§ House again in Committee on Clause 96.
§ [Amendment No. 243B not moved.]
§
Lord Lucas of Chilworth moved Amendment No. 244:
Page 76, line 7, leave out ("subsection (5)") and insert ("subsections (5) and (5A)".).
§ The noble Lord said: I beg to move Amendment No. 244.1 spoke to this amendment with Amendment No. 111.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendment No. 245:
Page 76, line 10, after ("1") insert ("and paragraphs 4 and 4A of Schedule 13").
§ The noble Lord said: I beg to move Amendment No. 245.1 spoke to this amendment with Amendment No. 79.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendment No. 246:
Page 76, line 16, at end insert—
§ ("(f) section (Communication by auditor with supervisory authorities) (2) above;").
§ The noble Lord said: I beg to move Amendment No. 246.I spoke to this amendment with Amendment No. 239.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendment No. 247:
Page 76, line 16, at end insert—
§
("(5A) This section does not apply to the making or revocation of a recognition order in respect of an overseas investment exchange or overseas clearing house or the making of an application to the court under section 12 above in respect of any such exchange or clearing house.").
§ The noble Lord said: I beg to move Amendment No. 247 which I spoke to with Amendment No. 111.
§ On Question, amendment agreed to.
§ [Amendment No. 247A not moved.]
§
Lord Lucas of Chilworth moved Amendment No. 248:
Page 76, line 19 after ("6") insert ("or [Power to petition for winding up orders]").
§ The noble Lord said: I beg to move Amendment No. 248.I spoke to this amendment with Amendment No. 184.
§ On Question, amendment agreed to,
§ [Amendment No. 248A not moved.]
§ Clause 96, as amended, agreed to.
636§ Schedule 5 [Qualifications of designated agency]
§
Lord McIntosh of Haringey moved Amendment No. 249:
Page 159, line 11 at end insert (and including representatives of employees of authorised bodies").
§ The noble Lord said: My noble friend Lord Graham of Edmonton spoke to a similarly worded amendment when he moved Amendment No. 222. At that time he was referring to the financial services tribunal whose functions are principally legal functions. We come now to a much more important matter; namely, the membership of the designated authority—the SIB as it is named elsewhere in the Bill.
§ According to this schedule the SIB is to have representatives of those with business experience in financial services and also representatives of users of financial services. In my view there is a gaping hole in that membership provision. I totally agree that there should be representatives with business experience as well as users with experience. One part of the financial services industry which patently ought to be represented on the designated agency is the employees of the authorised bodies as well as the management of those bodies This is in no way a radical or startling departure The principle of tripartite representation is recognised in everything from the National Economic Development Council to the Manpower Services Commission and in virtually every European institution where the trade unions or other representatives of employees are represented as of right on such bodies.
§ There can be no conceivable threat to the designated agency in having representatives of this kind. Indeed, the expertise and the knowledge on the ground that they would bring to the membership of the designated agencies would be very great As I have said, there can be no conceivable disadvantages There could be very great advantages if the Government were to accept this modest amendment to the provisions for the membership of the designated agency.
§ Perhaps I may also refer to Amendment No. 250. I should like to say on behalf of those who sit on these Benches that we support the proposal of the noble Viscount Lord Chandos, and the noble Lord, Lord Ezra The proposal is defined in a negative way It does not say that there shall be representatives of consumers, it says that at least one-third of the body shall not be persons with business experience in the financial industries—in other words, they should be representative of the world outside We think that that is a useful provision which is in no way in conflict with the proposal which we make in Amendment No. 249. I beg to move.
§ Lord EzraI should like to speak to Amendment No 250. Although paragraph 3(b) indicates that "other persons" should be members of the governing bod\ of the designated agency, we feel that it should be defined in some way We have had this before in connection with the SROs We feel that there is a need, as emerged in that discussion, for some definition of the approximate proportion of those who should be members of the governing body who can be regarded as not being part of the activities of the City. Therefore, we should like to recommend that this degree of definition should be included in the schedule.
§ Lord Taylor of GryfeOn behalf of my noble friend Lord Chandos, I should like to lend my support to Amendment No. 250. It is becoming increasingly apparent not only in business organisations but also in the City that there is a role for non-professionals being involved in these intricate and complex arrangements. The Stock Exchange has recognised that in the appointment of outsiders, if I may so call them, to the Stock Exchange Council. Even the council of Lloyd's has similarly recognised the contribution which can be made by the outsiders rather than the professionals. It is important that that should be quantified. That should not be overlooked. Therefore, a third might be the appropriate figure and give the appropriate balance in this organisation, and I have pleasure in supporting the proposed amendment.
§ Lord Lucas of ChilworthI am grateful to those noble Lords who have agreed to, and spoken to, Amendments 249 and 250. However, I regret to say that I am going to ask the Committee to resist these amendments, however attractive they may seem. Indeed, we have had this matter before us on another occasion, although in perhaps a different sense.
Both the amendments impose some constraint on the way in which the board of a designated agency is composed. The noble Lord, Lord McIntosh, seeks to ensure that representatives of the employees of authorised persons are included on the governing body. If I pause on the word "representatives" it is not a quibble over the noble Lord's drafting as I quite realise that what he is talking about is a substantive point.
But may I take this opportunity to record that all those on the governing body of an agency will be appointed in a personal capacity and not because they represent some group interest. The board of a designated agency must comprise people of the highest calibre, capable of commanding the respect of both the City and the general public. They will have to take a much wider view of their responsibilities than if they were representatives answerable to some particular faction.
I am happy to have been able to put that point on the record, but I stress that I am not quibbling with the terms of the amendment proposed. May I put it to the noble Lord that the board has to be chosen so that it contains the best people to take on the very serious task which the board of a designated agency is to be expected to perform? Certainly this does not preclude the inclusion of employees. I am not for one moment suggesting that the schedule as drafted is intended to do that. That right person would make a valuable contribution to the work of the governing body. But I do not think it right to restrict the search for the right person by putting artificial constraints on how the governing body is to be composed. I would make exactly the same response if urged to provide for the inclusion of a member of any particular City group on the governing body. I am not making any special point about employees.
For these reasons I say to the noble Lord, Lord Taylor of Gryfe, that I would rather not set out in statute the proportion of the governing body of an 638 agency which comprises non-practitioners. I suggest that this might lead to situations where the composition of the board had to be determined by the need to achieve a set proportion, perhaps at the expense of excluding someone who could make a particularly worthwhile contribution, simply because he had, perhaps in the past, experience of investment business We also need to keep in mind the desirability of not haungtoo large and unwieldy a board To have to add a fixed percentage of non-practitioners could push the numbers up too high. A balance has to be struck so as to obtain the most effective board overall. The right composition for this purpose will very from time to time.
My honourable friend the Under-Secretary of State for Consumer and Corporate Affairs said during Standing Committee in another place that he expected a significant proportion of the members of the board to be independent I suggest to the Committee that that statement indicates the Government's thinking and avoids the potential difficulties which a statutory percentage could create.
That is something of repetition of what I said on the last occasion when we discussed what I suppose one might call proportionate representation. It is for the reasons that I have outlined that I would urge the noble Lord, Lord McIntosh, and the noble Lord, Lord Ezra, to withdraw their two amendments.
§ 8.15 p.m.
§ Lord Graham of EdmontonI am disappointed at the response of the Minister He is consistent. He makes the same case as he did on an earlier amendment that I moved seeking to establish that employees are in a special category. Besides having the interests of the business at heart, if they do not know as much as those who are pre-eminent in the industry at least they understand what it is all about, and they also have their livelihood at stake.
The Minister said that what they will be looking for are people of the highest calibre and who are respected. That would certainly fit most of the people I have in mind, who would at least be considered to be good representatives of those who are employed in the industry What the Minister said was that one wanted to avoid people being placed on a governing body representing a section The people I have in mind would not be representatives of, delegates of, reporting back to, talking orders or instructions from, a trade union. They would simply be seen to be people with a special experience, having actually sold the investment or sold the insurance It is not someone who is recognised as knowing finance, but perhaps knowing a little about that part of the business.
I do not envisage, if the Minister was sympathetic to this, or if it was placed in the Bill, that employees or trade unions would say, "We have got two places on the governing body" or, "one place, and that is ours". Not all all. I certainly recognise the well-established custom that when the Secretary of State appoints people they are his appointees in their personal capacity. I accept that. I am not arguing that employees ought to say, "We are entitled to so many places'.
639 Does the Minister not recognise in 1986, when we look increasingly upon improving industrial relations, with management buy-outs and with employees on the board, that the status and respect of employees has been elevated over the past 30 or 40 years by governments on both sides? In fact it has been done by the industrial situation.
What my noble friends say here is that there is a case for making sure that at the end of the day, when we look around and see who is on the governing body, we do not have to say, "What a pity. There is no one there who has actually sold insurance. There is no one there who has actually been at the sharp end." They may well know how to manage a business, make money, buy and sell, bob about the City doing all sorts of things, and that is needed, but what we say is also needed is the experience and the long and life-time commitment not just to the industry but to the employees. I am disappionted at the response of the Minister.
§ Lord Lucas of ChilworthMay I respond to the noble Lord. Lord Graham of Edmonton? He makes his points succinctly, and I should like to recognise here in the Committee that his voice is always worth listening to. I do not want to get involved in a discussion of the status of an employed person in the year 1986, or any other year for that matter, except that it has changed and all for the good, and I am happy about that, as he is. I am glad that he finds my argument consistent, because the argument has to be consistent.
The point I would make to him is that whichever way you look at it. if somebody is representative of some other body, some group, that is how it will be seen, and damage and danger I can see. What I would suggest, however, is that as the Bill is drafted no employee would be precluded from being a member. Employees can be included in the definition of,
persons with experience of investment business".and quite rightly so. If they then meet the other criteria which the Secretary of State wishes to consider all well and good. The noble Lord. Lord Graham of Edmonton, must not go away with the thought that the schedule precludes employees, because it does not do so. They can come in in their own right as people with experience of investment business. I feel that if one went any further than that one would be in danger of setting up sectional interests, which is the last thing that any of us wants.
§ Lord McIntosh of HaringeyThe Minister chose to make his reply to my introduction of the amendment principally in terms of a criticism of the word "representatives". That was not his response to my noble friend Lord Graham. I recognise that fact, but if he wishes to maintain the position that this is not a quibble (I believe it is really a quibble) then he should have suggested some way in which the Government could have given ground on the substantive point rather than by criticising the wording of the amendment on the matter of the "representativeness". I remind the Minister that a representative is not a 640 delegate. A representative need not report back at every stage to his appointing body He need not be in am way constrained from playing a full part in the deliberations of the designated agency.
Employees' organisations, trade unions, staff associations or whatever they may be, have had a collective role in seeing that there is one or more persons on the board of the designated agency who will represent their interests. Those interests, as my noble friend Lord Graham has said, are not only important in their own right but they would be represented by people who really know the business at the sharp end, as he said They would really understand the nature of the business from being involved in it on a day-to-day basis rather than being involved as ultimate managers or representatives—because that is what they would be—of the large interests in the City.
I am disappointed that the Minister should have chosen to respond in that way I am disappointed that he did not think there was a valid point here with the valid examples I gave of tripartite authorities or tripartite boards with representatives of trade unions, representatives of management, representatives of government, and none the worse for that He has left it open to us to consider the wording again to overcome the difficulty that he raised, and we may do that at a later stage. However, in the meantime, I beg leave to withdraw the amendment.
§ Lord Taylor of GryfeBefore the noble Lord sits down, may I add, if the Minister is to consider this again (if the noble Lord would press him so to do), that it is not uncommon in City institutions, such as the Court of the Bank of England, normally to have a trade union representative He does not attend as a representative. He is there as a member of the court and accepts the full responsibility in the same way as someone suggested in the amendment might act on the SIB. recognising his full responsibility as a member of the SIB and not directly as the voice of the trade unions involved I take the Minister's point that it would be quite wrong to have someone recognised as a representative of the workers He is there because of his experience, but it is important Such a representative is included in nationalised industries from time to time, and there is similar recognition.
I make one other point and that is that one of the largest forces in investment, the pension funds, belong to the employees, on which many employees sit as trustees. It is imporant that there should be employee representation as visualised in some rewording of the amendment because these people have to understand and in a sense are practitioners of the art of investment. There is a great case to be made for recognising the special place of employees in the SIB of the SROs.
§ Lord McIntosh of HaringeyI am most grateful to the noble Lord. Lord Taylor He has put a number of weighty additional arguments in favour of the general case that is being made in Amendments Nos. 249 and 250 However, since I had already indicated my willingness to withdraw the amendment, and since 641 there is a path open to us to put forward the same idea in different words at Report stage, it would be wrong of me to seek to divide the Committee on this amendment. But if the noble Lord feels like dividing the Committee on Amendment No. 250I am sure that my noble friends would support him. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 250 not moved]
§ Lord Lucas of Chilworth moved Amendment No. 251.
§
Page 159, line 35, leave out from ("any") to end of line 41 and insert ("other body or person who is able and willing to perform them").
§ The noble Lord said: I spoke to this amendment with Amendment No. 72.
§ On Question, amendment agreed to.
§
Lord McIntosh of Haringey moved Amendment No. 252:
Page 160, line 2, at end insert ("and the arrangements shall not be deemed to satisfy the requirements of this paragraph unless an ombudsman scheme is established.").
§ The noble Lord said: We come here again to the complex issue of complaints procedures. I should be the first to recognise that both Schedule 2 and Schedule 5 make provision for complaints procedures. The SROs and the SIB both provide for the investigation and, if possible, the resolution of complaints by users of financial services. But the problem with these investigations, rather like internal inquiries in the police or in many other spheres of life, is that however conscientiously they may be pursued and however honourably the people concerned may carry out the investigation, nevertheless justice has to be seen to be done as well as being done.
§ The users of financial services need the opportunity ultimately to appeal to an independent body if the internal investigations have not satisfactorily resolved the complaint. That principle has been recognised on many occasions over the past 20 or 30 years with ombudsmen schemes being set up for public administration generally for local authorities, and independent complaints authorities being set up for many aspects of the public service. If anybody should say that this is not the public service because formerly the SIB was a company limited by guarantee, I would only reply that if it were a company limited by guarantee like any other company limited by guarantee there would be no need for a Bill with well over 200 clauses, as this will be, to regulate from the public point of view the activities of that designated agency.
§ This has to be a probing amendment because I recognise at once that the term "ombudsman" has not been defined in this Bill and would probably have to be in a further schedule if the amendment were to stand adequately by itself and be a sufficient addition to the Bill. The principle of having a final port of call or final place where complaints can be raised which will be 642 known to all users of financial services, whatever aspect of financial services they may be concerned with, and which advertises its availability, as does the Advertising Standards Authority and many other independent authorities, is so important that I believe that it ought to be aired now. I hope the Minister will find it possible to respond to it other than in terms of criticism of the detailed wording of the amendment. I hope he will be able to address his mind and the mind of the Government to the substantive issue behind it.
§ Beyond the provision of an ombudsman there ought, in the end, to be the possibility of appeal to the courts. It is important, in any of these matters and in any consideration we give to complaints of misbehaviour in financial or other matters, that appeals should be reduced to an absolute minimum. It is important that as many as possible of the issues arising between the providers and the users of financial services should be dealt with immediately, on the spot, without any pomposity or delay or unnecessary legalism. However, behind that there must be a recognised and well known and single point of appeal for users of financial services who have not been satisfied by the investigation of their complaint. In the light of the many examples of successful ombudsmen—and I challenge the Minister to give a single example of a case where an ombudsman has been appointed and has not actually performed a useful service, or where that service has been withdrawn—I beg to move.
§ 8.30 p.m.
§ Lord EzraTogether with the amendment which the noble Lord, Lord McIntosh of Haringey. has mentioned goes the succeeding amendment which has very similar wording and I would therefore like to say that I fully agree with the arguments which he puts forward. I seem to recall that in a recent publication the SIB made it clear that it was their intention to appoint an ombudsman to look at complaints. If that is their intention and if we want to ensure that that intention, which is presently indicated quite voluntarily by the SIB, shall be enshrined in the legislation as it ought to be, I can see no possible objection from the Government side in so doing. This should make it absolutely clear that there is a desire to ensure that all complaints shall be dealt with fairly and independently. There should be no conflict of interest between what we should like to see in this Committee and what the SIB are apparently prepared to do. I therefore hope that on this occasion, at any rate, the noble Lord the Minister will see his way to agreeing to the amendment.
§ Lord Taylor of GryfeOn behalf of my noble friend Lord Chandos may I add my voice to the persuasive remarks made by the noble Lord, Lord McIntosh of Haringey, and the noble Lord, Lord Ezra. We must ask ourselves what is the purpose of the Bill. The purpose is that the City may be properly organised and that small investors shall be protected in making use of financial services. I know that it is the Government's objective to extend share ownership. British Telecom is one example of this, and I believe that the TSB is now endeavouring to attract over 1 million 643 shareholders to its public issue in September. I hope it will succeed.
I am in favour of wider share ownership. However, it must be recognised that if this is successful, share ownership will be distributed among many people who have no experience whatsover and who are totally unsophisticated in the area of making use of financial services. To them, going to the courts in order to protect their rights as provided within this Bill will not be an attractive proposition. The Committee is making heavy weather of this Bill; it is very complex and complicated. Goodness knows how the average small investor will understand his rights in the statute. It is important, therefore, that there should be a recognised body to which the small investor can go and say, "Look, I think I have had a bad deal. I am not sure how to pursue it within the Financial Services Act, but there should be an ombudsman as there is in the health service, local authorities and other areas to whom I can make a simple presentation of my case". It can then be decided whether that case should be taken to the courts. I suggest that that would satisfy many small shareholders who will be making use for the first time in their lives of the available financial services. The noble Lord, Lord McIntosh, has said that whether or not this is the appropriate amendment at this stage, perhaps the Minister could be encouraged, with some nudging from the SIB itself and from Sir Kenneth Berrill, to put this in the statute to protect the small investor. I beg to support.
§ Lord Lucas of ChilworthMay I again thank the three noble Lords for putting their views so succinctly. I start by agreeing that the provision of adequate arrangements for handling complaints about the conduct of investment business is a vital safeguard for investors, and especially for small investors, in pursuing claims against investment businesses.
Perhaps I may say to the noble Lord, Lord Taylor of Gryfe, that one of the principal safeguards for the small and less sophisticated investor is the basic step discussed at the outset of this Bill, which is the requirement that anybody giving investment advice or dealing in investments has to be an authorised person. I think we must accept that that will give a very large measure of comfort to a less sophisticated investor.
Now we must look at what I hope will be very exceptional cases where all has not gone right. There already exists in Schedule 5 a requirement that a designated agency must have effective arrangements for the handling of complaints. That is why there is a comparable requirement in Schedule 2 which will have to be satisfied by an applicant SRO if it is to be recognised. There are similar requirements for professional bodies and investment exchanges. In addition, Members of the Committee will have noticed that Clause 45(2)(j) provides that conduct of business rules may make provision for arrangements for the settlement of disputes. This provision would enable an ombudsman scheme to be set up. So the Bill already includes important provisions on the subject.
The noble Lord, Lord Ezra, was right when he reminded the Committee that last December the Securities and Investments Board issued a document 644 which set out its proposals for the regulation of investment business if powers were transferred to it under the Bill. That document, in paragraphs 1.39 to 1.45, announced SIB's intention to create an ombudsman who could grant an enforceable award to a person complaining against an investment business authorised by the board. SROs will themselves have to demonstrate that they have procedures for settling disputes which provide at least equivalent protection for investors and that their enforcement of compliance with their rules on the settling of disputes is adequate. I expect to see many SROs setting up comparable ombudsman schemes. The Committee will know that the Stock Exchange have recently announced, on their own account and on their own initiative, the establishment of an ombudsman scheme. Indeed, I understand also that the banks have done similarly. The advantage of an agency setting up their own scheme is that an ombudsman will have to have expertise only in the area of investment business covered by that regulatory organisation; he or she will not have to cover every single aspect of financial services. So I agree with the noble Lord, Lord McIntosh—a final port of call!
I believe that the idea of an independent ombudsman is being increasingly seen by the financial services sector as a sensible provision which can help investors. But there are other ways of dealing with complaints which could be equally satisfactory. There could be an arbitration scheme or some form of special arrangement for considering small claims without recourse to the courts. There are two possibilities. I do not think that the Bill should rule out these alternatives. The necessary safeguards and the powers are already in the Bill. The Secretary of State cannot transfer powers to an agency unless he is satisfied that it has an effective arrangement for the handling of complaints.
In looking at an agency's proposals, the Secretary of State will be particularly concerned to see that there are ways in which the small investor can get his complaint properly considered without great expense or great inconvenience. If the proposals do not include an ombudsman scheme, the Secretary of State will want to see that this objective is achieved in some other way. But it is for the organisation to determine that way and to prove its own case.
There is a final point. Both your Lordships' House and Members in another place will have an opportunity of considering whether the complaint arrangements proposed, which I have been discussing, are satisfactory when we come to debate the order for the transfer of functions. We believe that there are sufficient safeguards in the Bill. They allow for greater flexibility without imposing a direct solution which may not be totally and absolutely good for every single and individual SRO. I believe that there is a sufficiency in the Bill to take care of the points which the noble Lords, Lord McIntosh, Lord Ezra and Lord Taylor of Gryfe have put before the Committee. With that, I would seriously invite the noble Lords to withdraw their amendments.
§ Lord GrimondBefore the mover decides what to do about this, may I ask one question of the noble Lord 645 the Minister? First of all, I am puzzled (because he seems wholly to approve of the amendment) as to why he objects to having it written into the Bill. It appears to be his hope and belief that ombudsmen will be appointed. If so, I do not see why he objects to having ii in the Bill.
But the question I really want to ask is this. Where in the Bill it says that the agency must have effective arrangements for the investigation of complaints, I take that to mean that they must have internal arrangements within the agency. That clearly seems to me to be what those words mean. The whole point of an ombudsman is that he is not internal. He stands outside, whether it is the health service, local government or parliamentary procedure. The ordinary Member of another place (and I have been one) has arrangements for examining the complaints of his constituents. But the ombudsman is outside Parliament, he is outside the health service, he is outside local government, and in this case he will be outside, as I understand it, the organisations dealt with in this Bill.
I wonder whether the Minister would like to say whether or not he agrees with that, because, if so, it seems to me that an ombudsman fulfils a different role, and it may well be that, on second thoughts, the Minister may find it rather peculiar, after his extremely persuasive arguments in favour of ombudsmen, to find himself unable to accept the proposition that it should be in the Bill.
§ 8.45 p.m.
§ Lord Lucas of ChilworthI am grateful to the noble Lord, Lord Grimond, for giving me a further opportunity. I hope, to be persuasive. Because I had been extolling, as it were, the virtues of an ombudsman system, he asked me why I would not put it in the Bill. The reason is quite simply this. While I think that the system is very good, it may not be appropriate in all cases; and it would be quite wrong to impose upon an SRO or any other regulatory organisation a system, an ombudsman, which does not totally meet their requirements. I accept from the noble Lord that an ombudsman is external from the organisation, but so also can be an arbitrator. Equally, we find in the Bill that an agency can devolve its responsibilities for monitoring the effectiveness of its rules to another body if that body is suitable, willing and able; and, equally, they may find it better to devolve the responsibility of complaints settlement to another body.
As the Bill is written, they can choose a number of areas in which to investigate this, and to draw into their rules an effective scheme. That scheme will have to be approved by the Secretary of State, and, as I have said, that scheme can be debated by both Houses of Parliament. If there are any deficiencies that can be identified, that will be the time to put them right. But it would be quite wrong at this stage, when SROs particularly are in the formative stages, to impose upon them a single area of complaint investigation and satisfaction. I do not believe that that will be the right way for SROs to proceed.
Viscount Colville of CulrossMay I support my noble friend for a moment on this? I think it is a very important point The problem about ombudsmen —and in one of the amendments that is before the Committee we have a suggestion that an ombudsman should investigate and make reports, including recommendations, on complaints—is that that is just the trouble at the moment about the ombudsman system They do make reports after investigating complaints, and they make recommendations but then nobody ever does anything about it. Very often they do not do anything about it because they can afford to get away with it. I prefer on this my noble friend's argument about Clause 45(2)(j), which speaks of "arrangements for the settlement of disputes". That is what ombudsmen cannot do. If there are rules which are required for the settlement of disputes, then we will have gone further than recommendations.
§ Lord McIntosh of HaringeyIt must be said that that was a series of exceptionally unsatisfactory replies from the Government In the first place, it is true that the SIB in its document indicates that it proposes to set up an ombudsman scheme, but I note from paragraph 143 that subscription to the scheme would be voluntary; that the board does not intend to make this a requirement. That must be unsatisfactory because, therefore, it need not be compehensive and will certainly not provide public and universal assurance that justice will be done to those using financial services.
In the second place—and I move from criticism to praise of the SIB—they propose to set up then own ombudsman system and they recognise that it will be both wasteful of resouces and potentially confusing for investors if each SRO provided its own ombudsman or other form of arbitration scheme to deal with complaints. The Minister has gone back on that and is proposing to the Committee, as it seems to me that there should be a series of potentially confusing ombudsmen, wasteful of resources, set up by each of the SROs. In that sense, the Minister's proposals do not go as far as the SIB.
But the most fundamental point, surely, is the independence of the ombudsman of a body which is making regulations and seeking to control the application of those regulations, whether it be an individual SRO or the SIB itself. That is paramount. The public must know that there is an independent body set up by statute on the face of the Bill when it becomes an Act, to which they can appeal against any injustice they may feel has been done. Of course, it is right, as the noble Viscount, Lord Colville, says, that as many problems as possible should be settled before that stage is reached. But that is in no way in conflict with the institution of the ombudsman, which has an honourable history over many years in our public life, our business life and our administrative life. To seek to reject this amendment, which is the only way of making an ombudsman system really effective, because it is independent, seems to us a very retrograde step. I would ask the Committee to take a view on this matter.
§ 8.51 p.m.
§ On Question, Whether the said amendment (No. 252) shall be agreed to?
647§ Their Lordships divided: Contents, 23; Not-Contents, 64.
| DIVISION NO.3 | |
| CONTENTS | |
| Airedale, L. | Morton of Shuna, L. |
| Carmichael of Kelvingrove, L. | Nicol, B. |
| Cledwyn of Penrhos, L. | Pitt of Hampstead, L. |
| David, B. [Teller.] | Seear, B. |
| Ezra, L. [Teller.] | Stoddart of Swindon, L. |
| Fitt, L. | Taylor of Blackburn, L. |
| Graham of Edmonton, L. | Taylor of Gryfe, L. |
| Grey, E. | Underhill, L. |
| Grimond, L. | Wells-Pestell, L. |
| Hatch of Lusby, L. | White, B. |
| Kirkhill, L. | Williams of Elvel, L. |
| McIntosh of Haringey, L. |
| NOT-CONTENTS | |
| Ampthill, L. | Layton, L. |
| Auckland, L. | Long, V. |
| Belhaven and Stenton, L. | Lothian, M. |
| Beloff, L. | Lucas of Chilworth, L. |
| Belstead, L. | Lyell, L. |
| Boardman, L. | Margadale, L. |
| Boston, L. | Marshall of Leeds, L. |
| Brabazon of Tara, L. | Milverton, L. |
| Brentford, V. | Monk Bretton, L. |
| Bridgeman, V. | Mottistone, L. |
| Brougham and Vaux, L. | Mountevans, L. |
| Caithness, E. | Munster, E. |
| Campbell of Croy, L. | Murton of Lindisfarne, L. |
| Carnegy of Lour, B. | Norfolk, D. |
| Carnock, L. | Northesk, E. |
| Colville of Culross, V. | Polwarth, L. |
| Craigmyle, L. | Rankeillour, L. |
| Cullen of Ashbourne, L. | Rodney, L. |
| Davidson, V. | Romney, E. |
| Denham, L. [Teller.] | Sanderson of Bowden, L. |
| Elliot of Harwood, B. | Stodart of Leaston, L. |
| Elliott of Morpeth, L. | Swinfen, L. |
| Elton, L. | Swinton, E. [Teller.] |
| Faithfull, B. | Terrington, L. |
| Ferrers, E. | Thomas of Swynnerton, L. |
| Ferrier, L. | Trumpington, B. |
| Glenarthur, L. | Tryon, L. |
| Granville of Eye, L. | Vaux of Harrowden, L. |
| Harmar-Nicholls, L. | Vickers, B. |
| Hives, L. | Wise, L. |
| Hooper, B. | Wynford, L. |
| Lawrence, L. | Young, B. |
§ Resolved in the negative, and amendment disagreed to accordingly.
§ 9 p.m.
§ [Amendment No. 253 not moved.]
§ Schedule 5, as amended, agreed to.
§ Schedule 6 [Principles applicable to designated agency's rules and regulations]:
§ [Amendment No. 254 not moved.]
§ The Deputy Chairman of Committees (Lord Wells-Pestell)Amendment No. 254A: Lord Williams of Elvel.
§ Lord HackingIf I may have leave of the Committee, I am sorry I was not present when Amendment No. 254 was called, but I should like to ask leave of the Committee to speak on that amendment.
§ Lord Lucas of ChilworthIt is not for me to read the rule book. I am not quite sure whether, in the absence of the Leader of the House or the Deputy Leader, I am the person to rule on the Committee's procedure. Seeing the noble Lord, Lord Cledwyn of Penrhos, I wonder whether with his great experience he can help me; but I should have thought that, as the Lord Chairman of Committees had called the amendment and it was not moved and we had already moved on to the next amendment, the Committee would be right if it denied the noble Lord, Lord Hacking, what he is asking for. But it is very much, as I think the noble Lord will agree, for the Committee. That is how I would read the rule book.
§ Lord Cledwyn of PenrhosI am much obliged to the noble Lord. I see no reason under the rules of the Committee why the noble Lord, Lord Hacking, should not speak.
Earl FerrersIf Amendment No. 254A has been called surely it is not right that we should go back to an amendment which has already been passed. I am sure that the Committee will sympathise with the noble Lord, Lord Hacking, but if we have moved on to a subsequent amendment it would be wrong to go back.
§ Lord Cledwyn of PenrhosI was not entirely aware that the noble Lord had called Amendment No. 254 A—
§ Lord Cledwyn of PenrhosIf indeed he had called Amendment No. 254A that would make it difficult for the noble Lord, Lord Hacking, although personally I should like to have heard the noble Lord, Lord Hacking, speak.
§ Lord HackingI said I was in the Committee's hands about it. Unfortunately the annunciator did not announce the result of the previous Division in time for me to get here and there was a time pause between the two. The Committee can take a strict view about this and I shall not offend the will of the Committee. But it seems rather unreasonable when we are dealing with a matter of seconds when I was actually walking into the Chamber. I did not feel that it was right to shout as I came in to the Chamber and I paid respect to the Committee by waiting until I got to my seat before I drew attention the matter. During the few seconds between my entering the Chamber and moving to my seat the Lord Chairman called Amendment No. 254A.
I am in the Committee's hands. If the Committee thinks it is terribly important that I should be excluded from addressing the Committee on Amendment No. 254 then I shall not. I am in the Committee's hands. I have support from several noble Lords but apparently other noble Lords behind the noble Lord the Minister are taking a contrary view.
§ Lord Williams of ElvelPerhaps I may suggest as a compromise to the Committee that the noble Lord, Lord Hacking, moves his amendment again on Report.
Viscount Colville of CulrossThe noble Lord, Lord Hacking, can move his amendment on Report; he can move it on Third Reading; and he can move the substance of it on the Question, That the schedule shall be the sixth schedule to the Bill.
§ Lord HackingI think I get the feeling of the Committee. Perhaps the Committee now wishes to press on to the excitement of Amendment No. 254A.
§ [Amendments Nos. 254A and 254B not moved.]
§ On Question, Whether Schedule 6 shall be the sixth schedule to the Bill?
§ Lord HackingNow I shall take up the invitation of the noble Viscount, Lord Colville. I wish to draw attention to a problem here in the hope that the Government will give it some consideration. Schedule 6 to the Bill sets out the principles of the conduct of business rules which are to be drawn up by the SIB.
Paragraph 3 of Schedule 6 sets out the principles upon which the rules of conduct are to be drawn up by the SIB. There is a difficulty and it is a difficulty which affects fund management firms. Paragraph 3 of Schedule 6 lays down two stipulations. It says:
The conduct of business rules must make proper provision for requiring an authorised person"—first, and I am using the numerate—to subordinate his own interests to those of his clients and to act fairly between his clients".The second proposition does not require further attention but the first does. To,subordinate his own interests to those of his clients",for the fund management firm offers real difficulties. Indeed it has a serious consequence when that fund managment firm is in regular receipt of offers of sub-underwritings, vendor placings and so forth. It would probably be required to ensure that its clients take up the whole of the attractive offers (so that the firm would have no chance to participate), leaving the firm to take up the whole or the greater part of the less attractive offers or risk ceasing to receive such offers. Membership of "sub-underwriting clubs" involves being prepared to take the rough with the smooth and it is therefore the current practice for firms to retain a proportion of the more attractive offers for their own account to cushion the impact of the greater proportion of the less attractive offers which they are obliged to take for their own account in order to remain members of the club.That is the difficulty and that system of managing their business in a perfectly proper way would collapse 650 on the strict application of paragraph 3.I am sorry that I could not move this as an amendment, but those are my observations.
§ Lord Lucas of ChilworthI am grateful to the noble Lord for giving us the benefit of his observations. I understand that it is in fact the Law Society which inspired the thought which has been transmitted to the Committee this evening. It put great faith in the effect achieved by the inclusion of the phrase "due precedence" in the wording.
Perhaps I may draw the Committee's attention to the phrase which is already included in paragraph 3—namely, that the principle already requires the relevant conduct of business rules to make "proper provision" for the matters which follow. This phrase is retained in the schedule, even if one were considering the amendment of the noble Lord, Lord Hacking. Even without the amendment which the noble Lord had on the Marshalled List, the paragraph enables the designated agency to fit its rules to the business circumstances in which they will be applied. Hence, those rules can govern business conduct in ways that secure standards of investor protection which can be reasonably regarded as appropriate in the circumstances in which they will apply. In some circumstances this can mean that no requirements are made, while in others the full weight of the principle can be applied.
I should like to assure the noble Lord that the principle as now drafted in paragraph 3 of Schedule 6 does provide the rule makers with all the flexibility that they need. I hope that the noble Lord will feel a little comforted and that the Committee will accept Schedule 6, so that we may move on.
§ Schedule 6 agreed to.
§ Clause 97 [Resumption of transferred functions]:
§ [Amendments Nos. 254C to 254E not moved]
§ Clause 97 agreed to.
§ Clause 98 agreed to.
§ Schedule 7 [Designated agencies: status and exercise of transferred functions]:
§ [Amendments No. 254F and 254G not moved]
§ Schedule 7 agreed to.
§ Clauses 99 and 100 agreed to.
651§ Clause 101 [Recognised self-regulating organisations, investment exchanges and clearing houses]:
§
Lord Williams of Elvel moved Amendment No. 254H:
Page 80, line 20, at end insert—
("() In making such a recognition order the Secretary of State shall issue an accompanying statement which defines the nature of competition about which he is satisfied.")
§ The noble Lord said: We have now come to Chapter XII of the Bill and to Clause 101, which defines the examination of rules and practices of the recognised self-regulating organisations, investment exchanges and clearing houses. Here we see what has become, in Bills that the Government have brought before noble Lords previously, a familiar pattern. That is, where competition law as it at present stands is invoked in support of matters that I can only describe as being those with which the Bill cannot otherwise deal.
§ We have seen that in the Airports Bill, in the Gas Bill, and in other Bills. When in doubt, the Government say that competition law can deal with the matter. Thus, the Director General of Fair Trading and the Monopolies and Mergers Commission will deal with matters so that they may be swept under the carpet. The reason why I am moving this amendment, which is a probing amendment similar to Amendment No. 256A to Clause 103, to which I shall also speak, is that I want a definition of what exactly the Government mean by competition in this particular Bill.
§ I understand conceptually what is meant by competition, but are we here dealing with competition between different agencies, between different self-regulating organisations, or between different members of different self-regulating organisations or clearing houses? I find it difficult to understand, other than the general thesis that competition is, in the words of 1066 And All That, a good thing. I find it difficult to determine what exactly is the Government's definition of competition. I shall be most grateful if the Minister will help me out. I beg to move.
§ Lord Brabazon of TaraI had a fairly long speech to make in order to persuade the Committee why it should not accept the amendment, or both amendments. At the same time, I intended to draw the attention of the Committee to the Government amendments that we shall reach in a minute or two, and which will achieve a better result than the amendments that the noble Lord, Lord Williams, has just moved. As it is, the noble Lord has merely invited me to define competition as it applies to the Bill, and that I shall attempt to do. I am certain that I shall think of other things after I have sat down that I should have better added.
Regarding anti-competitive practices within the field of activity concerned, I can only think of returning to the example of the Stock Exchange rule book which, as the noble Lord will remember, was to be subject to a restrictive practices inquiry following 652 the passing of the Restrictive Trade Practices Act from which it was exempted. That was one of the factors that led on to the introduction of the present Bill. It was concerned with matters such as minimum commissions—indeed, that was probably one of the principal aspects.
There are matters which might appear to be uncompetitive in an organisation such as the Stock Exchange, but there must be a balance between what is uncompetitive and what is in the interests of protecting the investor. I can think of a couple of examples that could possibly be described as being uncompetitive but which would be in the interests of the general public. One would be a minimum capital requirement for member firms to have. Another one, for instance, would be the passing of examinations by members and operators. Both those could be described as anti-competitive but, I think noble Lords would agree, would be generally in the interests of the public at large. That is the sort of competition which we are talking about in this part of the Bill. I hope that the noble Lord will be slightly clearer with those examples.
§ Lord Williams of ElvelI am most grateful to the noble Lord, but I am rather less clear than when I started, I am afraid. The noble Lord has mentioned two things which, in his view, are clearly uncompetitive, but which, he says, are in the nature of investor protection and therefore should be accepted by the Committee as being uncompetitive but nevertheless should be in mitigation of the general rule that there should be a pursuance of competition.
The question I have to repeat to the noble Lord is, what exactly is meant? When the Secretary of State defines all these things, will he issue an accompanying statement defining the nature of the competition? He may well mention that noble Lord's points about people passing examinations, minimum commissions and all the rest of it, but we are entitled to know what we are talking about in terms of competition and I do not think that we have got much further from the noble Lord's response, if I may say so with the greatest respect to him. I hope that, if I keep on talking, there may be some guidance from another quarter which will assist him in telling me what exactly is meant by competition in this particular instance.
§ Lord Brabazon of TaraThe noble Lord will not get himself far if he does go on talking. I think I have given a description of what sort of competitive aspects will be taken into account in operating this part of the Bill. I suggest that this is as far as I can go at the moment.
§ Lord Williams of ElvelI am sorry. Maybe my amendment was poorly phrased. Perhaps I ought to have written to the Minister or done it in some other way. At present I cannot understand what competition means in the context of Clause 101 and Clause 103. If the noble Lord has any further views on what competition means—the definition of the word competition and the context of competition—I should 653 be grateful if he would reply to me by letter. As I understand it, it does not mean Section 84 of the Fair Trading Act. It means something quite different, and I should be most grateful if the noble Lord would undertake to write me a letter about it.
§ Lord Brabazon of TaraI certainly will if it adds anything to what I have already said.
§ Lord Williams of ElvelI hope it will.
§ Lord Brabazon of TaraWe shall have to wait and see.
§ Lord Williams of ElvelOn the promise of a letter of slightly unspecified dimension and unspecified content, I beg leave to withdraw the amendment, with the right to bring it back at Report stage should I not be satisfied by the letter.
§ Amendment, by leave, withdrawn.
§
Lord Brabazon of Tara moved Amendment No. 255:
Page 81, line 9, at end insert—
§
("() Subsection (3)(c) above does not apply to an overseas investment exchange or overseas clearing house.").
§ On Question, amendment agreed to.
§ Clause 101, as amended, agreed to.
§ Clause 102 [Modification of s. 101 where recognition function is transferred]:
§
Lord Brabazon of Tara moved Amendment No. 256:
Page 81, line 37, after ("39") insert ("(5) or (6)").
§ The noble Lord said: I beg to move Amendment No. 256 and, at the same time, to speak to Amendments Nos. 257 and 257ZE. These are really technical amendments. The first two are consequential on changes introduced in another place by including more specific cross references in Clauses 102(3) and 104(3). They restore the original intention of the clauses; namely that the Secretary of State and Director General of Fair Trading should receive notice of changes in the rules of guidance, or arrangements of recognised investment exchanges and recognised clearing houses.
§ The other amendment, No. 257ZE, is designed to give flexibility. When considering the effects of guidance, it is right that the Secretary of State and Director General should be able to assume that the guidance is complied with. There may be occasions, however, when that assumption is unrealistic. We do not, therefore, wish them to be obliged to make such an assumption. I beg to move.
§ On Question, amendment agreed to.
§ Clause 102, as amended, agreed to.
§ [Amendment No. 256A not moved.]
§ Clause 103 agreed to.
654§ Clause 104 [Reports by Director General of Fair Trading]:
§
Lord Brabazon of Tara moved Amendment No. 257:
Page 83, line 28, after ("39") insert ("(5) or (6)")
§ The noble Lord said: I spoke to this amendment with Amendment No. 256. I beg to move.
§ On Question, amendment agreed to.
§
Lord Brabazon of Tara moved Amendment No. 257ZA:
Page 83, line 31, leave out ("subsection (4)") and insert ("subsections (4) and (4A)").
§ The noble Lord said: In moving this amendment I shall speak also to Amendments Nos. 257ZB and 257 ZC. These amendments are aimed at improving the operation of Clause 104. The revised subsection (4) and the new subsection (4A) replace the existing requirement that the Director General of Fair Trading should report on each change in the rules, guidance, arrangements or regulations of the designated agency or of a recognised self-regulating organisation, investment exchange or clearing house. Instead he will be expected to keep such matters under review alongside the rules and so on, and if he considers that a significant anti-competitive effect has arisen, or is likely to arise, he is then under a duty to make a report. This will reduce the administrative burden on the director and allow him to concentrate on the cumulative effect of the changes in a rule book, reporting when there is something to report. The scope of his powers and duties is largely unaffected.
§ The revised subsection (6) clears up a possible ambiguity in the current drafting. It was not intended that the powers in question would be exercised by the Secretary of State unless he had received a report from the director. That is now made clear.
§ Finally, the new subsection (7) fulfils an undertaking given in another place by allowing the director, where he wishes, to publish a report made under this clause. With that explanation I beg to move.
§ On Question, amendment agreed to.
§ Lord Brabazon of Tara moved Amendments Nos. 257ZB and 257ZC.
§
Page 83, line 33, leave out subsection (4) and insert—
§
("(4) The Director shall keep under review—
§
§
(4A) The Director may report to the Secretary of State his opinion that any such matter as is mentioned in subsection (4)(b) above does not in his opinion have, and is not intended or likely to have, to any significant extent the effect mentioned in subsection (2) above.")
§
Page 84, line 5, leave out subsection (6) and insert—
§
("(6) The Secretary of State shall not exercise his powers under section 101(3), 102(4) or 103(3) above except after receiving and considering a report from the Director under subsection (4) or (5) above.
§
(7) The Director may, if he thinks fit, publish any report made by him under this section but shall exclude from a published report, so far as practicable, any matter which relates to the affairs of a particular person (other than the self-regulating organisation, investment exchange, clearing house or designated agency concerned) the publication of which would or might in his opinion seriously and prejudicially affect the interests of that person.")
§ On Question, amendments agreed to.
§ On Question, Whether Clause 104, as amended, shall stand part of the Bill?
§ Lord Williams of ElvelIt is a great pleasure to have further conversations with the noble Lord, Lord Brabazon of Tara, on a subject on which we have had conversations on previous Bills. It is the question of the staffing of the Office of Fair Trading.
In successive Bills the Government have loaded all sorts of tasks on the Office of Fair Trading and, indeed, the Monopolies and Mergers Commission. This Bill, and specifically the clause we are now discussing, lays an extra burden on the director general and his office. I have to confess that the director general is an old personal friend of mine and it would not surprise the Committee to know that from time to time I have lunch with the director general. It would not suprise the Committee to learn that from time to time during these lunches, apart from discussing the general state of the country and the weather, we discuss the Office of Fair Trading and whether it has the ability to cope with all the tasks laid before it.
I am bound to report the Committee, without breaching any confidences the director general and myself may exchange during the course of those luncheon engagements, that I am extremely worried that the director general will not have the resources at his disposal to discharge the responsibilities laid upon him in previous Bills that have come before this House, let alone the very complex tasks that the director general is required to perform under this Bill. I note, again from outside sources—and I am not breaching any confidences; nor do I wish to do so—that when it comes to the staffing of Oftel or Ofgas there seem to be open purse strings, but when we come to the staffing of the Office of Fair Trading unfortunately the purse strings seem to be rather tighter. I must ask the noble Lord whether he is prepared to give us an absolutely categorical assurance that the resources of the Office of Fair Trading will be increased to discharge the responsibilities which the Bill lays upon it, not only in numbers but also in expertise. Up to now, apart from its foray into the Stock Exchange and its various practices, it has not got itself very much involved in the question of the diverse financial services with which the Bill is dealing.
I feel very strongly that if the Government are imposing burdens on a public body, they have a duty to ensure that it is properly equipped to discharge those functions and to carry those burdens. I do not believe—and I say this in all frankness to the Committee—that the Office of Fair Trading is so equipped at the moment, and, if it is not, it will discharge its functions under the Bill badly. I think that that would be wrong in practice and would impede the functioning of the Bill when it becomes enacted.
656 I therefore ask the noble Lord, Lord Brabazon, in all seriousness—and I have asked him on previous occasions, the last one being, I think, consideration of the Building Societies Bill, or it may have been the Gas Bill or the Airports Bill. I cannot remember which one it was; I ask the same question on every Bill that becomes before us—whether the Office of Fair Trading will be properly staffed to allow it to perform its functions under the Bill.
§ Lord Brabazon of TaraI am not a party to the luncheons which take place between the noble Lord and the Director General of Fair Trading, but the director has been consulted and the provisions which we are discussing have his full support. The internal staffing of the Office of Fair Trading is a matter for the director, and we have the fullest confidence in the staff to carry out their functions. We shall listen carefully to any representations that he makes to us, if indeed he feels that he has to make any.
§ Lord Williams of ElvelI am sorry to disagree with the noble Lord, but the staffing of the Office of Fair Trading is not the responsibility of the director. He has made repeated requests to his sponsoring department, if I may put it like that, to have futher increments, without betraying any confidences. I do not believe that he is allowed to go out and recruit staff, which would be the case if the staffing of his office were his responsibility. I am sure the noble Lord means what he says in good faith, but I must ask him again whether the Government are prepared to see that the office is properly staffed both in numbers and in expertise to discharge those functions.
§ Lord Brabazon of TaraI have little to add to what I said. We have discussed this with the director and we have his full support. We shall listen carefully to any representations that he makes to us for extra staff, if indeed he does so. I am afraid that I can go no further than that at the moment.
§ Clause 104, as amended, agreed to.
§ Clauses 105 to 108 agreed to.
§ 9.30 p.m.
§
Lord Brabazon of Tara moved Amendment No. 257ZD:
After Clause 108, insert the following new clause:
§ "Modification of Restrictive Trade Practices Act 1976 in relation to recognised professional bodies.
§ Recognised professional bodies
§
§ The noble Lord said: I wish at the same time to speak to Amendment No. 257ZF.
§ Clauses 101 to 109 are designed to replace the provisions of the Fair Trading Act, the Restrictive Trade Practices Act and the Competition Act with competition provisions especially designed to deal with matters covered by the new regulatory regime.
§ So far as recognised self-regulating organisations are concerned, their primary function will be to regulate investment business so that the application of the new 658 competition arrangements presents little difficulty. With recognised professional bodies, however, the position is less clear-cut. The primary purpose of those bodies will not be to regulate investment business. In some cases they are likely to regulate investment business by means of existing rules applying to the practice of the profession generally. The special competition regime provided under the Bill will not be appropriate to deal with such general rules. A rule may, for instance, have an anti-competitive effect which could be justified in terms of investor protection in so far as it applies to investment business but not as it applies to other aspects of the profession.
§ Moreover, existing competition law already has special provisions dealing with the mainstream professions regulated by some of the main prospective recognised professional bodies, and it would be wrong to disturb that position. On the other hand, it would obviously be undesirable if, for instance, the rules or guidance of a recognised professional body were to be struck down on the basis that they were anti-competitive when in a similar case involving a recognised self-regulating organisation the Secretary of State had allowed a similar rule or guidance on the grounds that it was necessary for the protection of investors.
§ The new clause therefore provides a special safeguard in any case where agreements arising from the rules or guidance of a recognised professional body are subject to registration under the Restrictive Trade Practices Act. I have made available to noble Lords a note which explains the effect of the new clause in detail. I do not propose to detain the Committee by repeating the content of the note.
§ In summary, the clause provides a mechanism whereby the Secretary of State can decide that although such agreements, or terms in such agreements, have a significantly anti-competitive effect, that effect is no greater than is necessary for the protection of investors. If he does so decide, those agreements or terms will not have to be examined by the restrictive practices court. The test will be the same as the test that will be applied to the rules and guidance of recognised self-regulating organisations. The effect will be to put the rules and practices of a recognised professional body on broadly the same footing as those of recognised self-regulating organisations to the extent that they are concerned with investment business, while leaving unchanged the existing provisions of competition law as they apply to the great bulk of the body's activities.
§ I apologise that this is such an enormous new clause for noble Lords to grasp, but with that explanation I beg to move.
§ Lord Williams of ElvelI have to say what I have said on many previous occasions, that we shall have to look at this clause and return to it on Report should we feel that there is something objectionable. 1 used to know the Restrictive Trade Practices Act 1976 almost off by heart. I am afraid that my knowledge has slightly withered on the vine. I shall look at it again and return to the matter on Report.
§ On Question, amendment agreed to.
659§ Clause 109 [Supplementary provisions]:
§
Lord Brabazon of Tara moved Amendment No. 257ZE:
Page 88, line 2, leave out ("it shall be assumed") and insert ("the Secretary of State and the Director may assume").
§ The noble Lord said: I spoke to this amendment with Amendment No. 256. I beg to move.
§ On Question, amendment agreed to.
§
Lord Brabazon of Tara moved Amendment No. 257ZF:
Page 88, line 5, leave out ("Nothing in this Chapter") and insert ("No provision of this Chapter except section (Modification of Restrictive Trade Practices Act 1976 in relation to professional bodies)").
§ The noble Lord said: I spoke to this amendment with Amendment No. 257ZD. I beg to move.
§ On Question, amendment agreed to.
§ On Question, Whether Clause 109, as amended, shall stand part of the Bill?
§ Lord Williams of ElvelMay I ask the noble Lord whether all the matters in Chapter XI of the Bill will be subject to the current review of competition policy at present being conducted by Dr. Leisner?
§ Lord Lucas of ChilworthI wonder whether the noble Lord will allow me to answer. If I heard him correctly, he asked whether the matters contained in this chapter have already been referred to the committee of inquiry—
§ Lord Lucas of ChilworthWill the noble Lord be good enough to repeat the question for me?
§ Lord Williams of ElvelI shall repeat my question in the hope that guidance will arrive by carrier pigeon. Will the matters referred to in Chapter XI of the Bill be the subject of the current review of competition policy conducted by Dr. Leisner?
§ Lord Lucas of ChilworthThe answer is, "No".
§ Clause 109, as amended, agreed to.
§ Clause 110 agreed to.
§ Schedule 8 [Regulated insurance companies]:
§
Lord Williams of Elvel moved Amendment No. 257A:
Page 166, line 24, at end insert ("provided that the conduct of the regulated insurance company is in all respects consistent with the rules specified under the Act for other managers of investments.")
§ The noble Lord said: In moving this amendment it may be for the convenience of the Committee if I speak also to Amendment No. 260, although I do not see why I should, as Amendment No. 260 is a Government amendment. Nevertheless, they cover more or less the same points. What we are getting at here—it was raised in earlier discussion—is that insurance companies which are exempt under the provisions of the Bill but which are nevertheless 660 regulated under different legislation should have rules of conduct that are similar to those that will be imposed by this Bill when enacted on competing institutions in the investment management market, that is, the management of funds I know that this has been the object of correspondence between the capital markets committee and the Department of Trade and Industry and certain Ministers I move the amendment in order to elicit from the Minister what exactly is the present position. I beg to move.
§ Lord Marshall of LeedsI declare an interest as chairman of an insurance company I oppose the amendment of the noble Lord It would be unrealistic to require the conduct of regulated insurance companies which, as beneficial owners, hold the assets of the long-term insurance funds to meet their liabilities towards policy holders, to be in all respects consistent with the rules for other investment managers dealing as principals or agents for investors who, unlike policyholders, remain the beneficial owners of the assets.
It would also be wrong, I feel, to impose requirements of consistency with rules yet to be settled I feel that any additional protection for life insurance policyholders vis-à-vis the management of long-term business funds should, as now, be a matter for the Department of Trade and Industry under the Insurance Companies Act. That view, if I may say so, is shared by the Association of British Insurers. For those reasons I oppose the amendment.
§ Lord Williams of ElvelI am grateful to the noble Lord, Lord Marshall of Leeds, for his clear explanation of where the insurance companies stand This leads me to press my amendment. Those of us who have long-term life insurance contracts are also perhaps investors in unit trusts. We may have occupational pensions and all sorts of other things where we have long-term assets. I simply do not grasp the argument that the noble Lord, Lord Marshall, has put forward that, in some way, insurance companies, managing investments on behalf of beneficiaries, as do other institutions and all people who manage funds, should be subject to different rules. If, under another Act, the rules are similar to those which will be imposed on collective investment schemes or investment business under the Bill, I am perfectly happy. I should, however, like that assurance because I do not believe that insurance companies and particularly life insurance companies are at all a special case.
§ Lord Lucas of ChilworthThe noble Lord, Lord Williams, in moving his amendment and speaking to Amendment No. 260, began by saying that he really wanted to get an update on the position, since when my noble friend Lord Marshall of Leeds has intervened to give his views as to why the amendment of the noble Lord, Lord Williams, should be opposed Because this is an important matter, I propose to deal with both Amendment No. 257A and the new clause, Amendment No. 260 We have before us two proposed solutions to a common problem, because that is what it is. Before I go into the differences between those approaches, I think I should for a moment stress the extent of the common grounds between us.
661 We accept that the underlying economic reality is that life insurance companies manage the investment of money given to them initially by their policyholders. This is how most of the companies hold themselves out when they seek to sell their policies. We accept that the general principle in this Bill is that this activity of investment management should be regulated. Moreover, we accept that everyone doing the same thing should be subject to broadly the same regulations, so as to preserve a properly competitive and level playing field. So we agree that this activity of insurance companies should be regulated. The question then is: how? This is where we differ.
However, I should like to make it quite clear on a fundamental point that we are not simply applying the Bill to insurance companies in this area. Rather, we are extending it, both legally and beneficially. It is a basic principle of the Bill that it largely does not cover what people do with their own money. We are therefore moving into somewhat uncharted waters, and it is because of this that we have had to construct, so to speak, a rather special ship.
The noble Lord, Lord Williams, wishes to take the simple, and I agree superficially appealing, route. He wishes simply to apply the Bill's rules to that activity, though whether the rules concerned be those of the designated agency or of a self-regulating organisation, he leaves unclear. I wish that such a simple route were in fact available. I fear, however, that it is not; and there are three fundamental reasons for it not being available.
First, rules designed to benefit individual clients of investment managers are simply not appropriate for direct application to the essentially different relationship between a policyholder and an insurance company. Secondly, the investment management activity of an insurance company is central to the regulation of its solvency. The regulation of that is by my department, the Department of Trade and Industry, under European Community directives. Thirdly, the simple approach which has been put to us creates, quite unnecessarily, a third regulator of insurance companies—that is, apart from the regulators of solvency and marketing. This is a very important point; and it is important that we get it on the record because the Committee may wish to give it further consideration. So, even at the risk of wearying the Committee, let me expand on these matters.
As regards the point that the policyholder with an insurance company stands in a different relationship to the company from the client of an investment manager, the traditional life assurance company endowment policy is a complex investment which has, moreover, an important quality, quite apart from the necessary element of life insurance protection, and that sets it apart from other investments. Many investments have the ability to give the investor a spread of investment over different sectors and in different companies. A unit trust can do this. But an endowment policy has a further averaging quality. It is able to average up to a point the performance of investments over time. For example, if the stock market is high when a policy matures, not all those gains may be reflected in the maturity value. Equally, when the market is low the policyholder may do rather 662 better than the performance of the underlying investments.
Reversionary bonuses, once declared, must always be paid whatever the state of the market and that is when a policy matures. To achieve this what happens, in effect, is that some policyholders cross-subsidise others and the actuaries of the companies have to make difficult judgments as to the issues of equity as between different policyholders. Rules made on investment management under the Bill will require fair treatment as between clients. Those rules cannot be applied directly to the individual policyholder in insurance companies. There is simply no pile of assets that can be said to be for the benefit of one, or a particular, policyholder. The proper application of that principle for insurance companies is fairness as between the various funds of the company, and it must take proper account of actuarial principles. I would not seek to make too much of this point. Special rules could be devised, but they would not be the same rules. There is no simple set of rules lying ready and waiting to cover the area. There would have to be a very careful tailoring of the rules to the special circumstances of policyholders in insurance companies. Therefore even if rules under the Bill are to be applied, our objective of a level playing field becomes a little more difficult to attain. There cannot be the same rules for all the players if some of them are playing a very similar but subtly different game.
This brings me to the second point. The investment management activities of an insurance company go to the heart of the regulation of the solvency of that company. The cardinal principle of insurance supervision is that there should be in place arrangements for securing that so far as possible insurance companies meet their liability. These arrangements exist under the Insurance Companies Act 1982, and regulations are made under that. Those regulations are administered by my department. The Act itself must take full account of the governing European Community directives on this subject. The regulation of solvency necessarily involves many of the factors that are important for good investment mangement. The managers, the directors, the controllers of the company must be fit and proper. Investments must be suitably spread into certain permitted types of assets, if they are to count for solvency purposes. Returns must be made to my department covering the liabilities of insurance companies and the assets set aside to cover them. I think it is generally accepted that this system works well—a fact which has been underlined recently by the experience concernng the problems of the United Kingdom Provident Institution.
The regulation of investment management necessarily goes into these areas. We cannot simply apply the rules made under the Bill. We would have to ensure their consistency. We would have to invoke far more often than we anticipate for marketing matters the complicated procedures of Schedule 8 to the Bill. Powers of intervention under the Bill would continually be fettered by solvency considerations. The degree of overlap with existing legislation is simply too great for good law and good administration.
I come to my final point as to why we do not think it prudent simply to apply the Bill to these matters. I 663 have said that life insurance companies are regulated by my department. Under the Bill they will also be regulated by the designated agency or a self-regulating organisation for the marketing of their policies. This has created a system of dual supervision. We think that this is both acceptable and unavoidable. It is acceptable because the area of overlap between the regulation of marketing and of solvency is relatively small, and unavoidable because we think it is important that the marketing of all pre-packaged investments, insurance and unit trusts is dealt with in one place. Simply to apply the rules on investment management creates a system of triple supervision because it must bring in the designated agency or a self-regulating organisation in the area of investment management. Common sense suggests to us that it must be sensible to avoid this where we can. In this case I suggest to noble Lords that we can do this by adopting the course set out in Amendment No. 260.
Perhaps I may now turn to Amendment No. 260. This inserts a new section into the Insurance Companies Act. It is proposed that this new section becomes a properly integrated part of the system of supervision under the Insurance Companies Act, attracting all the provisions concerning monitoring and powers of intervention under that Act. It deals substantively with the single most important principle of investment management: that of dealing fairly as between different clients. It provides that companies must have arrangements to secure that they do not act unfairly as between their different funds. The requirement is deliberately flexible. Different companies may offer it in different ways, and we do not want to lose in this piece of statutory regulation the type of flexibility that we are all hoping to see in the new self-regulatory arrangements. It also contains more than what at first glance may strike the eye. For example, the reports that companies will be asked to make of these arrangements will be subject to audit, and that will ensure that the arrangements are backed by adequate record-keeping.
It has been suggested that in asking the question as to whether a company has arrangements that comply with the new clause, my department should ask whether the relevant rules made under the Bill have been complied with. I rather suspect that that may be one of the motivations behind the amendment tabled by the noble Lord opposite. I cannot give an assurance in precisely those terms for the reasons that I have already explained. The rules may not be appropriate, and their application may conflict with the supervision of solvency. I am particularly cautious because at this stage we do not know precisely what those rules will be.
I am of course sympathetic to the concern. I share the desire of the noble Lord opposite to construct a system that so far as possible creates this level playing field. I hope that the noble Lord, Lord Williams, will be satisfied with an assurance in a slightly different form, but one which I hope he will recognise goes as far as we can reasonably go.
In operating our monitoring arrangements under the proposed new clause, but more generally under the Insurance Companies Act, my department will want to be satisfied that the companies have in place 664 arrangements for carrying on this aspect of their business—the investment of their funds—which meet commonly held standards of good practice. The rules which are developed and applied by the designated agency and the SROs to the slightly different area of investment of clients' funds will equally be seeking to apply similar standards of good practice. My department will expect insurance companies to pay regard to these rules and to consider their applicability to their own operations, bearing in mind the differences which exist and which I have described.
In addition, my department, in exercising its very wide responsibilities under the Insurance Companies Act, will want to keep in mind the rules and the standards which the SIB and the SROs are applying. I hope that the noble Lord, Lord Williams, will accept this assurance and with it the new clause. I anticipate that he may very well want to give some consideration not only to the clause but to the very long explanation which I have given. In that expectation I shall invite the noble Lord to withdraw his own amendment and to accept the Government's.
§ Lord Graham of EdmontonFor those who, like myself, are not completely untutored in these matters but who certainly do not have anything like the level of experience or expertise of other Members of the Committee, it is quite clear that we have reached the extraordinary position, after going through the long process of this Bill and the long consultation period prior to legislation appearing in another place or here, of being able to consider that there are ways in which the face of the Bill can be altered sensibly and reasonably. For example, when I listened to what my noble friend Lord Williams said was the genesis of his desire, he certainly had my support and I believe the Minister said that he had his support, too. My noble friend said he wanted the ensure that financial institutions—in this instance insurance companies, but there is a later amendment relating to friendly societies—are in effect able to operate in such a way that the security and safeguards they provide for those whose interests they protect are no less than for those who do not have special provisions. For instance, from what the Minister said and from the documents that I have read, I am satisfied that, under the Insurance Companies Act, it is possible for legislation—and that means, of course, the Department of Trade and Industry—to ensure that all that the Bill sets out to achieve in that narrow field of insurance companies is capable of being achieved by (I shall not say a proper) a rigorous and fair application of existing legislation.
What I believe will happen between now and Report stage is that those outside the Chamber, and certainly my noble friend, will want to examine whether there are any loopholes. We know from experience what has been the raison d'être of this Bill. We need to be satisfied that in, shall we say, three months' time we have in place a new piece of legislation in which there are not anomalies. The Minister used the simile of a level playing field where everyone involved has the same start, the same restrictions, and the same ability to make the same progress. I shall want carefully to read what the Minister has said so that we can consider what needs to be done on Report.
May I deal with a couple of aspects of the amendment in the name of the Minister? I shall be 665 grateful if, in the spirit in which we are dealing with these matters, it simply forms part of the record to be taken into account in the recess.
I support the principle that a company's life assurance fund, and any other insurance funds it may have, must not suffer unfairly from transactions involving the company's assets. So far as this is provided under the Government's new clause and Section 31 of the insurance Act, I welcome what it says as a safeguard for policyholders. However, as it stands, the amendment also extends the same protection to the other assets of the company, such as those held in its shareholders' fund. This does not seem either necessary or desirable to me.
Let me explain why to the Minister. Surely the main criterion to apply to insurance legislation is the interest of the policyholders. I would not be happy with a provision which could prevent an insurance company from exercising flexibility or positive discrimination in favour of its policyholders. I ask the Minister to consider whether the amendment, as drafted, might have this unfortunate effect. For example, is it the intention to preclude an insurer from transferring assets from its shareholders' fund to one of its insurance funds at below the market value, or even from passing interest on its shareholders' fund to other funds? In my view these could be unwanted side effects.
I hope that after considering the matter the noble Lord will find a way of eliminating these side effects while retaining the safeguards which the amendment provides. Even with the best of intentions with the new clause as an amendment to Section 31 of the Insurance Companies Act, it is still possible for those who know more about these things than I do to draw to my attention some side effects of which the Minister and his colleagues may not have thought, but which need to be taken into account if we are to get this right at a later stage.
§ Lord Marshall of LeedsIt appears that in discussing Amendment No. 257A moved by the noble Lord, Lord Williams of Elvel, we have somehow slid into a discussion of the forthcoming Amendment No. 260 of my noble friend the Minister. If that is the case, I wonder whether, by leave, I may say a few words now about Amendment No. 260, and then I shall not say anything at the appropriate time when the amendment is called.
I would say again, in supporting Amendment No. 260, that it permits me to say a few words in answer to some of the arguments enunciated by the noble Lord, Lord Williams of Elvel, in speaking to Amendment No. 257A. The assets of long-term insurance funds, I repeat, are the property of the insurance company, held by the insurance company to meet its liabilities towards policyholders. They do not belong to the policyholders themselves, and no claim can be made by any policyholder to any specific investment or investments of the company. In this case insurance companies deal in investments on their own account, which is an excluded activity under Schedule 1 to the Bill.
During the debates in another place it was suggested that the Bill be amended to make the management of 666 these funds subject to the same conduct of business rules as the management of assets which are the property of the investors. The long-term business funds of insurance companies are already, as I said before, subject to detailed regulation b\ the Department of Trade and Industry under the Insurance Companies Act. I feel that any additional protection for life insurance policyholders vis-à-vis the management of those funds should be a matter for the Department of Trade and Industry. The life officers would accept an obligation under that Act to operate a monitoring system to ensure a fair and justifiable allocation of assets between funds held for the benefit of different groups of policyholders. I think the Government's amendment seeks to achieve this. Its intention therefore is to be commended, and it is welcomed by the Association of British Insurers.
§ Lord Williams of ElvelI am most grateful to my noble friend Lord Graham of Edmonton and to the noble Lord, Lord Marshall of Leeds, for their contributions to the debate. Indeed, I am grateful to the noble Lord, Lord Lucas, for the very extensive response he made both to my amendment and in explanation of the new clause. As he rightly divined, I shall need to read what he said rather carefully. and to consult. As I listened to his brief I started off by believing half of it, and by the end I believed two-thirds. Perhaps if I read it carefully I may believe the whole lot. I shall have to see, but we may come back on Report. In the meantime, I beg leave to withdraw my amendment.
§ Amendment, by leave, withdrawn.
§ 10 p.m.
§
Lord Lucas of Chilworth moved Amendment No. 258:
Page 166, line 26, at end insert—
§
("() The rules under section (Financial resources rules) of this Act shall not apply to an insurance company which is an authorised person by virtue of section 30 of this Act. ").
§ The noble Lord said: I spoke to this with amendment No. 134. I beg to move.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendment No 259:
Page 168, line 5, at end insert—
§
("() The powers conferred by section [Power to pennon for winding up orders] of this Act shall not be exercisable in relation to a regulated insurance company.").
§ The noble Lord said: I spoke to this with Amendment No. 184. I beg to move.
§ On Question, amendment agreed to.
§ Schedule 8, as amended, agreed to.
§ Clauses 111 to 115 agreed to.
§
Lord Lucas of Chilworth moved Amendment No. 260:
After Clause 115, insert, the following new clause.
§ "Arrangements to avoid unfairness between separate insurance funds etc.
§
(1) After section 31 of the Insurance Companies Act 1892 there shall be inserted—
§ "Arrangements to avoid unfairness between separate insurance funds etc.
§
31 A.—(1) An insurance company to which this Part of this Act applies which carries on long term business in the United Kingdom shall secure that adequate arrangements are in force for securing that transactions affecting assets of the company (other than transactions outside its control) do not operate unfairly between the section 28 fund or funds and the other assets of the company or, in a case where the company has more than one identified fund, between those funds.
§
(2) In this section—
§
the section 28 fund or funds" means the assets representing the fund or funds maintained by the company under section 28(1)(b) above; and
§
identified fund", in relation to a company, means assets representing the company's receipts from a particular part of its long term business which can be identified as such by virtue of accounting or other records maintained by the company.".
§
(2) In section 71(7) of that Act (which lists the provisions of that Act default in complying with which is not an offence) after the words "section 16" there shall be inserted the word "31 A".")
§ The noble Lord said: I beg to move this amendment, on which I have just addressed the Committee.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendment No. 261:
After Clause 15, insert the following new clause:
§ ("Regulations in respect of linked long term policies.
§
In section 78(2) of the Insurance Companies Act 1982 (regulations in respect of linked long term policies) after paragraph (a) there shall be inserted—
§
(aa) restricting the proportion of those benefits which may be determined by reference to property of a specified description or a specified index;".").
§ The noble Lord said: This is a new clause and represents a quite modest amendment to the system of regulation for linked life assurance. At present, although my department may lay down the types of property to which the benefits under such policies may be linked, we cannot provide that only a certain proportion of the funds should be linked in a particular way. Since powers of this kind have been taken for units trusts under Clause 73 of the Bill, and since the White Paper contained a commitment to making as far as possible parity between the permitted investments of unit trusts and the permitted links for life assurance policies, we have decided it would be useful to make this addition to our regulation-making powers under the Insurance Companies Act.
§ It is far too early to say what any possible regulations made under this power may contain, but it is possible that we may be able to use the new flexibility to enable companies to invest a small proportion of the fund in riskier assets; for example, traded options. This will add a welcome element of flexibility. Since this power remains a part of the Insurance Companies Act, the powers will not be transferred to a designated agency, and the regulations will be made by my department. There will, as usual, be full consultations with those involved. I beg to move.
§ Lord Marshall of LeedsPerhaps I may speak on this amendment moved by my noble friend the Minister by saying that Section 78 of the Insurance Companies Act 1982 provides for regulations to be made governing inter alia the choice and valuation of assets and indices to which benefits under unit-linked life assurance policies may be linked. The relevant 668 regulations are found in regulation 72 and Schedule 13 as amended of the Insurance Companies Regulations 1981. Unlike the rules governing authorised unit trust investments, the Act makes no provision for permitted assets to be subject to any quantitative limits, that is, at present benefits under a policy may be wholly linked to, for instance, equities or property. The effect of this is that certain types of asset in which unit trusts may invest, such as traders options, have not been permitted as assets suitable for linking to life assurance policies because it would not have been judged in the investors' interests to take out a policy whose entire benefits were linked to them.
The Government's amendment would enable regulations to be made governing the extent to which benefits under linked policies may be linked to a particular asset or index, and to the extent that this will enable the types of permitted asset for linked life policies to be extended it is very acceptable and, if I may say so, acceptable to the Association of British Insurers—and again I declare my interest.
However I would welcome assurances on two points First, the new powers to impose restrictions should not be applied to the current list of assets to which policies may be linked, which was drawn up under the existing legislation and which has worked well for very many years. Secondly, authorised unit trusts and life companies have different characteristics. Life companies are more likely to have regular contractual inflows than authorised unit trusts and larger capital and reserves than the capital of unit trust management companies. They also have to comply with statutory solvency margin requirements. These factors enable life offices to absorb repurchases of units when, through lack of liquidity, the underlying asset cannot be realised As an example, in the case of property funds no life office has had to exercise the right to impose a six-month moratorium on redemptions despite the substantial cash outflows which have occurred on occasions over the past few years Therefore, I feel the question of quantitative limits for the investments of authorised unit trusts and for linked life assurance should be considered separately, and I very much hope that my noble friend the Minister will be able to deal with those two small matters when he replies.
§ Lord McIntosh of HaringeyMy noble friend Lord Williams on a recent amendment found himself moving towards the Government position as he listened to the argument and read the amendment. I find myself in the opposite position. When I read the amendment itself and the notes on the new clause I felt it was relatively harmless, but I confess that I am concerned with the idea that the same degree of flexibility should be given to insurance companies with respect to long-term policies as is being given to unit trusts. Those who put money with insurance companies in long-term policies are not the same as those who invest in unit trusts. Those who invest in unit trusts are very conscious not only that they are investing but also that they are investing in a particular kind of unit trust which may have different objectives as between income and growth and almost certainly will have explicit policies about the kind of investments that will be made. Those who put money 669 into long-term insurance policies are usually much less conscious of the nature of the investments being made on their behalf. What they want is of course high yield or high profits, if it is that type of a policy; but, above all, they want security and they do not see themselves as being positive investors in the way that those who take part in unit trusts are.
I appreciate that the degree to which long-term insurance policies and unit trusts become similar is a matter still for regulation. It is not set out in the new clause before us and therefore I do not think that there is any possibility of firmly resisting the amendment, but I would like some recognition from the Government that there is a distinction in the minds of those putting money into these different forms of funds and that the interests of those who wish security rather than taking a positive part in investment will be protected.
§ Lord Lucas of ChilworthWith the Committee's approval, I should like to respond. I think that the crucial thing to regulate here is the solvency of the insurance company concerned, and of course that is undertaken by my department under the Insurance Companies Act. Thus some aspects of the regulation of these two products must necessarily be different.
But we have acted through this Bill to make strides towards having a common regime for the marketing of all products. The proposals that have been put forward by the Marketing of Investments Board Organising Committee on disclosure of commissions, on economic information about products such as surrender values, cold-calling and cooling-off, and so on apply equally to unit trusts as to unit-linked insurance policies. It is when the investor buys the product that the crucial decisions are taken.
We are concerned with unit-linked insurance policies and not those policies with or without profits. Unit-linked policies are marketed as specific investment vehicles so that they are very much likened to unit trusts, and both of those will naturally have policyholder protection. My noble friend Lord Marshall of Leeds asked for two specific assurances. I think it would be wrong for me to give such assurances at this stage. The White Paper contained a commitment creating parity so far as possible between the permitted investments for unit trusts and the permitted links for linked trusts.
We shall be having full consultations with all those who are involved before any new regulations are made. I would want to consider very carefully what the noble Lord, Lord McIntosh, had to say before I went any further this evening. I would, however, ask the Committee to accept the amendment which I have moved, and if in the course of our considerations there may be necessary changes, so be it; we shall have to deal with that at a later stage.
§ On Question, amendment agreed to.
§ Clause 116 [Insurance brokers]:
§ 10.15 p.m.
§
Lord Lucas of Chilworth moved Amendment No. 262:
670
Page 93 , line 32, leave out subsection (1).
§ The noble Lord said In moving Amendment No. 262, I should like to speak also to Amendments Nos. 263, 264, 265 and 402. As the Billl stands, Clause 116 restricts the scope of the Insurance Brokers' Registration Council so that in future it would deal only with broking in relation to non-investment mainly general insurance This is to prevent unnecessary duplication with the regulation of the broking of investment insurance under the Bill.
§ During the discussion of the Bill in the other place, attention was drawn to the fact that this would have the effect of preventing those who broke only life insurance from registering with the council and calling themselves insurance brokers We accept that this is undesirable, and the present set of amendments are designed to remedy the situation.
§ The existing scope of the Insurance Brokers (Registration) Act will be maintained but the council will have to accept that, subject only to an experience qualification, those who are authorised under the Bill have an automatic right to registration. Equally the council will take into account in its disciplinary proceedings adverse disciplinary decisions made under the Bill's procedures The registration council accept these new arrangements.
§
At the same time we have taken the opportunity to bring the provisions on professional indemnity insurance in the Insurance Brokers (Registration) Act into line with the provisions in the Bill. The present Insurance Brokers (Registration) Act 1977 says that the council,
shall make regulations concerning professional indemnity insurance".
§ This lack of flexibility has caused problems in recent years because of the lack of suitable insurance and we are therefore moving to a rather more flexible approach I beg to move.
§ Lord McIntosh of HaringeyI have to preface any remarks by saying, as my noble friends have on previous new clauses, that these are extremely complex matters It is difficult for us, with our resources, fully to comprehend them when they are first presented and, despite the lucid explanation we have had from the noble Lord, for which I am grateful, we have to reserve our position for a later stage.
May I tentatively ask one or two questions of the noble Lord9 It seems to make sense that certain kinds of insurance broker should not inadvertently be excluded from the provisions of the 1977 Act Does the Bill, as amended by these amendments, actually require that independent intermediaries dealing with life and non-life business should become registered as insurance brokers under the 1977 Act? It seems to us that that is a desirable outcome even if there may be defects in the rigidity of the 1977 Act as it stands. It is possible for sharks to get into the insurance business by evading the provisions of the registration Acts and putting themselves forward as registered brokers when in fact they are not.
The only exemption ought surely to be those who are representatives of insurance companies or brokers They are the only ones who should be exempted from the registration conditions I should be grateful for any 671 reassurance that the Minister can give me on the continued and, indeed, enhanced authority of the regulatory body for insurance brokers.
§ Lord Lucas of ChilworthBecause of the complex-ity, because it does overlap into the area of authorisation and SROs, I should prefer to give a considered reply to the noble Lord. Perhaps I may write to him on that point.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendments Nos. 263, 264 and 265:
Page 93, line 37, leave out ("that Act") and insert ("the Insurance Brokers (Registration) Act 1977")
§
Page 93, line 40, at end insert ("; and an individual shall be treated as satisfying the requirements of section 3(2)(a) of that Act (applicant for registration to satisfy Council as to his character and suitability) if he is an authorised person or a member of a partner-ship or unincorporated association which is an authorised person.")
§
Page 94, line 4, leave out subsection (4) and insert—
§
("(4) In section 12(1) and (2) of that Act (which requires the Council to make professional indemnity rules) for the words "The Council shall" there shall be substituted the words "The Council may".
§
(4A) In section 15 of that Act (erasure from register and list for unprofessional conduct etc.) after subsection (2) there shall be inserted—
§
(2A) The Disciplinary Committee may, if they think fit, direct that the name of a registered insurance broker or enrolled body corporate shall be erased from the register or list if it appears to the Committee that any responsible person has concluded that the broker (or a related person) or the body corporate has contravened or failed to comply with—
§
§
(2B) In subsection (2A) above—
§
§ On Question, amendments agreed to.
§ Clause 116, as amended, agreed to.
§ Clauses 117 and 118 agreed to.
§ Schedule 9 [Friendly societies]:
§
Lord Williams of Elvel moved Amendment No. 265A:
Page 171, line 41, at end insert ("Any such rates shall contain a provision that all members of the self-regulating organisation shall adopt rules of conduct in managing their funds which are at least equivalent to other bodies authorised to manage investments as defined in Part 11 of Schedule 1 of this Act.")
§ The noble Lord said: The words of this amendment are as on the Marshalled List except for one misprint. For "any such rates" read "any such rules". I hope that noble Lords opposite were not thinking that I was going to venture into the question of interest rates or local authority finance. I am confining myself for the moment to friendly societies.
§ This amendment seeks to do what we were trying to do for insurance companies—to make sure that the field was at least level, to use the word of the noble Lord the Minister; and not only that the field was level but that we were all playing the same game on the level field. I hope he will feel that this is an appropriate amendment for friendly societies, not necessarily in the words as drafted but in the spirit that is intended. I beg to move.
§ Lord Graham of EdmontonPerhaps I may say a few words. I believe that we are all as one throughout the Committee in wanting to ensure the maximum peace of mind and security for everyone concerned. Clause 22 presages Schedule 9 and deals with the affairs of friendly societies. I have already declared an interest, which I repeat, on behalf of the Ancient Order of Foresters. The Minister will recall that when we dealt with Clause 22 he was kind enough twice to spell out precisely what Clause 22 means in relation to what are called centralised societies, as opposed to those with branches. I want the Minister to bear in mind (when I hope accepting the spirit of this amendment and coming back to us perhaps with an acceptable form of words) the complications that can occur for a friendly society where in effect its branches are virtually separate organisations within the major organisation.
Can the Minister also say whether the Trustee Investments Act as well as the Friendly Societies Act are prima facie adequate to take into account the desires of my noble friends who want to ensure parity in the management of investments funds?
§ Lord Lucas of ChilworthI only wish that I could respond as briefly as the noble Lord, Lord Williams, spoke in moving his amendment and the noble Lord, Lord Graham, in speaking to it. I fear that I cannot because, before I get to the detail of the amendment, I should say something in general about friendly societies and their position in this Bill. That I hope will set in place the background against which, at the end, I shall ask the noble Lord, Lord Williams, to withdraw his amendment.
The friendly societies movement has an old and proud tradition. While I should not want in any way to detract from its present role I think it is fair to say that the time has now passed when it was the main provider of basic social security. Yet the movement continues to play a useful and remarkably diverse role. Part of that role is in long-term insurance business and its role is recognised as such by the special treatment that registered friendly societies receive under the Insurance Companies Act, which has fed through into the special treatment they receive under the present Bill. The business and internal affairs of friendly societies are governed by specific legislation. It is to be found in the various friendly societies Acts. They stretch back over many years but are now consolidated in the Act of 1974. That set up a regime for the 673 supervision of registered friendly societies, which is in turn administered in Great Britain by the Chief Registrar of Friendly Societies and in Northern Ireland by the Northern Irish Registrar of Friendly Societies.
The regime provides for the registration of societies, sets out their powers, makes substantial provision for their internal organisation, provides for supervision by way of actuarial valuations and returns, and allows the chief registrar to intervene in the affairs of societies and, in some cases, to arbitrate between members and a society. I emphasise that, because it points to an important difference between membes of friendly societies and policyholders in insurance companies—or clients of any other kind of investment manager authorised under this Bill. Reflecting their origins in providing a rudimentary system of social security for their members, friendly societies are fundamentally mutual self-help organisations. As such, the affairs of a friendly society are run by its members. They elect a committee of management and trustees to hold the assets. Those assets must be invested in compliance with the Trustees Investment Act, and the trustees are subject to all the normal duties of trustees. We are therefore dealing with mutual and democratic organisations. We must be very careful before immediately applying to their internal affairs rules that are designed for a quite different relationship.
Having described that background, I turn to the question of investment management. The first question we must ask ourselves is whether the same problems arise for friendly societies. The most fundamental problem is of course the conflict of interests that arises for a person who is both dealing on his own account and managing the investments of other people. I need hardly remind the Committee of how fundamental is that conflict. I seem to recall that it was the main subject of the speech of the noble Lord, Lord Williams, on his amendment to Clause 3, which he thought was sufficiently important to divide the Committee.
If we consider friendly societies, that most fundamental problem which has so exercised the interests of the noble Lord, Lord Williams, does not exist at all. A friendly society's funds are only the funds of members of the society. There is no analogue of shareholders' funds, and therefore the fundamental conflict of interest to which the most important of the rules on investment management must apply simply does not exist. Do we really want to apply rules to a situation where the most fundamental problem for which they are designed does not and cannot exist?
I turn now to the second type of conflict of interest, which is that which arises as between the different clients of an investment manager. The Bill requires the investment manager to act fairly between them. Returning to the case of the friendly society, a member or group of members of a friendly society has a different mode of redress if it is felt that he or they are being treated unfairly as compared with other members of the society. Their redress is through their democratic control of that organisation. The client of an investment manager does not, apart from the Bill, have that form of redress. The policyholder of an insurance company does not, generally speaking, have 674 that form of redress. It is the shareholders who control the insurance company, not the policyholders.
I turn next to the Trustees Investment Act, which the noble Lord, Lord Graham, mentioned. Obviously, their needs will have to be taken into account, as I have shown in what I have already said. The split between orders and branches is but one of the special features of friendly societies that lead me to resist the amendment of the noble Lord, which, if I may be allowed to say so, I feel is also something of a sledgehammer to crack a nut. If I go a little further, it is perhaps a nut that the friendly societies movement has its own way of dealing with—of reaching the kernel. That is because most friendly societies are small and, in any event, operate only one fund. Unfairness, I suggest, cannot arise in these circumstances. The sums invested are relatively small.
I think we have seriously to ask ourselves whether we want to place a further statutory burden on this movement just for the sake of a rather theoretical consistency. I do suggest that we have done enough by covering the marketing of friendly society policies, where, of course, the principles of member democracy cannot be invoked to protect the interests of a person who, before he or she takes out a policy, is not yet a member of the friendly society concerned.
Lastly, I do wonder where, outside the Committee, there is any such demand for a move such as is proposed by the amendment. It certainly has not been represented to us in our discussions. That is rather a long explanation. I did say at the outset that I was going to hope the noble Lord would feel, with that explanation, able to withdraw his amendment, which I now ask him to do.
§ 10.30 p.m.
§ Lord Williams of ElvelI am most grateful to the noble Lord for his long explanation of friendly societies, their history, their social objectives and their responsibilities for social security. Contrary to his submission on security companies, I started off by believing everything he said, but gradually stopped believing. Whereas before I had increased my belief, 1 now have suspended belief.
When he says that I am using a sledgehammer to crack a nut, the admission is that the nut is there. I believe I shall have to look very carefully at what the noble Lord says, and come back to this, if necessary, on Report. I am afriad I do not believe all he says. I do not believe that his views on the subject are entirely consistent with what I have heard elsewhere. I withdraw the amendment, but I will come back on report.
§ Amendment, by leave, withdrawn.
§
Lord Lucas of Chilworth moved Amendment No. 266:
Page 176, line 41, after ("sections") insert ("41(7) ").
§ The noble Lord said: In moving Amendment No 266 I shall speak also to Amendments Nos. 267 to 272, excluding Amendment No. 266A. Perhaps I should say that these amendments make necessary consequential changes for friendly societies. They introduce no new element of principle. They are consequential upon that group of amendments 675 beginning with Amendment No. 114 that I moved earlier in our proceedings. My Lords, I beg to move this amendment.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendment No. 266A:
Page 176, line 42, after ("150(l)(m)") insert ("(Directions restricting disclosure of information overseas)").
§ The noble Lord said: In moving Amendment No. 266A, I do appreciate that this does have relevance to Amendment No. 350A, which we shall be debating tomorrow. The amendment that I am speaking to now makes provision for certain information obtained by recognised self-regulating organisations for friendly societies. The provisions correspond to those applying for certain information obtained by recognised self-regulating organisations in the Government's new clause, Amendment No. 350A, which we shall be discussing in due course.
§ In essence, this is a paving amendment to the amendment that I have referred to. This was tabled on Tuesday of this week and was in the second Marshalled List. It relates to powers to prevent people disclosing information overseas. I beg to move.
§ On Question, amendment agreed to.
§
Lord Lucas of Chilworth moved Amendments Nos. 267 to 272:
Page 176, line 42, leave out ("and paragraph 3(3) of Schedule 5 to this Act").
Page 180, line 35, at end insert ("or the appointed representative of such a society").
Page 180, line 39, after ("society") insert ("or such a representa-tive").
Page 181, line 10, after ("society") insert ("or an appointed representative of a member society which is subject to the rules of a recognised self-regulating organisation for friendly societies in carrying on the investment business in respect of which it has accepted responsibility for his activities").
Page 181, line 13, after ("society") insert ("or appointed representative").
Page 181, line 13, leave out ("it is a member society") and insert ("the society or. as the case may be, the society which is the representative's principal is a member society").
§ The noble Lord said: I have spoken to Amendment No. 267, and with the agreement of the Committee I move Amendments Nos. 267 to 272 en bloc. I beg to move.
§ On Question, amendments agreed to. Schedule 9, as amended, agreed to.
§ Clause 119 [Official listing]:
§
Lord Brabazon of Tara moved Amendment No. 273:
Page 95, line 34, leave out ("3").
§ The noble Lord said: With the leave of the Committee, I shall speak also to Amendment No. 274. These amendments are rather technical but their effect is to put beyond doubt that in accordance with the directives on the official Stock Exchange listing, Part IV does not apply to instruments issued by a member state or its local authorities. I beg to move.
§ On Question, amendment agreed to.
676
§
Lord Brabazon of Tara moved Amendment No. 274:
Page 96, line 1, leave out ("3 shall have effect as if it applied only to instruments") and insert ("2 shall have effect as if it included any instrument falling within paragraph 3").
§ On Question, amendment agreed to.
§
Lord Morton of Shuna moved Amendment No. 275:
Page 96, line 8, leave out the words ("paragraph 6 of").
§ The noble Lord said: This amendment gives a power so that if the markets change and the rules of the directives from the Common Market change one will not need amending legislation. The amendment gives power to the Secretary of State to order that the clause shall apply to investments in Schedule 1 instead of only falling within paragraph 6 of Schedule 1. It gives the Secretary of State the power to do so in appropriate circumstances. I beg to move.
§ Lord Brabazon of TaraAs the noble Lord explained, the amendment is aimed at greatly extending the potential scope of a modest provision which is designed to do no more than retain our flexibility to exercise our option under Article 2 of the EC admission directive to apply the directive to open-ended collective investment undertakings. At present we have exercised that option the other way because UK unit trusts have not normally sought admission to listing; but it is prudent to retain the possibility to change.
Extending Part IV to any investment covered by Schedule 1 would unnecessarily extend the scope of the statutory regime created by Part IV. Whether such investments should be admitted to official listing, and on what terms, is a matter for the Stock Exchange to decide, not the Government. I therefore cannot agree to accept the amendment.
§ Lord Morton of ShunaWith the greatest respect to the noble Lord, he seems to have completely misunderstood the purpose of the amendment. The purpose is not to extend the effect but to give the Secretary of State the power to do so if he thought it advisable; and therefore avoid the necessity of amending legislation. The Secretary of State "may by order" means that he may do so in suitable circumstances. It does not mean that he has to do so.
§ Lord Brabazon of TaraI am sorry if I have misunderstood the noble Lord's interpretation of his amendment. I have given our interpretation of what the effect of it would be. I stand by what I said. I shall look into what he said to see whether such a provision may be necessary, but I cannot give any commitment.
§ Lord Morton of ShunaI shall accept that hesitant reply. On the understanding that I may return to the matter at a later stage, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ On Question, Whether Clause 119, as amended, shall stand part of the Bill?
§ Lord Morton of ShunaI wish to raise the question of the construction of Part IV of the Bill. It appears to 677 me to be far too complicated. It sets out in the Bill matters which are unnecessary either because they are already in the Companies Act 1985. of which the Bill is repealing Part III. or they are in statutory instruments or can be made by statutory instrument and it would be much better if that power remained like that.
The Stock Exchange Listing Regulations adopt the EC directives. When the directives may change at any time, I can see little purpose in doing what appears to have been done in Clause 123(1). That is one attempt to paraphrase Article 4 of the Council directive of 17th March 1980, but Amendment No. 277, which we shall come to, would produce a different paraphrase. The article in the directive is already law and the European Court will enforce that. I cannot for the life of me see why we have to have a different interpretation.
The drafting of this part of the Bill makes life far too complicated, when it could have been made much more simple and straightforward by leaving the listing of securities to regulation, instead of trying to put everything into the Bill.
§ Lord Brabazon of TaraThe noble Lord suggests that this part of the Bill will cause unnecessary disruption and that we should continue to rely on the Stock Exchange Listing Regulations to implement the EC listing directives in this country. The listing directives had to be implemented within a tight timetable, which meant that we had to use Section 2(2) of the European Communities Act and proceed by secondary legislation. That imposed limitations on what could be done, and it was not possible to deal satisfactorily with certain matters; for example, the Stock Exchange Listing Rules (the "Yellow Book") are in many ways stricter than the minimum standards contained in the directives. The directives allow much stricter requirements to be imposed, but the European Communities Act did not allow the Stock Exchange to be empowered to impose additional legal requirements going beyond the directives, which could throw doubt on the validity of the Yellow Book.
I appreciate that there is room for legal experts to differ on this question, and I should certainly not presume to assert that the proposition that the regulations provide a secure foundation for the Yellow Book is untenable. But, equally, it cannot be said that there is no doubt and that a structure built on those foundations would not benefit from stronger underpinning. I believe that it is important to take the opportunity presented by the Bill to resolve the uncertainties that exist and to put beyond challenge the power of the Stock Exchange as the competent authority to make rules to impose the additional requirements which the directives allow.
As the Committee will know, the Government have tabled a number of amendments to Part IV of the Bill to meet the concerns that have been expressed by the Stock Exchange and others. We have listened to arguments and have been prepared to be reasonable and flexible about the drafting of these provisions. I hope that these amendments will at any rate allay the concerns of the Stock Exchange.
678 I must stress that Part IV of the Bill is neither change for change's sake nor a radical revision of the present law, but it will remove damaging and undesirable uncertainties. Those are the reasons why we have had to go through this fairly carefully and why we brought Part IV into the Bill.
§ Clause 119, as amended, agreed to.
§ Clause 120 agreed to.
§ 10.45 p.m.
§ Clause 121 [Admission to list]:
§
Lord Hacking moved Amendment No. 275A:
Page 97, line 18, leave out subsection (1).
§ The noble Lord said: I ask for the Committee's sympathy. It is enormously difficult to deal with yet another complicated measure about which the Stock Exchange is extremely concerned so late in the evening and to give it the fair and detailed consideration that it deserves. I shall therefore shorten my words, but I cannot shorten them to a couple of sentences.
§ The amendment, as does Clause 121, concerns the listing regulations. Part IV of the Bill deals with the admission of securities to official listing, as the Committee knows. Its contents are in part derived from three EC directives known as the listing directive, the listing particulars directive and the interim reports directive. Those directives have already been implemented by the Stock Exchange Listing Regulations 1984. The purpose of Part IV is to replace those regulations. That was the point made by the noble Lord from the benches opposite. In doing so it has changed the legal basis of implementation.
§ Under the regulations, the directives were made directly part of the laws of the United Kingdom. Under the Bill, the application of the directives is more indirect. The competent authority is given power to make listing rules subject to certain limitations. The Bill makes no reference to the directives, nor to most of their numerous detailed provisions. Instead. Clause 160 gives the Secretary of State power to direct the competent authority to comply with the directives if it appears to him that its rules fail to do so.
§ As a result, instead of the directives being directly binding on the competent authority as well as the issuers, it is left to the competent authority to draw up and administer its own rules without direct reference to the directives. That is undesirable. As I said just now, it is a matter that causes considerable concern to the Stock Exchange. Indeed, at the early hour of 8.30 a.m. today, at the request of the chairman of the Stock Exchange, Mr. Michael Howard the Under-Secretary for Corporate and Consumer Affairs held a meeting. That meeting was attended by the chairman and other representatives of the Stock Exchange.
§
The chairman of the Stock Exchange was anxious that the Government should take careful note and have a record of the points urged upon Mr. Howard during the course of that meeting. The chairman of the Stock Exchange made four points in a letter which was sent later today. I believe that they are important points and with the Committee's leave I shall read them to the Committee. The first point that the Chairman of the Stock Exchange made is:
679
In the light of the structure which has been adopted in Part IV, we think that it is unnecessary to single out Article 3"—
§
of the Commission directive—
in the way that Clause 121(1) does. The Directive can satisfactorily be implemented through the medium of clause 160".
§
The second point is:
As we explained to you. Clause 121(1) goes far beyond the Directive in that, as drafted, it applies not only to the minimum requirements of the Directive but also to the 'additional requirements'. The latter represent the bulk of the Yellow Book"—
§
that is Admissions of Securities to Listing to which the Minister referred.
To do what Clause 121(1) has done in relation to the additional requirements can in no way be regarded as being required by the Directive".
§
The third point is:
We fear that the main practical effect of Clause 121(1) will be to provide an opportunity for those people who wish to interfere in the grant of listing for some collateral reason of their own. The obvious examples are contested takeovers and privatisations. We accept that one of the aims of the Directive is to see that competent authorities in Member States do not grant listings where the conditions of the Directive have not been fulfilled. We think that this aim will be met by the combination of the Yellow Book, the way in which the Stock Exchange administers its rules, and, if it should ever become necessary, the residuary power in Clause 160. We do not think that aim is met in any sensible manner by inviting litigation in the sort of case 1 have described".
§
The fourth point is this:
As regards that litigation, although we understand your concern about the Secretary of State becoming involved, we do not think that it is justification for the practical problems to which Clause 121(1) will give rise. We think that circumstances are unlikely to arise in which an applicant will succeed in an application made against the Secretary of State under Clause 160 in the context of the grant of listing. In addition, as we explained, by leaving things to Clause 160 the risk is reduced because the applicant would only-have the minimum conditions of the Directive on which to base his case, rather than the additional requirements as well".
§ Those are the detailed points made only today in a letter sent by the chairman of the Stock Exchange to the colleague of the noble Lord the Minister who sits in this House. I would ask the Committee and the Government, difficult as it is to give detailed consideration to complex matters late at night, to view the concern, expressed clearly by the Stock Exchange, especially the four points that I have just read, as worthy of consideration. I would ask the Minister, at the very least, not over long nights but over the many days that will divide consideration of the matter in Committee and the Report stage in October, to give full consideration to it and to enter into whatever discussions are considered necessary by the Government and the Stock Exchange to resolve it. If it is sufficiently important for the chairman himself to ask for an interview, I believe that it is sufficiently important to warrant further consideration being given to it. I beg to move.
§ Lord Morton of ShunaIt appears that the chairman of the Stock Exchange, to the surprise of others as well as myself, takes much the same view as I endeavoured to put in relation to the whole of this part of the Bill. I support strongly the suggestion that this part should be taken away and thought out again. I support the amendment.
§ Lord Brabazon of TaraThe noble Lord, Lord Hacking, moved the amendment as if it was 680 something that had been raised for the first time this morning by the chairman of the Stock Exchange. I hate to disillusion him. Almost exactly the same amendment was moved in Committee in another place.
§ Lord HackingNo. I did not indicate that this was a new discovery by the Stock Exchange. I thought that I had said that this was a matter that had concerned the Stock Exchange for some time. It is currently so concerning it that the chairman of the Stock Exchange requested and indeed was granted a meeting this morning by the Minister.
§ Lord Brabazon of TaraWe have obviously listened to representations made to us, especially by such eminent people. In answer to the noble Lord's amendment, may I first say that the Government had no wish to make official listing a statutory matter. But, as was feared at the time when the European Community directives, which Part IV seeks to implement, were being negotiated, and as the subsequent jurisprudence of the European Court of Justice has confirmed, Community law requires directives of this kind to be turned into binding national provisions. Mere administrative action will not do. There is scope for debate on exactly how far one has to go in certain areas. On a number of points the Government have sought to accommodate the wishes of the Stock Exchange to the limit of what Community law can possibly be interpreted as allowing. We were happy to do that, and we certainly do not want to do anything that could adversely affect the pre-eminence of the United Kingdom as a financial centre. But the fundamental proposition that the directives have to be given a legal basis in the United Kingdom is, I believe, accepted. That being so, one has to carry the logic through, and if one tries to avoid it in one area, the only effect will be transfer the strain elsewhere.
Under the directives, the basic obligation is clear:
Member states—that is the UK—shall ensure that securities may not be admitted to official listing on any stock exchange… unless the conditions laid down by this Directive are satisfied".That is what we have to achieve. The question is about the method of achieving it. If we do not reflect it in the Bill, we will have to achieve it in some other way. The noble Lord has suggested that it could be achieved through Clause 160, which provides the Secretary of State with a power to give directions to the competent authority to enable the UK to comply with its Community or other international obligations.I am not saying that that power is not wide enough to give a direction that the Stock Exchange should not admit particular securities to listing, where to do so would put us in breach of the directives; it is, but it would not be satisfactory, legally or in policy terms, to rely on it. As I said a moment or two ago, if one accepts the basic proposition, one has to carry the logic through or else one feels the strain elsewhere.
In the first place—and this is the legal objection—the power in Clause 160 is discretionary. We would therefore not be giving the binding effect that Community law requires. The purpose of the 681 directives is to give investors an assurance that listed securities will meet a given standard. Listing is not just a matter between the issuer and the competent authority. This objective would be lost if the competent authority were able to grant listing when the standards were not met.
It has been suggested that the point I have just made applies only to the minimum standards laid down by the directives. I am afraid that I cannot agree; and I have, of course, taken legal advice on this point. The directives allow member states to impose additional or more stringent conditions on admission to listing. The UK is not bound to impose such conditions. But if it does, through listing rules, the directives require these to apply generally, and permit derogations from them only on a consistent basis. The implication is clear; namely, that if a member state chooses to adopt higher standards, investors are entitled to rely on those standards. It follows that they must be treated in the same way as the minimum requirements.
The second objection is one of policy. Under the Bill as drafted, the Stock Exchange is, under the law, responsible for the decision as to whether or not securities are admitted. The power in Clause 160 is there, but where, as here, the Bill lays down what is to be done, Ministers can properly refer any complainant to the Stock Exchange, or, if they are dissatisfied with the Stock Exchange's decision, to the court. But if this basic obligation were not in the Bill, Ministers would have to consider any complaint. They would be put in the position of having to second-guess the Stock Exchange. That is not a position in which Ministers wish to find themselves, nor, I would suggest, one in which the Stock Exchange would wish Ministers to be. Even then, one would not avoid recourse to the courts, since a complainant who did not receive satisfaction from the Minister, or someone else who was aggrieved by what the Minister had done, could apply to the court in just the same way as against the decision of the Stock Exchange.
It boils down to there being a clear obligation. We accepted it, and it must be right that investors should be able to rely on the standard it lays down. We have got to implement it somehow. I submit that it is far better to do it in a straight forward way than to risk Ministers being dragged in to achieve what has to be achieved anyway.
It is suggested that this provision will provide a ready opportunity to people to upset a contested takeover bid on a technicality. I do not myself believe that that result is likely. After all, the words of the directives which this provision reflects have been law under the Stock Exchange (Listing) Regulations, approved by your Lordships' House in 1984, for nearly two years and nothing has happened. Anybody who wanted to challenge the decision of the Stock Exchange to admit particular securities would have to go to court, and would have to have the leave of the court to do so, for which they would require to show that they had sufficient standing and at least a prima facie case. To bring the Minister in as well would simply increase the chances of problems arising.
To sum up, therefore, I do not believe that this amendment would achieve the result put forward. We 682 have a Community obligation to implement and I am satisfied, after taking advice, that the Bill does what is necessary, and no more than is necessary, to comply with our obligations. This is a new subject which we have obviously looked into extremely carefully. The noble Lord has now heard my reasons why we cannot accept the amendment and I trust that he will feel able to withdraw it.
§ 11 p.m.
§ Lord HackingIt is certainly my intention to withdraw the amendment. I have no doubt at all that the Government have given a lot of consideration to this. However, the people in the market are concerned about it. If that concern evidences itself in it being treated as a matter of worry to such high authority within the market as the chairman of the Stock Exchange, it cannot be a matter that is trivial or unrealistic. For that reason, while I am willing to withdraw my amendment, I hope that the Minister will turn aside from the pages of his brief and try to give this further consideration. I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 275B not moved.]
§
Lord Brabazon of Tara moved Amendment No. 276:
Page 98. line 5. leave out subsection (4).
§ The noble Lord said: I beg to move Amendment No. 276. This amendment deals with a rather narrow and technical point relating to certificates representing shares. The meaning of this expression in the listing directives is not completely clear, and on reflection it seems preferable for the Bill to leave the competent authority discretion to deal with such cases as may arise in the listing rules in a manner consistent with the directives. I beg to move.
§ On Question, amendment agreed to. Clause 121, as amended, agreed to. Clause 122 agreed to.
§ Clause 123 [General duty of disclosure in listing particulars]:
§
Lord Brabazon of Tara moved Amendment No. 277:
Page 98, line 38, leave out ("with respect to") and insert ("as investors and their professional advisers would reasonably require, and reasonably expect to find there, for the purpose of making an informed assessment of—").
§ The noble Lord said: I beg to move Amendment No. 277. With the leave of the Committee. I shall speak to Amendments Nos. 278, 281 and 282, and 316, 317 and 318. These amendments are in response to representations we have received that the general duty of disclosure in Clause 123 is more onerous than is required by the listing directives. I hope it will be convenient to consider at the same time the similar amendments to the parallel clause, Clause 135. in Part V. My honourable friend the Parliamentary Under-secretary of State for Corporate and Consumer Affairs promised in another place to look again at the wording of these clauses, and these amendments, which 683 incorporate several features of amendments moved in another place, are the result.
§ Our aim is to translate the requirements of the directive correctly, without creating uncertainty or unnecessary burdens for issuers. I believe that the amendments are a significant improvement, and I am grateful to those who commented on the clauses. I beg to move.
§ Lord Morton of ShunaThis clause remains as a potential benefit for lawyers—to which no doubt I should not object. However, the directive uses the word "necessary". One can think that the word "require" or "expect" in certain circumstances would be the same as necessary. Where does "reasonable" come in? Does that mean that there may be unreason-able requirements? Who will decide reasonableness? Why can the clause not say,
insert ('as investors and their professional advisers would require and expect to find there' ".Why does "reasonableness" add anything other than a muddle to something which should be clear, and is clear in the directive?
§ Lord Brabazon of TaraI must admit that I should have thought the sense of the amendment was fairly clear and was what we were aiming to achieve. I would hesitate to argue with the noble Lord as a lawyer about the meaning of the word "reasonableness". I had understood that it was reasonably acceptable in legal jargon. However, I shall certainly take note of what the noble Lord said, and if there is any improvement which could be made—without any commitment whatsoever—I shall have a look at it.
§ On Question, amendment agreed to.
§
Lord Brabazon of Tara moved Amendment No. 278:
Page 99, leave out lines 2 to 5.
§ On Question, amendment agreed to.
§
Lord Brabazon of Tara moved Amendment No. 279:
Page 99, line 8, leave out ("the preparation of").
§ The noble Lord said: I beg to move Amendment No. 279, and I should like to speak to Amendments Nos. 290, 292, 293, 294, 296, 297, 298, 299, 300, 301, 302, 327, 328, 329, 331, 332, 333. 334, 335 and 408. I apologise if this seems a somewhat indigestible chunk of amendments but they all deal with the question of liability. Questions of who is to be liable and to what extent are bound up inextricably with the defences available, and so I think it makes sense to consider all these amendments and the new clauses together, both the Part IV and the Part V ones.
§ The liability provisions have, quite understandably, attracted considerable attention, and an extensive revision of the clauses in question inspired by the Stock Exchange and Law Society, was tabled in the other place. In responding to that, my honourable friend the Parliamentary Under-Secretary of State undertook to see to what extent he could meet the concerns expressed. These amendments are the result of that consideration, and I hope your Lordships will 684 agree that they go a very considerable way towards meeting those concerns.
§ In particular, they provide new defences corresponding to those in the prospectus provisions of the Companies Act and clarify who is to be regarded as responsible for listing particulars and prospectuses by providing a list, instead of relying on the concept of persons responsible for the preparation of offer documents.
§ I do not intend to delay your Lordships with a detailed analysis of the new clauses. These are explained in the notes which have been provided, although I am of course happy to do my best to answer any queries any noble Lord may have.
§ But perhaps I may draw attention to some salient features. Additional defences are provided where an issuer relies on statements made by an expert or where it would be legally or otherwise improper for a person to disclose particular information in listing particulars or a prospectus. This could arise, for example, if a director straddled a Chinese wall in one of the new financial conglomerates. He will not be liable under Parts IV or V for omitting to disclose on one side of the fence what he learnt on the other. There is also a procedure in the second new clause on 'persons responsible' for the competent authority or an approved recognised investment exchange to certify that a director should not be liable, for example if he faces a conflict of interest. Perhaps I may just add in parenthesis that I shall be explaining the concept of an approved recognised investment exchange when we come to discuss the relevant amendments to Part V.
§ A defence is also provided if a person acquires securities in the knowledge that an offer document was misleading. It seems unreasonable that a person who buys with knowledge that a document is misleading should be compensated if he later suffers loss as a result of the true facts becoming known.
§ These amendments meet a good 90 per cent. of the points put to us and are a good indication of our willingness to listen. I therefore commend them to the Committee.
§ Lord Morton of ShunaI am in the same position as I was regarding earlier clauses, and as my noble friend Lord Williams was on earlier clauses. We have not had time to digest these amendments which appear as if they have been recently plucked up from a field and given to us. They may be ready, but we do not know. Subject to the right to come back to the matter at Report stage, I shall say nothing further.
§ On Question, amendment agreed to.
§
Lord Brabazon of Tara moved Amendments Nos. 280 to 282:
Page 99, line 17, leave out ("and").
Page 99, line 21, leave out from ("consult") to end of line 24 and insert (": and)
(d) to any information available to investors or their professional advisers by virtue of requirements imposed under section 127 below or by virtue of requirements imposed by a recognised investment exchange for the purpose of complying with paragraph 2(2)(b) of Schedule 3 to this Act.")
Page 99, line 25, leave out subsection (4).
§ The noble Lord said: I spoke to Amendments Nos. 280 and 282 with Amendment No. 277. Therefore, 685 with the leave of the Committee, I beg to move Amendments Nos. 280 to 282.
§ On Question, amendments agreed to.
§ Clause 123, as amended, agreed to.
§ Clause 124 [Supplementary listing particulars]:
§
Lord Brabazon of Tara moved Amendment No. 283:
Page 99, line 35, at end insert ('": or").
§ The noble Lord said: I beg to move Amendment No. 283 and at the same time speak to Amendments 284 to 288. and 320 to 326. These amendments concern Clause 124, which deals with supplementary listing particulars, and Clause 136, the corresponding provision in Part V on supplementary prospectuses. It may be convenient to discuss them together. They are a result of undertakings given in another place to reconsider the clauses and should meet the concerns that were expressed about them. In particular, it is made clear that a new matter will trigger the need for a supplement only if it affects the assessment of the securities.
§ The amendments to Clause 124 lay the duty to publish a supplement on the issuer of the securities once he is aware of a significant change or new matter. If any other person responsible for listing particulars learns of a significant change or new matter, he is under a duty to inform the issuer. In response to concerns expressed by the Stock Exchange, the provisions dealing with corrections are removed from this clause.
§ The amendments to Clause 136 are similar, with the duty to publish a supplementary prospectus laid on the person who delivered the prospectus for registration. I beg to move.
§ On Question, amendment agreed to.
§
Lord Brabazon of Tara moved Amendments Nos. 284 to 288:
Page 99, line 36, after ("a") insert ("'significant").
Page 99, line 38, leave out from ("prepared") to end of line 41.
Page 99, line 42, leave out ("appropriate person") and insert ("issuer of the securities").
Page 100, line 2, leave out from ("matter") to end of line 3.
Page 100, line 4, leave out subsection (2) and insert—
("() In subsection (1) above '"significant" means significant for the purpose of making an informed assessment of the matters mentioned in section 123(1) above.
() Where the issuer of the securities is not aware of the change or new matter in question he shall not be under any duty to comply with that subsection unless he is notified of it by a person responsible for the listing particulars: but it shall be the duty of any person responsible for those particulars who is aware of such a matter to give notice of it to the issuer.")
§ The noble Lord said: With the leave of the Committee, I beg to move Amendments Nos. 284 to 288. I have just spoken to them.
§ On Question, amendments agreed to.
§ Clause 124, as amended, agreed to.
686§ Clause 125 [Exemptions from disclosure]:
§
Lord Brabazon of Tara moved Amendment No. 289:
Page 100, line 24, leave out ("international securities (as defined in section 45(6) above):") and insert ("securities which fall within paragraph 2 of Schedule 1 to this Act as modified by section 119(3)(b) above and are").
§ The noble Lord said: I beg to move Amendment No. 289. This amendment fulfils another undertaking given by my honourable friend in another place. The clause at present allows the competent authority to derogate from the disclosure requirements when international debt securities traded in by experts arc offered. There seems no reason to differentiate between foreign and domestic issues in this respect. The amendment allows similar flexibility for the latter. As we have made clear in many parts of the Bill, we have no desire to drive business from London by imposing unduly exacting requirements. I beg to move.
§ On Question, amendment agreed to.
§
Lord Hacking moved Amendment No. 289A:
Page 100, line 34, leave out ("decision") and insert ("assessment").
§ The noble Lord said: This is a simple amendment. It is another amendment that falls under the disclosure provisions, and the question here is whether the person who is considering the acquisition of securities is exercising an informed "decision", which is the word at present in the Bill, or an informed "assessment", which is the word I am asking the Government to accept.
§ When the Government were dealing with Amendment No. 277, that the Committee agreed should be placed in the Bill, they chose the words "informed assessment". Therefore not only do I suggest that "assessment" is the right word and "decision" the wrong word, but I even have the support of the Government in Amendment No. 277. I beg to move.
§ Lord Brabazon of TaraI am delighted to say that I shall be able to respond to the noble Lord, Lord Hacking, considerably more briefly that I did on the previous amendment. I compliment him on the sharpness of his eye, and note that his amendment restores the word used in Article 7 of the relevant directive, and I can readily accept it.
§ On Question, amendment agreed to.
§ 11.15 p.m.
§
Lord Brabazon of Tara moved Amendment No 290:
Page 100, line 38, leave out ('"the preparation of").
§ The noble Lord said: I spoke to this amendment with Amendment No. 279. I beg to move.
§ On Question, amendment agreed to.
§ Clause 125, as amended, agreed to.
§
Lord Lucas of Chilworth moved Amendment No 291:
687
After Clause 125, insert the following new clause:
§ ("Registration of listing particulars.
§
§ The noble Lord said: This is a new clause which fulfils another undertaking given by my honourable friend in another place. I should like to draw the attention of the noble Lord, Lord Morton of Shuna, to this, because I think he will note with approval that under subsection (2)(c) overseas companies are free to choose which registrar to use and may deliver listing particulars where it is most convenient for it to do so. My noble friend will be moving a parallel amendment to Part V in due course. I beg to move.
§ Lord Morton of ShunaI accept that invitation. I certainly welcome the amendment so far as it goes, but whether it goes far enough I do not know. I should like the opportunity of further study, but there are other rules such as the rules about charges and various other things where particulars have to be registered with specific registrars. It would be unfortunate if someone had to go from one registrar to another just at the choice of a particular company or issuer. This may need looking at again.
§ On Question, amendment agreed to.
§ Clause 126 [Compensation for false or misleading particulars]:
§
Lord Lucas of Chilworth moved Amendments Nos. 292 to 294:
Page 101, line 1, after ("(1)") insert ("Subject to section (Exemption from liability to pay compensation) below.")
§
Page 101, line 1, leave out ("the preparation of).
§
Page 101, line 4, after ("loss") insert ("in respect of them").
§ The noble Lord said: These amendments were spoken to with Amendment No. 279. I beg to move these three amendments.
§ On Question, amendments agreed to.
§
Lord Hacking moved Amendment No. 294A:
Page 101, line 7, leave out from (" above ") to the end of line 8.
§ The noble Lord said: With the Committee's leave, I shall also address the Committee on Amendment No. 295, which is a Government amendment, and No. 688 295A, which is my amendment. These concern Clause 126, which sets out the basis upon which compensation can be awarded against persons responsible for the preparation of any supplementary listing particulars when those particulars include an untrue or misleading statement or when there has been some omission from them in any matter required by Clauses 123 and 124.
§ Under current requirements of the listing regulations of the Stock Exchange parties are required—that is to say, those persons responsible for the preparation of any listing particulars—to make what is called a positive negative. That means that in the case of litigation, for example, it is the responsibility of those persons to state positively that there is no material litigation which affects the issue of that security.
§ My first submission is that by removing the last few words from Clause 126(1) a clear proposition is made which does not need any further assistance from any subsection. Nonetheless, it is clear that the Government consider that there should be a subsection setting out in more detail the circumstances in which Clause 126(1) should bite. The suggested subsection is set out in both Amendment No. 295, in the name of the noble Lord the Minister, and also Amendment No. 295A, which is in my name.
§ Without going into detail or being insulting to the Government late at night, I should like to say to the Committee that the Government's draft is ambiguous. Without puffing myself up I may say that I believe that my amendment avoids the ambiguity and sets out in greater detail what the Government are anxious to introduce into the Bill with this subsection. I have been greatly assisted in the preparation of this amendment by persons outside the Committee, and particularly by the Law Society, and I wish to put that on record.
§ My first submission to this Committee is that it adopts Amendment No. 294A, which is the simplest amendment of the three. If the Committee is against that proposition but with the Government in agreeing that another subsection is needed, may I suggest, without sounding impertinent, that the Committee should choose Amendment No. 295A? I beg to move.
§ Lord Brabazon of TaraI sympathise with the notion that the issuers should not be liable for trivial omission of material required by listing or prospectus rules, but the Bill as we propose to amend it already contains various devices to prevent this. First, the requirement that the purchaser should have suffered loss imports a materiality test and should preclude claims based on technical breaches. Secondly, the noble Lord's own amendment, Amendment No. 295A, which I am bound to say we prefer to our own amendment, Amendment No. 295 (which I shall not be moving) allows insurers to omit irrelevant information about incurring liability in certain circumstances. Thirdly, it is also necessary to consider the defences, which I shall be moving amendments to later to augment further. We have thus moved a considerable way to recognise issuers' difficulties. To remove liability for breaches of the rules goes too far, in my opinion, and could prejudice investor protection. Apart from the general principle that investors should have the same redress for losses caused by breaches of 689 listing rules as for losses caused by breaches of the general duty, it seems an unreasonable additional burden to require investors to prove a breach of a generally expressed duty where there is a clear contravention of a specific rule. This may be much harder since not every significant breach of a specific rule will be a clear violation of the general duty. What that explanation I hope that the noble Lord will see fit not to press his Amendment No. 294A and will move Amendment No. 295A, which we shall be pleased to accept.
§ Lord HackingThe willingness of the Government to accept an amendment of mine which is some five or six lines long is quite a triumph, although the Government have always been willing to be helpful. I therefore cannot resist the invitation of the noble Lord to withdraw my Amendment No. 294A. However, before I withdraw it, I should like to draw to the Committee's attention and to put on record the fact that both my amendment and the Government's amendment are fine for the existing Stock Exchange listing regulations, but they are not fine for any future listing regulations that may be drafted in a different matter, and they are not fine for the listing regulations (under Part VI) of other exchanges that may be permitted to join into the market. Therefore, while the amendment serves the present circumstances, or the present listing arrangements of the Stock Exchange, it may not serve either future regulations of the Stock Exchange or the listing regulations of other exchanges. However, having drawn that caveat to the attention of the Committee, I am more than happy to withdraw my amendment.
§ Amendment, by leave, withdrawn.
§ [Amendment No. 295 not moved.]
§
Lord Hacking moved Amendment No. 295A:
Page 101, line 7, leave out from ("above") to end of line 8 and insert—
§
("() Where listing rules require listing particulars to include information as to any particular matter on the basis that the particulars must include a statement either as to that matter or, if such is the case, that there is no such matter, the omission from the particulars of the information shall be treated for the purposes of subsection (1) above as a statement that there is no such matter.")
§ The noble Lord said: I have already addressed the Committee on this amendment. I beg to move.
§ On Question, amendment agreed to.
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Lord Brabazon of Tara moved Amendments Nos. 296 to 300:
Page 101, line 9, after ("(2)") insert ("Subject to section (Exemption from liability to pay compensation) below,").
Page 101, line 11, after ("loss") insert ("in respect of them").
Page 101, leave out lines 13 to 45.
Page 102, line 10, leave out ("the preparation of").
Page 102, line 11, leave out ("their preparation") and insert ("them").
§ The noble Lord said: I spoke to Amendments Nos. 296 to 300 with Amendment No. 279, With the leave of the Committee, I beg to move the amendments.
§ On Question, amendments agreed to.
§ Clause 126, as amended, agreed to.
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Lord Brabazon of Tara moved Amendment No. 301:
After Clause 126, insert the following new clause:—
§ ("Exemption from liability to pay compensation.
§
§ The noble Lord said: I spoke to this amendment also with Amendment No. 279. I beg to move.
§ On Question, amendment agreed to.
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§
Lord Hacking moved Amendment No. 301 A:
Paragraph (a) of subsection (2), leave out ("to have such grounds") and insert ("in that belief").
§ The noble Lord said: With the leave of the Committee, when addressing the Committee on this amendment, I should like to address the Committee also on every amendment which stands in my name on that page of the Marshalled List—that is, from Amendment No. 301A to Amendment No. 301J inclusive. I am also going to ask the indulgence and assistance of the Committee in taking an even shorter course. All these amendments are directed to amend the new clause that has now been inserted in the Bill pursuant to the Committee accepting Amendment No. 301, which has just been moved by the noble Lord and accepted by the Committee.
§ I could therefore give details concerning each of these amendments and why I would urge that the Government's amendment would be improved if each and every one of my amendments was now incorporated into it. I have received considerable assistance—and I should like to make mention of this again—from the Law Society's Company Law Committee, which has provided detailed reasons in support of each of the amendments. They have also provided those details to those who advise the Ministers in Commmittee. Therefore, not only have I in my possession the detailed reasons for each of these amendments but the noble Lord the Minister also has them in his possession as well. Other Members of your Lordships' Committee may at this stage be deprived of these detailed arguments and, if any noble Lords would like to know more of the detailed arguments by my writing a letter and giving them the details, I shall be more than happy to do so.
§ I am therefore proposing not to present any detailed arguments on the majority of my amendments on the basis that if your Lordships find it acceptable then all who would like to have further information can be supplied that information either by me or by the Law Society. I feel confident in taking this course because the Minister has been kind enough to intimate that the Government are prepared to give consideration, and in some cases to give consideration to the point of agreeing in principle, to several of these amendments. The Minister has kindly intimated that the Government are prepared to give further consideration to my Amendments Nos. 301A and 301B, but not to No. 301C, which incidentally is misplaced and should not be in its present position on the Marshalled List. Perhaps your Lordships could, either mentally or otherwise, strike it from the Marshalled List.
§ To go further down the list, the Government have been kind enough to intimate that they would give further consideration to Amendments Nos. 301H, 301HH and 301J, which has the further accolade of being agreed in principle by the Government. There are a number of cross-references which perhaps I might draw to the Committee's attention concerning those amendments. Amendment No. 301A also applies to my Amendment No. 334B; No. 301G also applies to No. 334F; Nos. 301H, 301HH and 301J are also applicable to Nos. 334G, 334H and 334J. I hope that will be helpful to your Lordships when reading the Official Report.
692§ We are now left with Amendments Nos. 301D, 301E, 301F and 301G. The first three are considered together, and in respect of those amendments the Minister was not able to give the favourable indication that he was able to give in the case of the other ones. For that reason, I should like to put a little more of the detailed argument.
§ Amendment No. 301, as your Lordships will be aware, concerns defences for persons responsible for listing particulars. It explains the circumstances where they are not liable under Clause 126—for example, liable to pay compensation in respect of a breach of the general duty of disclosure. Subsection (3) states that a person will not be liable if reasonable steps were taken before the securities were acquired to bring the correction of an error or omission in the particulars to the attention of likely investors.
§ This defence may not be entirely satisfactory to a director or similar person responsible. If the director becomes aware of an error or omission, the proper course is for him to draw it to the attention of the issuer of the securities or of the merchant bank or broker handling the issue. The issuer, bank or broker would then arrange for the proper publicity to be given to the error or omission. If, however, the director duly reported the error or omission and the issuer, bank or broker, for their own reasons, decided not to publicise the point, the director may find that he had no defence as reasonable steps would not have been taken to bring the correction to the attention of investors. It could well be that the director had been reassured that reasonable steps would be taken. He could be prejudiced, not only by complete failure to take such steps but also by any delay in taking them. However, it would not be reasonable to expect the director immediately and unilaterally to publicise the error or omission himself. He should normally at least first ascertain that no other action is likely to be taken.
§ The purpose of the suggested Amendments Nos. 301D, 301E and 301F is to ensure that, for the purposes of the defence, account is taken only of what it was reasonable for the director in question to have done. He should not be prejudiced by the inaction of others if it was not reasonable for him to take further steps. The suggested amendments would not impose any greater burden on a director than the wording of No. 301. Thus, if some other person had publicised the error or omission it would not be reasonable to require him to do so also. Those are the reasons why I am advancing Amendments Nos. 301D, 301E and 301F.
§ Amendment No. 301G goes to a different problem. Without this amendment, subsection (6) does not reflect paragraph 2.27 of the explanatory statement on the amendments to Parts IV and V of the Bill, which the Department of Trade issued on 18th July 1986. If the clause were to impose on directors an obligation to disclose information which they held subject to a duty of confidentiality owed to other persons, the effect of the clause would be to discourage persons having outside interests becoming directors of a company. This would be contrary to the policy of encouraging non-executive directors and would be contrary to the interests of investors.
§ It would not be appropriate for a director with undisclosable information to rely on the power of the 693 competent authority to exclude him from the "persons responsible" under subsection (4) of Amendment No. 302 on the grounds of a conflict of interests. The competent authority might not exercise its discretion to exclude him as it might nonetheless be appropriate for the director to be responsible generally—his protection might be needed only in respect of one piece of information.
§ There is a good deal of detail there; but those are the reasons why I have moved these amendments. Although the noble Lord the Minister was not earlier able to say that he was prepared to give them consideration, having heard that detail, I hope that if he was able to follow it through, he will now take a different view of these amendments. I beg to move.
§ Lord Brabazon of TaraI am grateful to the noble Lord, Lord Hacking, for speaking to these amendments and for alerting the department that the amendments were to be moved, thus enabling us to come up with some response to them at very short notice. I shall deal with them as quickly as I possibly can.
With regard to Amendment No. 301 A, with which Amendment No. 334 was taken, we shall look at this and see whether it has anything that we can improve. I cannot accept any of the amendments outright. With regard to Amendment No. 301B, which the noble Lord explained, we are grateful to him for raising this point. We have a minor reservation about how the reference to the person continuing in that belief should be worded, but I should like to take a look at this and if necessary talk to the noble Lord about it before Report stage. Amendment No. 301C, the noble Lord quite rightly said, should not be there.
I now turn to Amendments Nos. 301D, 301E and 301F; with these the noble Lord also spoke to Amendments Nos. 334C, 334D and 334E. We cannot accept these amendments. The apparent purpose of the amendments is to relieve issuers and others responsible for listing particulars of liability for untrue or misleading statements after they take such steps as it is reasonable for them to take. However, as drafted, it would deny them the defence if someone else took the steps, which is the effect of the use of the passive. This would narrow this defence, which I doubt is what is intended.
The clause already covers the points raised. If a director took such steps as were reasonable for him, such as bringing the matters to the attention of the board and obtaining its agreement to issue a correction, he would not be liable even if the board did not do what it had agreed. For those reasons we cannot accept those amendments.
I turn to Amendment No. 301G with which the noble Lord also spoke to Amendment No. 334F. In this case I am not unsympathetic to the dilemma of a director or an issuer who possesses information which is relevant to an offer but who is under an obligation of some sort not to disclose it or who feels that it would be inappropriate for him to do so. However, I am unable to accept the noble Lord's amendments. Subsection (6) of the new clause on exemptions deliberately excludes directors of issuers, leaving them 694 to be dealt with under the certification procedure in the clause on persons responsible. It may be helpful if I explain the thinking behind this distinction.
I should first point out that both subsection (6) and the certification procedures are new departures in defences and have no counterpart in the Companies Act. However, we have accepted the representations made to us that the Companies Act regime needs to be changed to reflect developments in financial services, notably financial conglomerates. Subsection (6) provides what may be called a Chinese wall defence. However, the arguments that apply to a multifunctional financial conglomerate do not apply-to the issuer. The conglomerate will be subject to the disciplines of SRO rules, with civil liability for breaches, and is the midwife to the offer, not the parent. The issuer and its director fill that key role, as is recognised in the persons responsible clause.
The competent authority or an approved exchange are in a good position to assess the directors' claims to being relieved of the responsibility, as they have overall charge of admission of the securities to trading and of the contents requirements governing the offer documents. As there is a general presumption that directors of issuers are liable, it is desirable that any exceptions should be sorted out in advance, so that investors have clear information on who is responsible if they should suffer a loss due to misleading statement or omission.
Certification should only be necessary in a small number of cases where, for example, a person is on the board of both predator and target in a contested takeover. I remain of the view that there is a distinction between the directors of the issuer and others who may be responsible; but it is appropriate for the authority or exchange to be involved in reversing the fundamental assumption that the director of the issuer should normally be liable and that certification procedure is sufficiently flexible. For those reasons, I cannot accept that particular amendment.
I turn to Amendments Nos. 301H, 301HH and 301J, and I believe that the noble Lord spoke also to the equivalent amendments to Part V of the Bill. Again, I cannot accept the amendments outright as drafted, but I accept the noble Lord's proposition that defence in subsections (5) and (6) should extend to a failure to produce a supplement as well as to untrue or misleading statements in the original document on the supplement. I should very much like to be in contact with the noble Lord before Report stage. I hope that we shall between us be able to devise something appropriate. With those rather long explanations, I hope that the noble Lord is willing to withdraw all his amendments.
§ Lord HackingIndeed I am; and I am just about to withdraw Amendment No. 301 A, which is the first that I was addressing. It will be best if I do not make any counter argument. There are one or two points that I should care to make, but I shall leave them until another day. I am very grateful to the Minister for being willing to consider favourably so many of my amendments. I should simply like to leave on the record the comments I made on the four amendments that he did not feel able to treat so favourably as the 695 others. On that basis, I beg leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.
§ [Amendments Nos. 301B to 301J not moved.]
§
Lord Brabazon of Tara moved Amendment No. 302:
Insert the following new clause:
§ (" Persons responsible for particulars.
§
§ The noble Lord said: I spoke to this amendment with Amendment No. 279. I beg to move.
696§ 11.45 p.m.
§
Lord Hacking moved, as an amendment to Amendment No. 302, Amendment No. 302A:
Line 2 of subsection (1), leave out ("and") and insert ("or")
§ The noble Lord said: I can take an entirely short course with the following amendments because the Minister has been kind enough to intimate that he accepts some of them. He has intimated to me that he is minded to accept Amendments Nos. 302A and 302H. I hope that he has not changed his mind meanwhile; he is entitled to do so, but I hope that he has not. So unless any noble Lords wish me to give the reasons why I have tabled those amendments, I shall be only too happy for my part to acknowledge the willingness of the Government to accept my two amendments.
§ Incidentally, I shall not be moving Amendment No. 302G. As to the others, the Minister has kindly intimated that he will give further consideration to each and every one of them. Concerning Amendment No. 302F, the Minister has been kind enough to give an indication that he will give that amendment also favourable consideration, in that he agrees in principle with my amendment, although I think he wishes to reserve his position on the drafting of it. I offer, to any Member of the Committee who wishes to know, the reasons why I have tabled those amendments, and indeed the reasons why the Minister has been willing to give them further consideration, and, in the case of two or them, to accept them. I should be more than happy to arrange that further information be put before noble Lords, either through myself or through the kindness of the Law Society.
§ I think I should put on record that Amendment No. 302B is linked to Amendment No. 335A, and Amendments Nos. 302C, 302D and 302E should all be considered together. They are linked to Amendments Nos. 335B and 335C. Amendment No. 302F is linked to Amendment No. 335D, and Amendment No. 302H, which the Minister has intimated earlier outside this Committee that he is willing to accept, is linked to Amendment No. 335F. That is all I desire to say upon any of those amendments. I beg to move Amendment No. 302A, which stands in my name.
§ Lord Brabazon of TaraYes, I agree with the noble Lord, Lord Hacking, and I am grateful to him for having brought these matters forward. We would certainly accept Amendment No. 302A and, when we come to it, Amendment No. 302H, and I have indicated to him that we are willing to look in detail at all the other amendments that he has moved.
§ On Question, amendment agreed to.
§ [Amendments Nos. 302B to 302G not moved.]
§ The Deputy Chairman of Committees (Lord Strabolgi)I should inform the Committee that there is a printing error in Amendment No. 302H. After the words "paid up" in the last line there should be inserted the word "or".
§ Lord HackingPerhaps a manuscript amendment could be included in order to correct theprinting error, 697 because I do wish to move Amendment No. 302H. I do not know how a manuscript amendment can be effected, but I believe it can be.
§ Lord Brabazon of TaraI think that if the Lord Chairman called the amendment with the error put right, that would be how the Committee was considering it, and therefore we could accept it as it is.
§
Lord Hacking moved Amendment No. 302H:
At the end of subsection (4) insert—
§
(" () Where by virtue of this section the issuer of any shares pays or is liable to pay compensation under section 126 above for loss suffered in respect of shares for which a person has subscribed no account shall be taken of that liability or payment in determining any question as to the amount paid on subscription for those shares or as to the amount paid up or deemed to be paid up on them.")
§ On Question, amendment agreed to.
§ Clause 127 agreed to.
§ Clause 128 [Advertisements etc. in connection with listing applications]:
§ Lord Lucas of Chilworth moved Amendments Nos. 303 to 309.
§
Page 102, line 32, leave out from ("no") to ("unless") in line 35 and insert ("advertisement or other information of a kind specified by listing rules shall be published in the United Kingdom").
§
Page 102, line 36, after ("or") insert ("other").
§
Page 102, line 43, at end insert—
§
(" () An authorised person who contravenes this section shall be treated as having contravened rules made under Chapter V of Part I of this Act or. in the case of a person who is an authorized person by virtue of his membership of a recognised self-regulating organisation or certification by a recognised professional body, the rules of that organisation or body.")
§
Page 103, line 1, after ("person") insert (", other than an authorised person.").
§
Page 103, line 17, leave out ("a document") and insert ("information").
§
Page 103, line 19, leave out ("the preparation of, or of") and insert (". or for").
§
Page 103, line 22, leave out ("document if the document") and insert ("information if that information").
§ The noble Lord said: These amendments result from the sympathetic consideration promised in the other place for the Stock Exchange's concern that Clause 128, as drafted, would result in its being unnecessarily swamped with documents to examine.
§ The amendments are an attempt to devise a sensible, pragmatic solution to the problems arising from a rather ill-defined obligation imposed by the listing particulars directive. Essentially, we propose that the Stock Exchange should specify in its listing rules the documents it considers it ought to see before publication and that breaches by authorised persons should be treated as civil, rather than criminal, matters. With that explanation, I beg to move these amendments en bloc.
§ On Question, amendments agreed to.
§ Clause 128, as amended, agreed to.
§ Clauses 129 to 131 agreed to.
§ Clause 132 [Preliminary]:
§
Lord Brabazon of Tara moved Amendment No. 310:
Page 106, line 6 at end insert—
§
("() In this Part of this Act "the registrar of companies", in relation to any securities, means—
§
§
() In this Part of this Act "approved exchange", in relation to dealings in any securities, means a recognised investment exchange approved by the Secretary of State for the purposes of this Part of this Act either generally or in relation to such dealings, and the Secretary of State shall give notice in such manner as he thinks appropriate of the exchanges which are for the time being approved.")
§ The noble Lord said: In moving this amendment I propose at the same time to speak to Amendments Nos. 311 to 315, 319, 336 to 339,341 to 344, 370and 405.
§ These amendments fulfil an undertaking given in the other place in regard to statutory recognition for the rules of recognised investment exchanges. As anticipated by my honourable and learned friend, this has proved to require rather more than the single line amendment proposed in the other place and has involved quite a radical re-shaping of Part V. This is necessary in order to allow for the fact that, in gaining admission to a recognised exchange, the issuer is entering into a system of continuous disclosure. There is no such requirement, beyond the normal Companies Act reporting requirements, where shares are not traded on a recognised exchange and information is largely limited to the single snapshot view of the prospectus rather than the moving picture of continuous disclosure. The amendments take account of this difference; for example, by allowing offerers to be relieved of the need to produce a prospectus in certain circumstances where an earlier document, augmented by continuous disclosure, provides sufficient information.
§ The amendments introduce a sub-species of recognised investment exchange—approved recognised investment exchanges, to which I will refer by the astrological acronym of ARIEs. ARIEs may substitute their own prospectus rules for those of the Secretary of State, and, as I have said, may relieve offerors of the need for a prospectus in certain cases.
§ The view that the rules of a recognised exchange should have equal validity with statutory prospectus requirements is not a new concept. Under Section 76 of the Companies Act 1985, a provision which goes back to 1947, the Stock Exchange is permitted to grant certificates of exemption from the prospectus contents requirements of that Act. The amendments build on this precedent and give additional flexibility. If an exchange's rules require offerors to provide information which is at least equivalent to that required by the rules of the Secretary of State, it seems entirely appropriate to enable the exchange's rules to apply instead. This avoids issuers having to bear the unnecessary burden of complying with two different sets of requirements. The condition that the disclosure rules be at least equivalent will ensure that investors receive no less information, and will probably receive more. For example, the Stock Exchange's rules for the 699 unlisted securities market go considerably beyond the current Companies Act disclosure requirements.
§ This principle is extended also to overseas prospectus law. The Secretary of State will be empowered to make an order that issuers from an overseas country need only comply with their domestic law if this appears to the Secretary of State to provide UK investors with at least equivalent protection as Parts IV or V. Securities are becoming increasingly internationalised, and multi-national offers are expected to become more common. The flexibility to recognise foreign law will help the UK attract overseas issuers without prejudicing investor protection. I commend these amendments to the Committee. I beg to move.
§ On Question, amendment agreed to.
§ Clause 132, as amended, agreed to.
§
Lord Brabazon of Tara moved Amendment No. 311:
After Clause 132, insert the following new clause:
§ ("Offers of securities on admission to approved exchange.
§
§ The noble Lord said: I spoke to this with Amendment No. 310. I beg to move.
§
Lord Hacking moved, as an amendment to Amendment No. 311, Amendment No. 311A:
Line 6 of subsection (2), after ("securities") insert ("or their professional advisers").
§ The noble Lord said: Again I am attempting to take the blessed role of improving government amendments. Amendments Nos. 311A and 311B are directed to improving Amendment No. 311, which I anticipate will shortly receive the assent of the Committee. Amendment No. 311A concerns Part V of the Bill which deals with offers of unlisted securities, in contrast to Part IV, which deals with the admission of securities to listing.
§ In considering what information is required under Part IV for listing particulars, account may be taken of the information which the professional advisers of investors are likely to have. This amendment enables account to be taken (for purposes of Part V as well) of information available to professional advisers. That is the reason for moving Amendment No. 311A.
§ If I may, I shall also address the Committee on Amendment No. 311B, and in doing so I may also pass comment on Amendment No. 326A. 700 Amendment No. 311 governs the information which must be mentioned in an advertisement issued when securities are admitted to dealings on an exchange (otherwise than to the official list of the Stock Exchange). It allows account to be taken of certain information already available to investors in earlier prospectuses. If the issuer already has securities dealt in on that exchange, it will, however, have been required to provide information to the exchange to satisfy its "continuing obligations" following the earlier admission to dealing. This obligation to provide continuing information has to be imposed by the exchange under paragraph 2(2)(b) of Schedule 3. No reference is made in Amendment No. 311 to such information. The suggested amendment provides that account may be taken of such information when assessing what needs to be made available to investors. I beg to move Amendment No. 311A.
§ Lord Brabazon of TaraI must advise the Committee to reject these amendments. I would stress that as far as the first and second amendments are concerned, I do so purely on practical grounds and not from any objections of principle. Indeed, I can readily subscribe to the thinking behind them. My case is simply that they are not necessary to achieve the desired result. So far as concerns Amendment No. 326A, I considered carefully whether there should be power for an approved exchange to derogate from the general duty. I have to say that I am not satisfied that a case has been made out.
It is true that there is an equivalent in Clause 125 but it is there because it appears in the relevant directive. There is no equivalent in the present text of the draft directive, which is currently being negotiated, covering much the same ground as Part V. That makes it immensely important not to restrict our room for manoeuvre, as the amendments inevitably would. If such a provision were to appear in the final text, it would be possible to amend the Act by regulations under the European Communities Act to permit it.
The proposed directive is a recent revival, much modified by the Commission, of a proposal originally put forward in 1981, upon which your Lordships' scrutiny committee held hearings and published a report. Major differences between the member states caused negotiations to be suspended for some two years. The Council secretariat will shortly be issuing a text embodying the outcome of discussions under the Dutch presidency on the modified proposals. As soon as this is to hand, the department will furnish those concerned with copies and invite their comments in the normal way. For those reasons, I am afraid that I cannot accept the amendments.
§ 12 midnight
§ Lord HackingI have heard the Minister's reply. I ask the leave of the Minister and the Committee to give further consideration to that reply. On that basis, I beg leave to withdraw the amendment.
§ Amendment to the amendment, by leave, withdrawn.
§ [Amendment No. 311B not moved.]
§ On Question, Amendment No. 311 agreed to.
701
§
Lord Brabazon of Tara moved Amendment No. 312:
After Clause 132, insert the following new clause:
§ (" Oilier offers of securities.
§
§ The noble Lord said: I spoke to this amendment with Amendment No. 310. I beg to move.
§
Lord Hacking moved, as an amendment to Amendment No. 312, Amendment No. 312A:
Line 3 of subsection (3)(a), after ("view") insert ("(on the part of both that person and the issuer)").
§ The noble Lord said: Subsection (3) defines a "secondary offer" where the offer involves securities which have not been admitted for dealings on any exchange. A prospectus is required where there is a primary offer (where securities are issued direct to the public) or a secondary offer, as I have just explained to the Committee. No prospectus is required in the case of other offers.
§ A secondary offer includes an advertisement offering securities if that advertisement was issued by a person who acquired the securities directly or indirectly from the issuer with a view to issuing the advertisement. It is not clear what involvement the issuer must have for an advertisement to be a secondary offer. If a person buys shares, for example, from certain aged shareholders of a family company with a view to offering them to the public, it would appear that the offer could be a secondary offer even if the company and its directors were not involved in or even aware of the offer or the original acquisition of shares.
§ Such operations could be adequately covered by the conduct of business rules applicable to authorised persons. It seems unnecessary to require a prospectus when making the offer. A prospectus should be required only if the company as well as the offerer intended, when the offeror acquired the securities, that the acquisition was with a view to the offeror issuing the advertisement. The amendment that I have tabled seeks to achieve that objective. I beg to move.
§ Lord Brabazon of TaraI have strong reservations about this amendment. It would open a considerable loophole in Part V. A prospectus would be required only for a secondary offer if the issuers as well as the intermediary intended that the securities would be on-sold.
Part V is based on the concept that a prospectus should be required when securities which have not been admitted to listing on an approved exchange are offered for the first time by the issuer or by someone else who acquired them for that purpose. I am not convinced that in the latter case the intentions of the issuer affect the justification for acquiring a prospectus for the benefit of potential investors who need the information to decide whether to acquire the securities.
In many such cases, the issuer will have little or no interest in what the intermediary does with the securities. Where there is a chain of intermediaries, the issuer can have a little knowledge of or influence over what is to happen to them, and yet from the public's point of view the outcome looks the same. With a public offer of new securities it should be incumbent upon the offeror to produce a prospectus.
We have already moved a considerable way towards meeting the views of those who argued that Part V went too wide by restricting it to the secondary offers defined in subsection (3). I do not think that it would be in investors' interests to go any further. I must therefore ask the Committee not to accept the amendment.
§ Lord HackingI have said my piece. Nothing will be gained in the Committee at this hour of the night by repeating the argument or taking up other points made 703 by the Minister. The provision is worthy of further consideration. There is plenty of time before Report. I hope that advantage will be taken during the weeks ahead to give this amendment further consideration. Having made that comment, I beg leave to withdraw the amendment.
§ Amendment to the amendment, by leave, withdrawn.
§ On Question, Amendment No. 312 agreed to.
§
Lord Brabazon of Tara moved Amendment No. 313:
After Clause 132, insert the following new clause:
§ (" Exceptions.
§
§ The noble Lord said: I spoke to this amendment with Amendment No. 310. I beg to move.
§ On Question, amendment agreed to.
§ Clause 133 [Registration and publication of prospectus]:
§ On Question, Whether Clause 133 shall stand part of the Bill?
§ Lord Brabazon of TaraClause 133 has been made redundant by Amendments Nos. 310 to 313 to which the Committee has agreed.
§ On Question, clause negatived.
§ Clause 134 [Form and content of prospectus]:
§
Lord Brabazon of Tara moved Amendment No. 134:
Page 107, line 4, at end insert—
§
(" (3) If it appears to the Secretary of State that an approved exchange has rules in respect of prospectuses relating to securities dealt in on the exchange which provide investors with information at least equivalent to that required by rules under this section he may direct that any such prospectus shall be subject to the rules of the exchange instead of the rules made under this section.").
§ The noble Lord said: I spoke to Amendment No. 134 with Amendment No. 310. I beg to move.
§ On Question, amendment agreed to.
§ Clause 134, as amended, agreed to.
§ Clause 135 [General duty of disclosure in prospectus]:
§
Lord Brabazon of Tara moved Amendments Nos. 315 to 318:
Page 107, line 6, leave out (" made under ") and insert (" applying to it by virtue of").
Page 107, line 7, leave out (" with respect to ") and insert (" as investors and their professional advisers would reasonably require, and reasonably expect to find there, for the purpose of making an informed assessment of— "). Page 107, leave out lines 12 to 15. Page 107, line 16, leave out subsection (2) and insert—
(" () The information to be included by virtue of this section shall be such information as is mentioned in subsection (1) above which is within the knowledge of any person responsible for the prospectus or which it would be reasonable for him to obtain by making enquiries.
() In determining what information is required to be included in a prospectus by virtue of this section regard shall be had—
§
§ The noble Lord said: I have spoken to all the amendments to Clause 135, Amendment No. 315 with amendment No. 310 and the remainder with Amendment No. 277. I beg to move.
§ On Question, amendments agreed to.
§ Clause 135, as amended, agreed to.
§ Clause 136 [Supplementary prospectus]:
§
Lord Brabazon of Tara moved Amendments Nos. 319 to 326:
Page 107, line 27. leave out ("under") and insert ("applying to it by virtue of).
Page 107, line 28, at end insert ("; or").
Page 107, line 29, after ("a") insert ("significant").
Page 107, line 31, leave out from ("prepared") to end of line 35.
Page 107, line 36, leave out from first ("the") to end of line 37 and insert ("person who delivered the prospectus for registration to the registrar of companies shall deliver to him for registration").
Page 107, line 39, leave out (", as the case may be, correcting that mistake").
Page 107, line 40, leave out subsection (2) and insert—
("() In subsection (1) "significant" means significant for the purpose of making an informed assessment of the matters mentioned in section 135(1) above.
() Where the person who delivered the prospectus for registration is not aware of the change or new matter in question he shall not be under any duty to comply with that subsection unless he is notified of it by a person responsible for the prospectus 705 but any person responsible for the prospectus who is aware of such a matter shall be under a duty to give him notice of it.").
Page 108, line 8, leave out subsection (4).
§ The noble Lord said: I spoke to Amendment No. 319 with Amendment No. 310. The remaining amendments I spoke to with Amendment No. 283. With the leave of the Committee, I should like to move the amendments en bloc.
§ On Question, amendments agreed to.
§ Clause 136, as amended, agreed to.
§
Lord Hacking had given notice of his intention to move Amendment No. 326A:
After Clause 136, insert the following new clause:
§ ("Saving for omissions from prospectus.
§
§ The noble Lord said: I have already addressed the Committee on this amendment when discussing Amendments Nos. 311A and 311B. I withdrew those amendments. In the circumstances, therefore, it is not my intention, at this stage, to move this amendment.
§ [Amendment No. 326A not moved.]
§ Clause 137 [Compensation for false or misleading prospectus]:
§
Lord Brabazon of Tara moved Amendments Nos. 327 to 329:
Page 108, line 13, after ("(1)") insert ("Subject to section (Exemption from liability to pay compensation) below,").
Page 108, line 13, leave out ("the preparation of").
Page 108, line 16, at end insert ("in respect of them").
§ The noble Lord said: I spoke to Amendments Nos. 327, 328 and 329 with Amendment No. 279. I beg to move the three amendments together.
§ On Question, amendments agreed to.
§
Lord Brabazon of Tara moved Amendment No. 330:
Page 108, leave out line 19, and insert ("section 135 or 136 above.
() Where rules applicable to a prospectus by virtue of section 134 above require it to include information as to any particular matters or, if there are no such matters, a statement to that effect, the omission from the prospectus of the information shall be treated for the purposes of subsection (1) above as a statement that there are no such matters.").
§ The noble Lord said: I spoke to this amendment with Amendment No. 295. I think I implied at that stage to the noble Lord, Lord Hacking, who is now to move a manuscript amendment to Amendment No. 330, that I would be prepared to accept his manuscript amendment to my own Amendment No. 330. I beg to move.
§
Lord Hacking moved, as a manuscript amendment to Amendment No. 330:
Leave out from ("particular") to the end and insert ("matter on the basis that the prospectus must include a statement either as to that matter or, if such is the case, that there is no such matter, the omission from the prospectus of the information shall be treated for the purposes of subsection (1) above as a statement that there is no such matter.").
§
The noble Lord said: The new subsection is in the form of a manuscript amendment. I have given notice of that manuscript amendment to some noble Lords—not very long notice, I am afraid—and have distributed copies of it. It deals with the problem of prospectuses. My amendment attempts to deal with exactly the same area as the Government's amendment, and the Government have been kind enough to accept my amendment, which answers the problem slightly better than theirs does. I think I should, therefore, read out the amendment so that there is a full record of it. My manuscript amendment to Amendment No. 330 reads as follows:
Leave out from ("particular") to the end and insert ("matter on the basis that the prospectus must include a statement either as to that matter or, if such is the case, that there is no such matter, the omission from the prospectus of the information shall be treated for the purposes of subsection (1) above as a statement that there is no such matter.").
§ That is my manuscript amendment. I beg to move.
§ On Question, amendment to the amendment agreed to.
§ The Deputy Chairman (Lord Airedale)I have to point out that there is a printing correction to be made to Amendment No. 330 as it appears on the Marshalled List. In the first line, the word "by" should be deleted.
§ On Question, Amendment No. 330, as amended, agreed to.
§
Lord Hacking had given notice of his intention to move Amendment No. 330A:
Page 108, leave out line 19 and insert ("section 135 or 136 above").
§ The noble Lord said: I do not want to delay the Committee at this late hour. My amendment has the word "by" removed and begins correctly. Having said that, we have now agreed Amendment No. 330 with the word "by" removed, so my Amendment No. 330A is redundant.
§ [Amendment No. 330A not moved.]
§
Lord Brabazon of Tara moved Amendment No. 331:
Page 108, line 20, after ("(2)") insert ("Subject to section (Exemption from liability to pay compensation) below,").
§ The noble Lord said: I have spoken to Amendment No. 331 with Amendment No. 279, as I have to Amendments Nos. 332, 333, and 334.
§ On Question, amendment agreed to.
§
Lord Brabazon of Tara moved Amendments Nos. 332 and 333:
Page 108, line 22, after ("loss") insert ("in respect of them").
§
Page 108, line 24, leave out subsection (3) and insert—
§
("() This section does not affect any liability which any person may incur apart from this section.
§
() References in this section to the acquisition by any person of securities include references to his contracting to acquire them or an interest in them.").
§ On Question, amendments agreed to.
§ Clause 137, as amended, agreed to.
§
Lord Brabazon of Tara moved Amendment No. 334:
After Clause 137, insert the following new clause:
§ (" Exemption from liability to pay compensation.
§
§
Lord Hacking had given notice of his intention to move, as an amendment to Amendment No. 334, Amendment No. 334A:
At the end of subsection (1), insert, ("in respect of which the prospectus or supplementary prospectus was published").
§ The noble Lord said: I am caught by surprise. I thought my work was done. I think that I have already dealt with this at an earlier stage. In any event I shall not be moving the amendment.
§ [Amendments Nos. 334A to 334J not moved.]
§ On Question, Amendment No. 334 agreed to.
§
Lord Brabazon of Tara moved Amendment No. 335:
After Clause 137, insert the following new clause:
§ (" Persons responsible for prospectus.
§
§ The noble Lord said: I have spoken to this with Amendment No. 279. I beg to move.
§ [Amendments Nos. 335A to 335E not moved.]
§
Lord Hacking moved, as an amendment to Amendment No. 335, Amendment No. 335F:
At end insert—
§
(" () Where by virtue of this section the issuer of any shares pays or is liable to pay compensation under section 137 above for loss suffered in respect of shares for which a person has subscribed no account shall be taken of that liability or payment in determining any question as to the amount paid on subscription for those shares or as to the amount paid up or deemed to be paid up on them.").
§ The noble Lord said: I move this amendment. I think that the Minister has intimated a willingness to accept this amendment. On that basis, unless noble Lords wish me to give the detail of it, I shall not do so.
§ On Question, amendment to the amendment agreed to.
§ On Question, Amendment No. 335, as amended, agreed to.
§ Clause 138 agreed to.
§ Clause 139 [Advertisements by private companies and old public companies]:
§
Lord Brabazon of Tara moved Amendment No. 336:
Page 109, line 3, at end insert—
("(1 A) Subsection (1) above shall not apply to an advertisement issued in such circumstances as may be specified by an order made by the Secretary of State for the purpose of exempting from that subsection such advertisements as are mentioned in section (Other offers of securities) (6)(a), (b) or (c) above.
(1B) An order under subsection (1A) above may require any person who by virtue of the order is authorised to issue an advertisement to comply with such requirements as are specified in the order.
(1C) An order under subsection (1 A) above shall be subject to annulment in pursuance of a resolution of either House of Parliament.").
§ The noble Lord said: 1 spoke to this amendment with Amendment No. 310. I beg to move.
§ On Question, amendment agreed to.
§ Clause 139, as amended, agreed to.
§ On Question, Whether Clause 140 shall stand part of the Bill?
§ Lord Brabazon of TaraThe need for Clause 140 disappeared with the Committee's acceptance of the group of amendments which were dealt with when I moved Amendment No. 310. I therefore oppose the Question, That Clause 140 shall stand part of the Bill.
§ On Question, Clause 140 negatived.
§ Clause 141 [Contraventions]:
§
Lord Brabazon of Tara moved Amendments Nos. 338 to 344:
Page 109, line 32, leave out ("133") and insert ("Offers of securities on admission to approved exchange) or (Other offers of securities)").
§
Page 109, line 35, leave out ("140") and insert ("Other offers of securities) (6) or 139").
§
Page 110, line 4, after ("or") insert ("certification by a").
§
Page 110, line 11, leave out ("133") and insert ("Offers of securities on admission to approved exchange) or (Other offers of securities)").
§
Page 110, line 12, leave out ("140") and insert ("Other offers of securities) (6) or 139").
§
Page 110, line 18, at end insert—
§
(" () A person who in the ordinary course of a business other than investment business publishes an advertisement to the order of another person shall not be guilty of an offence under subsection (3) above in respect of a contravention of section (Offers of securities on admission to approved exchange) or (Other offers of securities) above if he proves that the matters contained in the advertisement were not (wholly or in part) selected or devised by him or by a person under his direction or control and that he believed on reasonable grounds after due enquiry that neither of those sections applied to the advertisement or that one of those sections had been complied with in respect of the advertisement.").
§
Page 110, line 21, leave out ("133") and insert ("Offers of securities on admission to approved exchange) or (Other offers of securities)").
§ The noble Lord said: I spoke to Amendment No. 338 when we dealt with Amendment No. 310, and I also spoke to Amendment No. 339 and Amendments Nos. 341 to 344. I spoke to Amendment No. 340 with Amendment No. 79. I beg to move Amendments Nos. 338 to 344.
§ On Question, amendments agreed to.
§ Clause 141, as amended, agreed to.
§ Lord Brabazon of TaraI think that we have reached a suitable moment to resume the House. I beg to move that the House do now resume.
§ Moved accordingly, and, on Question, Motion agreed to.
§ House resumed.
§ House adjourned at twenty-four minutes past midnight.