the terminology, "is able and willing". It will therefore appear that my amendment fits rather neatly with the amendment that the Minister is about to move.
Lord Lucas of Chilworth: The last time that I had the pleasure of commending one of the amendments of the noble Lord, Lord Hacking, he accused me of being a little churlish. May I say how warmly I welcome his amendment which fills a technical omission. I commend it to the Committee.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 110:
Page 25, line 31, at end insert ("; and
() is able and willing to comply with duties corresponding to those imposed in the case of a recognised investment exchange by paragraph 5 of that Schedule.").
On Question, amendment agreed to.
Clause 38, as amended, agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 111:
After Clause 38, insert the following new clause:
("Overseas investment exchanges and clearing houses.
.—(1) Any application under section 36(1) or 38(1) above by a body or association whose head office is situated in a country outside the United Kingdom shall contain the address of a place in the United Kingdom for the service on that body or association of notices or other documents required or authorised to be served on it under this Act.
(2) If on any such application it appears to the Secretary of State that compliance, or full compliance, with the requirements for the making of a recognition order mentioned in section 36(4)
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or, as the case may be, 38(4) above is precluded in the case of the body or association making the application by—

(a) the law of the country in which its head office is situated; or,

(b) any action taken by or the practices of the government or any other authority or body in that country,

he may, subject to subsection (3) below, make a recognition order notwithstanding that those requirements are not complied with.
(3) The Secretary of State shall not make a recognition order by virtue of subsection (2) above unless it appears to him—

(a) that the body or association is, in the country mentioned in subsection (2) above, subject to supervision which, together with the rules and practices of that body or association, is such that investors in the United Kingdom are afforded protection in relation to that body or association at least equivalent to that provided by the provisions of this Act in relation to investment exchanges and clearing houses in respect of which recognition orders are made otherwise than by virtue of that subsection; and

(b) that the body or association is able and willing to co-operate, by the sharing of information and otherwise, with the authorities, bodies and persons responsible in the United Kingdom for the supervision and regulation of investment business or other financial services; and

(c) that adequate arrangements exist for such co-operation between those responsible for the supervision of the body or association in the country mentioned in that subsection and the authorities, bodies and persons mentioned in paragraph (b) above.

(4) In determining whether to make a recognition order by virtue of subsection (2) above the Secretary of State may have regard to the extent to which persons in the United Kingdom and persons in the country mentioned in that subsection have access to the financial markets in each others' countries.
(5) In relation to a body or association declared to be a recognised investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above—

(a) the reference in section 35(2) above to the matters dealt with in Schedule 3 to this Act shall be construed as a reference to corresponding matters;

(b) sections 36(7) and (8) and 38(7) and (8) above shall have effect as if the requirements mentioned in section 36(7)(a) and in section 38(7)(a) were those of subsection (3)(a) and (b) above; and

(c) the grounds on which the order may be revoked under section 36(7) or 38(7) above shall include the ground that it appears to the Secretary of State that revocation is desirable in the interests of investors and potential investors in the United Kingdom.

(6) In this section "country" includes any territory or any part of a country or territory.
(7)A body or association declared to be a recognized investment exchange or recognised clearing house by a recognition order made by virtue of subsection (2) above is in this Act referred to as an "overseas investment exchange" or an "overseas clearing house".").
The noble Lord said: I beg to move Amendment No. 111. I should like to speak at the same time to Amendments Nos. 244, 247, 255, 345, 371, 373, 379 and 403. All these amendments will facilitate the proposed trading links between exchanges and clearing houses in the United Kingdom and those overseas. The principal amendment is a new clause dealing with overseas investment exchanges and clearing houses. This is desirable in view of the increasingly international nature of the financial services industry. A number of links are being planned between exchanges and clearing houses here and overseas which will enable investors in the United Kingdom to benefit from the increasingly diverse variety of investment services available throughout the world. It will also help to promote foreign investor services provided by investment businesses in the United Kingdom.
There are already some major overseas exchanges and clearing houses which are participating in discussions with the Department of Trade and Industry and others in this country with a view to co-operation in the provision of investor protection across international boundaries. This is in keeping with the recognition given to such overseas exchanges as the New York, Toronto and Tokyo stock exchanges under the provisions of the Prevention of Fraud (Investments) Act which this Bill will replace. Members of the three exchanges I have mentioned have had special status for many years through their United Kingdom associations. Furthermore, as investment opportunities become increasingly international, so our regulatory framework should be able to take into account arrangements which exist overseas for the protection of United Kingdom investors who transact investment business there.
These amendments respect the sovereignty of overseas governments just as we hope they will respect our own. Furthermore, they contain provisions which permit the Secretary of State to have regard to the extent to which persons in the United Kingdom and countries overseas have access to the financial markets in each other's countries. They require the Secretary of State to be satisfied that adequate arrangements exist for mutual co-operation by the sharing of information or otherwise. They also provide that the Secretary of State may not make a recognition order in respect of an overseas investment exchange or clearing house unless it appears to the Secretary of State that the overseas investment exchange or clearing house is subject to supervision which, together with its rules and practices, is such that investors in the United Kingdom are afforded protection in relation to that exchange or clearing house at least equivalent to that provided by compliance with the requirements of Clauses 36(4) and 38(4) respectively.
We discussed those clauses earlier and touched very gently on this subject. The object of course is to ensure that the protection is at least equivalent to that provided here so that there is no advantage to an overseas exchange and no disadvantage to a United Kingdom investor. The amendments I am proposing to the Committee respond to the need for the Bill to reflect the increasingly international nature of financial services. They make the appropriate provisions for overseas investment exchanges and overseas clearing houses. I commend this group of amendments to the Committee.
Lord Bruce of Donington: We are grateful to the noble Lord for having explained Amendment No. 111, and for having given us a list of the other amendments that we understand are associated with it. In so far as the noble Lord described the purposes of
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this series of amendments to us, they appear to be quite satisfactory.
However, the noble Lord mentioned by name three reputable exchanges that are of international standing and very widely respected in the financial community. There are, of course, other investment exchanges which although perhaps in formal terms might stand up to the requirements of this particular clause, nevertheless, in the experience of some investors in the United Kingdom, lack enforcement powers in their respective states. I shall not mention any particular exchanges, because it would be quite invidious, but the noble Lord must know which exchanges I have in mind.
I would ask that the noble Lord give the Committee an assurance that some attention will be paid by the Secretary of State not only to the formal claims and formal statutes of these exchanges, other than those I have already mentioned, but also that he will generally satisfy himself, if necessary by detailed reference to our overseas representatives in the states concerned, that the powers of enforcement are equal to the formal powers that apparently exist.
As I said, we have not really had the opportunity of examining this series of amendments in detail. In general, we agree with the purpose of the noble Lord, but he will quite understand, in view of the time factor, that we reserve our right to come back if necessary on Report or possibly, if the noble Lord is available—as I know he very often is—to make unofficial representation before Report stage.
Lord Lucas of Chilworth: May I quickly respond to the noble Lord? The first answer is, yes, I shall be very happy to talk about this and I shall make myself as available as one reasonably can at this time of the year. Secondly, I mentioned those three exchanges only because they have had special status. Other exchanges have not necessarily had that status, and I should like to give the noble Lord the assurance that he seeks. We would want to make sure whether the laws in an overseas country in which an exchange has its head office, or the regulatory authorities in that country, might prevent an exchange from complying fully with each and every requirement of Schedule 3 and whether there might be some restriction on the showing of information. Notwithstanding that, the rules and the practices of the exchange, taken together with the overseas country's laws, must afford to investors in the UK equivalent protection to that afforded by our own. So I can give the noble Lord that assurance quite categorically.
On Question, amendment agreed to.
Clause 39 agreed to.
9.25 p.m.
Clause 40 [Lloyd's]:
Viscount Chandos Viscount Chandos moved Amendment No. 112:
Page 27, line 6, after ("persons") insert ("only fora period of three years commencing when this Act is passed").
The noble Viscount said: On the Second Reading of this Bill in your Lordships' House I gave a trailer to the fact that the question of the exemption of Lloyd's remained a matter of considerable concern both to the general public and to members of the financial community. We heard from the Government Benches during the Second Reading debate—and there were long discussions in another place—about why the Government believed it was correct that Lloyd's should be exempted from the Financial Services Bill; that many of the offences or malpractices that appear to have been committed in the insurance market were committed before the Lloyd's Act was passed in 1982; that more time was needed to assess the efficacy of the 1982 Act, and that the inquiry set up under the chairmanship of Sir Patrick Neill would assist in doing this.
So, while I was initially inclined to believe that there was a case that Lloyd's be brought immediately under the provisions of the Financial Services Bill, I think I have been persuaded that it would be wrong to attempt to bring it forthwith under the purview of the Bill, because of the transitional state that the market is in, the need for more time to assess the efficacy of the 1982 Act and, perhaps more pragmatically, because of the major task faced by the SIB in grappling with the legislation as it will affect all other markets. Nonetheless, it seems that the investment aspects of the insurance business and conceivably even the marketing of Lloyd's membership—and we have seen reports of Lloyd's membership being marketed to people of quite modest wealth—should potentially come within a broad interpretation of financial services.
The compromise that this amendment proposes is that Lloyd's will be exempted for a period of three years from the enactment of the Bill, during which period it would be perfectly reasonable to expect the 1982 Act to be fully and comprehensively reviewed for its efficiency. During that time, clearly, the Neill inquiry will report. If the amendment were accepted by the Government, it would mean that Parliament would necessarily have the chance to reconsider the position of Lloyd's in respect of financial services legislation once the Lloyd's Act and the Neill inquiry have been fully reviewed. For that reason, I beg to move.
Lord Fanshawe of Richmond: I have spent 38 years working at Lloyd's. I have been with the same firm for all that time, since 1948, and I am now a director. When I first joined 38 years ago, there were 100 employees and today there are something like 15,000. It is now the largest insurance broking firm operating in the United Kingdom and indeed the largest based outside the United States. I have also been for 35 years a member of Lloyd's, and obviously I am very concerned about the fact that many people outside this
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Committee have been making the comment that Lloyd's should be included in the Bill when it becomes an Act.
The noble Viscount, Lord Chandos, told the Committee that he has been persuaded by the various arguments put to him that Lloyd's is covered, and covered properly, in the 1982 Act. Indeed, I played some part in helping that Bill pass through another place. I believe that it would be a pity if the amendment of the noble Viscount were to be agreed to this evening because it would continue the uncertainty that has caused so much concern in Lloyd's over the past few years. The 1982 Act, as the noble Viscount himself said, has been working. It has worked extremely effectively, contrary to some reports that one has seen in the national press recently. Exemption of Lloyd's from the Bill will enable the Lloyd's Act to continue to work over the years ahead. To introduce any form of uncertainty such as the amendment would provide could undermine the workings of that Act.
As the noble Viscount stressed, all the scandals and problems of Lloyd's have horrified those of us who work in that community just as much as those outside who are interested in Lloyd's, particularly in other areas of the City of London; but one must accept the fact that the actions taken have been dealing with incidents that occurred before the 1982 Act came into existence. This new tailor-made regulatory system was designed specifically to take account of the fact that Lloyd's names are not investors in the ordinary sense, but are themselves in business as insurers. A normal investor can put his money into a business and can presumably—sometimes at a disadvantage to himself—take out the money. An investor in Lloyd's is not an investor because he cannot do that. A name at Lloyd's puts his money into Lloyd's and insures not for other people but on behalf of himself through an agent at Lloyd's—and an underwriter at Lloyd's. He therefore cannot suddenly take his money out or be treated in the same way as an investor can be treated in other parts of the City of London; or, indeed, outside the City.
It is clear also that all the wrongdoings which have been made the subject of so much publicity, and which took place before the 1982 Act came into force, have been tackled by the new and enlarged Council of Lloyd's. Therefore, I think it is misplaced to judge the present quality of regulation of the Lloyd's market on past malpractices. As someone who is working in that community it seems to me that Lloyd's has acted with commendable speed and vigour to put in place since January 1983 a comprehensive and stringent body of rules which set the standards of conduct of Lloyd's members and underwriting agents. In no less than 40 by-laws Lloyd's has enacted conduct of business rules which it believes will ensure high standards of behaviour. Certainly as someone involved in that market, that is my view.
If, however, any of those rules are breached in the future, Lloyd's have a thorough, effective and fair procedure for investigating and disciplining any misconduct which may have taken place. In fact, its active pursuit of cases of misconduct contrasts with the apparently less active policy of the Director of Public

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Prosecutions. There is some considerable concern in the City and in Lloyd's that various individuals who have been proved to have carried out malpractices in Lloyd's, have not yet been brought to account in public and put on trial.
Lloyd's bylaws, which have been put into effect since the Act became effective in 1983, have concentrated on enforcing very similar principles to those enshrined in the Bill we are now discussing—disclosure, avoidance of conflict of interests and a fit and proper test for practitioners. Lloyd's has made extensive reforms on reporting and disclosure. Of particular importance are the comprehensive rules on accounting and auditing. Lloyd's has also taken a firm stand on conflict of interests, which is very important. In order to ensure that Lloyd's market is run by fit and proper—that is, honest, competent and solvent—underwriting agents, all agents have been required to go through a new vetting procedure for registration and any unsuitable agents are weeded out.
I believe that since the 1982 Act came into force—it was very controversial at the time and caused a great deal of debate in both Houses of Parliament—an efficient regulatory and protection system has been evolved and is now in action. That is not an academic statement from someone looking at the scene from outside. It is a statement from someone involved in the business and working there daily who is very much aware of the effect that these new rules are already having on business life in Lloyd's. In my opinion, they were well overdue.
It would be much better if we leave matters as they are, see how the Act develops and what the Neill Committee reports. If the situation then arises in which Parliament has to look at the position again, it can always take place. There is no need, and it can only provide more uncertainty, to have an amendment such as that proposed by the noble Viscount, Lord Chandos. I hope that the Committee will reject it.
Lord Hacking: I, too, am opposed to this amendment. After the words of the noble Lord, Lord Fanshawe, I do not intend at this stage to advance any further detailed argument on what steps have been taken at Lloyd's since the passing of the Lloyd's Act 1982. It may be necessary for further argument to be put forward if the noble Lord, Lord Bruce, moves his motion to oppose the Question that Clause 40 stand part of the Bill, but at this stage, particularly after the words of the noble Lord, Lord Fanshawe, I shall not advance any such further argument.
I am opposed to this amendment because I am applying the test which the noble Viscount, Lord Chandos, applied when he tabled his amendment which is now before the Committee. That test was: at this stage should Lloyd's be taken out of the exempt status under this Bill? Having thought about the matter and considered it in more detail, the noble Viscount has fairly conceded to the Committee that it would not be right at this stage to take Lloyd's out of the exempt status of the Bill. If that is correct, my submission to the Committee is that we should not try
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to foresee the future or place anything in this Bill which deals with a time, three years ahead, when we do not know what then will be the functioning of Lloyd's, nor what then will be the effective functioning of this Bill.
There are therefore two areas which require consideration. One is the continued effectiveness of the new Council of Lloyd's under the Lloyd's Act 1982; the other is the effectiveness of the provisions of this Bill. In my submission to the Committee both those things should be considered before we consider taking Lloyd's out of the exempt status of this Bill. If that is right—and this is the test which the noble Viscount has applied—it is not appropriate at this stage to judge what the scene in the market will be three years from now.
Lord Cameron of Lochbroom: I know that this is one of the contentious issues in the Bill. Although the noble Lords opposite have not spoken, I think it is only right that in what I say now I should cover the whole of the Government's case both as regards this amendment and generally on the matter of Lloyd's. The case is quite simple. In essence it is that it is not only wrong to make a judgment on Lloyd's before Sir Patrick Neill's inquiry is complete, but that in any event this Bill is ill-equipped for the task of regulating Lloyd's.
I have been reminded by my noble friend Lord Fanshawe of the general background against which this debate takes place. Perhaps I may just add to what he has said—that it is only four years since Lloyd's itself embarked on a major reform of its system of regulation. It did so in a private Act. That is to be noted. It is an earnest of the good faith of Lloyd's. It made some major changes at Lloyd's, as my noble friend reminded the Committee. For instance, it introduced the Council of Lloyd's so as to facilitate the process by which by-laws are made. It introduced on to the council an independent element of persons whose appointment has to be confirmed by the Governor of the Bank of England. It introduced a new disciplinary system and gave the council very wide by-law-making powers.
The Act set in train a process at Lloyd's which is still under way. My noble friend, of course, has reminded us of the 40 by-laws and the areas which are covered: matters such as disciplinary procedures, the conduct of underwriting agents, and the nature of the agency agreement between a member of Lloyd's and his underwriting agent. However, the Government have come to recognise that the present Bill sets new standards in investor protection. Indeed, all our perceptions have changed since Professor Gower was asked to undertake his review in July 1981.
In January this year the then Secretary of State for Trade and Industry set up an inquiry, headed by Sir Patrick Neill, to consider the regulatory system at Lloyd's. The inquiry is considering whether the regulatory arrangements set up at Lloyd's under the 1982 Act provide protection for the interests of members of Lloyd's comparable to that proposed for investors under the Bill. The Neill inquiry is now well under way and Sir Patrick and his colleagues have been at work for some months. They have now

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received the bulk of the evidence, and indeed we look forward to their report, which we now expect to receive in the autumn. When we have the inquiry's report we shall then consider what to do. Should government legislation be necessary—and that is only one of a number of possible outcomes—we will bring forward the necessary proposals.
Let me just remind the Committee of what my right honourable friend the Prime Minister has said on the matter. Before the Neill Committee was set up, she said in December of last year:
"We are watching events at Lloyd's carefully and will not hesitate to take whatever legislative or other action is necessary".
We have both set up an inquiry and expressed our will to act should that be necessary.
I think that we must consider the proposal from the opposite Benches against that background. It is not just or fair, I suggest, to apply the Bill to Lloyd's when such an inquiry has been set up and has to report. We must now let the inquiry do its work and not pre-empt its conclusions. Deleting Clause 40 amounts to pre-empting that conclusion, since it would subject underwriting agents at Lloyd's to a quite new and separate regime from Lloyd's Acts.
I now turn to the amendment which the noble Viscount moved. I am bound to say that I find it curious. It has the effect that whatever happens—however Sir Patrick Neill's committee reports and however the Government and Lloyd's respond to that report—Lloyd's will not be covered by this legislation for three years, but thereafter it will fall within it. I cannot think that that is a wise course both because of its inherent lack of flexibility and because this Bill anyway is not equipped to regulate Lloyd's.
The amendment has another effect which I think is undesirable. Under it, Lloyd's will be subjected to this legislation unless there is primary legislation. But Lloyd's has a new system of regulation set in place by its Act of 1982 which was not in place at the time that the troubles at Lloyd's took place. We do not regard it as proved that the new system is not sufficient. We are looking to Sir Patrick Neill's inquiry to provide a comprehensive and authoritative answer to that question. Nevertheless, at the moment I should have thought that it was only proper that Lloyd's, like any other person, should be able to call in aid the presumption of innocence. The amendment, on the other hand, shifts the burden the other way. It assumes that the present system at Lloyd's is unsatisfactory. It provides that unless the Government subsequently ask Parliament for different legislation, Lloyd's is covered by the Bill.
I listened to the noble Viscount. He said that he was persuaded. I ask: persuaded by what? What evidence was there to satisfy him that Lloyd's was after three years to be regarded as guilty? Is this some kind of suspended sentence? That is no way to legislate. As my noble friend Lord Fanshawe said, it leaves the matter uncertain. We should be providing for certainty and not uncertainty in the Bill.
That brings me to the Government's second objection to the amendment and also indeed to the proposal to delete Clause 40 entirely. As was made quite clear from the start of the debates in the other
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place, we do not think that this Bill is an appropriate vehicle for regulating Lloyd's, even if it were shown that such regulation was necessary.
The regulation of Lloyd's is not simply a matter of investor protection, which of course is the sole subject of the relevant part of this Bill. Indeed, my noble friend Lord Fanshawe reminded us of the difference in the nature of Lloyd's members as names as compared with the investor with whom we are dealing here. It is true that a major part of the regulation of Lloyd's, and the part which has received the greatest recent attention, and which of course is the subject of Sir Patrick Neill's inquiry, is the protection of the interests of members of Lloyd's as providers of capital for insurance business.
The regulation of Lloyd's must also cover policyholder protection—that is, looking after the interests of those who take out a policy of insurance at Lloyd's. The paramount public interest lies in ensuring that insurers can meet their liabilities and in that Lloyd's has been singularly successful.
Those two aims—policyholder and investment protection—must necessarily often conflict. For example, the time-honoured principle of the unlimited liability of members of Lloyd's is an important piece of policyholder protection. It is hardly in the interests of members of Lloyd's themselves. Any regulation of such matters must strike a careful balance between the two aims, as must any system of regulating Lloyd's.
The Bill contains no provisions for policyholder protection. It does not even repeal the Lloyd's Act. The amendment thus would have the effect that in three years a fresh set of rules would be laid on top of Lloyd's statutory rules. Those rules would take no account of the need to protect policyholders. Deleting Clause 40 would have the same effect but would occur as soon as the Bill comes into operation. That is a sure recipe for legislative chaos.
As I said, we have set up an inquiry into the protection of the interests of members of Lloyd's. We have made it clear that it is our intention to legislate if, as a result of the inquiry, we believe that to be necessary. Let us wait for the results of that inquiry before jumping into any hasty or ill-fitting solutions. In particular, we should recognise that the Bill is not one which is suitable to regulate Lloyd's. I ask the Committee to reject the amendment, and if the matter arises to keep this clause in place in the Bill.
9.45 p.m.
Viscount Chandos: I feel that I have a formidable task in trying to justify my amendment after the comments of the noble and learned Lord the Lord Advocate, as well as those of the noble Lords, Lord Fanshawe and Lord Hacking.
I am still essentially unrepentant. The last thing I want to create is legislative chaos. Nonetheless, I should like to create a time limit on the presumption that Lloyd's should not be subject to a further review of legislation. I have no doubt that if that is the conclusion of the Neill inquiry it may well be most appropriately done through an amendment to the Lloyd's Act.

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It is difficult, however, not to be conscious of the extreme pressure on parliamentary time that there has been during the past year or even longer. It is not easy to be confident that that will necessarily be different in years to come. I believe that the public concern about Lloyd's is at a sufficiently high level, and is justifiably at that level notwithstanding the enactment of the Lloyd's Act 1982, for a requirement for Parliament to reconsider the matter within the next three years to be in the public interest.
The noble Lord, Lord Fanshawe, repeated the suggestion that other noble Lords have made on other occasions, that the 1982 Act can be seen to be working. He may have suggested that I may have believed that. My view on that is that the jury is out and with the jury being chaired by as formidable a foreman as Sir Patrick Neill, there should be no attempt by me to prejudge the issue. I still think that it would be helpful to have the framework of a time limit within which both he and all other interested parties could be confident that the necessary parliamentary time would be available.
I am not sure that I agree with the argument that the Bill is, as it were, ill-equipped to cover Lloyd's. There are products and markets that we have just included as exempt but subject to the supervision of the Bank of England in co-operation with the Secretary of State or the designated agency which are as far removed, I would suggest, from conventional investment as Lloyd's is from ordinary investment. Nonetheless, waiting perhaps with bated breath to hear what the heavy guns on the Labour Benches are going to say in support of the removal of Clause 40 as a whole, I would propose to withdraw my amendment, encouraged once more by the assurance of the noble and learned Lord the Lord Advocate and the Prime Minister herself, that if the Neill inquiry finds that further legislation is needed, then time will be made for it. I hope that it will be treated with some urgency. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause 40 shall stand part of the Bill?
Lord Bruce of Donington: I beg to oppose the Motion that Clause 40 stand part of the Bill. The noble and learned Lord the Lord Advocate approached this part of the Bill with far less diffidence and ambiguity than he has approached other sections of it. This is quite clearly a matter on which the Government are in no doubt at all. They are in absolutely no doubt that the exacting standards for investor protection as set out in the Bill should not apply to Lloyd's or to members of Lloyd's.
I should perhaps read out Clause 40 since this is what we, on this side of the Committee, feel should be eliminated from the Bill. Clause 40 says:
"The Society of Lloyd's and persons permitted by the Council of Lloyd's to act as underwriting agents at Lloyd's are exempted persons as respects investment business carried on in connection with or for the purpose of insurance business at Lloyd's".
So immediately we are faced with the fact that but for this clause, the Government themselves consider that the activities of Lloyd's and persons permitted by the council to act as underwriting agents at Lloyd's do, in
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fact, carry on investment business in connection with or for the purpose of insurance business at Lloyd's. There is no question, if I may say this to the noble Lord, Lord Fanshawe, of this particular part of the business not being investment. According to the Government, it is investment. It is investment in a different form, but investment nevertheless. Otherwise, there would be no necessity to have Clause 40 in the Bill at all. The Government do not seriously contend—and did not contend in another place—that part of Lloyd's business was in connection with investment. There is no doubt about it. The Government admitted it. Nothing was raised in contradiction to that.
Lord Fanshawe of Richmond: Will the noble Lord give way?
Lord Bruce of Donington: I must continue for the moment, but I shall come back to the noble Lord. If the noble Lord wishes to argue with Her Majesty's Government that this particular business to which he refers is not investment business as set out in the Bill, he is quite at liberty to do so. According to the Government, it is. Otherwise, Clause 40 would have been unnecessary.
I hasten to say immediately, for the avoidance of doubt, that in moving that this clause do not stand part of the Bill it is not part of an attempt by me to cast any mud at Lloyd's. The misdeeds of certain members of Lloyd's—which do not yet appear to have attracted the urgent attention of the DPP—are very well known to the world at large. I willingly accept that they are all pre-1982 and it is not my purpose here to scandalise further by regurgitating what has happened in the past. I ask the noble Lords to accept that. Whatever anxieties have been raised—and there has been much cause for anxiety—the noble Lord himself will be aware of the report in the press only two or three days ago of the suicide of one of the outside names because of the monstrous injustice and fraud done upon him. I have no wish in any way to associate the current council of Lloyd's with any kind of misdeeds whatsoever. I am quite willing to accept that since the passing of the Act the council has carried on in a completely lily-white fashion and is beyond all reproach.
It is not my case that Lloyd's is guilty of something until it proves itself innocent. My case is this. So well ought it to have done in the past four years that it is fully capable as of now of complying with the conditions laid down in the Act for investment protection and that all it needs to do now in order to bring itself within the general comity of investor protection is to place itself under the SIB.
What harm is done to the individual name at Lloyd's? What harm is done to the policyholders if members of Lloyd's, and its regulations, were placed under the supervision of the Securities and Investments Board? People seem to think that one can harm an organisation, or a structure. One cannot. One harms only individuals. What harm would it do—it might be to any individual member of Lloyd's or any individual name—if they came under the supervision of the SIB? It might irritate them because Lloyd's is a nice cosy club all on its own and wants to

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maintain—for quite sentimental and proper reasons—its own doughty independence from the rest of the City. This is all. Nobody will be ill-treated by the fact that this organisation comes under the SIB.
Let us see what the chief of the SIB has to say about it. By kind courtesy of Sir Kenneth Berrill, he was good enough to forward me a copy of a speech given by him to the Financial Times Conference on regulating the financial services industry. With permission of noble Lords, I should like to quote from it. The date is important. The date is 21st January 1986. He said this:
"There is one other aspect of the Financial Services Bill that has attracted much public comment, and that is the position of Lloyd's. There is quite understandable concern about the working of the Lloyd's regulatory system, even as amended under the 1982 Act, in terms of the protection that is afforded to external names. But to bring Lloyd's within the scope of the financial services legislation would introduce a number of extremely difficult technical and practical problems for both Lloyd's and for my board. Put briefly it would mean my board acquiring the expertise to monitor an insurance market which is quite different from the markets in securities and commodities. Both organisations have pretty full agendas at present. Before embarking on such a course we should, I believe, await the outcome of the inquiry to be undertaken by Sir Patrick Neill at the request of the Secretary of State".
Perhaps it should be made quite clear that Sir Kenneth Berrill is not entirely disinterested in the matter because he is of course a member of the Council at Lloyd's. However, no question of law was raised by Sir Kenneth. The noble and learned Lord the Lord Advocate referred to legislative chaos. That is the pot calling the kettle black. If anybody has caused legislative chaos over the last three months in this House, it has been Her Majesty's Government, and they are still busily doing so. However, there is no suggestion in what Sir Kenneth said that, from the legal standpoint, it was in any way repugnant to bring it under the SIB—the difficulties were practical.
I also believe that Sir Kenneth is being unnecessarily modest. The SIB will be at the head of many different self-regulating organisations, including the International Securities Regulatory Organisation, which has a technique all of its own; the Investment Management Regulatory Organisation, IMRO, which also has a technique all of its own; the Life and Unit Trust Regulatory Organisation, which has another set of techniques; and the Financial Intermediaries Managers and Brokers Regulatory Association, FIMBRA, which also has a mystique and technique all of its own. All professions create around themselves their own mystique. Most of them break down to common sense. There is also the National Association of Security Dealers and Investment Managers— NASDIM. To supervise that will also involve many technical problems and unless one is associated with them, unless one is a member of those organisations, they appear very mysterious organisations of high technical complexity.
There is the Association of Futures, Brokers and Dealers. If there is a newly created mystique in that field, surely that is also technical. What is so special about the insurance function that elevates it completely to some highly mysterious level which will require very considerable intellectual effort on the part of either Sir Kenneth Berrill or his staff?
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In this connection I should perhaps say that if Lloyd's came within the ambit of the SIB, it would be quite capable of supplying the necessary expertise and, if necessary, of seconding people to the SIB in order that these matters of insurance, upon which the noble Lord, Lord Fanshawe, has expatiated so eloquently, are readily and easily understood.
Mr. Ian Hay Davison, a distinguished chartered accountant, knew very little about Lloyd's when he went there. He functioned in accountancy and in consultancy. It did not take him long to find out what was wrong with Lloyd's. I am quite sure that, although he departed from Lloyd's under circumstances that have not really been fully and publicly explained, Lloyd's very largely took his advice. I read what Sir Kenneth Berrill said in January. But this is what he said recently, when he departed slightly from what he said before. If one reads the interview he gave to the Observer, and which was in the issue of Sunday 13th July last, one sees that he said this:
"We are not really looking for more work. Lloyd's markets are different from any of our other markets, so if Lloyd's was included we would have to develop a competence to understand the system and the reinsurance arrangements. People have asked why we do not handle property as well. But you have to draw the line somewhere".
No mention there as to the lack of feasibility in law, as to any kind of legal incompatibility in bringing Lloyd's under the supervision of the SIB. Once again, things are purely practical.
Lloyd's has very often been referred to as though it were an organisation completely on its own, a very exclusive club with its own colossal building. I am not sure which style the building is in; it makes one crook one's neck to look up at it and I have never yet experienced its lift system. But I am aware it has its own physical mystique, its own facilities. But is it really unique and cut off from the City?
This evening, I have been through a list of the council members of Lloyd's to find out what connections it has. I am not going to call out names, because they will be immediately recognisable. One of the directors, for example, has an interest in Massey-Harris-Ferguson and in Wiggins, and so on. This is a very reputable industry. Another director has a wide interest in BFS Investments and also in various financial services, in the Royal Trust of Canada, and so on. Other members have interests in technical management trusts. That is all right: but they are not isolated from everyone else. They are part of the normal machinery of the City. Indeed, one is a director of the Bank of England. So they are not isolated from the rest of the City stream; they are part of it. They probably meet socially very frequently, so we should not treat them in isolation. There are other directors, too, who have other and quite proper City connections.
An endeavour to keep Lloyd's out of it for the moment on the grounds that the matter is under review by Sir Patrick Neill really will not wash. Of course his report may well assist Lloyd's further in its progress. Many organisations call in consultants from time to time in order that their own performance and everything else may be improved, though according to what other noble Lords have said (and the noble Lord, Lord Fanshawe, indicated this) there is little need for improvement at all. If there is no need for

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improvement at all, and if the standards established by Lloyd's are already up to and equal to those provided for investor protection in this Bill, there is no reason whatsoever, other than a desire for independence and clubbiness among Lloyd's, to prevent it happening.
I trust that the noble Lord will not persist in trying to keep Lloyd's away from the SIB and keep it thereby away from that system of thorough supervision which, according to the noble Lord, is the hallmark of this Bill.
Lord Kimball: I am certain that the members of the British Field Sports Society will be thrilled to know that the noble Lord, Lord Bruce of Donington, regards BFSS Investments as a major City fund. I should remind him that it was in fact a fund set up to protect the interests of those in the countryside. The noble Lord, Lord Bruce of Donington, did not seem to realise that he was talking about a unique institution in the shape of Lloyd's. It is within two years of its 300th anniversary and is bringing in £1,400 million in foreign exchange to this country. The first thing a Labour government have to do when they come to power is go down Lime Street and assure themselves that that amount of foreign exchange is still coming in, despite the threat that they always pose to the economy of this country.
It employs indirectly some 83,000 people, and over those 298 years no single valid claim of insurance has not been met. It is a proud record. It is a unique institution and an institution that has always had the respect and support of previous Labour adminis-trations. The noble Lord, Lord Bruce, was fair about the miscreants of Lloyd's, the people who have committed crimes. Ever since I have been a council member of Lloyd's since that Act was passed I have been on the Investigations Committee of Lloyd's. We have set up a disciplinary organisation equal to the law courts in this country, and as thorough. We have dealt with no less than 14 cases at Lloyd's. Charges against some 29 people have been determined. Nine people have been expelled and I am happy to tell the Committee that we very nearly have a nil agenda. In fact, every single case that has come before the Investigation Committee of Lloyd's started before the passing of the Act.
The noble Lord, Lord Bruce, asked what would be the disadvantage of bringing Lloyd's under a SIB? Sir Kenneth Berrill himself went down to another place and met an all-party group of Members there. He said that the last thing he wanted was to have Lloyd's, and if he did have Lloyd's, he would turn round and tell the council to get on with it in exactly the same way as they are getting on with it now. The principal disadvantage if Lloyd's were included in the Bill would be the loss of flexibility that we now have under our present Act. We can amend our by-laws as soon as something starts to go wrong. There would be no incentive for Lloyd's itself to take the initiative.
The other and more serious point is that to bring Lloyd's under the umbrella of a SIB would be perceived as a failure of the present Lloyd's regulatory system, which is demonstrably untrue. This could have serious repercussions in the United States where two thirds of our business is now done.
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Finally, I think that the noble Lord, Lord Bruce, was misleading the Committee on the question of investment at Lloyd's. An investment at Lloyd's is not the same as another investment. There is a period in all insurance matters when the premiums are held by the underwriting agent as trustee for the name until the time comes to pay the claim, or the risk is reinsured. At no point is that premium money, that investment money, available to the investor. He cannot withdraw it. He has no say on how it is invested. It is a special type of investment, and it does not fall into line with the other investments that this Bill seeks to protect. I hope on those three points that the Committee will reject the argument of the noble Lord, Lord Bruce of Donington.
Lord Cameron of Lochbroom: I shall be brief because I have already spoken on the general matter to which the noble Lord opposite addressed himself. I listened, as I always do, to the noble Lord opposite, to find out why he was suggesting that Lloyd's should be brought within the provisions of the Bill other than as an exempt person. I listened throughout his speech, and by the end of it I had not heard one ground from him to suggest that there was any good reason for bringing Lloyd's within the Bill.
All he said was, "What harm would it do?" That is no argument. The truth of the matter—the noble Lord carefully skirted around this—is that the investor protection that we are talking about in this Bill is for a type of investor wholly different from that we are thinking about in terms of Lloyd's. It was the external names that the noble Lord opposite spoke about. But he does not suggest that the effects of the 1982 Act and what has been done since then have left them unprotected. As I say, there was nothing in what he said that produced any case whatsoever or any evidence that the Lloyd's regulatory system now does not fully protect those who are to be regarded as investors; which means that for the purposes of this Bill it has been necessary to regard Lloyd's and the insurance agents as investors.
As I said, the arguments I presented earlier in my submission have not been answered by the noble Lord. He even took a phrase of mine out of context when he spoke about "legislative chaos". What I was speaking about was the effect it would have if this Motion in the noble Lord's name were to be agreed to. It had nothing to do with the criticism he made about the work of this Chamber in dealing with general legislation. That quality of argument simply will not do in a "stand part" debate. I must therefore urge the Committee to reject the Motion which the noble Lord opposite has pressed upon us.
Lord Bruce of Donington: I am sorry that the noble and learned Lord has found it necessary to be so defensive about this whole business. The onus does not lie upon me to explain why Lloyd's have been excluded from the Bill. If this clause had not been in the Bill, this matter would not have been raised at all. Listening to the noble and learned Lord even now he is saying that Lloyd's already conforms to the very high standards of investment protection in the Bill. What is he afraid of? It is up to the noble and learned Lord to explain. 1 am not attacking Lloyd's. Noble

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Lords may have prepared their speeches in anticipation that I might attack Lloyd's, but the Committee knows perfectly well that I have done nothing of the kind. All I have done is to suggest that things have so improved at Lloyd's over the past four years that matters have now, as the noble and learned Lord himself says, reached the standard laid down in the Bill for ordinary investors. What therefore is the case for removing Lloyd's from the supervision? The Stock Exchange is to be supervised. That is a pretty reputable institution of longer life possibly than Lloyd's—I am not quite sure about that so I shall not be dogmatic about it. What are the Government afraid of?
The onus does not lie on me to explain any inconsistency. What I have said from the beginning is quite consistent. The noble and learned Lord has the anomaly to explain. It is for the noble and learned Lord to explain why he is so apprehensive and why he is so defensive. When he rose this afternoon he obviously feared an onslaught on the honour of Lloyd's. He got nothing but praise from me. Maybe this is what troubled him.
In all honesty this clause has no place in the Bill at all. I hope the Committee, for the sake of plain common sense, will use its vote to vote it out.
10.20 p.m.
On Question, Whether Clause 40 shall stand part of the Bill?
Their Lordships divided: Contents, 53; Not-Contents, 11.

DIVISION NO. 2

CONTENTS

Bauer, L.

Hives, L.

Beaverbrook, L.

Hooper, B.

Belstead, L.

Kimball, L.

Boardman, L.

Layton, L.

Brabazon of Tara, L.

Limerick, E.

Brougham and Vaux, L.

Lindsey and Abingdon, E.

Bruce-Gardyne, L.

Long, V.

Caithness, E.

Lucas of Chilworth, L.

Cameron of Lochbroom, L.

Lyell, E.

Carnegy of Lour, B.

Merrivale, L.

Carnock, L.

Middleton, L.

Colville of Culross, V.

Milverton, L.

Craigmyle, L.

Monk Bretton, L.

Croft, L.

Mountevans, L.

Davidson, V.

Orkney, E.

Denham, L. [Teller.]

Radnor, E.

Effingham, E.

Renton, L.

Elles, B.

Sandford, L.

Elliott of Morpeth, L.

Shannon, E.

Elton, L.

Skelmersdale, L.

Faithfull, B.

Strathalmond, L.

Fanshawe of Richmond, L.

Swinton, E. [Teller.]

Glenarthur, L.

Terrington, L.

Greenway, L.

Torphichen, L.

Hacking, L.

Vinson, L.

Halsbury, E.

Whitelaw, V.

Henley, L.

NOT-CONTENTS

Bruce of Donington, L.

Molloy, L.

Carmichael of Kelvingrove, L.

Nicol, B.

David, B. [Teller.]

Stoddart of Swindon, L.

Dean of Beswick, L.

[Teller.]

Graham of Edmonton, L.

Williams of Elvel, L.

McIntosh of Haringey, L.

Ypres, E.

Resolved in the affirmative, and Clause 40 agreed to accordingly.
10.25 p.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 113:
After Clause 40, insert the following new Clause:—
"(Listed money market in institutions.
.—(1) A person for the time being included in a list maintained by the Bank of England for the purposes of this section ("a listed institution") is an exempted person in respect of, and of anything done for the purposes of, any transaction to which Part I or Part II of Schedule (Listed money market institutions) to this Act applies.
(2) The conditions imposed by the Bank of England for admission to the list referred to in this section and the arrangements made by it for a person's admission to and removal from the list shall require the approval of the Treasury; and this section shall cease to have effect if that approval is withdrawn but without prejudice to its again having effect if approval is given for fresh conditions or arrangements.
(3) The Bank of England shall publish the list as for the time being in force and provide a certified copy of it at the request of any person wishing to refer to it in legal proceedings.
(4) Such a certified copy shall be evidence or, in Scotland, sufficient evidence of the contents of the list; and a copy purporting to be certified by or on behalf of the Bank shall be deemed to have been duly certified unless the contrary is shown.")
The noble Lord said: I discussed this amendment with Amendment No. 106; and I beg to move.
On Question, amendment agreed to.
Clause 41 [Appointed representatives]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 114:
Page 27, leave out lines 21 and 22 and insert ("writing")
The noble Lord said: In moving Amendment No. 114, I should at the same time like to speak to Amendments Nos. 115 to 122 inclusive, 150, 167 to 170 inclusive, 172, 173 and 175 to 181 inclusive.
These are a series of technical amendments, designed to ensure that Clause 41 and related clauses on appointed representatives more nearly meet the original intentions. I think the Committee will probably be aware that it is a common practice in the insurance industry for company representatives often to be self-employed rather than to be direct employees of the insurance company concerned. Without Clause 41 such persons would either have to become employees or become authorised in their own right.
We have no wish to change the employment status of these persons, but equally it would clearly strain the resources of the regulatory system to accommodate the separate authorisation of the numbers involved, and there are an estimated 100,000 people who make their living as self-employed insurance company representatives. Accordingly, the White Paper proposed that a special category of appointed representative be created and our aim in creating this special category has been to secure that they do not need separate authorisation but that in return for this their authorised principal is made responsible for their actions, and if the appointed representative offends against any of the rules laid down under the Bill, it will be the same as if the authorised person had himself broken the rules.
I think the Committee will recognise that underlying this is an intention to ensure that in all respects that matter to this Bill, appointed representatives are treated effectively as if they were employees of their

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authorised principal and not independent businesses. Achieving this effect, which must take proper account of a large and well-developed area of common law, in a few lines of statute has proved technically difficult. Most of the amendments before the Committee this evening on this subject are designed to achieve this aim more precisely.
Thus, there is an important amendment to subsection (7) of Clause 41 which ensures that authorised principals are only made criminally liable for the activities of their appointed representatives in circumstances broadly comparable to those in which a corporate employer would be made criminally responsible for the criminal actions of their employees. At present, the Bill may go too far and could be interpreted always to make them liable. Another important change is to the powers of intervention, where we propose to ensure that protection can be given to assets held by appointed representatives as well as those held by their authorised principal. I beg to move.
On Question, amendment agreed to.
10.30 p.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 115 to 122:
Page 27, line 28, leave out ("authorised").
Page 27, line 32, leave out ("authorised").
Page 27, line 36, leave out ("authorised").
Page 27, line 39, leave out ("authorised").
Page 27, line 40, at end insert—
("(4A) If the contract between an appointed representative and his principal does not prohibit the representative from giving advice about entering into investment agreements with persons other than his principal it must make provision for enabling the principal either to impose such a prohibition or to restrict the kinds of advice which the representative may give by reference to the kinds of investment in relation to which or the persons with whom the representative may advise that investment agreements should be made.").
Page 28, line 1, leave out subsection (5).
Page 28, line 9, after ("done") insert ("or omitted").
Page 28, leave out lines 13 to 15 and insert ("or any rules of any recognised self-regulating organisation or recognised professional body of which he is or at the material time was a member, anything said or done or omitted by a person who is or at the material time was an appointed representative in relation to that authorised person shall be treated as if it had been said or done or omitted by that person; but nothing in this subsection shall cause the knowledge or intentions of an appointed representative to be attributed to his principal for the purpose of determining whether the principal has committed a criminal offence unless in all the circumstances it is reasonable for them to be attributed to him.").
On Question, amendments agreed to.
Clause 41, as amended, agreed to.
Clause 42 agreed to.
Clause 43 [Power to extend or restrict exemptions]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 123:
Page 29, line 24, after ("40") insert (", (Listed money market institutions)").
The noble Lord said: I have already spoken to this amendment earlier in our proceedings. I beg to move.
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 124:
Page 29, leave out lines 27 to 29.
The noble Lord said: I beg to move Amendment No. 124, and it may be for the convenience of the Committee if I speak also to Amendment No. 125.
These amendments refer to the power to extend or restrict exemptions. It is indeed a very important power, because anybody who is exempt from the provisions of the Bill enjoys a privileged status and will undoubtedly be able to do a great number of things that the people who are caught within this Bill would not be able to do. Therefore, the process of granting further exemptions seems to us to require some form of restriction, and the restriction that we propose is that an order should be submitted at least to parliamentary approval and that it cannot be automatic, containing such,
"provisions as the Secretary of State thinks necessary or expedient".
Amendment No. 125 is, again, designed to achieve the same effect, but we should like to see this as an ability which is confined only to orders which are subject to the affirmative procedure rather than the negative procedure. I beg to move.
Lord Cameron of Lochbroom: I fully understand the noble Lord's wish to have a proper scrutiny of additions to the list of exemptions in Chapter IV but I think that the Bill as it stands meets his point. The majority of additional exemptions to be considered under this provision would, I expect, fall into one of two categories. First, they will add to the list of miscellaneous exemptions as in Clause 42. Thus, they will concern persons who perform a function under another statute, part of which may be regarded as investment business. Additions may be necessary, for instance, to take account of changing legislation, changing titles or changing functions.
Secondly, they will be technical adjustments to the schedules on money markets—for example, to keep abreast of changes in the nature of the investments covered by that exemption. It would seem over-elaborate to subject those categories of additional exemption to the process of affirmative resolution. If the House were to take the view that a particular instrument contained additions that merited a debate, then the procedures of the House make it possible for such a debate to be held.
I believe that the balance in the Bill as presently drafted is correct, and perhaps the noble Lord would like to ponder what I have said at this stage and withdraw his amendment.
Lord Williams of Elvel: I am most grateful to the noble and learned Lord for his response. As I understand him, he is saying in his typically clear manner that we shall be discussing miscellaneous exemptions and technical adjustments. If that is so, and if that is all we are talking about, then I shall be happy to accept the noble Lord's assurance and withdraw my amendment. If, on the other hand, the noble and learned Lord has any reservations, then perhaps he will say so, and I shall think again.
Lord Cameron of Lochbroom: I can go no further. I did say that the majority of the additional exemptions to be considered would fall within one of two categories. The affirmative resolution procedure is where there is a restriction, and there I do see that it would be proper to have the affirmative procedure. I feel that there is, however, a difference with additions as opposed to subtractions. It is for that reason that the balance has been taken here.
Lord Williams of Elvel: I shall study carefully the noble and learned Lord's remarks. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 125 and 126 not moved.]
Clause 43, as amended, agreed to.
Clause 44 [Misleading statements and practices]:
[Amendment No. 127 not moved.] Clause 44 agreed to.
Clause 45 [Conduct of business rules]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 128:
Page 30, line 43, after ("or") insert ("perons certified by a").
The noble Lord said: I have already spoken to this amendment—I believe on Monday. I beg to move.
On Question, amendment agreed to.
[Amendment No. 129 not moved.]
Viscount Colville of Culross Viscount Colville of Culross moved Amendment No. 130:
Page 31, line 43, leave out ("international") and insert ("eligible").
The noble Viscount said: This amendment goes with Amendment No. 133, and I hope the Committee will forgive me if I do not go into all the intricacies at this time of night. It is a matter that I know is very much in the mind of my noble friend Lord Lucas. It concerns stabilisation of issues of equity stock and other such stock, which at the moment is not covered by the Bill at all.
I am seeking an extension of what is already in the Bill, and I believe that there is a good reason for doing so, provided of course that such a provision is accompanied by proper safeguards as to the people who are allowed to apply it. That is what I have attempted to provide in the drafting of both amendments.
It is an extraordinary difficult task, by virtue of the way in which Clauses 44 and 45 have been drawn, to get it right. I hope that my noble friend will not make a point about technicalities. I am after the substance of my amendments, and if he will agree to try to meet me in that respect, then I am sure that others will be very much better at the drafting than I have been.
The point is this. The existing market, which has been used for ages, has built up a practice whereby when a new stock is issued, the people who are dealing with it—the leading dealer—provide an arrangement whereby the price is held for a period of time in order that the issue shall succeed.
This does not apply only to government bonds and debentures, which is what the Bill at present covers. It has also been used frequently—or at any rate fairly frequently—for equity issues of the sort that are very much wider than the Bill at present encompasses. That is why my second amendment extends greatly the number and list of investment commodities that may be covered by this matter.
The formula that is used for this sort of exercise is described by the American SEC. I quote from a particular prospectus:
"In connection with this offering, the underwriters may over-allot or effect transactions which stabilize or maintain the market price of the ordinary shares or the American depositary shares at levels above those which might otherwise prevail in the open market. Such transactions may be effected on the New York Stock Exchange, the London Stock Exchange, any other Stock Exchange on which the ordinary shares have been admitted to trading privileges, or in the over-the-counter market. Such stabilising, if commenced, may be discontinued at any time."
This is not in any way a matter of party politics because my quote came from an issue of British Petroleum equity stock in 1977, under the control of a previous government, and exactly the same happened with the recent British Telecom issue. It was not, in fact, necessary to stabilise the price because the issue was so successful, but the same formula was used because the issue also took place in the North American market where there is a standard method of dealing with it.
I should have thought it would be insanity for us to prevent that sort of exercise from taking place. No doubt my noble friend has in mind future privatisation exercises such as British Gas, where I believe managers have already been appointed in at least one North American market. To prevent, by virtue of this Bill, that well-known sort of exercise from taking place would deprive this country of a great deal of business and an opportunity to use the international markets for the purposes that people wish to do.
It is perfectly true that it must be kept under control. People ought to know what is going on, and my second amendment provides that the Secretary of State shall take control of the investment exchange through which any exercise of this sort would be carried on. Therefore, I hope that my noble friend will take the view that the provision at present in the Bill needs to be extended in order to take account of this important activity which results in billions of pounds of turnover in this country. If my noble friend cannot accept these amendments, I hope that he can meet me in principle. I beg to move.
Viscount Chandos: I should like briefly to add my support to the amendments proposed by the noble Viscount, Lord Colville of Culross. I mentioned this subject on Second Reading and I should like to remind the Committee of a couple of points which I believe are important.
The grounds on which the SEC approved the practice of stabilisation in the early 1940s was essentially that fund raisers would be unnecessarily handicapped if the practice of stabilisation were disallowed; and in the interest of effecting a fair balance between the interests of investors and the interests of fund raisers. I think that stabilisation, in the broad definition that the noble Viscount, Lord

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Colville, has suggested, is clearly in the interests of fund raisers. Equally, I do not think that there is necessarily any disadvantage to investors, since clearly there are circumstances whereby stabilisation can actually protect them in an issue which may appear to be satisfactorily subscribed but in which, in reality, the level of long-term investment demand may not match up to the full amount on offer. The immediate after-market may see a fall in price in which the genuine investors, who may be relatively small investors, on seeing such a fall in price, may seek to sell their own holdings, cut their losses and in turn cause a further fall and a sort of vicious spiral.
So the objective of achieving a balance between the interests of investors and issuers does not necessarily imply a concomitant disadvantage to investors compared with the position if no stabilisation were allowed. I should like to support also the principle that the noble Viscount, Lord Colville, has suggested, that the Secretary of State, most probably through the designated agency, if stabilisation were permitted, should establish fairly detailed and well defined guidelines within which stabilisation would be allowed. The sort of matter that should be covered is the prohibition of any intervention at a price level above the issue price at which the offer has been made.
10.45 p.m.
Lord Lucas of Chilworth: I am grateful to my noble friend Lord Colville for the way in which he put his amendment to the Committee. As I am sure the Committee appreciate, he knows that this is a subject which has been considered and is indeed still being considered most carefully by me and my honourable friend in another place, the Parliamentary Under-secretary of State for Corporate and Consumer Affairs. We also discussed this matter quite fully during our Second Reading debate on 1lth July, when the noble Viscount, Lord Chandos, the noble Lords, Lord Roll of Ipsden and Lord Williams of Elvel—in fact noble Lords of all shades of opinion and from all sides of the House—spoke in favour of an amendment to permit lawful stabilisation of price, not only of course of Eurobonds (which was then the example taken), but also of stocks and shares which may be bought and sold by the wider public.
The issue is a sensitive one for the securities market, and the amendment which my noble friend brings forward exempts stabilisation from the scope of a serious criminal offence—the offence of market manipulation as in Clause 44. To be complete, the amendment also needs to create exemption from another serious criminal offence—that of insider dealing in the Company Securities (Insider Dealing) Act 1985, which the Bill currently provides in respect of stabilisation of Eurobonds.
My honourable friend in another place said that the Government would only consider extending the qualifying class of investments to be exempted from both offences if there were a convincing case. Adequate rules would need to be devised to protect investors if the investments whose price was being stabilised were likely to be bought and sold by investors other than the professional business investor
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who could be expected to understand the risks. These amendments go some way to providing that protection.
I feel, however, that we need something further. We shall need to see that there exist arrangements through rules of business conduct which ensure that investors understand the implications of stabilisation for investments that they are thinking of buying or they are being advised to buy. After all, the price may be artificially higher than what it would be without stabilisation.
As we have heard, stabilisation for all securities is already lawful in the United States of America, but there the rules of the SEC and the New York Stock Exchange offer investors some powerful protections. They insist on disclosure. They require the brokers and the dealers to give price priority to the orders from the general public. If we were to permit stabilisation in those areas, we again should have to look to the Securities and Investments Board to develop rules on similar lines. I understand that it has drafted such rules on a consultative basis.
In agreeing to consider my noble friend's amendments I anticipate that we shall want to look at the principles already contained in Schedule 6 to see whether they should be supplemented by a requirement that the rules must be accompanied by adequate safeguards.
Finally, there is the scope of the eligible securities, which are defined in my noble friend's amendments. The effect would be to add shares, warrants, certificates representing shares in securities, options, rights and interest in investments in respect of any of the foregoing, plus debentures and government and public securities, which, subject to Clause 45, are already open to stabilisation. We shall want to consider such a broad range of investments quite critically. At the moment we feel that perhaps the amendment goes a little too far.
With the invitation that we should welcome views from noble Lords and from the futures exchanges, I give my noble friend an assurance that we are thinking along the same lines. We should like to give greater consideration to the implications of his rather general amendments and come back at a later stage with firm proposals.
Viscount Colville of Culross: I am grateful to the noble Viscount for supporting this amendment and also to my noble friend for what he said. If I may say so, there has been quite a long time already in which the Government have been able to consider the matter. They are now saying—and I am glad to hear it—that they are prepared to go a little further than they have so far in the Bill.
I said that such a provision is extremely difficult to draft. Nothing that I put forward on the Marshalled List either at this stage or Report stage will be right. Therefore I suggest to my noble friend that what we want is a text from him. Unless we have from him a text—it can be a provisional text—of something which he thinks is capable of being properly put into the Bill, with the safeguards that he has talked about (because he does not like mine) it will not be possible to discuss this with the people who engage in these operations in the market; and there are large numbers of them, they

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are substantial concerns, and they are very much worried about the future of the activity.
I accept entirely what my noble friend says, but I hope that we can now have on a piece of paper something that his department thinks would be, at any rate provisionally, a suitable new insertion into the Bill. If he can promise to have discussions about that between now and the Report stage so that we can come back to it in October, or whenever it is, with positive and well discussed provisions which will be going in at that stage, I think we shall make progress. But I ask him to do a little more than just make the kind of concession which he has. I think we want some words on a piece of paper.
The Earl of Limerick: I rise merely to support the procedural point made by my noble friend Lord Colville. I believe in a complex matter of this nature that that is the only practical way to make progress.
Lord Lucas of Chilworth: I take the point that both my noble friends have made. I am always reluctant to make promises, particularly late at night when I am not totally sure that I can keep them. We should want to consult before we put down an amendment for consideration. I should not like to say what form that will take, whether it will be a text, a piece of paper or consultation in the more popular way. I take on board the valid points that both my noble friends have made and will seek to meet them.
Viscount Colville of Culross: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 131:
Page 31, line 45, at end insert—
("(jj) requiring the keeping of accounts and other records, as to their form and content and for their inspection;").
The noble Lord said: The amendment makes it clear that conduct of business rules may require directly authorised persons to keep accounts and other records. If such rules are made, recognised SROs and RPBs will have to demonstrate that their rules provide equivalent protection for investors in this respect. The rules may also cover the inspection of accounts and other records. Such rules could, for example, enable the Secretary of State or the designated agency to carry out spot checks of the records in order to find out whether the business concerned was complying with its obligations.
Lord McIntosh of Haringey: On these Benches, we should like to welcome the amendment which provides a useful paving stone for some of the require-ments on disclosure that we shall be discussing in a few minutes.
On Question, amendment agreed to.
11 p.m.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 132:
Page 32, line 4, at end insert—
("() requiring the disclosure of the amount of the investment which will be available for further investment.").
The noble Lord said: With the permission of the Committee, I should like to discuss Amendments Nos. 254A and 254B with this amendment. Before going on to say why it is necessary to make that grouping (which I hope has been adequately notified to the Government, because I made the point this morning), I want to make it clear that we are not talking about the determination of the level of commission; we are talking about the disclosure of commission.
It is necessary to say that because there was a good deal of confusion on that matter in Committee in another place. It should be clear that we appreciate the difference. We appreciate that the ROLAC rules may be adequate for the determination of commission, but we believe that the Bill should go a good deal further in the disclosure of the amount of commission and the investment margin.
The noble Viscount, Lord Colville, said a few minutes ago that Clauses 44 and 45 were difficult to amend. I agree with him. There are three ways of trying to achieve our objectives. The first would be to make the rules under Clause 45(2) mandatory. In other words, to insert the word "shall" instead of "may". We have been forced to do that in later amendments although clearly it is a less than satisfactory procedure.
The second possibility is to do what we have done in Amendment No. 132, which is to add to the "may" rules, and the third is to add to Schedule 6 which expresses the principles to which the rules must conform and provides the overriding control of the contents of the rules. We have done that in Amendments Nos. 254A and 254B.
Let there be no doubt that a change or firming up of the rules is necessary. One principal reason for that is that although the SIB has sweeping powers to control the rules of SROs and professional organisations, it lacks the ability to fine-tune the regulations, if it is not satisfied that the rules meet its requirements. The Parliamentary Under-Secretary in another place was fond of saying that he could get rid of the members of the board. That seems to us to be using a very heavy piece of artillery indeed to deal with an issue that should perhaps be handled in a much more sensitive and sometimes low-key way. It is the gap between the very wide powers available in theory to the board and the ability to negotiate the detailed content, with the power behind them, of rules which can be exercised in a flexible way that is missing.
Let there be no doubt that the Government have been aware, and have been made aware for some time, of the necessity for further provision on disclosure both on commission and on investment margin. The question of commission was discussed on a number of occasions in another place and has been referred to, not least by my noble friend Lord Graham at Second Reading. The question of investment margin was specifically referred to by Mr Michael Howard, the Parliamentary Under-Secretary of State, at col. 466, during the Committee stage in another place, when he said:
"I have asked MIBOC to study whether it is possible to require the disclosure of the amount of money given in premiums that is devoted to investments rather than to expenses."
If that request has been adequately answered by MIBOC and if it is the intention of the Government to

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give satisfactory answer to that request either in regulation or on the face of the Bill, I shall have the greatest pleasure in withdrawing Amendment No. 254B. At the moment, however, despite many months of negotiation, despite a recognition in the SIB document of December 1985 of the importance both of disclosing the investment margin and of disclosing the amount of commission, there has as yet been no positive response from the Government to these very necessary requirements from the point of view of the protection of the investors.
It is not a matter, as I said at the beginning, of determining the level of commission. But many investors, who are being offered a range of options by investment advisers, or insurance salesmen, or whoever they may be, are not necessarily aware that the level of commission may not be in proportion to the premium but may be different as between different products, and that the person selling to them is sorely tempted to temper his advice to meet his own personal needs.
It may not be adequately clear to many investors that the expenses incurred by different investment businesses and charged ultimately to the investor differ very widely. There are indications of these matters in the national press and in the business press. There are those who make it their business to expose the differences in the expenses and the investment margins that are actually available. But at present the Bill does not adequately provide for either of these pieces of information which, in our view, are essential if both the individual investor and the corporate investor are to have their interests adequately protected.
We hope very much that the Government will find it possible, whatever the technicalities of amendment to this clause, to give a clearer indication of their determination to meet these legitimate demands than they have done so far. I beg to move.
Lord Lucas of Chilworth: I am not sure that there is anything to be gained by these amendments which perhaps, in any case, do not express exactly the intentions behind them. We can all agree, I believe, that it is important that the investor should be given sufficient information about investments on offer to enable him to make an informed decision about where to put his money and indeed whether to invest at all.
There was general recognition of this in the debate in Committee in the other place. After that debate the Bill was amended at Report stage in the House of Commons so as to make explicit that the rules of a designated agency must make proper provision for requiring authorised persons to give those to whom they are selling or advising upon investments such information about the nature of the investment and its financial implications as to enable them to make an informed decision. This is now in paragraph 7 of Schedule 6 to the Bill. Since the rules of any SRO must provide at lest equivalent protection for investors as those applied by a designated agency, the effect of this paragraph will also be felt in SRO rules. I think this makes well enough the provision which I agree with the noble Lord opposite is necessary in this area.
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SIB and MIBOC have now produced proposals on how this principle in Schedule 6 should be applied to the sale of insurance policies and, by analogy, unit trusts. In drawing up their proposals they have had in mind that to be useful to the investor the information which is to be disclosed must be readily understandable, manageable in quality, relevant and factual, or certainly based on realistic and stated assumptions. They suggest that the investor should be given information about the characteristics of the product, the financial commitment involved, the tax implications, the charges where these can be identified, the surrender values, the consequences of early termination, and the ultimate benefits. We welcome these proposals, which we believe will enhance the ability of investors to choose the appropriate policy for them.
I think that the noble Lord opposite suggested that SIB's and MIBOC's proposals fell short of the ideal in that they do not provide for the disclosure of charges, in particular on with-profits policies. There can be no doubt about the commitment to the disclosure of charges where these are identifiable. There are substantial problems about identifying expenses on individual with-profits policies because there is no mechanism for allocating some of the with-profits policyholder's premium to expenses and identifying the balance available for investment. This has led the two authorities to the view that it is not possible to require disclosure of charges on these policies. If a workable method can be drawn up, I am quite confident that SIB and MIBOC will support it.
I should add that both have said that the particular characteristics of with-profits policies should be clearly explained to the investor. Their proposals concerning the disclosure of surrender values should also put the investor on warning about the sometimes high proportion of the investor's money which goes to cover the cost selling him the policy.
The point has been raised on a number of occasions about the two organisations' proposals on the disclosure of commissions by independent insurance intermediaries. The role of disclosure as a means of mitigating the consequences of conflict of interest, and as a way of enabling more informed decisions to be made by investors, is an important theme in the Bill. Paragraph 5 of Schedule 6 provides that the rules of a designated agency must make proper provision for the disclosure of interests in, and facts material to, transactions, including the disclosure of information about commissions or other inducements. The proposals on the disclosure of commission by independent intermediaries stem from the organisations' concern about the potential there is for abuse in the fact that although an independent intermediary acts as the agent of the investor, he is remunerated by the insurance company whose policy the investor buys.
In these circumstances, SIB and MIBOC believe that the interests of the investor would best be served by an industry agreement on commission levels which would minimise the potential for bias in the choice of company recommended by the intermediary. Steps are being taken to incorporate such an agreement in the rules of the Life Assurance and Unit Trust Regulatory Organisation—LAUTRO—which is aiming to become the body which will regulate

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insurance companies under the Bill and which has attracted the support of most of the industry.
Where commission is paid by a company which is bound by a voluntary industry agreement, and the scope for bias has therefore been reduced, SIB and MIBOC envisage that the intermediary will simply have to state that commission is within the terms of an industry agreement. Where commission is paid by a company outside the agreement, the intermediary would disclose the actual amount of commission payable and the amount, if any, by which it exceeded the level laid down in that industry agreement.
Perhaps I should turn briefly to company representatives. Their position is of course fundamentally different from that of independent intermediaries in that they are not acting as impartial advisers to the investor: they are selling their company's policies. SIB and MIBOC propose that these representatives should work on behalf of only one company. They say that there should be a strict conduct of business rule requiring a company to ensure that the status of its representatives is made clear to the investor at the outset. The cooling-off notice, which is sent to new policyholders to inform them of their right to withdraw from the contract at that stage if they have had second thoughts, would, under SIB's and MIBOC's proposals, confirm the status of the representative and make it clear that he was unable to offer the policies of any other company.
For that reason the question of "company bias" does not arise for company representatives in the way in which it does for independent intermediaries. The possible abuse which might occur is what is called "product bias"—that is, the representative being influenced in recommending a particular policy by the fact that the company paid him a higher commission on it than on other policies. This is a potential abuse which could arise also for independent intermediaries, even if the commission scale was within a voluntary industry agreement, because the companies could agree upon a commission structure which involved large differentials in commission on different policies. As in the case of company representatives, there would be no disclosure of commission in this instance.
In these circumstances, SIB and MIBOC propose that there should be a conduct of business rule which would require a firm not to weight commission on one or more of its policies in a way which would be likely to result in biased advice being given. Such a rule would apply both to companies' remuneration packages for their sales representatives and to the structure of commission agreements affecting independent intermediaries. I hope that that is helpful to the noble Lord.
Lord McIntosh of Haringey: I am grateful to the noble Lord for reminding me of the detailed terms of Schedule 6. He need be in no doubt that I was aware of the terms of Schedule 6 before framing my amendments, which are intended to push the frontiers of principles applicable to regulations as far as they could possibly be pushed. The explanation we have had has confirmed what a complex area it is, how there have to be different rules for company representatives and independent representatives, and the precautions which have to be taken to deal with the kind of abuse
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to which the noble Lord and I were both referring. The further details the noble Lord has given of the proposed SIB and MIBOC rules go some way to calming my fears, if I may put it that way. I think it is better that I should study very carefully what he has said rather than press the matter to a Division at the present time, and therefore I beg leave to withdraw the amendment.
Amendement, by leave, withdrawn.
[Amendment No. 133 not moved.]
11.15 p.m.
Lord Hacking Lord Hacking moved second Amendment No. 133:
Page 32, line 40, at end insert—
("(9) Rules made under this section shall not, except so far as they expressly provide to the contrary, regulate the conduct of investment business outside the United Kingdom.").
The noble Lord said: As the Committee will know, rules made under Clause 45 will govern the conduct of investment business by authorised persons. As the Committee will also know, by Clause 57 the contravention of the rules gives a right of action to any person who has suffered loss or is adversely affected by the contravention.
The power as set out in Clause 45 raises a problem of extra-territoriality in the application of these rules. The extra-territorial application of other countries' laws, particularly the extra-territorial application of the laws of the United States of America, has caused considerable concern abroad and considerable concern in this country to our companies, to our courts and, indeed, to our Parliament; because it was after a particularly rough time on the application of United States laws abroad that a few years ago noble Lords passed the Protection of Trading Interest Bill, which became the Protection of Trading Interest Act. Indeed, it was the predecessor in office of the noble and learned Lord the Lord Advocate who took that Bill through this Chamber on behalf of the Government.
It is worthy of observation that the laws which have caused trouble in this country from the United States of America have been not only laws concerning their discovery procedures but laws concerning their anti-trusts, which are of particular significance when considering this Bill, and laws relating to their Securities Exchange Commission.
To look at this problem in a little more detail in this Act, for the purposes of the Act investment business is not confined to business carried on in the United Kingdom. The Committee may remember the debate we had earlier, when we were considering Clause 1 (2) of this Bill and, indeed, Clause 1(3) of the Bill which refers to persons who have business overseas as well as within the United Kingdom. Therefore, a person who is an authorised person in respect of his investment business in the United Kingdom could also be subject to the rules in respect of an investment business he carries on abroad.
Therefore, if such rules have effect in respect of his overseas investment business and he fails to observe them, the persons with whom he had dealings overseas might be able to claim against him to recover their loss. So if my amendment is not put into the Bill, the English courts could hold that the provisions of the Bill confer a right of action with extra-territorial effect. Moreover, if the overseas agreement was made subject

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to English law, it is likely the courts would hold that the Bill did not have this extra-territorial effect.
In general terms, I suggest to this Committee that that is undesirable. The application of the rules to overseas activities of authorised persons may discour-age overseas investment firms from setting up branches in the United Kingdom, and for that purpose having to become authorised persons—and I speak with some sensitivity as an English lawyer—might also act to discourage the use of agreement subject to English law or indeed to Scots law.
Of course, there may be circumstances in which it would be appropriate for rules made under Clause 45 to have extra-territorial effect. In such cases, however, the rules should expressly so state. That is why I have moved my amendment, which falls into two parts. The first part is that there is a general statement that,
"Rules made under this section shall not… regulate the conduct of investment business outside the United Kingdom"
except in the special circumstances, which is the other part of my amendment, in which the rule itself expressly provides to the contrary: that these rules should not, as recorded on the face of the statute, have extra-territorial effect. I beg to move.
Lord Cameron of Lochbroom: I am grateful to the noble Lord for having raised this point. I am aware that there has been much concern about the question of extra-territoriality. We have to face the fact, however, that modern communications mean that persons situated in overseas territories are able easily to transact business with investors in the United Kingdom, and equally, since one of the objectives of the Bill is to establish the United Kingdom as a clean place to do business in, we do not want to exclude from the protection of the Bill foreigners, including those located overseas, who transact business with firms situated in the United Kingdom.
There may well be cases in which the application of particular rules to businesses conducted overseas would be inappropriate—for example where the rule was directed at a particular national requirement such as those concerning form and contents of advertisements which might conceivably conflict with requirements imposed in another jurisdiction. On the other hand there may be cases in which the application of conduct of business rules to business overseas is appropriate. An example would be where rules were made as to subordination of an authorised person's interest to those of his clients.
I understand the purpose behind the noble Lord's amendment but I would suggest that an express provision on the face of the Bill is not the place or the way to solve the problem. I think he would agree that there may well be circumstances, as I have suggested, where it would be desirable to apply a particular rule to particular things done by an authorised person wherever he does them. However, I would agree with him that there may be circumstances in which it is not desirable to do so. But the amendment is cast in general terms and it gives no indication of when the business is to be regarded as conducted overseas. This is understandable because the definition of the circumstances in which business is to be so regarded would no doubt be difficult and complex.
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However I would suggest that this is not the route we should go down. Since the problem is with the scope of particular rules, the right approach is to ensure that those rules do not extend to things done by authorised persons abroad in cases where that would be inappropriate, and the rule-making power is sufficiently flexible to accommodate such an approach. Perhaps the noble Lord might like to consider what I have said and withdraw his amendment.
Lord Hacking: It is my intention to withdraw this amendment. It is more of a probing amendment than one I intended should go into the Bill. The noble and learned Lord has criticised the wideness of the proposal contained in my amendment but has recognised that there are circumstances in which it would be undesirable to have extra-territorial application, and also stated, as I conceded, that there are other circumstances in which it is desirable to have extra-territorial application of our rules.
The difficulty is that the Bill as drafted does not commit itself one way or the other. If I have chosen the wrong route to deal with this problem I should be grateful if the Government could give the matter further consideration to see whether there is another route by which this problem can be dealt with.
Lord Cameron of Lochbroom: I am happy to look again at what the noble Lord has said, and see whether there is some way in which this might be taken into the Bill, though I give no undertaking that it is possible.
Lord Hacking: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 45, as amended, agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 134:
After Clause 45, insert the following new Clause:—
"Financial resources rules.
(1) The Secretary of State may make rules requiring persons authorised to carry on investment business by virtue of section 24 or 30 above to have and maintain in respect of that business such financial resources as are required by the rules.
(2) Without prejudice to the generality of subsection (1) above, rules under this section may—

(a) impose requirements which are absolute or which are to vary from time to time by reference to such factors as are specified in or determined in accordance with the rules;

(b) impose requirements which take account of any business (whether or not investment business) carried on by the person concerned in conjunction with or in addition to the business mentioned in subsection (1) above;

(c) make provision as to the assets, liabilities and other matters to be taken into account in determining a person's financial resources for the purposes of the rules and the extent to which and the manner in which they are to be taken into account for that purpose.".

The noble Lord said: In moving Amendment No. 134 I should like to speak also to Amendments Nos. 135, 165, 166 and 258. This is a new clause which will provide an explicit power to make financial resources or capital adequacy rules. Requirements as to capital adequacy are recognised as an important safeguard for investors both directly in helping to head off financial problems in the firms they are dealing with and more generally in helping to avoid knock-on problems in the

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markets as a whole. They are a feature of the banking and insurance regimes and of existing self-regulation, for example in the Stock Exchange.
It always has been the Government's intention that regulators, such as SIB, the Bank of England, the recognised professional bodies and so on, should be able to set capital adequacy requirements. Doubts were expressed in another place about whether these fit and proper tests for authorisation and the general power to make conduct of business rules were a sufficient basis. We concluded that it would be more desirable to put the matter beyond any doubt by introducing an explicit power. It is this group of amendments which expresses that intention. I beg to move.
On Question, amendment agreed to.
Clause 46 [Modification of conduct of business rules for particular cases]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 135:
Page 32, line 42, after ("45") insert ("or (Financial resources rules)").
On Question, amendment agreed to.
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 136:
Page 33, line 3, leave out subsection (2).
The noble Lord said: This relates to Clause 46. The note in the margin reads,
"Modification of conduct of business rules for particular cases".
This clearly is designed to provide flexibility and also a very wide discretion. Clause 46(1) reads:
"The Secretary of State may, on the application of any person to whom any rules made under section 45 above apply, alter the requirements of the rules so as to adapt them to the circumstances of that person or to any particular kind of business carried on or to be carried on by him".
Clause 46(1) gives the Secretary of State carte blanche and discretion not to apply the provisions of Clause 45 almost at will.
The subsection I am seeking to delete is subsection (2). It provides that the Secretary of State can exercise the power to modify conduct of business rules and, in my view, they are insufficiently described and probably hard to comply with in a satisfactory way for consumers particularly.
Let us examine precisely what I mean. In subsection (2)(a) how is the phrase "unduly burdensome" to be interpreted? Perhaps the Minister will tell us the frequency with which the phrase "unduly burdensome" has been used in the past in other legislation; and if that is not the case, what is the genesis for deciding to put it into this legislation?
In current government-speak the phrase is associated with the burdens of small businesses and the inability of small businesses to compete with large businesses. In investment business surely if a company is so small that it cannot compete with larger companies, it is a more risky investment for consumers, which makes a nonsense of subsection (2)(b). If this is not what is intended, does not the phrase "unduly burdensome" simply leave a loophole
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for intelligent lawyers to exploit and give their clients an opportunity to compete unfairly?
In subsection (2) how will the Secretary of State or the designated agency properly be able to assess undue risk to investors when the Bill as a whole describes a system of self-regulation so far removed from the knowledge and control of the Secretary of State or the designated agency? Does not this clause permit the self-regulating organisation to claim exemption on behalf of its members? If this is the case, the main evidence on risk to investors will come from the same self-regulating organisation. In other words, subsection (2)(b) is thoroughly unclear and, in my view, adds nothing to the Bill. I beg to move.
11.30 p.m.
Lord Lucas of Chilworth: If I could come straight to the heart of the matter, the safeguards in subsection (2) mean that the rules cannot be altered in this way unless they are unduly burdensome and the alteration does not expose investors to undue risk. If the amendment which the noble Lord is proposing were made, it could mean that the rules might be altered so as to put investors at risk. The onus to make a case for alteration will at all times lie with the person making the application; and I think that is really quite important.
The "unduly burdensome" test is a strong safeguard for the investors because how that burden on a firm is to be weighed against the benefit to investors and how the risk to investors is to be assessed are really matters for the judgment of the Secretary of State or the designated agency. Here, one has to have a balance. As I say, the onus to make a case for alteration lies with the person. The power to alter the rules of business conduct in individual circumstances is a considerable one. It has to be used with great care. That is why we believe that this safeguard provided by subsection (2) should remain part of the Bill.
Lord Graham of Edmonton: The noble Lord describes the provision as a safeguard. I think it is a cop-out. One is not talking about anything other than honesty and integrity. But it is so capable of wide interpretation that I do not think that it provides very much protection at all for the investor. I have heard what the Minister has said, I shall read very carefully what he has said, and it may be that I will come back at a later stage. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 46, as amended, agreed to.
Clause 47 [Cancellation rules]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 137:
Page 33, line 14, leave out ("may") and insert ("shall")
The noble Lord said: With the leave of the Committee, in moving this amendment, I should like to speak to Amendment No. 138 but not to Amendment Nos. 142 and 143 which deal with clients' money, a quite different matter from cancellation. My purpose in moving these amendments—admitting the unsatisfactory form of the amendment and admitting that it is in principle

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undesirable to seek to use this type of clause to specify precisely what regulations should contain—is to seek information on the Government's current thinking about cancellation clauses; because there is no precision at the moment in the Bill or in regulations. The Bill simply says,
"such period and such manner as may be determined."
We think that a stake should be made for a substantial cooling-off period particularly when one comes to dealing with cold calling.
The position I should like to put to the Government is that there could be a cancellation period for cold calling of not less than 28 days and that something, perhaps not quite the same, for other investment deals (but still a substantial period) should be imposed. We should be very grateful to learn what is in the Government's mind and what they understand to be in the minds of the SIB and MIBOC.
In order to cut a little out of the Minister's speech, perhaps I should make it clear that I understand that SROs are regulated by Schedule 2 and that other organisations are regulated in a comparable way. These amendments were not put down in ignorance of the significance of that schedule. I beg to move.
Lord Lucas of Chilworth: I think we have first to be quite clear that the powers in Clause 47 are there to be used. The expectation is that it will be the SIB which will wield these powers. Before the SIB can have the powers transferred to it, it will have to show that its rules and regulations will comply with Clause 96(8)(b) and the schedule attached to that clause.
I think it would be unusual to impose an obligation on the Secretary of State about making rules in advance of the transfer to SIB. If the Secretary of State chooses not to use the powers which Parliament has given him, with the clear intention that rules and regulations should be made in these areas, it is to Parliament that he has to answer.
The mechansim that we adopt seems to me rather more preferable to the approach that I see in the amendment, because the amendment would introduce a quite undesirable inflexibility into the rules. The noble Lord himself knows that the financial services sector is complex. Some of the rules which the Secretary of State or the designated agency would be required to make would be quite inappropriate in some areas. I do not really think we want to see cooling-off periods for all investment agreements. How could they possibly be operated in the case of shares—perhaps options or futures—where the market is moving all the time? Certainly I suggest that we do not really want to see separate client accounts set up for business and professional investors, who are quite able to look after themselves. That moves slightly into an area which I think the noble Lord wishes to treat separately; but it is in fact very similar.
We are thinking in the rule-making procedure that perhaps a cooling-off period, where it is applicable, should be perhaps no more than 15 days. That is the intention, and we would of course be looking to see what the SIB and the SROs come up with in that direction. But the suggestion which the noble Lord makes of the much extended time would, I think, not be very practical.
Lord McIntosh of Haringey: I feared that the Minister was going to respond to the form of my amendment, which I admitted was defective, rather than to my invitation to him to be a little more explicit. But I am grateful to him for the indication he gave towards the end of his speech about the way in which the Government's mind was moving. I have to say at once that I do not believe, and consumer organisations will not believe, that a period of 15 days for a cancellation period for applicable deals—and I accept that not all investment deals are applicable—is adequate. That means that we shall have to put down, if we can find a way of doing it, some suitable amendment at a later stage. In the meantime I think it is appropriate for me to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 138 not moved.]
Clause 47 agreed to.
Clause 48 [Notification regulations]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 139:
Page 33. line 36, after ("or") insert ("a person certified by a").
The noble and learned Lord said: I spoke to this amendment with Amendment No. 79. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 140:
Page 34, line 16, leave out ("verified") and insert ("reported on").
The noble Lord said: With the leave of the Committee, I think that what was in the mind of my noble friend Lord Bruce was simply that the word "verified" is not a term of art in accountancy, whereas "reported on" is. On his behalf, I should like to commend this amendment to the Committee. I beg to move.
Lord Lucas of Chilworth: I am grateful to the noble Lord, Lord McIntosh, for the brevity of his proposal. I fear that I cannot copy him, however, because there is, and always has been, wide concern within the accountancy profession over the word "verify". We think that the concern is misplaced.
The obligation in Clause 48, and in Clause 91 for that matter, is on the authorised person furnishing the information to provide, when required, verification of the information he provides in a manner to be specified. That verification may take a number of forms—copies of documents may have to be certified as such, the accounts required may be those which have been audited, statutory declarations might in such circumstances be required—apart from reports from third parties. I use the word "reports" deliberately, since it is quite possible that the regulations might require verification by way of an accountant's report on the information in question. That is a matter to be covered in the regulations, and I have no doubt that the accountancy bodies will make their concerns known if draft regulations were to envisage what they would regard as unrealistic requirements.
Additionally, the proposed amendment would also narrow quite unacceptably the way in which

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verification might be required. It might restrict it to reports on the information provided and would rule out the other corroboration to which I have referred. That would damage the effectiveness of these powers and that is not desirable. On the basis of that, I very much urge the noble Lord to withdraw his amendment.
Lord McIntosh of Haringey: That response may not make sense to my noble friend, but it certainly makes sense to me. I am sure that he will read carefully what the Minister said. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn,
Clause 48, as amended, agreed to.
Clause 49 [Indemnity rules]:
The Deputy Chairman of Committees (Lord Airedale): In calling Amendment No. 140A, I have to say that if it were agreed to I could not call Amendment No. 141.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 140A:
Page 34, line 25, leave out subsection (2) and insert:
(" (2) Rules under this section may require recognised self-regulating organisations and recognised professional bodies and their members who are authorised persons for the purposes of investment business to participate in any scheme for indemnity established under those rules, irrespective of any additional scheme which such organisations, bodies and their members may themselves operate.").
The noble Lord said: We now come to a vital element of the safeguards which are proposed in the Bill, and I want to put it to the Committee that the admirable example which the Government set in Amendment No. 134, in seeing that there are adequate financial resources maintained in respect of those authorised to carry on investment businesses, ought also to apply to compensation to the indemnity schemes which are maintained by self-regulating organisations and recognised professional bodies and their members.
There are, of course, potential SROs to whom this amendment need not apply. I am not casting any doubt on the financial stability of the Stock Exchange or on its ability to meet any claim made under an indemnity agreement. But even with the amalgamation of SROs and with the simplification of the SRO sructure that has been discussed in the Committee, it is still not certain, or certain enough, that there are equivalent protection arrangements available to those who do business with members of SROs.
That concern has been expressed not only by myself in the amendment; the SIB in its regulation document of December 1985 made the point that a number of SROs will be unable to arrange satisfactory schemes. It is for that reason that the SIB proposes to set up a scheme of its own. It is suggested that SROs may well wish to have top-up schemes in addition, but that if they are to contract out entirely from the SIB scheme, they must match the conditions and the security given.
In addition to the question of security, there is the matter of the economy and viability of indemnity schemes. If they are, as far as possible, operated by the
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SIB, there ought to be an economy in management costs. There ought to be a degree of uniformity across the SROs that will make not only for economy but also for clearer understanding of what indemnity and compensation schemes are likely to be available.
In addition, there is the issue that was raised in another place and to which Government Ministers sympathetically referred, concerning the problem of precipitative withdrawal from indemnity schemes. It will be helpful if the Government can give the Committee a further indication of their current thinking on all those issues and on how the concerns expressed by the SIB are to be met in legislation or in regulations. I beg to move.
11.45 p.m.
Lord Lucas of Chilworth: Before I reply in detail to the noble Lord, Lord McIntosh, I may give him an indication that we shall want to consider this matter further. I shall return to some of his arguments, but first I want to address much the same point to my noble friend Lord Limerick. I may say to him that we should like to consider what we understand to be the purport of his Amendment No. 141A. Perhaps the Committee, to save time, will allow my noble friend to speak to his amendment. I could then draw the two together; otherwise I shall have to make virtually the same reply to both.
The Earl of Limerick: That would probably be for the convenience of the Committee. The proposed new clause that stands in my name is a probing amendment that is connected with the concerns felt by the Securities and Investments Board. Indeed, it has been the subject of some exploratory discussion between the parties concerned.
There are two separate points covered by the four subsections, the first three being connected and the last being independent. I understand from the SIB that the Government consider that the powers in Clause 49 of the Bill are appropriate to provide for indemnity to investment businesses but would not extend to investors themselves. So the powers in Clause 48, for example, could be used to require businesses to take out insurance to protect themselves against claims from investors, but not to set up compensation arrangements purely for the benefit of investors.
My further understanding is that while the SIB may indeed wish to require investment businesses to take out insurance in some cases, it believes that the greatest need is for arrangements for compensation for investors. It is far from clear that Clause 49 allows for such compensation for investors as opposed to guarantees of insolvency through indemnity for firms engaged in investment businesses. First and foremost, it is that which this amendment seeks to provide.
There are of course different ways in which such a compensation scheme could be established. My understanding is that the method which is preferred by the Securities and Investment Board will involve taking out a loan facility with a consortium of banking institutions so that in the event of a default by an investment business the board would be able to make drawdowns on the facility in order to indemnify investors up to a limit of not less than £30,000 against their losses.

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In order to make it clear that such a method is permissible, my amendment specifically refers to the use of a loan facility. This should not, however, be taken to imply that this should be the only method permissible if other arrangements can be made. Specifically, it would not exclude any of the three methods specified in Clause 49(3). Subsection (1) of the new clause therefore leaves all these options open.
I turn to subsection (2). As at present worded, the powers in Clause 49 would not apply to members of a recognised self-regulating organisation or a recognised professional body unless the organisation or body had requested that they should. My amendment takes a different approach. I understand from the SIB that it believes very strongly in the importance of having one central scheme to provide for compensation to investors. In its view such a scheme would promote confidence in the system as a whole in a way that a number of disparate schemes would not. It would also avoid confusion among investors and regulators as to who is responsible for providing compensation in any particular case.
Finally, it would make for a stronger scheme, better able to withstand the changes and chances of the investment world. Subsection (2) would accordingly provide for regulations establishing a scheme for compensating investors to apply to members of recognised SROs and those authorised by certification by a recognised professional body. Such a centralised compensation scheme, however, would require one important safeguard. This is addressed by subsection (3). Members of those organisations and bodies could legitimately be concerned that, by participating in a central scheme, they would be required to subsidise different kinds of investment business or those authorised by different routes. For this reason subsection (3) would impose a duty on the Secretary of State to have regard to the need to secure, so far as it is practicable, that no class of authorised business subsidises any other such class.
What I have in mind is that, except in the case of the very largest demands on the scheme, the cost of meeting claims against a member of any particular self-regulating organisation or professional body should be borne exclusively by the members of that organisation or body: that is, by the class of practitioners undertaking that particular class of business, and not vicariously by those undertaking different classes of business. Only in the case of the very largest demands would the scheme need to provide for a subsidy between different classes of authorised business. Even then, the scheme would have to make the maximum effort practicable to reduce the impact of any cross-subsidy. In the absence of such a safeguard, members of the best controlled and most tightly regulated and managed SROs might find themselves subject to levy to compensate claimants against other SROs which engaged in more risky business or business managed less successfully or prudently. Such cross-subsidisation would not only be unfair to the prudent or low-risk practitioners but could also introduce undesirable pricing differentials between different classes of business.
Lastly, subsection (4) of the new clause deals with a different yet not wholly unrelated problem. When an investment business ceases to be able to meet its
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commitments, any clearing house responsible for ensuring the settlement of that firm's transactions on a particular market will wish to establish certainty in the positions of the parties to bargains transacted, and by so doing to stabilise and minimise the impact of the failure on that market. In order to do so, the clearing house needs to close out transactions for which the troubled firm is responsible. By reducing the continuing exposure of the firm to the market, it protects the market's integrity and the interests of members and others who deal on it.
However, it has never been entirely clear, so far as I am aware, what rights and liabilities, if any, such a procedure engenders and what claims might be sustained from an innocent counter-party who, having been thus closed out by the clearing house, considers himself thereby to be disadvantaged. This final part of my amendment would therefore enable the Secretary of State to resolve issues of this kind by means of regulations under the Bill.
These points are important and I believe that the Government recognise their importance. They are also complex. Some of the issues raised by the new clause, if they are valid, as I believe them to be, may well have relevance to Clause 49 as much as to this new clause. Those who drafted this amendment are certainly cleverer than I, but they are not parliamentary draftsmen and the proposals may have technical defects. If my noble friend were to accept this new clause, I think that my gratification would be exceeded only by my surprise. My purpose in advancing the new clause is to see how far my noble friend from the Front Bench can be drawn at this stage into accepting the principles which underlie this new clause.
12 midnight.
Lord Lucas of Chilworth: I am greatly obliged to the noble Lord, Lord McIntosh, and to my noble friend Lord Limerick for explaining to the Committee the purpose behind these two amendments. Let me say straight away that it is important that we get these compensation arrangements right. They are an important part of the framework of the Bill and it is right that we should give the matter careful thought.
The amendment of the noble Lord, Lord McIntosh, is essentially the same one that was considered in another place. The core of the amendment of my noble friend Lord Limerick covers very similar ground. Since the matter was discussed in another place, the SIB have made representations expressing concern that the fragmented compensation schemes will result in a lower overall level of protection than a centralised scheme could offer. There is also concern that the mechanism provided in the Bill allowing SROs and RPBs to join voluntarily in any SIB arrangements may not necessarily produce the best arrangements. These are views to which I think we must listen.
Recently the SIB put to the department revised proposals which they hoped would ease the concerns of the SROs and RPBs which might be affected by such arrangements. We are considering those proposals and certainly we shall have to collect the views of those who will be most directly affected.
One of the major reservations about an industry-wide scheme is that firms in the low-risk areas will end

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up bearing a disproportionate share of the contributions burden compared to firms in those areas which give rise to the greatest claims. Subsection (3) in my noble friend's new clause gives some recognition to that point. However, we have to explore this in much greater detail, although I certainly undertake to consider the matter further.
I have to tell my noble friend that I cannot at this stage undertake that we will change the Bill in the way proposed. Having considered the views expressed in Committee and the other views that we are seeking, we may conclude that the balance of advantage lies in retaining the present structure—perhaps, admittedly, with minor changes to make it more workable. But we shall consider the arguments put to us.
The noble Lord raised a number of technical points. For example, my noble friend's amendment envisages a different kind of compensation scheme, such as that under the Banking, Policyholders Protection and Air Travel Reserve Fund Acts. We shall look to see whether such a scheme is possible. We should equally be sympathetic to any proposal to operate such a scheme by way of a loan facility.
The final point to which my noble friend referred, that of subsection (4), has, I understand, only recently been raised. As I am sure he knows, there are great technical difficulties to be solved. We have to consider the position of clearing houses within the context also of insolvency law.
I cannot satisfy the points raised by direct answer. Indeed, I do not want to. As I say, we want to take into account the views expressed to us in Committee and by other bodies with a view to providing something that is acceptable. I remind the Committee that in the undertaking that I gave I did not promise to accept all or indeed any part of the amendments. We might, as I said, at that time consider that the balance remains with what is currently in the Bill.
Lord McIntosh of Haringey: There are two ways of responding to that. Wearing my Mr. Hyde hat I might say that the Government are continuing to make up the Bill as they go along, which is not a very satisfactory procedure in matters as complex and important as this. But—
Lord Lucas of Chilworth: Let me just nail that one. That is a disgraceful way to answer what I hoped was a helpful response. My noble and learned friend made it abundantly clear at Second Reading, and we have both made it abundantly clear during the course of this Committee, that we and my honourable friend in another place, the Minister responsible, remain ready and willing to listen to anything that anybody wishes to represent and to embrace it in the Bill where we can. It is not a question of making up the Bill as we go along. We are responding to the representations made to us.
If the noble Lord is going to be ill-willed about that, I assure him that I shall advise my honourable friend that we had better put before the Committee in the next two days that we have the Bill as it stands and cease to have an open-door policy in the department.
Lord McIntosh of Haringey: It is after midnight and I forgive the noble Lord for over-reacting. Had he
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allowed me to finish the phrase that I was using, let alone the sentence, he would have heard me say that wearing my Dr. Jekyll hat I am grateful to him—and I am saying nothing more than I would have said before his intervention—for the constructive way in which he has approached my amendment and that of the noble Earl. It would be unreasonable to expect him to go further than he has in recognition of the problems which have arisen and have been noted by the SIB. I understand that he can go no further than to say that the matters will be considered but that he can give no guarantee that either of our solutions will be adopted.
With those comments, which are no different from those that I would have made before he so intemperately interrupted me, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Cameron of Loch broom Lord Cameron of Loch broom moved Amendment No. 141:
Page 34, line 26, after ("or") insert ("a person certified by a").
The noble and learned Lord said: I spoke to this amendment with Amendment No. 79. I beg to move.
On Question, amendment agreed to. Clause 49, as amended, agreed to.
The Earl of Limerick The Earl of Limerick moved Amendment No. 141A:
After Clause 49, insert the following new clause:—
("Compensation for investors.
.—(1) The Secretary of State may by regulations establish arrangements (including arrangements operating by means of a loan facility) to provide compensation to investors in the event of a default by an authorised person.
(2) Regulations under this section may apply to members of recognised self-regulating organisations and persons authorised by certification by a recognised professional body.
(3) In making regulations applying to such members or persons, the Secretary of State shall have regard to the need to secure, so far as that is practicable, that no class of authorized business subsidises any other such class.
(4) Regulations under this section may also include provision as to the rights of creditors against any recognised clearing house.").
The noble Lord said: I thought that I had moved the amendment, but I may have been out of order. I shall move it now merely for the sake of saying that I am grateful that the welcome mat will remain at my noble friend's door. I am grateful for the response that he felt able to give. I had hoped that he might have gone just one inch further. He said that he was sympathetic to the question of the loan facility. That seems to me to be a simple, straightforward and uncontentious matter. I hoped that he may be able to give an assurance on that part of the amendment at least that the Government propose to come forward with some measure of their own. I beg to move.
Lord Williams of Elvel: I should like to comment on subsection (3) of the new clause. I imagine that I address my remarks to the noble Earl who moved the amendment. Are the Committee and the noble Earl satisfied that in practical terms it is possible to avoid cross-subsidisation among different classes of investment business in the same firm?
The Earl of Limerick: Certainly not. That was the problem addressed by subsection (3). I hope that there may be an acknowledgment of it to ensure that whatever regulations are introduced would have regard to the necessity to minimise such undesirable cross-subsidisation. If no other noble Lord wishes to comment on the amendment, I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Clause 50 [Clients' money]:
[Amendments Nos. 142 and 143 not moved. ]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 144:
Page 36, line 3, after ("or") insert (" a person certified by a").
The noble and learned Lord said: I spoke to this amendment with Amendment No. 79. I beg to move.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 144A:
Page 36, line 12, at end insert ("and interest thereon")
The noble Lord said: This must be a probing amendment because I am conscious that it does not fully achieve my wishes on this issue. It has an honourable history in that it was carried in Committee in another place and was removed on Report without Mr. Tim Smith, who had moved it in Committee, even noticing that it was being taken out until it was too late.
It is worth reviving the issue now, even in this form, despite the fact that an amendment to a similar effect was introduced by the Government on Report in another place because the SIB has now published draft regulations on this matter. I have to say straight away that these are wholly unsatisfactory. We are talking about the issue of clients' money. We are talking about a separate fund for clients' money and for the interest thereon.
The government amendment now incorporated in the Bill provides for separate account-keeping of the interest on clients' money. The Government sought to convince another place that the very phrase that clients' money is held on trust is an adequate safeguard and that clients' money embraces the interest. However, the draft dated May 1986 from the SIB recognises that clients' money is held on trust but goes on to say that, notwithstanding the paragraph stating that it is held on trust,
"any interest earned on a firm's client money shall be payable to and belong to the firm and not to the clients".
That is wholly unacceptable. We could be dealing with substantial amounts of money. Even without going into the question that may have to be raised later of the interest on the amount of any claim in respect of which indemnity is to be available, I do not believe that the ordinary investor, professional or private, will be satisfied with the interest on his money held in trust accruing to the investment business rather than to himself. It is contrary to any principle of natural justice. The fact that investment businesses have got away with it for many years is no justification. I seek from the Government in this probing amendment an indication that they will discipline the SIB and indicate
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to it in the strongest terms that this is not an acceptable use of the interest on clients' money. I beg to move.
Lord Lucas of Chilworth: The intention of this amendment that Clause 50 should allow regulations to be made concerning the keeping of accounts and records of the interest on clients' funds held by an authorised person is already achieved by the current drafting. Amendments introduced in another place made clear that the list of powers in subsection (2) is without prejudice to the generality of the power in subsection (1) to make regulations with respect to money held in the circumstances specified in the regulations.
The wording of subsection (2)(f) makes clear that the phrase "clients' money" embraces interest. In the light of this, I am quite clear that regulations under existing Clause 50 can be made in respect of interest including the keeping of accounts and records on such interest, and that this amendment is not really necessary. However, the noble Lord said that this was a probing amendment and that he wished to hear our view on it.
The amendment could undermine the position of those who wish to see clients entitled to interest on their money. The wording of subsection (2)(d) of Clause 50 if amended would run counter to the basis of the rest of the subsection; namely, that interest forms part of the client's money. I am aware that the SIB has questioned in its draft client money regulations whether the approach of stating that clients' money includes interest is the right one. I have no doubt, however, that clients should be entitled to the interest on their money.
The Government's position on this was made clear in the White Paper. I do not believe, therefore, that provisions which would cast doubt on the entitlement of clients to the interest on their money are helpful. That is not to say that a business should not be able to agree with a client that the business should be able to keep the interest. That I think is a different issue, because that can still be possible. But the initial assumption should be that interest belongs to the client; in particular, such money should itself be covered by the client money protections, rather than fall to be dealt with as a debt from the firm to the client, with all the problems that might flow in the event of insolvency. I think that I have made the Government's position abundantly clear. I hope that will satisfy the noble Lord, Lord McIntosh.
12.15 a.m.
Lord McIntosh of Haringey: I am grateful to the noble Lord. He has indeed made the Government's position clear and he has made the Government's opposition to the SIB's draft regulations of May 1986 clear, and for that we must be grateful. I expect therefore that we shall see from the SIB before we come to Report stage revised draft regulations which reflect the attitude of the Government in this matter which is one which has the full support of Her Majesty's Opposition. If we do not see revised draft regulations which reflect these views, we shall of course take appropriate steps to see that the proper protection for investors is written into the Bill. With that I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 145:
Page 36, line 16, leave out from third (" of") to (" to ") in line 18 and insert (" a recognised self-regulating organisation or a person certified by a recognised professional body ").
The noble and learned Lord said: This amendment was spoken to with Amendment No. 79. I beg to move.
On Question, amendment agreed to.
Viscount Colville of Culross Viscount Colville of Culross moved Amendment No. 146:
Page 36, line 24, at end insert—
(" () other than as provided specifically by a contract, where an authorised person keeps an account with a bank pursuant to rules made under this Chapter or under Schedule 2 to this Act and the bank acting in good faith and in the ordinary course of business causes or permits to be carried out in relation to that account any transaction or any part of any transaction, that bank shall not incur any liability by reason only of its failure to concern itself with the right of that authorised person to carry out that transaction. ")
The noble Viscount said: I am sorry to have at this time of the morning to raise the first of three amendments which are all quite different but which all have substance in them. However, that is the way in which this Bill is proceeding. Perhaps the Committee and my noble friend will forgive me if I take this rather more briefly than might otherwise have been the case.
The Bill at present provides that a bank which is dealing with the account of an authorised person—and that authorised person is dealing with individual clients—shall keep the money upon trust. The result of that is that if the client of the bank, that is to say, the authorised business, becomes insolvent, or if one of the persons involved in that business defalcates in some way in connection with the financial transactions, it will be the bank which is ultimately liable to the lay client, the individual investor. This is not an entirely unfamiliar situation. There are a number of other provisions including those relating to solicitors which have provided for this in law.
The dilemma is this. We are confronted by a potential number of transactions which are of very great size indeed. I have asked about the kind of examples that might be given, and I am told that a particular bank with an account with a stockbroker in the quarter ended in June this year had a turnover on that account of over £18,000 million, represented by some 13,000 transactions. The proposition is that the bank will have to look at each and every one of these transactions and make the necessary inquiries in order to make certain for its own purposes—and so as to protect the investor—that nothing has gone amiss and there is no dishonesty or any other failing on behalf of the investment organisation which has the account with the bank.
It can either do that—and if it does, the delay and the amount of manpower that would have to go into it would obviously be absolutely enormous—or have to insure. This point was raised on Second Reading, and I think that the indication given by my noble friend Lord Lucas in his speech at the end of the debate was that the banks should charge for this. The banks would simply have to carry the liability and this would have to be passed on to those who dealt with them and took their accounts.
If that is so, so be it. However, it is worth discussing because in other circumstances, for instance in solicitors' clients' accounts, there are already provisions in the law which provide for a certain protection. I am not saying that it is an indemnity, because my amendment does not provide a complete indemnity. It provides for something in between, and this is the sort of balance which I hope I have been putting forward in all the amendments which I have moved during this Bill. I do not wish to go for extremes; I believe that there should be a balance.
I hope that my noble friend will look at this matter again, because it could be a very great burden. I believe that the alternative is a charge, which would make it more expensive to carry out the ordinary transactions in the market, which is exactly the sort of thing which I should have thought this Bill is intended to avoid. I beg to move.
Lord Boardman: I speak in support of my noble friend's amendment. I raised this point during the Second Reading debate in my capacity as chairman of one of the clearing banks, an interest which I then declared. I find particularly disturbing the apparent lack of understanding about the mechanics of the operation of clearing banks. Indeed, the SIB, with which the Committee of London Scottish Bankers has been in correspondence on this matter, looks upon this particular clause in the Bill as one of the main supports of the framework for protection for investors which is intended to be afforded by the Bill.
It appears to assume that there is some mechanism by which the clearing banks are able to check the authenticity and integrity of each transaction that goes through. My noble friend Lord Colville has referred to the volume that goes through, but I think that my noble friend the Minister must also appreciate the timing. In fact, cheques presented have to be cleared on that day. In the case of town clearing—that is, cheques cleared within the City of London and presented by banks there—they have to be cleared within a matter of minutes.
It is an extremely rapid transaction in order that the wheels of commerce can operate smoothly and efficiently. There is not the slightest opportunity for any clearing bank to verify whether the transaction which is being presented, the transaction for which the clearing bank takes responsibility, is carried out on behalf of the authorised persons or organisation perfectly honourably, or whether that person is carrying it out dishonourably. Indeed, I do not know how it could be done.
Therefore, the clause as drafted at the moment, and which my noble friend seeks to amend, would provide that the clearing bank would be the bondsman for all transactions; it would have to underwrite the whole authenticity and integrity of the authorised bodies which were banking with it. I cannot believe that that is the intention of this Bill. Indeed, if that were so, much of the rest of the Bill becomes absolutely unnecessary and all it would be necessary to say is that the clearing banks will be the bondsman for every operation carried on in the City of London and they must charge accordingly.
As my noble friend said, if this obligation remains in the Bill and the banks are required to underwrite all

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these transactions—and that is what it would mean—their charges for doing so would have to reflect the very considerable risk that they run, and there would be no possible way in which they could protect themselves except by charging, because there is no possible way in which they could verify the transaction. Therefore, I hope that my noble friend the Minister will give support to my noble friend's amendment.
Lord Lucas of Chilworth: It is always difficult when noble friends behind one put forward such a persuasive case in defence of what in particular my noble friend Lord Boardman declares as a particular interest, but I have to say that there is on behalf of both my noble friends an element of exaggeration.
But let us start at the beginning. We have to accept, surely, that it is an important part of the approach in Clause 50 that clients' money held by authorised persons shuld be clearly seen as being held on trust. Naturally that provision is aimed primarily at imposing duties on the investment businesses to which clients entrust their money. But we believe, however, that it may be appropriate for the regulations to require not only that such money is kept separate from the funds of the business, but also in certain circumstances that it is placed in the hands of persons of a kind specified in the regulation; for instance, recognised banks.
The fact that such persons, having been notified that the money is held by the account holder on trust, can be expected to play their part in ensuring that such money is not misused is a really important additional safeguard for investors. Of course, it is quite understandable that the banks should look very carefully at a provision which they fear might impose on them an onerous, unusual or exceptional burden. We believe that these fears are exaggerated. The position in the Bill will be the same as it is with client money accounts opened under the Estate Agents Act or the current licensed dealers rules or the increasing number of firms which open accounts for clients other than under statutory provisions. Certainly we have not been made aware of any particular difficulties arising from those provisions.
Of course there are differences. I appreciate there are differences of opinion on the extent of banks' responsibilities under the present law; but I do not think it has been suggested at all that it goes beyond circumstances which put the bank on inquiry, or where it should have been aware that the customer was acting in breach of trust. What is necessary to put a bank on inquiry must be decided in all the circumstances. We do not believe a bank could reasonably be held responsible except where something strikingly unusual was attempted with respect to a client money account. For instance, in a well used account, a pattern emerges. If a large withdrawal by unfamiliar people occurred, breaking the usual pattern, we think it would be reasonable for the bank to take note of that and make an investigation. That does not seem to be unreasonable when we really are trying to protect investors' rights to their money. This is not a question at all of the—
Lord Boardman: If I may just interrupt my noble friend, can he explain to me how a branch which receives in one short period 1,000 cheques for nearly £1,000 million on one day, in a matter of minutes, or hours if you wish, is able to see whether there is anything unusual; how it could possibly trace and look through that reputable firm as it appears that all the cheques are drawn in favour of people who they believe to be absolutely reputable? How can it possibly be done? It really is a quite unrealistic picture that is being painted, and I hope that my noble friend will reflect and take further advice on it before pursuing that line.
Lord Williams of Elvel: May I say that it is not because I have taken a Trappist vow that I remain silent, but becaue the noble Lord's noble friend in my view has put an extremely cogent case, and on our side we would support it.
Lord Lucas of Chilworth: I must say I am very disappointed at my noble friend Lord Boardman. With all the technology available today in his own bank and in the whole of the banking system—with all the technology employed for the transmission of documents, of money, of information, and with all the technology that is employed to persuade us to buy different products from the bank, the fact that the banks cannot devise a system that would give them a reasonable broad check on an account which shows a variation just staggers me.
12.30 a.m.
Lord Boardman: I have not made myself clear. How is it possible among those thousand cheques to verify the payee on each of those cheques, and to say that that payee is a respectable and responsible person? No amount of computers and the rest of it can identify that Mr. Smith, or Mr. Brown, to whom a cheque for £500,000 is made payable, is a genuine person, or whether it is someone proposing to run off with the money. To do so it would be necessary to operate inside the very offices of the payer, and as I understand it no technology could possibly deal with the particular problems it would impose. If my noble friend has a solution I should be happy to hear it from him, but I cannot suggest one.
Lord Lucas of Chilworth: I think I could find a solution for my noble friend. I do not believe that it is beyond the bounds of possibility, given the other side being enjoined in it. I do not believe that the enormous manpower problem that my noble friend Lord Colville raised is at all a reasonable argument. When one looks around some of the institutions that have for years been labour intensive and have now gone on to machinery and high technology, I think it is unfair of him to suggest that to me.
I have made the position of the Government clear. The SIB in their draft regulations firmly expressed the view that a provision along the lines of that in the Solicitors Act, to which reference has been made, would largely destroy the efficacy of these regulations. We naturally attach a great deal of weight to the views expressed by the SIB on a matter of this kind.
It is late, and my noble friend Lord Colville said that because of the hour he was going to be rather briefer

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than he otherwise might have been. Perhaps my noble friend Lord Boardman would have liked to deploy his arguments at greater length had time been on his side. Having said that and given the view of the Government in this matter, I am without any qualification prepared to discuss the matter further with my honourable friend, but that is as far as I would go. I should not like to imply that we would change our minds in any way, but if that is helpful to my noble friends I am prepared to do that.
Lord Bruce-Gardyne: Before we return to this matter on Report, I wonder whether my noble friend would ask his officials to work out what would be the likely additional cost to those who are using the services of banks as a result of the clause standing as it is? I am sure that my noble friend Lord Boardman is entirely right that the additional cost could by miles outweigh any conceivable consequential benefit to the customers of the bank, and that surely is the crucial consideration.
Lord Lucas of Chilworth: No, that is not the crucial consideration at all. The crucial consideration is the protection of the client's money. I shall resist the invitation that my noble friend Lord Bruce-Gardyne makes. I do not believe it is for officials in my department to work out the costs. I believe that if the banks want to advance the argument that this will be a crippling expense then it is for them to produce the figures to advance that argument, not for my department.
Viscount Colville of Culross: I hope that we can leave this matter in a fairly equable way because my noble friend has said without any commitment that he will look at it again. There are two things—I shall not ask him to comment upon them—that need to be done. First, he takes the view that there are technological methods whereby one can somehow distinguish the dishonest business from the ordinary run of business. If that is the case, I have no doubt that his officials will be glad to expand on this matter that he has raised before the Committee tonight. I do not wish to go into it now.
The other thing I believe is that when one considers the extent of the burden—much of what my noble friend has said has already been rehearsed in correspondence between the SIB and the banks and I do not necessarily want to go into the merits of the arguments tonight—we shall have to deal in the end, if the Bill stays as it is, with the insurance market. It will be the insurers who will decide what is the extent of the risk and what they will charge for an insurance policy which will guarantee the client's money. I understand my noble friend's point about the client's money. Somebody in the end will have to pay for it. The way that the law works, the way that the market works and the extent of the risk are matters that the insurers in the end will have to come to grips with. I am sure that we can find out from them between now and Report stage how much this will cost. Very likely, it is not necessary for my noble friend to do that.
Perhaps we could go forward on those two constructive expeditions: one to look at the technology and the other to see what it is likely to cost. I leave my noble friend with this point. It is not actually in the ordinary
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run of business that the one-off major defalcation that cause the trouble in these matters arise. If he sat and listened to what happened in the criminal courts of this country he would realise that it is small amounts of money being fiddled over a long period of time in quite small individual transactions which subsequently turn out to be a substantial amount at the cost of the client. It will not be the individual large transaction that stands out. There will be no way in which the bank, as a bank passing cheques through in accordance with commercial transactions, will be able to spot that. They are being asked to be insurers and, in their turn, they will have to take insurance policies to deal with that.
I hope that when my noble friend bears these matters in mind and has a look at this later on this morning, he will be prepared to enter into discussions as he has promised. I do not wish to take him up on any commitment, but I am sure we shall be able to have further discussions on this point. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 147:
Page 36, line 24, at end insert—
(" () Where an authorised person is required to have an auditor, whether by virtue of any provision contained in or made under any enactment (including this Act) or of the rules of any such organisation or body as is mentioned in paragraph (b) of subsection (2) above, the regulations may require the examination and report referred to in paragraph (e) of that subsection to be carried out and made by that auditor. ").
The noble Lord said: This is a provision enabling the regulations made under this clause to stipulate that examination of clients' accounts shall be undertaken by the auditor of the authorised business concern. This will be, for most businesses, the most cost-effective way of proceeding. In addition, there may be benefit for investor protection by insisting on a report from this source. An auditor will have the benefit of a continuing relationship with a business; he will know his way round its accounting system and thus he is very much more likely to spot any error. I beg to move.
On Question, amendment agreed to.
Clause 50, as amended, agreed to.
Clause 51 [Unsolicited calls]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 148:
Page 38, line 2, after (" or ") insert (" a person certified by a ").
The noble and learned Lord said: This amendment was spoken to with Amendment No. 79. I beg to move.
On Question, amendment agreed to.
Viscount Colville of Culross Viscount Colville of Culross moved Amendment No. 149:
Page 38, line 8, leave out subsection (8) and insert—
(" (8) In this section " unsolicited call" means a personal visit or oral communication made without express invitation to a person other than on the trade premises of the person who makes the call; and " trade premises " means a place where business is carried on, whether on a permanent or temporary basis, by that person.")
The noble Viscount said: Unsolicited calls, in Clause 51, have the result of the person who has been persuaded to embark upon an investment transaction being able to recover his money, and I have no doubt that that is absolutely right and I am not in any way attempting to attack the principle of the clause. The difficulty is in subsection (8) of the clause (at the top of page 38), because it is not entirely clear what the words,
"oral communication made without express invitation"—
and that is a quotation from the subsection—mean.
If one takes a very obvious and absolutely everyday situation, a customer goes into a bank or, it may be, any other financial organisation, to get advice about what he is to do with his money. The person who is advising him deals with the immediate question that the client or customer puts, but he has some other quite good ideas of his own, as possible alternatives. On a very strict interpretation of the words in subsection (8) he would not actually be able to put forward any of those alternative suggestions unless he was specifically asked by the customer or client to do so. I cannot believe that that is what the Government mean, because it simply does not take any account of the realities of what people do in the course of their daily life. I think that my noble friend is going to say that that is not what subsection (8) means.
The difficulty about this is that he will immediately appreciate that the essence of Clause 51 is that the client who is dissatisfied subsequently about something that has happened is able to recover his money or otherwise go to court about it. And it is no use, I am afraid, making explanations in this House or giving undertakings or anything of that sort because the courts are not able to look at Hansard. Therefore, if it is intended that people should not be able to renege upon whatever investment was made as a result of advice given, without them specifically asking, while they were sitting, for instance, in the bank manager's office, we shall have to say something about it in the Bill because it is of no use just giving an undertaking in Parliament.
Until we change the law about what the courts can look at, all the understandings in the world in the Department of Trade and Industry and in the mind of my noble friend will avail us nothing. Therefore I suggest that this is one of those occasions which I have heard argued ten thousand times in your Lordships' House that it should be put in the Bill rather than left on the basis of something that is thought to be involved in this particular clause as it stands. I hope that my noble friend will be able to help me. This is very much different from the previous amendment. There is nothing between us, as I understand it. It is simply a matter of expression and draftsmanship. I beg to move.
12.45 a.m.
Lord Bruce-Gardyne: I should like briefly to support what my noble friend Lord Colville has said. I think this is a crucially important point. I have declared on a previous occasion my interest in these matters as a director of the TSB. The TSB is to some extent perhaps more concerned about this than the other
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clearing banks, because arguably the nature of its clientele is such that the branch bank manager of the TSB is liable to be an investment counsellor perhaps to a greater and more fundamental extent than is the case with the other clearing banks.
I could not agree more with my noble friend Lord Colville in what he said concerning the importance of not relying on what the department may say by way of interpretation of the present wording of the clause. The fact is, for the reasons my noble friend has explained, unless we have a clear definition of the ability of the branch bank manager to carry on his normal business of service to the customer along the lines of my noble friend's amendment, he is not going to be able to do that job, because the risk of the customer who finds that perfectly bona fide advice happens not to work out to his satisfaction coming back and demanding the unravelling of the consequential investment at the expense of the bank is too great. To my mind, this is one of the most important amendments which your Lordships are discussing if normal branch banking business is to continue; and I hope that my noble friend will be able to give Lord Colville the sort of reassurance that he sought.
Lord McIntosh of Haringey: We have already indicated our intention to seek to secure an effective and adequate cooling off period or cancellation period for unsolicited calls. It would not in any way strengthen our argument if the definition of "unsolicited calls" were to be too wide and if the situation, as expressed by noble Lords opposite, of the customer in a bank manager's office were to be included. Therefore, subject to the answer the Government give, in general we are in support of this amendment.
Lord Lucas of Chilworth: I should say at the outset that I am very sympathetic to the concerns which have given rise to this amendment, particularly in the case of bank managers and others who are worried about what subjects they may or may not raise when a client visits them, or indeed approaches them. There is certainly no wish on the Government's part to fetter unreasonably the advice which an authorised business may give to a client who approaches it. I know of course that SIB share that view.
However, I think that the amendment is based on a misunderstanding of the clause and in particular of the phrase "oral communication". That phrase is to bring in the unsolicited telephone call or the encounter in the street, which are as much a cold call as is the visit from the doorstep salesman. I am advised that it refers to the conversation as a whole, and not to individual subjects in that conversation. In other words, if a bank customer visits or telephones his bank manager, or perhaps communicates in any other way that he might well be able to in the not very distant future, the bank manager cannot, by virtue of changing the subject matter under discussion, be regarded as making an unsolicited call on his customer. All the bank managers that I have ever met or had conversations with have always kept a diary note of the subject of the conversation. Indeed, I have always kept a diary note of my conversations with them. I should have thought that that would outline the broad areas that had been

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covered. Perhaps it would not be a total defence, but it would support the contention that this was not a cold call.
We do not believe that the amendment is necessary to achieve the end which all noble Lords wish. Concentrating on where the conversation takes place, rather than on who has initiated it, gives it quite the wrong emphasis. There is some concern that Clause 51, as I have described it, does not perhaps catch some. One is invited perhaps to call to discuss one subject—the investment business, or something totally different—but the occasion is then used to discuss some unrelated investment agreement. We believe that such matters can be handled by conduct of business rules.
I have the impression from my noble friend Lord Colville that he suspected I would say something of that kind, but would not really be overly satisfied. We believe that this can be dealt within that way. We believe that there is a misunderstanding. But if what I have said does not reassure him, I would be very happy to have a further look to see whether we can tighten it, so that the misgivings which he and my noble friend Lord Bruce-Gardyne foresee are allayed in some way.
Viscount Colville of Culross: I am very grateful to my noble friend for that. The difficulty is this. He is absolutely right in trying to deal with the unsolicited telephone call and other sorts of cold calling. What will happen—and I think this is really where he needs to discuss this with his advisers and, perhaps, the draftsmen—is that there will be a number of small transactions which have taken place, pehaps in the bank manager's office, and, for all I know, accompanied by the sort of notes that my noble friend has talked about.
It will be a matter of law whether that was an oral communication which falls within subsection (8) or whether it was not. This will start in England, at any rate, in the county court, and it will go to the Court of Appeal on a particular set of facts and it will take quite a long time before a body of law is sorted out which indicates what is and what is not within the contemplation of the subsection. Far be it from me to try to deprive lawyers of their excellent fees, but I should have thought that it was the business of government to make clear what it is that they mean, so that we do not need litigation in order to establish what subsection (8) of Clause 51 means.
I think my noble friend would be very wise indeed if he looked at this a bit further. He may not like my solution—I do not mind about that in the least—but I think enough worry has been expressed here this morning for him to be enabled to go back and have another try. I think it could be tightened up and I should be grateful if he would do so as he has promised. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause 51, as amended, shall stand part of the Bill?
Lord McIntosh of Haringey: We have not put down an amendment to Clause 51, although unsolicited calls is a matter of very great concern to us, because,—I may have failed to secure them—we have not seen the
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draft rules which the SIB and MIBOC are preparing on this matter. We understood from the Parliamentary Secretary in Committee in another place many months ago that these dratft rules were expected imminently, and might even have been produced before Report in another place. In the absence of those draft rules it has been very difficult for us to see the extent to which we ought to seek to have the protections which we know will be wanted on the face of the Bill. All that I seek at the moment is any indication that the Government can give the Committee as to when we may expect to see the SIB draft rules, in the firm hope that we shall have them in adequate time before Report stage, so that we may take appropriate action.
Lord Lucas of Chilworth: I cannot help the noble Lord very much. The rules were available and published in May. They are already being redrafted in the light of the comments made. I must say that I am extremely surprised to learn that the noble Lord has not been advised of that situation and has not had an opportunity to make a study of the rules. What procedure the noble Lord adopts at Report stage is absolutely in his hands. I should not like to advise him at all.
Lord Williams of Elvel: We are not on the SIB mailing list. If we were, or if we had civil servants to back us up, perhaps we would be better informed.
Clause 51, as amended, agreed to.
Clause 52 [Restrictions on advertising]:
On Question, Whether Clause 52 shall stand part of the Bill?
Lord Cameron of Lochbroom: It is appropriate to advise the Committee that certain representations on the precise wording of Clause 52 have been received from the Law Society and from others involved in advertising. I ought to tell the Committee that in the light of those comments I expect that amendments to the drafting rather than to the substance of the clause, and to those clauses related to it, will be brought before noble Lords at a later stage in our proceedings.
Lord Williams of Elvel: Can the noble and learned Lord say whether those amendments will be available in Committee or whether they will come to us at the Report stage?
Lord Cameron of Lochbroom: I regret that it will be too late to deal with them in Committee, and that is why I have given the information I have on Clause 52 stand part. The amendments will obviously be presented on Report, or later.
Lord Hacking: Not later, I hope.
Clause 52 agreed to.
Clause 53 [Exceptions from restrictions on advertising]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 150:
Page 40, line 24, after ("40") insert (", 41")
The noble and learned Lord said: This amendment was spoken to with Amendment No. 114. I beg to move.
Viscount Colville of Culross: My noble and learned friend may have spoken to Amendment No. 150, but now we have reached it. Is it Clause 41 or is it Amendment No. 113 which was inserted after Clause 40—or is it both? It would seem to me that one might consider at least the new clause in Amendment No. 113 in relation to advertisements—and it refers also, of course, to exempt persons—as another candidate to be inserted at this point. I am not sure which is meant.
Lord Cameron of Lochbroom: I can only say to my noble friend that I shall have to take advice and perhaps I may write to him, to let him know what is the position. As I said, Amendment No. 150 was spoken to with an earlier amendment. I understand that it just includes Clause 41 after the reference to Clause 40.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 151:
Page 40, line 34, leave out ("is") and insert "(consists of or any part of listing particulars, supplementary listing particulars or any other document").
The noble and learned Lord said: With the leave of the Committee I shall speak also to Amendments Nos. 152 and 153. These amendments have been introduced in response to concern that the exemptions in Clause 53 for documents published in connection with a public offer of securities were too narrow, in that they did not allow issuers to publish listing particulars and prospectuses without falling foul of Clause 52. That was not the intention and these amendments are intended to put the matter beyond doubt.
The amendments also allow issuers to publish documents in accordance with the rules of a recognised investment exchange which has been approved for the purposes of Part V; that is, it can substitute the exchange's prospectus rules for those of the Secretary of State. An exchange will not be approved unless its rules on public offers provide effective investor protection. Certainly I would expect an approved exchange to impose rigorous standards on the non-prospectus documents it allows issuers to publish. Therefore, it seems reasonable for Clause 53 to allow documents subject to those standards to be published. I beg to move.
On Question, amendment agreed to.
1 a.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 152 and 153:
Page 40, line 35, leave out from ("Act") to end of line 37 and insert ("or by an approved exchange under Part V of this Act").
Page 40, line 42, after ("and") insert ("either the advertisement consists of a prospectus registered in accordance with that Part or").
On Question, amendments agreed to.
Clause 53, as amended, agreed to.
Clause 54 [Employment of prohibited persons]:
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 154:
Page 42, line 5, after ("effect") insert (", the period for which it is to have effect").
The noble Lord said: The purpose of this amendment and Amendment No. 231 to which, with the leave of the Committee, I will speak also, is to seek more flexibility in the term of suspension or disqualification of a prohibited person.
There is a whole range of degrees of fault which may cause a person to be prohibited from employment on investment business. Some of them clearly will demand indefinite and permanent suspension. Serious fraud is clearly a matter which demands permanent disqualification. But there could be cases relating to more minor faults which ought to be reported and command disqualification, though for a more limited period. The thinking behind this amendment is that there should be an opportunity for the Secretary of State or, in this case, the SIB to prohibit a person from being employed in investment business for a more limited period which should be specified in the disqualification order.
Amendment No. 231 is on very much the same subject. It relates to Clause 89, which is connected with Clause 54 in the sense that Clause 89 provides for employers to be able to check the register which is established for disqualification purposes. Amendment No. 231 adds to the information which may be obtained by employers the reasons for and extent of the disqualification direction. This is a relatively minor matter but it seems to move in the direction of flexibility and justice. I hope that the Government will be able to treat it with some sympathy. I beg to move.
Lord Cameron of Lochbroom: I have taken note of what the noble Lord said but I think that I should make clear that the purpose of a disqualification direction is not to punish the individual but to protect investors. If an individual has been shown not to be fit and proper, it is difficult to say when he will become fit and proper or indeed whether he ever will be fit and proper.
If investors are to be protected the answer must be to make the direction for an indefinite period, and if the individual subsequently mends his ways the clause provides the Secretary of State or the agency with the power to revoke the direction. In the meantime, of course, the individual will be able to apply for consent to employment and the consent may not be refused without giving him an opportunity to have his case referred to the tribunal. For those reasons I regret that I cannot accede to the noble Lord's amendment.
Lord McIntosh of Haringey: I am of course sympathetic to the idea that disqualification should not be a punishment but should be a protection for investors. I was, and am, aware of the possibility of a revocation. I am still somewhat at a loss to understand what it is that a disqualified person may do to show after what period of time he becomes fit again to be employed on investment business. It seems to me that the revocation procedure could end up by being somewhat clumsy and in many cases this could be avoided by a definite period of disqualification rather

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than an indefinite period. However, I can see that there are arguments on the other side, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 54 agreed to.
Clause 55 [Public statement as to person's misconduct]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 155:
Page 42, line 36, leave out from ("contravened") to end of line 38 and insert—

("(a) any provision of rules or regulations made under this Chapter or of section 51 or 54 above; or

(b) any condition imposed under section 46 above,").

The noble and learned Lord said: I spoke to this amendment with Amendment No. 98. I beg to move.
On Question, amendment agreed to. Clause 55, as amended, agreed to.
Clause 56 [Injunctions and restitution orders]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments No. 156 to 158:
Page 43, line 32, at end insert—
("or any condition imposed under section 46 above;"),
Page 43, line 33, after ("provision") insert ("or condition").
Page 43, line 36, after ("provision") insert ("or condition").
The noble and learned Lord said: With leave, I should like to move Amendments Nos. 156, 157 and 158 en bloc. I spoke to these amendments with Amendment No. 98. I beg to move.
On Question, amendments agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 159:
Page 43, line 39, leave out ("or, in Scotland, an interdict").
The noble and learned Lord said: I spoke to this amendment and the succeeding Amendment No. 160 when speaking to Amendment No. 61.I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 160:
Page 43, line 40, after ("contravention") insert ("or, in Scotland, an interdict prohibiting the contravention").
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 161:
Page 44, line 12, after ("provision") insert ("or condition").
The noble and learned Lord said: I spoke to this amendment with Amendment No. 98. I beg to move.
On Question, amendment agreed to.
Clause 56, as amended, agreed to.
Clause 57 [Actions for damages]:
Lord Hacking Lord Hacking moved Amendment No. 162:
Page 45, line 17, leave out ("or is otherwise adversely affected by it").
The noble Lord said: This is a very short, purist's amendment, which is perhaps fitting at this early hour
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of the day. Clause 57, regarding contravention of certain parts of Chapter V of the Bill, states that persons who have suffered loss as a result of such contravention can bring civil suits. But, as well as suffering loss as a result of contravention, there are added the further words:
"or is otherwise adversely affected by it".
The normal principle for civil suits is that a person has to suffer damage or loss; otherwise he is not entitled to proceed in the bringing of that suit. Subject to what the noble and learned Lord has to say about the other words, "otherwise adversely affected", it is my submission that those words are unnecessary and that purity will be added to the clause by their deletion. I beg to move.
Lord Cameron of Lochbroom: I am grateful to the noble Lord for moving the amendment. We were concerned to make sure that where an investor, for example, failed to realise a profit to which he was entitled, the use of the phrase,
"any person who suffers loss as a result of the contravention",
might not be sufficient. I should like to think about that again. I would only say that in a later amendment in the name of my noble friend Lord Colville, No. 165A, I observe that he too uses the phrase in relation to a contravention,
"the loss or adverse effect".
It may be that he was taking it from this clause.
With that undertaking, I hope the noble Lord may feel able to withdraw the amendment.
Lord Hacking: Indeed, I do.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 163:
Page 45, line 20, after (" or ") insert (" a person certified by a").
The noble and learned Lord said: I spoke to this and to Amendment No. 164 with Amendment No. 79. I beg to move.
On Question, amendment agreed to.
Lord Camerom of Lochbroom Lord Camerom of Lochbroom moved Amendment No. 164:
Page 45, line 24, leave out (" a member of such an organisation or body ") and insert (" such a member or so certified ").
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 165:
Page 45, line 24, at end insert— (" (2A) Subsection (1) above does not apply—

(a) to a contravention of rules made under section (Financial resources rules) or conditions imposed under section 46 in connection with an alteration of the requirements of those rules; or

(b) by virtue of subsection (2) above to a contravention of rules relating to a matter in respect of which rules have been or could be made under section (Financial resources rules).").

The noble and learned Lord said: My noble friend spoke to this amendment with Amendment No. 134. I beg to move.
On Question, amendment agreed to.
1.15 a.m.
Viscount Colville of Culross Viscount Colville of Culross moved Amendment No. 165A:
Page 45, line 24 at end insert—
(" () Where any person suffers loss or is adversely affected by a contravention falling within subsection (1) as a result partly of his own fault and partly of the fault of any other person or persons, any damages recoverable in respect thereof shall be reduced to such an extent as the court thinks just and equitable having regard to the claimant's share of the responsibility; and it shall be a defendant to show that, at the time of the contravention the loss or adverse effect could not reasonably have been foreseen by him.")
The noble Viscount said: I am afraid that this is a fairly important point. It is not confined to this Bill but related to legislation in general. I wholly applaud what the Government have done, which is to provide in Clause 57 that a breach of the various regulations, rules, and so on, shall give rise to an action in civil law for those who have been caused loss or adverse effect as a result. All too often in legislation a duty has been placed upon somebody, and often it is accompanied by a criminal liability, and Parliament has not bothered to say one way or the other whether there is a statutory duty which is answerable in civil courts as well if somebody is damaged by the person who has failed properly to carry out the duty.
Here the Government have done exactly that. They have said this sort of failure shall be actionable. That is absolutely fine and it is exactly what ought to be done more often. I congratulate my noble friend. The trouble is that it does not go far enough. The Law Commission quite a long time ago in its Report No. 21 had a look at that matter in one paragraph and found that there were a number of instances where Parliament when legislating had said that there was not to be civil liability or that there was. It gave some examples which are interesting, because although it reported a long time ago and there may be other examples, they all come from the department represented so ably in this Chamber by my noble friend Lord Lucas. They all relate to consumer protection in one shape or another. For instance, we have Section 3(1) of the Consumer Protection Act 1961, Section 4(2) of the Resale Prices Act 1964 and Section 7(2) of the Restrictive Trade Practices Act 1956.
Those Acts all say that the failure to comply with whatever it is shall give rise to an action in the courts, but they add the magic words:
"subject to the defences and other incidents applying to actions for breach of statutory duty".
Heaven knows that that means! It must have been the same draftsman for all three Acts. He took the view that there was such a thing as a defence or incident for breach of statutory duty.
I venture to suggest to the Committee that that is wrong because in practice the courts have had to look at the whole ambit of each of the Acts in which this matter has arisen and spell out the extent of the statutory duty and the defences and other incidents.
It is a pity that the noble and learned Lord, Lord Denning, is not here, because in about 1968 he took part in a case which reached the House of Lords in its judicial capacity. The case was about the duties of a manager under the Mines and Quarries Act. He
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eventually took the view that it was not part of the statutory duty for the manager of the mine to take precautions to deal with something which was not reasonably foreseeable. That matter had to come to the House of Lords to be decided. It was one of the incidents of that statutory duty.
In the amendment, I suggest that if we are properly putting civil liability into Clause 57 we should go that little bit further and sort out the various defences and incidents which the Department of Trade and Industry, or its predecessor, put into its legislation, so that we do not have to come to the House of Lords on litigation to find out what they are. I have invented two good ones. The first is contributory negligence. The second is reasonable foreseeability. That is an adaptation of what is now law in negligence and other kinds of tort. I have left one out because I have not dealt with joint tortfeasors.
Will my noble and learned friend the Lord Advocate please look at this matter, because we have an opportunity to make clear and certain something which at the moment has been left in a vacuum. This is an excellent opportunity to do something properly for once and not leave the Bill half-baked, as it is at the moment. I beg to move.
Lord Cameron of Lochbroom: I am grateful to my noble friend for raising this point. I shall make just two comments. The right of action which is given by the clause is given to a person who suffers loss as a result of the contravention or is otherwise adversely affected by the contravention. The problem is that the investor here is envisaged as taking the action with regard to misconduct by the other party or parties. It is difficult, at least at the moment, to see how there could be any basis for suggesting that the claimant should bear some share of responsibility for such a contravention as is set out in Clause 57.
The other matter relates to the defence of reasonable foreseeability. In one sense the clause makes quite clear that there is no issue of reasonable foreseeability in the sense that the party sued will be sued on the basis of a contravention and he must be aware, from the very terms of the clause, that if loss or other adverse effect were to arise, the investor will be entitled to take action. Again, I have some difficulty in seeing how a defence of reasonable foreseeability could arise. This is an early hour of the morning, and I do not wish to cavil at the point brought up by my noble friend. I should certainly like to consider the matter further. But it is only right that I should make my reservations known to him on both these matters. Of course, the question of joint tortfeasors is slightly different. I take note of what my noble friend said. It is not covered in the amendment. Obviously I shall also look at that matter.
Viscount Colville of Culross: I wonder whether my noble and learned friend can tell me this. He is not, I think saying that this liability is intended to be a strict liability of the sort concerned for instance, with fencing or factory machinery. Is that correct? I imagine that he envisages that there is some latitude that prevents it becoming absolutely strict.
Lord Cameron of Lochbroom: This is a matter on which I should like to think again. Judging from the way in which the clause is framed, if the person who

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sues establishes that there was a contravention, and that is a matter of fact, and thereafter establishes that he suffered loss or was otherwise adversely affected, it seems to me—and this seems consistent with the general principle of the Bill—that in those circumstances the business must pay for its misconduct, misconduct being the fact that it has contravened the various obligations or rules set out in Clause 57. To that extent it can be something like strict liability, although that is used, I think, in a very different context.
Viscount Colville of Culross: In that case I suggest that my noble and learned friend would be well advised to look at this again, as I am sure he will. I say that for this reason. If we, at this stage, can establish whether or not we are intending to have a strict liability, that would be a very good thing. It is not very helpful to leave it when even my noble and learned friend does not know. This is the time, when we are still at the parliamentary stage, to deal with the matter rather than leave it to the courts.
As to foreseeability, I would have thought that it was all too probable, if one has a technical contravention of one of the rules and regulations that give rise to a loss, that someone would turn up, in due course, in the courts with a situation where there was a chain of events that eventually led to a loss but where there was an argument about causation or about reasonable foreseeability and where it would not be good enough simply to say, "Ah, but there was a contravention of the rules." There will be subsidiary points. The examples that I gave about the 1960 legislation are not altogether inapposite. They are also for the purpose of protecting various people who are dealing with bodies of the sort we are concerned with here. At that time this very department put into its legislation some qualifications of the liability of the sort that I read out a moment ago. There is, therefore, a very good precedent for this when one is creating a statutory tort of this sort. There is a good deal of substantial homework that needs to be done on this matter. My noble and learned friend has said that he will do it. I am very grateful to him. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 166:
Page 45, line 26, leave out ("this section") and insert ("subsection (1) above applies or of a contravention of rules made under section (Financial resources rules) above or such conditions as are mentioned in subsection (2A)(a) above").
The noble and learned Lord said: This amendment was spoken to with Amendment No. 134. I beg to move.
On Question, amendment agreed to.
Clause 57, as amended, agreed to.
Clause 58 [Gaming contracts]:
Lord Hacking Lord Hacking moved Amendment No. 166A:
Page 45, line 35, at end insert—
("; or
(c) any rule of the law of England and Wales whereby a contract by way of gaming or wagering is not legally enforce-able.").
The noble Lord said: It was a surprise for me, and possibly for other noble Lords, to learn that our Gaming Acts could adversely affect the investment business of an authorised person and could imperil transactions by making them void or unenforceable. However, I have done my research. It is right that there are cases from the end of the last century—in a very different world from today—which technically could affect contracts used today in the investment business in futures, and in another form of investment identified in paragraph 9 of Schedule 1; namely, contracts for differences.
At this late hour of the evening I shall not attempt to educate noble Lords on futures, let alone contracts for differences; but they are both defined in the schedule. I am satisfied, having looked up the Victorian authorities, that both those forms of investment business could fall foul of the Gaming Acts. Therefore, the question is: have the Government, in Clause 58, chosen the right formula to deal with English law? I use that terminology carefully because I am not quarrelling with the treatment that is being sought concerning the law of Scotland. I have no authority about the law of Scotland but the manner in which the Government are attempting to deal with it in Clause 58(b) concerning the law of Scotland seems to be the right way.
The difficulty concerns the English law. Noble Lords will see that it is treated differently in the Act because, with regard to the law of Scotland, the Bill simply says:
"any rule of the law of Scotland whereby a contract by way of gaming or wagering is not legally enforceable"
will not bring an investment transaction in an investment business to the position of its being void or unenforceable. Instead of using that formula with regard to England, the Government have specified in paragraph (a):
"section 18 of the Gaming Act 1845, section 1 of the Gaming Act 1892 or any corresponding provisions in force in Northern Ireland".
Instead of treating it with the more general approach, they are limiting it to gaming contracts falling either under the Gaming Act 1845 or under the Gaming Act 1892.
This is the difficulty. After research, I find that under common law there has certainly always been doubt as to whether wagering contracts are enforceable. There is certain authority prior to 1845 in which considerable doubt was expressed about the validity of gaming or wagering contracts. It seems to me—this is the reason I have tabled this amendment—the more sensible way of approaching it would be to use the same formula as has been used for Scotland. That would remove all difficulties under both statutory and common law.
I should say that my amendment does not seek to delete paragraph (a). I have done it by way of adding another clause which, if noble Lords approved of my amendment, would become paragraph (c). The pure way of doing it—and the way that I am presenting this amendment to the Committee, albeit not in accordance with the way I have tabled it—is that paragraph (a) should go and should be replaced by the amendment that stands in my name on the Marshalled List. I beg to move.
1.30 a.m.
Lord McIntosh of Haringey: No one could have less knowledge of the law and less experience of gaming than I, but I had always thought that the enforcement of gaming contracts was exacted by taking out a contract on the life of somebody.
Viscount Chandos: Perhaps I may just refer back to the point that I made in speaking to Amendment No. 106. In that both futures contracts and contracts for differences covering in particular interest rate and currency swaps are instruments that would be predominantly, if not wholly, transacted by listed institutions, it is my understanding of Clause 58 as currently drafted that it is only authorised persons, and not exempted persons, who would thereby be clearly removed from the Gaming Acts. I do not know whether the noble and learned Lord the Lord Advocate has had a chance to clarify that since I first raised it, but I very much hope that at least before the Report stage that could be done.
Lord Cameron of Lochbroom: I am grateful to the noble Lords who have spoken. Perhaps I may say at the outset that there is no Gaming Act for Scotland, and accordingly the common law has not been ousted there, and that gives rise to the distinction between the two laws. The view which is taken and the advice which I have been given is that the common law in England and Wales has been ousted by the Gaming Acts. The Bill as a whole provides the statutory basis for regulation of business involving investment agreements and in Clause 5 specifically provides for the circumstances in which such contracts may be unenforceable and the consequences that would follow. It is therefore, I am advised, inconceivable that any court in England and Wales would attempt as a matter of public policy to apply a rule of common law to an investment agreement governed by the provisions of the Bill instead of seeking to apply the appropriate statutory provisions, and so the amendment is, in effect, unnecessary.
However, as I say, we would not wish to create any doubt as to what I understand to be the general view that the common law has indeed been ousted by statute in England and Wales, and that would be the effect of the noble Lord's amendment.
As regards the point raised by the noble Viscount, Lord Chandos, it is perfectly true that Clause 58 would apply to clearing houses, such as the International Commodities Clearing House, which may seek recognition under the Bill. Of course, once recognised, they will become exempted persons rather than authorised persons. As the noble Viscount properly observed, Clause 58 applies at the moment only to authorised persons. This matter is being looked into and we shall be returning to it on Report. I hope that that will at least resolve the noble Viscount's doubts. I hope that what I have said has been of some help to the noble Lord who moved the amendment, and that he will feel able to withdraw it.
Lord Hacking: I am not at all sure whether these statutes, or indeed statutes in general, can ever get to the position of ousting the common law, and therefore I have some doubts about the advice that has been
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given to the noble and learned Lord the Lord Advocate which caused him to say that my amendment was not necessary. I shall not take the debate further now. I have made the point and in the circumstances beg leave to withdraw the amendment. Perhaps a little further reflection could be taken; it is always nice to have purity, particularly if we can take that purity in Scottish form in our Bill.
Lord Cameron of Lochbroom: I shall look again with those who advise us at what the noble Lord, Lord Hacking, has said.
Amendment, by leave, withdrawn.
Clause 58 agreed to.
Clause 59 [Scope of powers]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 167:
Page 46, line 5, after ("person") insert ("or, except in the case of the power conferred by section 60 below, any apppointed representative of his").
The noble and learned Lord said: I beg to move Amendment No. 167. My noble friend spoke to this when speaking to Amendment No. 114.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 168:
Page 46, line 16, at end insert ("or has contravened any prohibition or requirement imposed under this Act").
The noble and learned Lord said: I beg to move Amendment No. 168. I spoke to this amendment with Amendment No. 98.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 169:
Page 46, line 27, leave out ("a person") and insert ("(a) an authorised person").
The noble and learned Lord said: My noble friend spoke to this Amendment with Amendment No. 170 when speaking to Amendment No. 114, and I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 170:
Page 46, line 38, leave out ("(a)").
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 171:
Page 46, line 29, after ("or") insert ("a person certified by a").
The noble and learned Lord said: I beg to move Amendment No. 171. I spoke to this amendment with Amendment No. 79.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 172:
Page 46, line 30, leave out ("(b").
The noble and learned Lord said: My noble friend spoke to this amendment with Amendment No. 173 when speaking to Amendment No. 114. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 173:
Page 46, line 32, at end insert ("or
(b) an appointed representative whose principal is a member of such an organisation or body and is subject to the rules of such an organisation or body in carrying on the investment business in respect of which his principal has accepted responsibility for his activities;").
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 174:
Page 46, line 36, leave out ("or body of which he is a member") and insert ("of which he is a member or any such body by which he is certified").
The noble and learned Lord said: I spoke to this amendment with Amendment No. 79, and I beg to move.
On Question, amendment agreed to.
Clause 59, as amended, agreed to.
Clause 60 agreed to.
Clause 61 [Restriction on dealing with assets]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 175:
Page 47, line 8, after ("person") insert ("or appointed representative").
The noble and learned Lord said: My noble friend spoke to this amendment and Amendment No. 176 when speaking to Amendment No. 114, and I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 176:
Page 47, line 9, after ("person") insert ("or, as the case may be, representative").
On Question, amendment agreed to.
Clause 61, as amended, agreed to.
Clause 62 [Vesting of assets in trustee]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 177:
Page 47, line 16, after ("person") insert ("or appointed representative").
The noble and learned Lord said: This amendment and Amendments Nos. 178 and 179 were spoken to by my noble friend when speaking to Amendment No. 114, and I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 178:
Page 47, line 18, at end insert ("or appointed representative").
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 179:
Page 47, line 22, after ("person") insert (or, as the case may be, appointed representative").
On Question, amendment agreed to.
Clause 62, as amended, agreed to.
Clause 63 [Maintenance of assets in United Kingdom]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 180:
Page 47, line 33, after ("person") insert ("or appointed representative").
The noble and learned Lord said: My noble friend spoke to this amendment and Amendment No. 181 in speaking to Amendment No. 114. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 181:
Page 47, line 35, after ("person") insert ("or, as the case may be, appointed representative").
On Question, amendment agreed to.
Clause 63, as amended, agreed to.
Clause 64 agreed to.
Clause 65 [Notices]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 182:
Page 48, line 19, leave out ("at the request") and insert ("on the application").
The noble and learned Lord said: This is a technical amendment. I beg to move.
On Question, amendment agreed to.
Clause 65, as amended, agreed to.
Clause 66 [Breach of prohibition or requirement]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendent No. 183:
Page 49, line 1, leave out ("27, 32").
The noble and learned Lord said: I spoke to this with Amendment No. 98. I beg to move.
On Question, amendment agreed to.
Clause 66, as amended, agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 184:
After Clause 66 insert the following new clause—

CHAPTER VIA
WINDING UP AND ADMINISTRATION ORDERS
Power to petition for winding up orders.

(1) On a petition presented by the Secretary of State by virtue of this section, the court having jurisdiction under the Insolvency Act 1986 may wind up an authorised person or appointed representative to whom this subsection applies if—

(a) the person is unable to pay his debts within the meaning of section 123 or, as the case may be, section 221 of that Act; or

(b) the court is of the opinion that it is just and equitable that the person should be wound up.

(2) Subsection (1) above applies to any authorised person (including a person whose authorisation has been suspended) or appointed representative who is—

(a) a company within the meaning of section 735 of the Companies Act 1985;

(b) an unregistered company within the meaning of section 220 of the Insolvency Act 1986;

(c) an overseas company within the meaning of section 744 of the Companies Act 1985; or

(d) a partnership.

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(3) For the purposes of a petition under subsection (1) above a person who defaults in an obligation to pay any sum due and payable under any investment shall be deemed to be unable to pay his debts.

(4) An agreement shall be regarded as an investment agreement for the purposes of subsection (1) above if the making or performance of it by either party constitutes an activity which falls within any paragraph in Part II of Schedule 1 to this Act (or would do so if Parts III and IV of that Schedule were disregarded).

(5) Where a petition is presented under subsection (1) above for the winding up of a partnership on the ground mentioned in paragraph (b) of subsection (1) above, the court shall have jurisdiction and the Insolvency Act 1986 shall have effect as if the partnership were an unregistered company within the meaning of section 220 of that Act.

(6) The Secretary of State shall not present a petition under subsection (1) above for the winding up of any person who is an authorised person by virtue of membership of a recognized self-regulating organisatiion or certification by a recognized professional body and is subject to the rules of the organization or body in the carrying on of all investment business carried on by him, unless that organisation or body has consented to his doing so.").

The noble Lord said: In moving Amendment No. 184, it might be for the convenience of the Committee if I speak also, as briefly as I can, to Amendments Nos. 248 and 259. The new clause enables the Secretary of State or the designated agency to petition the court for the winding up of an authorised person which is a company or partnership. The court may wind up the authorised person if it cannot pay its debts or if the court considers that it is just and equitable to do so. This power is based on a similar provision in the Banking Act.
The Companies Act has long conferred a power on the Secretary of State to petition for the winding-up of a company, and experience has shown how useful such a power can be, and it seems right to give a similar power to the Secretary of State and designated agency in the financial services sector.
Such a power would not be used lightly. But there may be occasions when information about a business, perhaps uncovered in the course of an investigation, reveals so sorry a state of affairs—perhaps involving fraud or other unlawful conduct—that the winding-up of the business provides the speediest and most effective means of preventing further abuse and ensuring as fair a disposal of the available assets as is possible in the circumstances. The involvement of the court in judging whether the petition is warranted ensures that such a power cannot be misused. I commend the provision to the Committee, and I beg to move.
Lord Williams of Elvel: We shall have to look at this because it raises some important issues, but I do not want at this stage to discuss them. We shall not oppose the amendments. We shall look at it and come back on Report if we feel it necessary.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 185:
Insert the following new clause—
("Power to petition for administration orders.
.A petition may be presented under section 9 of the Insolvency Act 1986 (applications for administration orders) in relation to a
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company to which section 8 of that Act applies which is an authorised person (including a person whose authorisation has been suspended) or an appointed representative—

(a) in the case of an authorised person who is an authorized person by virtue of membership of a recognised self-regulating organisation or certification by a recognized professional body, by that organisation or body; and

(b) in the case of an appointed representative or an authorized person who is not authorised as mentioned in paragraph (a) above or is so authorised but is not subject to the rules of the organisation or body in question in carrying on of all investment business carried on by him, by the Secretary of State.").

The noble Lord said: Amendment No. 185 inserts a new clause relative to the power to petition for administration orders. This provision enables a regulator, be it an agency, SRO, or RPB, to petition a court for appointment of an administrator under the Insolvency Act to take over the affairs of an authorised business which is a company. At present, such a petition may be presented only by a creditor or by the company or its directors. The court will have to be satisfied that the criteria set out in the Insolvency Act for the appointment of an administrator are fulfilled before it grants such an application. So it would be the court that would have to judge whether the company is, or is likely to become, unable to pay its debts; that the appointment of an administrator will lead to the survival of the company as a going concern; that it will lead to a more advantageous realisation of assets or that other of the criteria in Section 27 of the Insolvency Act will be satisfied.
The administrator will be subject to the provisions of the Insolvency Act in the course of his adminis-tration. This adjustment to the existing provisions of insolvency law acknowledges that regulators will often be well placed from their knowledge of the business and through the information obtained in the course of monitoring its compliance with their rules. They will be well placed to judge when a business is becoming insolvent and when a change of management will have a particularly remedial effect.
The appointment of an administrator will give a company a breathing space in which solutions to its problems may be found. This may often be in the interests of both its creditors and its investors. We believe that this is a useful power that should on occasion help to rehabilitate investment businesses that have run into difficulties. I commend this amendment to the Committee, and I beg to move.
On Question, amendment agreed to.
Lord Brabazon of Tara: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.

Great Yarmouth Outer Harbour Bill
The Queen's consent signified, and Bill reported from the Unopposed Bill Committee with amendments.
House adjourned at thirteen minutes before two o'clock.