HL Deb 23 July 1986 vol 479 cc283-9

House again in Committee.

Clause 26 [Grant and refusal of authorisation]:

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.

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 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 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 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 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 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".

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 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 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 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 moved Amendment No. 106: After Schedule 3. insert the following new Schedule—

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