Financial Services Bill

HL Deb 29 July 1986 vol 479 cc802-22

House again in Committee.

Lord Terrington moved Amendment No. 377A:

After Clause 165, insert the following new clause:

("Data Protection Act 1984.

.—(1) An order made under section 30 of the Data Protection Act 1984 (regulation of financial services etc.) shall include provision for restricting the rights of subject access to such records held by recognised self-regulation organisations as are specified in the order.").

The noble Lord said: This amendment is designed to ensure that SROs will be able to perform their investigatory duties without fear of falling foul of the Data Protection Act's provisions regarding a person's right to access any data held on an electronic database. The point is that the Data Protection Act allows certain exemptions to the normal rights of a data subject to access personal information held about them on an electronic database. Access to personal data held for the purpose of discharging statutory functions need not be granted if it would be likely to prejudice the proper discharge of those functions.

This exemption is necessary to permit authorities the right to gather information in the course of an investigation without fearing that the subject of their inquiries will demand access. The Data Protection Act specifically exempts data held for protection against or the detection of crime and uses Section 30 to extend this to cover other statutory duties. The problem is that investigations by the Stock Exchange's surveil-lance division into breaches of its membership rules could be compromised if a data subject demanded access to all personal information held on a Stock Exchange database. Such access could lead to the person being investigated to destroy or alter evidence prior to a disciplinary hearing.

At present the Stock Exchange could apply for an exemption on the basis that it was performing statutory duties. This will not be possible, however, when the Financial Services Bill comes into force. Under its terms SROs will not be performing statutory duties per se when they exercise supervision of their members and will not be technically eligible to claim an exemption under the Data Protection Act.

I understand that discussions have been taking place about this matter with the Department of Trade and Industry and the Home Office and, as this is in the nature of a probing amendment, I would ask the Government to give an undertaking to consider the matter further and perhaps to come up with their own amendment at a later stage in the Bill. I beg to move.

Viscount Bridgeman

I must declare an interest: I am a member of a stockbroking partnership. The surveillance division of the Stock Exchange has recently been expanded and is absolutely central to the self-regulatory role. It will totally negate its functions if, for example, a data subject under surveillance is able in effect to have access to his or her own files, and I would very much hope that the Minister will remove this anomaly between the Data Protection Act and this Bill.

Lord Seebohm

I should like to make a very brief intervention on this amendment because I have been in the City for a very long time and I believe that the SROs are bound to collect an enormous amount of very confidential information. They cannot help it; they have got to do it, and I think that every protection that is possible must in fact be implemented.

Lord Brabazon of Tara

The noble Lord, Lord Terrington, has raised a very important point in this amendment. The Data Protection Act contains provisions in Section 30 for an order to be made which excludes from the subject access provisions of that Act to personal data kept in connection with the protection of the public from financial loss due to the malpractice of those concerned in the provision, inter alia, of financial services.

The noble Lord, Lord Terrington, has suggested that without such an exclusion a person who suspected that he was under surveillance by a regulatory authority could use his right of access under the Data Protection Act to find out what information was known about him. As the noble Lord said, he could then cover his tracks and possibly avoid conclusive proof of his malpractice being uncovered.

It has been represented that the wording of Section 30 should explicitly refer to records kept by self-regulating organisations about their members, as some of them feel that the present text of Section 30 may not achieve this. These SRO records may contain information of the sort just mentioned, which ought not to be disclosed to individuals in case it helps them to cover their tracks.

In the light of this evening's exchanges and the contributions by my noble friend Lord Bridgeman and the noble Lord, Lord Seebohm, I shall certainly consider whether there is a case for an amendment. I shall return to the point on Report and, with that undertaking, I hope that the noble Lord, Lord Terrington, will feel able to withdraw his amendment at this stage.

Lord Terrington

I very much appreciate the support that I have received from various quarters of the Committee and I am grateful for the assurance that the noble Lord, Lord Brabazon, has given to me. I shall most certainly beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Clause 166 agreed to.

Clause 167 [False and misleading statements]:

Lord Williams of Elvel moved Amendment No. 377B:

Page 136, line 13, leave out subsection (1).

The noble Lord said: I beg to move Amendment No. 377B standing in my name and that of my noble friend Lord Morton of Shuna. This is in the nature of a probing amendment into Clause 167(1). We are here dealing with false and misleading statements. I understand fully that if somebody furnishes information which he or she knows to be false or misleading in a material particular, he or she commits an offence. Perhaps I may just ask the Committee to note that the word "commits" has two "m"s rather than one "m" as it is printed at this point in the Bill.

What I am a little worried about is the expression, recklessly furnishes information which is false or misleading in a material particular".

I wonder whether the noble Lord can very kindly give us some sort of definition of what on earth this means. I beg to move.

Viscount Colville of Culross

I think the noble Lord, Lord Williams, has got a point. There is a Bill running parallel to this one called the Public Order Bill, and in that there has been an abandonment of the expression "reckless", because the Law Commission has investigated this matter and has come to the conclusion that the case law on it at the moment is a little obfuscated. The Law Commission has gone over to the expression "is aware that". It would be an amazing thing, would it not, supposing that we are talking about the same sort of recklessness—though we may not be—that we have in the same Session at the same time two Bills containing two entirely inconsistent phrases?

Lord Lucas of Chilworth

I am grateful to the noble Lord, Lord Williams, for telling us that he was in fact probing. I read his amendment rather differently so I shall have to abandon the notes that I have in front of me. In the light of the reminder to the Committee of my noble friend Lord Colville that we have another extremely important Bill passing through Parliament which abandons these words, the Committee may find it agreeable if I say that I should like to look at this.

The word "knowingly" is I am sure quite understood. By "reckless", we mean not caring whether true or false; so carelessly as to be culpable of a falsity. I do not know whether that helps the noble Lord. I suspect that it probably does in the light of what I have just said, but we really ought to have a look at it. On the other hand, if one uses the phrase "is aware that" in a way that means "knowingly", on its own and quite separate for from anything else that may be written alongside, it is very much weaker.

I am advised that in the context of the Public Order Bill, to which noble friend referred, it is quite different. However, having made the offer, I would not want to withdraw it. In the light of what my noble friend has said, we might have a look at it, but that is essentially what we mean by the term "reckless".

Lord Williams of Elvel

I am most grateful to the noble Lord for his response, which I thought was perhaps more encouraging before he received a message from a carrier pigeon than afterwards. My noble friend Lord Morton of Shuna, who is associated with me in this amendment, points out that the word "reckless" is differently interpreted in Scotland from England and Wales. Therefore I willingly accept the noble Lord's assurance that he will have another look at the wording, and, in the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 167 agreed to.

Clause 168 [Prosecutions]:

Lord Morton of Shuna moved Amendment No. 379:

Page 137, line 19, after ("(b)") insert ("in Scotland except by or with the consent of the Secretary of State or the Lord Advocate; or (c)")

The noble Lord said: This amendment is aimed at correcting the omission from Clause 168 of any mention of Scotland. There may be an answer, so it is in the nature of a probing amendment, but Clauses 114 and 154. unlike other clauses, do not stage where the action is to start. Other clauses say that in relation to Scotland it has to start in the High Court, where it runs in the name of the Lord Advocate but, as the noble Lord opposite will be well aware, is started by a petition in the name of the procurator fiscal. If it is a sheriffs court action, which would be necessary if it was a summary action, it would again be in the name of the procurator fiscal.

Having had the honour of serving four different Lord Advocates in the Crown Office, I am quite aware that the Lord Advocate can issue instructions but I am also aware that in certain cases such as prosecutions by the Customs and Excise these are done by the Customs and Excise and not by the Lord Advocate. Is it the intention that the permission of the Lord Advocate or the Secretary of State will be necessary, or in Scotland can offences be prosecuted by anybody who has authority to prosecute for offences?

8.45 p.m.

Lord Lucas of Chilworth

Would that my noble and learned friend the Lord Advocate were here! However, he advises me—and the noble Lord, Lord Morton of Shuna. will accept that I repeat the advice which has been given to me and offer no further answer—that as a matter of Scottish constitutional law all prosecutions in Scotland are initiated by or with the consent of the Lord Advocate.

Lord Morton of Shuna

The Lord Advocate, who is the premier law officer in Scotland, controls the procurators fiscal but I am not sure that constitutionally that is right. The procurator fiscal in his own area is entitled to raise his own prosecution unless there is an instruction of a certain type given by the Lord Advocate that he may not do so. Does the noble Lord mean that the Lord Advocate will give an instruction? If so, would it not be better just to advertise the existence of Scotland at least in Clause 168 and to say specifically that prosecutions in Scotland are not to take place without the consent of the Lord Advocate? If that is not objectionable to the Government I should be perfectly prepared to withdraw the amendment and produce another at Report stage.

Lord Lucas of Chilworth

I rather like the last remark of the noble Lord, Lord Morton of Shuna. Perhaps he would like to do that and then I can consult with my noble and learned friend the Lord Advocate. That might produce a far more satisfactory reply than my guessing at it.

Lord Morton of Shuna

I am much obliged, and, subject to that proviso, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 379 and 380 not moved.]

Clause 168 agreed to.

On Question, Whether Clause 169 shall stand part of the Bill?

Lord Morton of Shuna

I rise to speak in order to get more information, which I am sure we shall get from the Government, on the legal question of where the onus of proof is to lie under subsection (3). Is a partner to have the onus of proving that he is ignorant or that he attempted to prevent the commission of the offence; or is the prosecution to prove that he was not ignorant and did not attempt to prevent the offence? It is a rather serious matter. It is very important and it is far from clear. A partner who is proved"— proved by whom?

Lord Lucas of Chilworth

I hope that I shall be able to help the noble Lord, because I was a little surprised when I saw that he and his noble friend had given notice that they wished to oppose the Question, That Clause 169 shall stand part of the Bill. It is a technical clause—in this the noble Lord is absolutely right. It contains the general provisions to enable proceedings in respect of offences to be brought against individual directors, officers or partners, as well as against their respective organisations. I think the noble Lord will accept that as being correct.

The onus of proof will lie on those who bring the charge—I think the term is the prosecution. It is not the other way round. This is probably the defence for which the noble Lord is looking.

Lord Morton of Shuna

That is all very well but it does not say so in the Bill. As the noble Lord will be fully aware, it is quite incompetent to refer in court to anything that is said in any debate in either Chamber, and therefore this remains a matter for a court's interpretation unless it is made clear in the Bill which way the onus lies. It could be interpreted that it is for the partner to prove a defence. If that is not intended, then it should be made clear.

Lord Lucas of Chilworth

I do not know whether I can help the noble Lord. The onus of proof of the offence is on the prosecution. The partner, or whoever it is, has to prove that he should have known. He will have to prove that, and I understand that such is a common form of provision. However, I am not sure that I am right. I am not of the legal profession. I would prefer to take further advice. It would be sensible if I were to write to the noble Lord with the interpretation that we place on that provision. If he wishes to pursue the matter further in your Lordships' House, then he will have the opportunity to do so.

Lord Morton of Shuna

I am much obliged. I look forward to receiving that letter, a copy of which will no doubt be made available in the Library for anybody else who may be interested. The primary point is that to prove ignorance is very difficult for a prosecution. It could well be interpreted that that was a defence rather than a prosecution onus.

Clause 169 agreed to.

Clause 170 agreed to.

Clause 171 [Service of notices):

Lord Brabazon of Tara moved Amendment No. 381:

Page 139, line 39, at end insert—

("(d) in the case of an appointed representative, be given to or served on his principal.")

The noble Lord said: This is a further amendment in the group beginning with Amendment No. 114 which makes technical improvements to the regime for appointed representatives. This simple amendment makes it clear that to serve a document on an appointed representative, it is sufficient to serve it upon his principal. I beg to move.

Lord Brabazon of Tara moved Amendment No. 382:

Page 140, line 4, after ("or") insert ("a person certified by a").

The noble Lord said: This amendment was spoken to with Amendment No. 79. I beg to move.

On Question, amendment agreed to,

Clause 171, as amended, agreed to,

Clause 172 [Regulations, rules and orders]:

Viscount Colville of Culross moved Amendment No. 383:

Page 140, line 26, after ("State") insert ("or a self-regulating organisation").

The noble Viscount said: This is a common form, technical provision as well, in subsection (3), and of course it is absolutely right as it stands that the regulations, rules and orders made by the Secretary of State may indeed make different provisions for different cases, because there will be an enormous number of different cases for which provision will have to be made.

The problem is that Clause 172 deals with rules made under the Act. It is not only the Secretary of State who will make rules under the Act. The SROs will be making rules, and there are references to those in Clause 8(1) and in Clause 10(3). The RPBs will be making rules. That is in Clause 115(1)(b), and there is another reference in Clause 18(2)(b). Indeed, there are other references with which I shall not bore the Committee at the moment.

There is no delegation that provides, for instance, under Clause 96 of the Bill, that those rules are effectively part of the functions of the Secretary of State. They are separate exercises provided for in the Bill by separate bodies called SROs and RPBs—and they are rules. I would have thought—and I invite the Committee to consider this possibility—that SROs, of which there will not be all that number, will be covering a substantial different number of investment activities. Therefore, they also will want a statutory power to make rules that differ for different cases. If Clause 172(3) stands as drafted, there will be a possible doubt whether they can do that, because that provision applies only to rules made by the Secretary of State under the delegation powers by the SIB. Would it not be better if we were to provide for the rules to be made by those other people also to provide for different rules for different cases? I beg to move.

Lord Lucas of Chilworth

I am grateful to my noble friend for his explanation of the purposes of his amendment. As he explained it, and as I understand his amendment, it seeks to extend the provisions of subsection (3) so that rules and regulations made by an SRO may make different provisions for different cases. However, Schedule 2, paragraph 1(2), requires an SRO covering investment businesses of different kinds to have appropriate rules and practices. Under the Bill, SRO rules will have to be compared with rules made by the Secretary of State or by the designated agency.

It will be up to the SROs seeking recognition to make such changes to their constitutions as are necessary to empower them to make rules meeting the recognition requirements. There is therefore no need for the express provision suggested in the amendment.

I agree with my noble friend that SROs will need to have an ability. However, they will not be making rules under the Bill, and it is up to them to make sure that they have the necessary rule-making powers. They can then be expected to need such a power. In the circumstances that I have outlined—and I listened carefully to what my noble friend had to say—I can assure my noble friend that his amendment is unnecessary. I ask him whether he would care to withdraw it.

Viscount Colville of Culross

Nothing would give me greater pleasure than to withdraw my amendment if it is unnecessary. I believe that rather than being a matter of interpretation for the courts, this is a matter for the interpretation, first of the department and then of the SIB. If my noble friend is assuring me—and perhaps it would be kind if he would confirm this—that there will be no problem for the SROs to make rules that differentiate between different circumstances and different classes, and to find that they are accepted, then there is absolutely no reason to put anything more in the Bill. However, it is an administrative matter. If my noble friend will confirm exactly what he means, then we can certainly leave the matter there.

Lord Lucas of Chilworth

Let me make it clear what I do mean. SROs will be making rules under their own constitutions. They must have rules as a condition for recognition. The difference is that they will not be making rules under the Bill, but they will certainly have to make rules under their own constitutions. So long as those rules are at least equivalent to the rules which the SIB, or the Secretary of State or the designated agency, make, then they can do anything they like. They can therefore provide for the various differences that the noble Viscount seeks an assurance will be covered.

Viscount Colville of Culross

I am grateful to my noble friend. That is entirely clear and I am sure that the department and the SIB will be held to that. In those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 384 not moved.]

Clause 172 agreed to.

9 p.m.

Clause 173 [Interpretation]:

Lord Brabazon of Tara moved Amendments Nos. 385 to 389:

Page 141, line 5, at end insert—

(" "certified" and "certification" mean certified or certification by a recognised professional body for the purposes of Pan I of this Act;").

Page 141, line 29, leave out ("16") and insert ("Professional bodies").

Page 141, line 38, leave out ("16") and insert ("Professional bodies").

Page 142, line 8, at end insert—

(" "overseas investment exchange" and "overseas clearing house" mean a recognised investment exchange or recognised clearing house in the case of which the recognition order was made by virtue of section (Overseas investment exchanges and clearing houses) above;").

Page 143. line 12, leave out ("16") and insert ("Professional bodies").

The noble Lord said: Amendment No. 385 was spoken to with Amendment No. 79, as were Amendments Nos. 386, 387 and 389. Amendment No. 388 was spoken to with Amendment No. 111. With the leave of the Committee, I move these amendments en bloc.

Lord Hacking moved Amendment No. 390:

Page 143, line 32, after ("ccn1.") insert ("or more").

The noble Lord said: The definition of "controller" is to be found in Clause 173(3). In paragraph (a) the definition of the controller is expressed in relation to bodies corporate. In paragraph (b) it is expressed in reference to unincorporated associations. However, the test in paragraph (a) is the power to control the exercise of 15 per cent. of the voting power, whereas in paragraph (b) the test is the power to control 15 per cent. or more of the voting power.

Clearly the tests in paragraphs (a) and (b) are different and I suggest that the more appropriate test is that in paragraph (b); namely, 15 per cent. or more. For that reason, I ask the Committee to agree that the words "or more" should be included after 15 per cent. in paragraph (a). I beg to move.

Lord Brabazon of Tara

Once again I am grateful to the noble Lord, Lord Hacking, for having brought this matter to our attention. I understand that the Law Society has also been concerned with this.

The amendment corrects the defect in the definition of "controller" for the purposes of the Bill. As it stands, broadly speaking a person is a controller of a body corporate if he controls 15 per cent. of the votes in that body corporate but apparently not if he controls more than 15 per cent. That would be absurd and I, therefore, gladly accept the amendment, which corrects this defect.

Lord Hacking moved Amendment No. 390A:

Page 144. line 31, at end insert—

("() In this Act references to currency of any country or territory other than the United Kingdom include ECUs, Special Drawing Rights and any other basket or combination of currencies or similar international monetary asset.").

The noble Lord said: I have a solemn announcement to make to the Committee. This is the last of my many amendments and I should like to thank the Committee for dealing so patiently with them I also record my personal indebtedness to the Company Law Committee of the Law Society for the tremendous care which it took over this Bill and in considering so many detailed matters in it, several of which have been accepted by the Government and to many of which the Government have kindly agreed to give further consideration.

This amendment seeks to amend Clause 713. The Bill refers in various places to investments which consist of currency. For example, in paragraph 7 of Schedule 1, on page 147, there is reference to, Options to acquire … currency of the United Kingdom or of any other country or territory.

Similarly, in paragraph 25(1)(a) of Schedule 1 there is a reference to, 'property' includes currency of the United Kingdom or any other country or territory".

It is now becoming common for certain investment transactions to be in ecus, which is the European unit of account assessed by reference to a basket of currencies, or in Special Drawing Rights. Neither of these is a currency of any particular territory and it is for that reason that they do not, thus far, fall under the terms of the Bill. That is why I ask the Government to agree to this amendment. I beg to move.

Lord Williams of Elvel

This is an extremely interesting amendment from the noble Lord, Lord Hacking, and I understand that it is inspired by the Law Society. At the risk of resuming the exchange we had before dinner I remind the noble Lord. Lord Hacking, that a European unit of account is somewhat different from the ecu, which is the European Currency Unit. The European unit of account was a device used in the 1970s in which to denominate certain bonds which had, in certain respects, a similarity to the European Currency Unit but had no official standing within the Community. The European Currency Unit does have official standing within the Community, because it is the currency or the unit in which the Community budget and other expenditure is denominated.

Having said that, I confess that I am torn in two directions. There is merit in trying to specify in the Bill what is meant by a currency. On the other hand, if there is no definition of a currency it will be for the court to decide the currency. My own belief would be that I am drawn rather more to the latter solution than to the former solution. I say that because I believe that other units of account will be devised in the future about which we do not know and to put this into primary legislation, and then have an amendment to primary legislation, would be a complicated measure for any future Government to introduce.

I find I have difficulty in grasping the meaning of the expression "similar international monetary asset". I am not sure whether gold could be considered a similar international monetary asset because a number of countries keep their reserves partially in gold. I am worried about the word "basket" because that is a form of jargon that is used in the trade, but I do not think that it has any legal significance; I think it is a combination that the noble Lord is getting at, and that is probably better.

Special Drawing Rights are, in my view, quite different. It may well be that the attempts that were made in the past to link certain issues to Special Drawing Rights could be revived. So far as I remember there were about three or four Euro issues linked to Special Drawing Rights in the late 1970s. They were not successful but nevertheless there could be a revival of that type of market.

I am really saying that if we try to define "a currency" in this Bill we shall be led into some rather arcane discussions about not only what is the current practice in the Euro-markets but what will be the future practice in the Euro-markets, because having defined "a currency" or what could be referred to as a currency in the Act, I think we shall find ourselves led into speculation about the future nature of the Euro-currency markets in which I myself would not be competent to engage. So while I have great sympathy for what the noble Lord, Lord Hacking, is trying to achieve, I think that it is probably better achieved by leaving the courts to decide at any particular time what is a currency.

Lord Hacking

Before the noble Lord replies, perhaps I may say that, as a lawyer listening to a noble Lord who has considerable experience of the operation of the City, I certainly shall not argue with him as to whether an ecu is not correctly described as a European unit of account. However, is there not a problem here! If the Act restricts, references to currency of any country or territory other than the United Kingdom and if it is a fact that there are other forms of "currencies" —I use that word in inverted commas because I am not seeking to define the word but other units of value that are used in transactions—would it not be sensible some way or other to deal with the difficulty? I fully accept that my amendment may not accurately deal with the problem, but I urge the Committee to recognise that there is a problem.

Lord Williams of Elvel

I am most grateful to the noble Lord, Lord Hacking, for that intervention because I think that he has a very serious point. I suspect that when faced with the wording, currency of any country or territory the courts might not accept some of the instruments that the noble Lord, Lord Hacking, has mentioned; and I suspect that it may be right for the wording to be adjusted in some way—perhaps not in the way that the noble Lord has put forward—to accommodate securities which are issued in units of account of one form or another which do not happen to be currencies of any particular country or territory. In that sense, I support the noble Lord.

Lord Brabazon of Tara

We have had a most interesting exchange of views on this amendment and I am grateful to the noble Lord, Lord Hacking, for having raised the point. I think that the noble Lord, Lord Williams, will be happy to know that I am not going to accept this amendment outright and I did not intend to do so even before the noble Lord made his most useful contribution. I accept that there is a problem. We think that matters of this kind may already be caught by the definition of "contracts for differences", but we are not sure that the matter is beyond doubt. In fact, the noble Lord, Lord Williams, shakes his head, in which case he increases my doubt. Therefore I am certainly willing to consider this point and to undertake if necessary to bring forward an appropriate amendment on Report. I hope that on that basis the noble Lord, Lord Hacking, will feel able to withdraw his amendment for the moment.

Lord Hacking

I am more than happy to withdraw it. Since this is the last time that I intend to intervene during this Committee stage, perhaps I may just ask one general question of the noble Lord. The Bill as it will be presented to the House has been radically changed through the many amendments that have been moved thus far, and there are further matters to be considered. I think that it would greatly assist not only Members of this Committee but those outside the Chamber who have been giving close scrutiny to this Bill in a helpful manner if the noble Lord could indicate when the Bill will be reprinted, so that the next stage of discussions can go forward. The position is that we are coming up to the long Recess—I hope that it will be a long Recess before our return—and there will be an appreciable gap between the completion of this Committee stage and Report.

In view of all the amendments, many of which came at a very late stage, one wants—I am using the term "one", which normally I do not like to use; but I want to make my expressions as neutral as possible—to see the Bill reprinted as soon as possible, so that we may consider it and so that there will be plenty of time for those who wish to table amendments at Report stage to consider its terms. The horror would be that it would not be reprinted until two weeks before the Report stage.

Lord Williams of Elvel

Before the noble Lord decides what to do with his amendment, perhaps I may echo his remarks about the reprinting of the Bill. Because I think it would be of use to the noble Lord, Lord Hacking, I should also like to say that it would help us enormously if we could have a consolidation, as it were, of Notes on Clauses and Notes on Amendments, so that in the new, reprinted Bill we have a clear idea of the Government's intention on each clause.

Lord Hacking

Perhaps I may echo those views. I have spoken rather far from my amendment. I beg leave to withdraw it.

Amendment, by leave, withdrawn.

Clause 173, as amended, agreed to.

9.15 p.m.

Lord Lucas of Chilworth moved Amendment No. 391:

After Clause 173, insert the following new clause:

("Gibraltar.

1. .— (1) Subject to the provisions of this section, section 30, 53(l)(c), 78 and 111(2)(c) and (d) above shall apply as if Gibraltar were a member State.
813
2. (2) References in those provisions to a national of a member State shall, in relation to Gibraltar, be construed as references to a British Dependent Territories citizen or a body incorporated in Gibraltar.
3. (3) In the case of a collective investment scheme constituted in Gibraltar the reference in subsection (3)(a) of section 78 above to a relevant Community instrument shall be taken as a reference to any Community instrument the object of which is the co- ordination or approximation of the laws, regulations or administrative provisions of member States relating to collective investment schemes of a kind which satisfy the requirements prescribed for the purposes of that section.
4. (4) The Secretary of State may by regulations make such provision as appears to him to be necessary or expedient to secure—
1. (a) that he may give notice under subsection (2) of section 78 above on grounds relating to the law of Gibraltar; and
2. (b) that this Act applies as if a scheme which is constituted in a member State other than the United Kindom and recognised in Gbiraltar under provisions which appear to the Secretary of State to give effect to the provisions of a relevant Community instrument were a scheme recognised under that section.").

The noble Lord said: This new clause makes provision for investment businesses in Gibraltar. It treats Gibraltar as if it were a member state of the Community in its own right. We believe that such a course is the only one that is consistent both with Gibraltar's position under the Treaty of Accession —since for financial services Gibraltar is effectively part of the European Community—and with Gibraltar's constitution under which it enacts its own legislation. The practical effect of this new clause will be most important for life assurance and unit trusts.

The Gibraltar authorities have yet to implement the European Community establishment directives on insurance. They are currently in the process of preparing legislation, and they are discussing this with the Department of Trade and Industry. I should make it quite clear that we do not intend to implement this clause so far as insurance is concerned—and the most important clause for this purpose is Clause 111 which would otherwise prohibit the advertising of the investment contracts of a Gibraltar insurer in the United Kingdom—until we are satisfied that Gibraltar has a system of insurance supervision which complies with the Community directives.

Equally there is as yet no legislation in Gibraltar —and in this case there is none as yet in the UK—to implement the new unit trusts UCITS directive, for which implementation is due by 1989. Gibraltar unit trusts will therefore obtain the benefits of Clause 78 only when Gibraltar has implemented the UCITS directive.

I hope the Committee will accept therefore that this new clause provides in the long run a proper place for Gibraltar consistent with our Community obligations within the United Kingdom financial services scene, while preserving protection for United Kingdom investors particularly in the transitional period before Gibraltar has enacted the necessary legislation. I beg to move.

Lord Marshall of Leeds

Before commenting I should like to declare an interest as I am the chairman of an insurance company and of a unit trust company. Over the past few years it has been well known that a number of life assurance companies have been established in Gibraltar and have offered their products on the London market. Investors in those policies have had no protection whatsoever under United Kingdom insurance companies legislation. In the case of one company, Signal Life, many people in this country have suffered considerable financial loss.

The Association of British Insurers is anxious therefore that the new system of investor protection should provide adequate protection against offshore insurers. To a large extent, that is achieved by Clause 111, Restriction on promotion of contracts of insurance". but Gibraltar is a special case.

For the purposes of financial services Gibraltar is treated under European Community law as if it were part of the United Kingdom. The amendment seeks to overcome that problem by treating Gibraltar as if it were a member state. Because of the constitutional position the Association of British Insurers accepts that that is perhaps the only way to deal with the problem and that there is no practical alternative.

I should welcome an assurance that it is not intended—I think this is my noble friend's intention—to apply Clause 30 until the DTI is satisfied that Gibraltar has a system of insurance supervision which complies with Community directives on insurance and that the standards and quality of insurance supervision in Gibraltar are also adequate. I think it was my noble friend's intention to say that was the situation. I should welcome the amendment if he can deal with that matter when he replies.

Lord Williams of Elvel

It was interesting to hear the noble Lord, Lord Marshall of Leeds, on the question of insurance, because Gibraltar in recent years has become what I would call a financial haven. It is not just a question of insurance companies; banks and other organisations have set up under what I take to be Gibraltar law.

For one moment when the noble Lord referred to the treaty I thought that he was going to refer us to the Treaty of Utrecht, but I understand that we are talking about the Treaty of Rome rather Utrecht.

Can the noble Lord tell us, in the light of all this, whether it is the policy of the British Government to encourage offshore financial centres, such as Gibraltar and indeed the Channel Islands have become, or whether it is the policy of the Government to discourage them? If so, are there any special regulations that this Bill will, or may, introduce in respect of the Isle of Man?

Lord Lucas of Chilworth

To respond quickly to my noble friend Lord Marshall of Leeds, I am sorry if I did not explain the matter sufficiently clearly. The implementation of the directives is a matter for the Gibraltar authorities. As with anywhere in the Community, there is a Community obligation to ensure that the insurance supervision regime is carried out effectively. The Gibraltar authorities are, of course, consulting my department about the practical arrangements for so implementing the directives.

As to the position of other offshore United Kingdom dependencies such as the Isle of Man and the Channel Islands, the noble Lord asked specifically whether it was the Government's policy to encourage offshore centres. This Bill does not seek to encourage or to discourage offshore controls or centres. It seeks only to protect the United Kingdom investor. It is perhaps a little difficult to answer his question specifically. The only way in which I can reply sensibly is by using a phrase that I used earlier this afternoon. We believe in open and free trading, provided that it is fair, in regard to manufactured goods and also in regard to financial services. We have sought always to promote wider trade in financial services wherever it may be. The Isle of Man and the Channel Islands are treated under the Bill as though they were foreign countries; that is, businesses from there must satisfy exactly the same criteria as businesses from anywhere else or anyone else, seeking to become authorised. There are no special privileges so far as the Isle of Man and the Channel Islands are concerned.

Lord Williams of Elvel

I am grateful to the noble Lord for his explanation. We shall obviously have to look at what he said to see whether we want to come back to it. I am slightly surprised that the Isle of Man is treated as a foreign country for the purposes of the Bill. If, however, the noble Lord says it is, so be it.

Lord Lucas of Chilworth

I should perhaps make the position even more clear. The Isle of Man and the Channel Islands, unlike Gibraltar, are not covered by the Treaty of Rome for these purposes. Accordingly, they have to be treated like any other non-Community territory. This perhaps makes the position a little more clear.

Lord Marshall of Leeds

I am rather unclear as to how the position will lie. My concern is that people in this country who are investing their hard earned savings in life assurance companies which are located and domiciled offshore in places like Gibraltar should have, so far as possible, the fullest investor protection rights—rights, so far as possible, equivalent to rights that they could achieve in this country either under this Bill (or this Act when it becomes an Act) or under any other insurance protection legislation on the statute book. One of the great difficulties is that in the past this has not happened and has led to the losses to which I have referred with the Signal Life Assurance Company because they were not answerable under UK legisaltion. I am trying to ensure that investors in this country will be accorded a similar protection.

Before I sit down, perhaps I can answer the point made by the noble Lord, Lord Williams of Elvel. The offshore insurance industry is not generally confined to life insurance companies in places such as Gibraltar. The majority of offshore insurance business is carried on for tax purposes in offshore locations and domiciles generally by reinsurance companies to whom reinsurance from the British market is assigned. That is purely a question of fiscal convenience. However, that is another question.

Lord Lucas of Chilworth

It is not for me to answer questions addressed to the noble Lord, Lord Williams. Perhaps he would like to answer now.

Lord Williams of Elvel

I am very well aware of the reinsurance arrangements that are made in tax havens, both by companies in captive reinsurance and by insurance companies who form their own reinsurance arrangements.

My difficulty was that I also believe there are non-qualifying policies issued by insurance companies who are domiciled in places such as the Cayman Islands, Bermuda and Gibraltar. Our concern was that such policies should be given the same protection—as I think the noble Lord, Lord Marshall of Leeds, was arguing—if they are sold to United Kingdom residents as is provided under the Bill. If this clause achieves that, then that is fine. If it does not, then it is not fine.

Lord Lucas of Chilworth

In an attempt to give my noble friend the reassurance for which he is looking, I wonder whether—I say this in the nicest possible way—he will carefully study in Hansard what I have already said. We seek to protect United Kingdom investors. The new clause will not be brought into operation until we are satisfied about the Gibraltarians having a satisfactory system of supervision in operation. That is the point that my noble friend wants to take home with him. I hope that helps the Committee.

On Question, amendment agreed to,

Clauses 174 to 176 agreed to.

Schedule 13 [Transitional provisions]:

Lord Brabazon of Tara moved Amendments Nos. 392 to 400:

Page 206, line 23, leave out from ("that") to end of line 43 and insert—

("any of the requirements of section 18(2A) of this Act or paragraphs 2 to 6 of Schedule (Requirements for recognition of professional body) to this Act are not satisfied he may in accordance with this paragraph make a recognition order under section 18 of this Act ("an interim recognition order") notwithstanding that all or any of those requirements are not satisfied.

(2) The Secretary of State may, subject to sub-paragraphs (2A) and (2B) below, make an interim recognition order if he is satisfied—

1. (a) that the applicant proposes to adopt rules and practices and to make arrangements which will satisfy such of the requirements mentioned in sub-paragraph (1) above as are not satisfied;
2. (b) that it is not practicable for those rules, practices and arrangements to be brought into effect before the date on which section 3 of this Act comes into force but that they will be brought into effect within a reasonable time thereafter, and
3. (c) that in the meantime the applicant will enforce its existing rules in such a way, and issue such guidance, as will in respect of investment business of any kind carried on by persons certified by it (or by virtue of paragraph 4A below treated as certified by it) afford to investors protection as nearly as may be equivalent to that provided as respects investment business of that kind by the rules and regulations under Chapter V of Part I of this Act.

(2A) Where the requirements which are not satisfied consist of or include those mentioned in paragraph 2 of Schedule (Requirements for recognition of professional body) to this Act as application for an interim recognition order shall be accompanied by—

1. (a) a list of the persons to whom the applicant proposes to issue certificates for the purposes of Part 1 of this Act; and
2. (b) particulars of the criteria adopted for determining the persons included in the list: and the Secretary of State shall not make the order unless it appears to him that those criteria conform as nearly as may be to the conditions mentioned in that paragraph and that the applicant will, until the requirements of that paragraph are satisfied, have arrangements for securing that no person is certified by it (or by virtue of paragraph 4A below treated as certified by it) except in accordance with those criteria and for the effective monitoring of continued compliance by those persons with those criteria.

(2B) Where the requirements which are not satisfied consist of or include that mentioned in paragraph 6 of Schedule (Requirements for recognition of professional body) to this Act, the Secretary of State shall not make an interim recognition order unless it appears to him that the applicant will, until that requirement is satisfied, take such steps for complying with it as are reasonably practicable.").

Page 206, line 45, after second ("the") insert ("practices and").

Page 207, line 4, after ("rules") insert (", practices").

Page 207, line 10, after ("rules") insert (", practices").

Page 207, line 13, leave out ("and arrangements, or other rules") and insert (". practices and arrangements, or other rules, practices").

Page 207, line 22, after ("rules") insert (", practices").

Page 207, line 25, after ("rules") insert (", practices").

Page 207, line 27, leave out ("of subsection (2)(b) and (c) of that section") and insert ("mentioned in sub-paragraph (1) above.").

Page 207, line 30, at end insert—

("Interim authorisation by recognised professional bodies

4A.—(1) If at the time when an interim recognition order is made in respect of a professional body that body is unable to issue certificates for the purposes of this Act, any person who at that time is included in the list furnished by that body to the Secretary of State in accordance with pararaph 4(2A)(a) above shall be treated for the purposes of this Act as a person certified by that body.

(2) If at any time while an interim recognition order is in force in respect of a professional body and before the body is able to issue certificates as mentioned in sub-paragraph (1) above the body notifies the Secretary of State that a person not included in that list satisfies the criteria of which particulars were furnished by the body in accordance with paragraph 4(2A)(b) above, that person shall, on receipt of the notification by the Secretary of State, be treated for the purposes of this Act as a person certified by that body.

(3) If at any time while an interim recognition order is in force in respect of a professional body it appears to the body—

1. (a) that a person treated by virtue of sub-paragraph (1) or (2) above as certified by it has ceased (after the expiration of such transitional period, if any, as appears to the body to be appropriate) to satisfy the criteria mentioned in sub-paragraph (2) above; or
2. (b) that any such person should for any other reasons cease to be treated as certified by it; it shall forthwith give notice of that fact to the Secretary of State and the person in question shall, on receipt of that notification by the Secretary of State, cease to be treated as certified by that body.

(4) Where by virtue of this paragraph any persons are treated as certified by a recognised professional body the requirements of paragraph 2 of Schedule (Requirements for recognition of professional body) to this Act so far as relating to the retention by a person of a certificate issued by that body and the requirements of paragraph 4 of that Schedule shall apply to the body as if the references to persons certified by it included references to persons treated as certified.").

The noble Lord said: Amendments Nos. 392 to 400 have already been spoken to with Amendment No. 79. With the leave of the Committee, I should like to move them en bloc.

Lord Lucas of Chilworth moved Amendment No. 401:

Page 208, line 36, at end insert—

(" .—(1) Subsection (7) of section 80 of this Act shall not apply to a scheme which is in existence on the date on which this Act is passed if—

1. (a) the units under the scheme are included in the Official List of The Stock Exchange and have been so included through- out the period of five years ending on the date on which this paragraph comes into force;
2. (b) the law of the country or territory in which the scheme is established precludes the participants being entitled or the operator being required as mentioned in that subsection; and
3. (c) throughout the period of five years ending on the date on which the application is made under that section, units under the scheme have in fact been regularly redeemed as mentioned in that subsection or the operator has in fact regularly ensured that participants were able to sell their units as there mentioned.

(2) The grounds for revoking an order made under section 80 of this Act by virtue of this paragraph shall include the ground that it appears to the Secretary of State that since the making of the order units under the scheme have ceased to be regularly redeemed or the operator has ceased regularly to ensure their sale as mentioned in sub-paragraph (1)(c) above.").

The noble Lord said: I beg to move Amendment No. 401, which I have to confess is very largely a technical amendment. It widens the scope of eligibility for applying for recognition under Clause 80 to include such open-ended investment companies as meet its requirements. Clause 80 is intended to enable foreign schemes which could not apply for Clause 78 or Clause 79 recognition to apply directly to the designated agency for recognition.

We have received representations to the effect that the laws of certain countries may prohibit companies formed in those countries from complying with the strict requirements of Clause 80(7), which requires a scheme to guarantee redemption of units. In cases where companies formed in such countries can demonstrate that they have in fact complied with these requirements for a substantial period, we can see no reason why they should not be able to apply for recognition.

This amendment enables an application to be made by a scheme which in fact redeems units but is prevented from guaranteeing redemption by the law under which it is established. This provision will not prejudice the ability of the designated agency to refuse recognition of such schemes on other grounds; and the amendment merely provides a limited alternative to the test that the terms of a scheme must provide for redemption of units.

The requirements are designed to restrict the availability of this alternative to those schemes which can demonstrate a satisfactory record of redemption. And this limited exception will not, in my view, reduce the protection afforded to investors. If such schemes cease to redeem in a satisfactory manner, recognition may, of course, be withdrawn.

Lord Williams of Elvel

I am grateful to the noble Lord for his explanation of the amendment. Again, we shall have to look at it, because it is rather technical. As I am wholly unclear at the moment about what an open-ended investment company is, I find it rather difficult to comment other than to put down the marker: What is a satisfactory level of redemption, to which the noble Lord referred? No doubt that will come in the course of time. I do not want to press it now.

9.30 p.m.

Lord Brabazon of Tara moved Amendment No. 402:

Page 208. line 37, leave out from beginning to end of line 12 on page 209.

The noble Lord said: This amendment was spoken to with Amendment No. 262. I beg to move.

Schedule 13, as amended, agreed to.

Clause 177 agreed to.

Schedule 14 [Consequential amendments]:

Lord Brabazon of Tara moved Amendment No. 403:

Page 210, line 7, leave out ("has the same meaning as in") ("means a recognised investment exchange (other than an overseas investment exchange) within the meaning of").

The noble Lord said: This amendment was spoken to with Amendment No. 111. I beg to move.

Schedule 14, as amended, agreed to.

Schedule 15 [Repeals and revocations]:

Lord Brabazon of Tara moved Amendments Nos. 404 to 408:

Page 211, line 35, column 3, at beginning insert ("In section 20, subsection (1), in subsection (3)(a) the words "section 449 of the Companies Act 1985 or as the case may require" and in subsection (3)(b) the words "section 449 or as the case may require".").

Page 211, line 51, column 3, at end insert—

("In section 693, paragraph (a) and in paragraph (d) the words "in every such prospectus as above mentioned and".").

Page 212, line 14, leave out ("and").

Page 212, line 16, at end insert ("and section 20 of the Banking Act 1979").

Page 212, line 16, at end insert—

("1986 c. 31	The Airports Act 1986.	Section 10.
1986 c. 00.	The Gas Act 1986.	Section 58.").

The noble Lord said: Amendment No. 404 was spoken to with Amendment No. 350. Amendment No. 405 was spoken to with Amendment No. 310. Amendments Nos. 406 and 407 were spoken to with Amendment No. 350. Amendment No. 408 was spoken to with Amendment No. 279. With the leave of the Committee, I beg to move Amendments Nos. 404 to 408 together.

In the Title:

Lord Brabazon of Tara moved Amendment No. 409.

Line 8, after ("trading") insert ("banking").

The noble Lord said: This amendment was spoken to with Amendment No. 350. I beg to move.

On Question, amendment agreed to,

On Question, Whether the Title, as amended, shall be the Title to the Bill?

Lord Taylor of Gryfe

Before this Bill passes the last rites of the Committee stage I should like as one of the spectators of these proceedings to pay a compliment first to the Minister for his dedication and understanding in handling this Bill; secondly, to the Labour Benches for mounting such a formidable team who have exercised the rightful duties of this House as a revising Chamber with a great deal of expertise and knowledge; and, thirdly, to the noble Lord, Lord Hacking, who was well briefed by the Law Society and who has also contributed to our knowledge and experience in this field.

From these Benches I should like to say thank you to all concerned, and also to echo the plea that was made earlier by the noble Lord, Lord Hacking, and the noble Lord, Lord Williams of Elvel, that we get the revised Bill as amended in Committee printed at an early date, so that some of us may be able to play a more active part in these proceedings in a helpful way. I hope that that will be taken on board. I am sure that the Committee is indebted to all concerned for the way in which this complex Bill has been handled.

Lord Hacking

I thank the noble Lord, Lord Taylor, for his kind remarks about myself. I played a very small role compared with the role that has been played by the noble Lord, Lord Williams, and his colleagues on the Labour Bench, and an even smaller role compared with that played by the noble and learned Lord, the Lord Advocate—who, regretfully, is not here today—by the noble Lord, Lord Brabazon, and, most significantly of all, by the Minister, the noble Lord, Lord Lucas. I join in all those compliments and I should be very grateful, before this Bill leaves Committee, if the noble Lord the Minister, without rolling up his sleeves and going down to Wapping to make personal undertakings about the printing presses, will do what he can to see that we get an early reprinting of this Bill.

Lord Tryon

I, too, should like to pay tribute to the noble Lord, Lord Lucas, and to the noble and learned Lord the Lord Advocate for the way in which they have dealt with this Bill, which has been a very difficult one pushed through at great speed and late in the Session. I have not said as much as I thought I was going to say during this Committee stage, because there have been so many amendments, 22 new clauses and so on, and for the humble Cross-Bencher with very little support it has been very hard to keep up.

Therefore, I should merely like to add my voice to those who wish to see the Bill reprinted as soon as possible, because there are still a number of points in which the noble Lord knows that I and a number of other people who have spoken in Committee are interested, with which we still have to deal at the Report stage. So a little guidance on that would be of help to us all, if we could get it.

I am sure that it has been very difficult for the Minister and for everybody else to get through this Bill in these four days, over two weeks, but we have a long pause now and I hope that a lot of thought will be given to what has been said. There are still a number of points to be worked out. The noble Lord, in response to my Second Reading speech, said that I was tending to over-exaggerate some of the problems. I think we now see that there are some fairly serious problems. Some of them have been redressed, but some of them still have to be dealt with. I look forward to the next stage of the Bill.

Baroness Seear

I should like, very briefly, to say on behalf of my noble friend Lord Ezra, who unfortunately is not able to be present, that I know he would wish to join in the thanks which have been given to the noble Lord the Minister and to all who have taken part in this Committee stage. I am sure he would also welcome most wholeheartedly the wish that we could have the reprint of the Bill as quickly as possible.

Lord Williams of Elvel

May I echo the sentiments of a number of noble Lords who have spoken in thanking the noble Lord, Lord Lucas, and the noble Lord, Lord Brabazon of Tara, for their help and co-operation in the Committee stage of this Bill? It has been an extremely difficult exercise, for both the Government Front Bench and certain anonymous people who sit in certain corners of the Chamber and whom we are not allowed to see. But I think we have managed to get through the Committee in as reasonable a state as we possibly could. I am most grateful to my noble friends Lord Morton of Shuna and Lord Silkin of Dulwich and others who have helped us on this Bill. I am also grateful to the noble Lord, Lord Hacking, who has made some very valuable and extensive contributions.

May I again echo the requirement from many noble Lords in this Committee that the Bill be reprinted as soon as possible? By "as soon as possible", I should have thought that about a week was right, because we have a lot of serious work to do in order to get to Report stage in the overspill with a sensible and coherent series of views about what we wish to see. I am sure that the noble Lord, Lord Lucas, will recognise that we on our side have made an effort, and I hope he will ensure on his side that the printing of the Bill is expedited with great dispatch.

Lord Lucas of Chilworth

I am most grateful to the noble Lord, Lord Williams. I am grateful to him for a number of factors, notably that we came to this Committee stage at the end of a long and difficult summer, and without the co-operation of the Opposition, and without a certain element of good humour within the Committee and outside, we should not at 25 minutes to ten on the last day have got through as much work as was put before us. I am most grateful to the noble Lord.

I am grateful to the noble Lord, Lord Taylor of Gryfe, but there is a long way to go. Although the noble Lord, Lord Tryon, spoke about problems, I have a simple philosophy. Those matters which appear to any noble Lord as a problem, I see as an opportunity. I look forward to the opportunity of finishing our business in October. So far as it is within my power, I shall ensure that the Bill is reprinted and is available in the Printed Paper Office as soon as the authorities can manage it. I shall ensure that my office acquaints every noble Lord who has an interest in this, or has taken part in our debates, with the fact that the Bill in its reprinted form is available, but I cannot actually guarantee to hand deliver them.

I also undertake to ensure that the Notes on Clauses and the amendments, which are the responsibility of my department, are available in ample time—and I mean very ample time—so that noble Lords who have time to go away into the country and look at these things instead of staying at their offices and desks like some junior Ministers have to, can get on and do the work.

Title, as amended, agreed to.

House resumed: Bill reported, with amendments.

House adjourned at sixteen minutes before ten o'clock.