Financial Services Bill

HL Deb 14 October 1986 vol 480 cc684-797

3.12 p.m.

Lord Lucas of Chilworth

My Lords, I beg to move that the Report be now received.

Moved, That the Report be now received.—(Lord Lucas of Chilworth.)

Lord Williams of Elvel

My Lords, before the Question is put perhaps I may make one or two brief comments on the progress of the Bill so far, both elsewhere and in your Lordships' House, and the proposed conduct of the Opposition on Report.

The Bill went through all its stages in another place without a guillotine being imposed. In your Lordships' House we had four days in Committee. In order to get through the business in Committee it was arranged, through the usual channels, that we on our side would co-operate by not challenging or scrutinising the new clauses moved by the Government in Committee. We reserved for ourselves the right to scrutinise the new clauses when the Bill came back to your Lordships on Report.

Furthermore, we asked for and obtained assurances from the Government that no Government amendment, other than those honouring commitments made to your Lordships in Committee, would be submitted on Report.

In return, the Government assured us that we would have three days in your Lordships' House on Report. On that basis, we on our side considered that we should get through the Bill in three days. Since then, the Government have tabled 68 pages of amendments, many of which do not honour previous commitments made either to your Lordships in Committee or to Members in another place.

I fully understand that procedure. I recall that the noble and learned Lord the Lord Advocate said on Second Reading that the Government had to remain flexible on the Bill. They have remained flexible, but I must point out that that imposes an extra strain on the timetable that we had originally thought was possible.

The noble Lord, Lord Lucas, and the department have been extremely helpful in giving the Opposition all possible information on the amendments that the Government have tabled. We are most grateful to the noble Lord and to the department for the Notes on Amendments that they have tabled.

As an opposition we shall also try to be helpful on Report. We shall try to be constructive. As far as possible we shall observe Report stage procedures, but I am sure that your Lordships will recognise that a number of technical points have been raised by the amendments introduced in Committee and by the new amendments put forward by the Government which may require a certain flexibility in those procedures.

Co-operation is a two-way street. If we co-operate in getting the Bill through, which we wish to do, we must reserve our right to scrutinise and, if necessary, to seek the opinion of the House on issues which we consider to be important. If sittings go late, we cannot undertake to maintain a House. On Report we propose to be a constructive Opposition, but I wish to place the burden of responsibility upon the Government, who have put your Lordships in this rather difficult position.

Lord Diamond

My Lords, I wish to welcome the points that have already been made and to repeat the gratitude which we on these Benches feel towards the Government and the Minister for the sincere attempts that the Minister has made to reduce the chaos caused by putting down so many amendments so late and totally overwhelming the capacity of opposition parties adequately to deal with these matters.

I wish to widen the issue. It is impossible for not only the opposition parties but all noble Lords to carry out their duties because we are being completely overpressed for time. Yesterday we were dealing with the Housing and Planning Bill, on which about 375 amendments were presented to us in Committee, of which some 80 per cent. were government amendments. We are now going to deal with the Financial Services Bill on which two-thirds of the amendments—about 400 out of approximately 550—on Report are government amendments.

I do not criticise a government for considering changes in the Bill at this late stage. The purpose of having legislation going through several stages in two Houses is to enable the outside world to be informed of what Parliament intends and to make its representations. If representations are made to a government at a late stage, it is because interested parties may only then be fully aware of the government's intentions and so be able to make such representations.

I make no complaint about the Government or the Opposition putting down amendments to improve legislation. That is what we are here for. It is the major task that we do, and we do it very well. What I am complaining about most bitterly is that so much is put into our programme at this time of the year that it is impossible for your Lordships to carry out your proper functions.

I know that it was done entirely in good faith, but a year ago the Leader of the House assured us that that would be the last time we should be put in this position. At that time we had an overspill of 11 days. This time we have an overspill of about 23 days. That is double the time. Instead of having one major Bill to deal with, we have at least three. The position is always impossible at this time of the year, and it is getting much worse.

The reason that I detain your Lordships is not related to the particular Bill being discussed today or the particular number of amendments to it. It is to stress that we must at this point, when we are under such pressure, look at the situation in the round and see how we are going to get out of it. That is the task facing your Lordships. The reputation of this House, in my view, depends mainly upon its success in taking a second look at important legislation especially that which has been inadequately considered in another place. Indeed, there are Bills that have been guillotined in another place that are being examined here for the first time. Those of us who follow these matters know that the tendency in the other place is that more and more Bills will be guillotined and that they will be guillotined by consent in a business arrangement under which all Bills of a possibly contentious nature will have time apportioned for discussion of each part of them. Our load will not be getting lighter in that respect; it will be getting heavier.

Why do I raise this matter now! It is, happily, convenient because it has been raised from the Opposition Front Bench. It is because at this time of the year decisions are being made by the Government, probably under the Chairmanship of the Leader of the House, in the Legislative Committee, as to how many Bills will be accommodated within the next Session for consideration by Parliament. There are always too many. There is always enormous pressure upon that committee to accept Ministers' arguments as to why their particular Bills should be brought forward. It is no good putting Bills into the pipeline without considering how they will come out at the other end. We are at the other end right now.

I feel perfectly confident about making these critical comments. We, on these Benches, have devoted one of our rare days to suggesting, in the greatest detail and following most careful thought and examination, a major method whereby the Government could avoid this difficulty. In short, as your Lordships will remember, we propose the device of having a standing committee working in a separate room while this Chamber devotes its time to another Bill. This means that two Bills would be considered at the same time. I shall not attempt to repeat any of the details. It is, however, a highly workable proposition that could relieve the load on your Lordships at this time. Certainly, the Government cannot accept too great a number of Bills going into the pipeline, as they have done year after year, and refuse consideration of any method whereby our load might be lightened and the House enabled to do its job properly.

Lord Nugent of Guildford

My Lords, this is not, I am sure, in any way a political issue. It is, to a large extent, a procedural one. I say with respect to my noble friend the Leader of the House that the procedures of the House are being strained by such a massive volume of work with so many new clauses coming before us on Report. The noble Lord, Lord Williams, the Opposition spokesman, has been cooperative. I am sure that he will continue to be cooperative. All of us want to see this Bill go on the statute book. But the Opposition would have a very good case for asking for recommittal on many aspects, which would mean our debates continuing for a very long time. An undue strain is being put on the procedures of the House. I ask my noble friend the Leader of the House whether he can save the House from having such an impossible strain put upon it.

Lord Grimond

My Lords, as a reasonably old inhabitant of this building, in one way or another, may I venture briefly to say that I support wholly what has been said. Is it possible for the Leader of the House—a man, we know, of excellent good sense—to bring a little more pressure upon his colleagues not to introduce so much legislation? It pours out in greater quantity every year. Will he note that one of the objections, I understand, to introducing more Bills in this House, which would make the parliamentary year very much easier for both Houses, is that it might be thought derogatory to the House of Commons? In fact, nothing could be more derogatory to the House of Commons than the present procedure whereby a Bill that the House of Commons is under the impression it has considered is virtually redrafted when it comes to the House of Lords? The procedure therefore is turned upside down. Surely, as stated many times, one solution would be to introduce more Bills at the beginning of the Session in this House.

Lord Somers

My Lords, in the light of what has been said, can the noble Viscount the Leader of the House give any estimate—it is probably doubtful—as to how many of these amendments, numbering over 600, before us, are likely to be discussed in a time span of about one hour? It is becoming a little trying for Members of the House to sit through all the proceedings.

Lord Harmar-Nicholls

My Lords, before directing all our criticism towards the Government and the size of the legislative programme, should we not occasionally look at our own weaknesses? It seemed to be recognised, when I first came to Parliament 36 years ago, that when a point was made in this House, it was not repeated by other noble Lords.

A noble Lord

Speak for yourself.

Lord Harmar-Nicholls

My Lords, before I tickle the conscience of one or two who very much practise what I am describing, cannot we establish a position that used to exist whereby there is no need for six or eight noble Lords, for whatever reason—party political or self-indulgence—to go on repeating one point? If that was done, we could possibly overcome the logjam that we are grumbling about so much today.

The Lord President of the Council (Viscount Whitelaw)

My Lords, I am always the first to appreciate that although criticism, however politely and kindly it is made, may not be directed at one person, it nevertheless comes home to that person in the end. I am perfectly well aware at this moment of the reasons, some of them to be found inside the Government and involving myself as Leader of this House—although it is perhaps not always all my fault—that have led us into a difficult position. I am the very first to appreciate that this is so. I dislike it very much.

I have to say that part of the problem is that a greater role has been placed on this House in revising legislation. This is due to a wide variety of reasons that I do not need to go into now. But this House has had a much greater role as a revising Chamber. This has nothing to do with me because those doing the revising are trying to change something that I, as a member of the Government, have put there in the first place. I cannot therefore take any responsibility or any credit for the revising.

I feel, however, that the House has undertaken a considerable amount of revision and has done so extremely successfully. Sometimes, listening to debates, I think that a point has already been made and that revision could have been completed at that moment. But the debate has been continued in order to make absolutely certain beyond all peradventure that the Government have understood. Sometimes it may be that the point would have been made and accepted, but it has to be reinforced. One must not complain about that. I think that your Lordships will agree that that happens from time to time.

As regards the Bill now before us, I appreciate entirely what the noble Lord, Lord Williams, says. I welcome very much his constructive attitude to a Bill of extreme importance to this country at this moment. At the same time it is extremely difficult. It is not perhaps a measure that all your Lordships fully comprehend. If I am one of those who do not fully comprehend the Bill, perhaps I have some companions in your Lordships' House at this moment. However, I realise its importance. I realised in July how important it was that this Bill, as far as possible, was right, and that this House had a very great responsibility.

I am extremely grateful to my noble friend Lord Lucas, and all those officials in the Department of Trade and Industry, who conducted a very considerable amount of discussion during the recess in order to make changes which your Lordships in Committee felt were desirable. I believe that as a result many improvements have been made to this Bill. Of course they have meant a considerable number of further amendments, and I recognise that. However, I think that was required at the time and I hope it will prove to be beneficial.

I realise the strain that is placed on time. I very much welcome the extremely co-operative and understanding attitude of the noble Lord, Lord Williams. I can say only that I hope we shall be able to get on well during what will be long and difficult discussions. I recognise that this House has a very great responsibility with regard to this Bill.

The noble Lord, Lord Diamond, suggests that we should look at other procedures—Standing Committees and so on. Through the usual channels—the Procedure Committee, or whatever means may be found—I am very ready to look at some of these proposals. I have considered them, as have many of my predecessors, some of whom are sitting in the House at this moment. None of these proposals produces an automatic and easy solution to our problems. But, as the noble Lord, Lord Diamond, requests, let us have a careful look at them to see what we can do to help. I agree with my noble friend Lord Nugent that we should look at these other proposals. He has made a very important point.

To the noble Lord, Lord Grimond, I would say, yes, there is a problem about Bills starting in this House. I hoped that I had made better arrangements this Session than in the previous one, and it looked as though I had succeeded. But there is always a joker in every pack. The joker in the pack this Session, as your Lordships will appreciate, was the Sunday trading Bill which came out in a way which I do not think the Government or I expected when it first came to this House. To say that it was time wasted is perhaps not the right way to put it. No doubt the words spoken in this House about that Bill will go down to posterity. But it did not contribute to the legislative procedure in this Session.

In answer to my noble friend Lord Harmar-Nicholls, I have already dealt with the need to make points but not to overstress them. As Leader of your Lordships' House, and as a Member of the Government, I accept full responsibility for what we do, whatever role I may perform. I shall try to ensure that more Bills start in his House in the coming Session. I trust that I shall succeed. But there is one limit on the capacity to do so, as I must tell the noble Lord, Lord Grimond. It is very difficult to start major Bills with financial content in this House. I think that would be accepted. It is also extremely difficult to begin in this House major Bills which have a very high political content. I think that both pose considerable difficulties and mean that some of the major Bills have to start in another place. However, having said that, I shall do my best to put the balance right.

I can only end by saying that the points made by noble Lords this afternoon are in my judgment wholly justified. I think that they are perfectly entitled to complain. There is no one else to complain to except me. I therefore fully accept that I am the person who has to answer the complaints. I hope that I have done so to the best of my ability. I shall do my best to help in any way. In return I know that I can count on all noble Lords, whether or not they are wearing red roses today, to ensure the most happy co-operation on the Bill upon which we are about to embark.

On Question, Report received.

Clause 1 [Investments and investment business]:

Lord Lucas of Chilworth

moved Amendment No. 1: Page 2, line 1, leave out subsection (2) and insert— (" (2) In this Act "investment business" means the business of engaging in one or more of the activities which fall within the paragraphs in Part II of that Schedule and are not excluded by Part III of that Schedule."). The noble Lord said: My Lords, in rising to move the government Amendment No. 1 I should like to speak also to Amendments Nos. 1A, 1B, 2, 3, 4A, 6 and 7. This is the first group of amendments which we shall be discussing and, in particular, as it is the first group of a number which deal with the scope of the Bill I hope that your Lordships will not think it presumptuous of me if I make a few rather general comments before coming to the substance of the amendments under consideration.

There is probably no surprise over the fact that a considerable number of the representations which we have received have been concerned with Clause 1 and Schedule 1. These together define the scope of the Bill and the requirement to be authorised. It is natural therefore that they should attract a lot of attention. If that were not enough, they are also highly technical, and have attracted comment on that account also. I shall of course be dealing with the more technical aspects of the amendments to Schedule 1 when we discuss that schedule, but I think that it may be helpful if I were at this stage to give an explanation of the principles underlying the government amendments to Clause 1 and Schedule 1.

Definitions are notoriously difficult, particulary in a Bill of this nature. So are decisions about the boundaries of areas to be regulated, where the precise location of the boundary is inevitably arbitrary. The House will recall that one of the major conclusions of the Gower Report, on which much of the Bill was based, was that the definition of investments to which existing law applied was outdated and too narrow; and that a much broader and more flexible definition was needed. Accordingly, the Bill as presented included very wide definitions of investments and investment business. But those definitions in turn proved to be in some respects too wide.

The particular concern which has been expressed to us, notably by the Confederation of British Industry and the Association of Corporate Treasurers among others, is that there are a number of industrial and commercial companies some of whose activities would fall within the definition of investment business as the Bill was originally drafted. These are not the sort of companies to whom the Bill was intended to apply. Their investment activities are only peripheral to their main commercial activities, and they generally confine themselves to a professional market place and do nothing which would affect the ordinary investor.

Your Lordships will recall that at an earlier stage in our considerations we made a number of amendments to meet these concerns. The further amendments which we now propose to Clause 1 and Schedule 1 are aimed at meeting the remaining concerns without at the same time creating loopholes which might be exploited by the unscrupulous. The amendments look, and indeed are, voluminous. But I emphasise that they are concerned with the detailed definition of the activities to be regarded as investment business. Mainstream investment activities are not in any way affected.

Let me now direct my remarks specifically to the amendments under consideration. These seek to clarify the circumstances in which a person is to be regarded as carrying on investment business in the United Kingdom. Your Lordships will recall that when we discussed this matter during Committee the concern which had been expressed about the definition in Clause 1 was that a person engaged in some business wholly unconnected with investments might be regarded as carrying on investment business and hence be required to be authorised, by virtue of entering into a single investment transaction. This would clearly be absurd, and, as I said when we discussed the matter before, I do not believe that it would be the result of the clause as drafted. However, on a matter of this sort it is clearly important that there should be as little room for doubt as possible. In the new clause, sections 1(2) and (3)(b) make it clear that a person will only be regarded as carrying on investment business in the United Kingdom if his investment activities taken in isolation from any other activities and from any activities excluded by virtue of Parts III and IV of Schedule 1, could be regarded as amounting to carrying on business. These amendments will, I believe, remove any remaining doubts about the effect of the clause.

The amendments standing in the name of the noble Lords, Lord Williams, the Earl of Buckinghamshire and Lord Ezra are all, I believe, directed at essentially the same point, but perhaps predictably I rather prefer the formulation of Amendment Nos. 1 and 6, the Government's amendments. I can understand the desire which is evident in Amendments Nos. 1B, 3 and 7 for a common form of words in subsections (2) and (3)(b); but I take this opportunity of assuring the noble Lord, Lord Williams, and the noble Lord, Lord Ezra, that we have considered the matter most carefully and we are not convinced that the amendments they propose would achieve our common objective any better. We have also considered carefully the amendments in the name of the noble Earl, Lord Buckinghamshire; but I am sorry to say that in our view they only preserve the uncertainties that we are all anxious to dispel. On Amendments Nos. 2 and 5, I can only say that I think it would open a considerable loophole if a person were regarded as carrying on investment business only if that was his normal business. The Bill itself really needs to catch people who engage in investment business as a sideline.

I hope that those noble Lords who have responded to the invitation that I made at Committee stage to put forward their own formulations will not think me churlish in the way I have dealt with them. We have given the matter a considerable degree of thought and I believe that the definition included in the two government amendments is the one best able to achieve the results we all desire.

In conclusion, perhaps I may thank all those within and indeed outside your Lordships' House who have offered views on this difficult subject and who have made contributions to our thinking? All this has been of considerable assistance to us in framing the government amendments before your Lordships which I beg to move.

3.45 p.m.

Lord Morton of Shuna

My Lords, I have no intention, at any rate yet, of calling the noble Lord, Lord Lucas, "churlish", and I see no signs that I shall ever have to do so. But I regret that his amendment, the government amendment, in my view continues the difficulty which was pointed out at Committee and which does not really meet what the Government say it meets.

The difficulty is the word "engage" and the business of engaging. The Government appear to take the view—and certainly at the Committee stage they said they took the view—that that necessarily implied continuity or repetition. I do not think that it does. If you look it up in a dictionary, the dictionary definition of "engaging" covers the one-off situation in at least three out of four of the instances given. Therefore, if this clause is to be interpreted by the court, a court of course is prevented from referring to what may have been said by the Government during discussion of the Bill in this House or in another place, and has to deal with the Bill as it is, as an Act, and interpret the words as what they say. Amendment No. 1, in my view, leaves the one-off situation still open.

In the Committee on 21st July (at col. 47 of Hansard) the noble Lord, Lord Lucas, also implied or stated that "engaging in business" necessarily implied remuneration. In my view, there is nothing in the definition which carries that implication; and if that is intended, why not say so?

It is in this frame of mind that I move the amendments standing in the name of my noble friend Lord Williams and myself because in our view they put forward what we are attempting to achieve. I do not think that is in dispute between anybody. We consider this is the better way of achieving it.

If I may give an example, if I buy a house I am, in rather convoluted English, entering on the business of engaging in the activity of house-buying, even if it is the only house I ever buy and even if I am only buying it to live in. Therefore that definition covers the one-off situation.

The Government's intention, as we understand it, is to exclude the one-off transaction, but in my submission the amendment does not do that. It lacks the element of continuity, or appears to do so, as does Amendment No. 1A in the name of the noble Earl, Lord Buckinghamshire. Amendment No. 1B is a better way of putting the idea, and, in my submission, equally effective are Amendments Nos. 2 and 3 because they carry the connotation of repetition and continuity and the normal formality of business.

In answer to what the noble Lord, Lord Lucas, said in criticism of the word "normal", I would suggest that if a solicitor normally engages in personal injury work, that of course would not require authorisation. If, however, as happens, a client of the solicitor obtained a subtantial settlement and went to the solicitor and said, "Now I've got a six figure sum, please help me in dealing with it", that would be an activity which an investment advice would cover. But it would be part of the solicitor's normal business because that is what he holds himself out to do, even if he only does it occasionally, and it would be covered by the amendment and not excluded.

On the other hand, people who gratuitously advise Christ Church, Oxford or any other college, university or charity, who happened to be on the relevant committees, would not be covered. However, they could be, as was discussed at Committee, under the definition either as it is in the Bill at the moment or under Amendment No. 1. So I would oppose Amendment No. 1 and prefer my own amendment.

Lord Ezra

My Lords, if I may speak to Amendment No. 1B and do so in the spirit in which the noble Lords, Lord Lucas and Lord Morton have conducted the debate so far, I believe that our aim at this stage must be to achieve as much clarity and consistency as we possibly can in the wording of this very important Bill.

Amendment No. 1, moved by the Government, certainly achieves greater clarity. Unfortunately, when compared with the wording of Amendment No. 6, it does not achieve consistency. If your Lordships would kindly look at the wording of subsection (2) as it stands in the Bill before us now after Committee and compare that with the wording in subsection (3)(b), it will be seen that the wording is identical. Rightly, the Government have chosen to amend both subsections (2) and (3)(b). However, they have used slightly different wording, and I think that this adds an element of confusion.

If the matter were taken to the courts, the courts would have to take account of the fact that there is this difference in wording. Whether or not it is deliberate is not clear from what the noble Lord on the Front Bench had to say a short time ago. So I would strongly recommend that the wording in subsection (2) and in subsection (3)(b) should be identical. We prefer the wording in subsection (3)(b) and we would therefore like to ask the noble Lord, Lord Lucas, the reason for the apparent difference in wording. Is it not possible to revert to the consistency which is in the Bill at present, taking account of the Government's endeavour for greater clarity?

The Earl of Buckinghamshire

My Lords, I should like to speak to Amendment No. 1A, and also to Amendment No. 4A which is also linked with this group. I have put forward this amendment for the sake of clarity and in support of the Front Bench, even though my noble friend is moving his own amendment in this area.

I interpret the Government's intention here to be one of tidying up the Bill by making this clause symmetrical for investment business both inside and outside the United Kingdom. It is a quite proper element with which to be dealing, but unfortunately I do not think that the amendment of my noble friend Lord Lucas actually deals with it. I am also supported in this view by legal opinion which I have taken from people interested in this Bill; namely, pension advisers and legal people. Essentially, their view and mine is that the Government have created an ambiguity by creating a commercial flavour in the word "business". By "commercial flavour" I mean that the term linked with "business" can be so widely interpreted that it cannot be solely confined to the term "investment business".

In this amendment, I am trying to revert to the original wording of the Bill, and therefore I was somewhat surprised by my noble friend's comments concerning my amendment. By reverting to the original wording I am narrowing the meaning that can be given to the word "business", and I hope I am removing the ambiguity that I see there and thus making the law better. I think that it is very dangerous to have any ambiguity which can be challenged by lawyers.

Lord Hacking

My Lords, as the Member of your Lordships' House who moved in Committee the amendment which attempted to deal with this problem, I am very grateful both to the Government and to other noble Lords for paying so much attention to it on Report, because the one amendment in Committee has now turned into four amendments on Report! Perhaps that goes some way to explain the lengthening of our process in considering this Bill.

I have only one observation to make, and it is this. In the Government's laudable attempt to deal with this problem by changing around the order and use of the words "business", "engaging" or "engages" they do not in my submission go quite far enough. It is necessary, however, to carry some expression of continuity as the noble Lord, Lord Ezra, does in the last phrase of his amendment, and as the noble Lord, Lord Williams, and the noble Lord, Lord Morton, do in the last phrase of their amendment.

Some of your Lordships may remember that the noble Lord, Lord Lucas, advanced the argument that the word "engages" carried a continuity, but in response I only conceded it concerning a "matrimonial engagement" when the two participants normally carry some form of intention of continuity. However, that is a special use of the word "engagement" and, alas!, cannot be applied to the Financial Services Bill. For that reason, I urge the noble Lord, Lord Lucas, to show flexibility at the very beginning of our consideration of this Bill on Report, and agree to give this matter a little further consideration.

We are all aiming to get the answer right. In my submission, if the noble Lord were prepared to give it further consideration and to consider most seriously the phrase that is used both by the noble Lord, Lord Ezra, and by the noble Lords, Lord Morton and Lord Williams, at the end of their amendments, we would get closer, I believe, to finding the right solution.

Lord Denning

My Lords, I should like to support Amendment No. 1. It seems to me to express the matter sufficiently clearly for a court to apply quite easily and there is no need to complicate it by any other amendments.

Lord Lucas of Chilworth

My Lords, in responding to this short debate I am almost inclined to rest entirely upon the contribution of the noble and learned Lord, Lord Denning, but perhaps I should give something of a broader answer because I do not agree that the amendment leaves open the problem of the one-off transaction. It is certainly true that at an earlier stage we relied on the argument that the word "engages" had some implication of continuity, but it was clear from the debate at that stage that the argument was open to some doubt. It is in order to remove that doubt that the amendment removes the emphasis on the word "engages" and relies instead on the concept of business. The word may be much misused in everyday life, but I believe that the noble Lord's suggestion that by buying a house he could reasonably be regarded as carrying on the business of doing so is a little far-fetched.

A person will be regarded as carrying on the business of engaging in an activity only if his engaging in that activity were taken—as we have done—as amounting to a substantial number of transactions amounting to carrying on a business. I believe that is fairly clear.

The amendments in the names of my noble friend Lord Buckinghamshire, the noble Lord, Lord Ezra, and the noble Lord, Lord Williams, are all really directed to much the same point. As I have suggested there is probably a desire evident in Amendments Nos. 1B, 3 and 7 for a common form of words in both the subsections. I can only repeat the assurance that I gave to the noble Lord, Lord Ezra, that we are not convinced that the amendments they propose would achieve the common objective any more than do our own amendments.

On Question, amendment agreed to.

[Amendments Nos. 1A, 1B, 2 and 3 not moved.]

Lord Lucas of Chilworth

moved Amendment No. 4: Page 2. line 8, after ("business") insert ("maintained by him"). The noble Lord said: My Lords, in moving Amendment No. 4 I should like to speak also to Amendment No. 4ZA, in the names of the noble Lord, Lord Williams, and the noble Lord, Lord Morton; and Amendments Nos. 102 and 102A.

I must open my remarks with some regret. I think your Lordships will recognise that government Amendment No. 57 is directed to exactly the same point as the new clause which the noble Lords opposite are to describe. That amendment itself is closely related to the other proposed government amendments to Schedule 1, especially those to paragraphs 17 and 18 and the proposed new paragraph 18A. I think that it would have been very much for the convenience of the House if we had discussed all those amendments as a group. Their effect is cumulative and they really do—

4 p.m.

Lord Morton of Shuna

My Lords, I did not think that we had reached the stage of Amendments Nos. 8 and 57. I thought we were dealing with Amendments Nos. 4, 4ZA, 102 and 102A. I am slightly confused by the noble Lord's remarks.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord Morton. I turned over two pages of my brief, for which I apologise. It just goes to show exactly what his noble friend Lord Williams was saying earlier this afternoon about how complex and confusing this is, and that we should have to go through it carefully with a good deal of co-operation between us. I am grateful to the noble Lord, Lord Morton, for that piece of co-operation.

The Government amendments, Nos. 4 and 102, make clear that the references to "a permanent place of business" in Clause 1(3)(a) and Clause 31(2) refer to a permanent place of business maintained by the person in question. Without that clarification it could be argued that an overseas person who engaged an agent established in the United Kingdom to enter into investment transactions for him could be regarded as entering into those transactions from a permanent place of business in the United Kingdom. That would mean that the exclusions in Part IV of Schedule 1 would not apply, though the arrangement I describe is one which they were designed to cover. Once again, it seems preferable to put the matter beyond doubt by the two amendments I move.

Amendments Nos 4ZA and 102A, in the name of the noble Lord opposite, would however restore precisely the element of doubt that the government amendments are intended to dispel. I hope that the noble Lord opposite will find the Government's amendments acceptable and will feel able to withdraw his own. I beg to move.

Lord Morton of Shuna

moved, as an amendment to Amendment No. 4, Amendment No. 4ZA: After ("maintained") insert ("or used"). The noble Lord said: My Lords, the amendment would make the business one that is maintained or used. In our contention, to say, a permanent place of business maintained by him is far too restrictive. The addition of the words "or used" is necessary. There are two reasons. First, it would be quite reasonable at the moment, and if the government amendment were approved by itself it might become even more common, for somebody in business to rent a room or a suite of rooms on the basis that the landlord carried out all maintenance. Is that really what is involved there?

He there has a room, or an office, which is not maintained by him, but he is there permanently. The addition of the words "or used" is necessary for that situation; otherwise you would have to have some definition of what is meant by "maintained". It might be, of course, that the word "occupy" could be used, if I have to think on my feet of another word. But if I have a permanent room in such and such a building and it is wholly maintained by the owner of the building and I run a business from it, am I excluded under this provision?

Secondly (and it is at least as important) there is the nameplate situation. It is common for banks, accountants' and solicitors' offices to be the registered offices of companies, and to have a nameplate naming such and such a company. This is the place where documents are sent. This is where they can be served with documents. If it is an overseas business, it may be deliberate to get there. Are they all to be excluded? In my submission, this cannot be the intention. Therefore in moving Amendment No. 4ZA I wish to speak also to No. 102A—I had better get it right, after criticising others—to make the position clear. Again, I do not think there is really a divergence as to what is intended to be covered by this clause.

Lord Denning

My Lords, I prefer Amendment No. 4 to No. 4ZA. If you bring in "or used" you bring in some doubt as to the meaning of the word "maintained". The word "maintained" is perfectly good enough. The courts can interpret it very well to cover any situation that arises.

Lord Lucas of Chilworth

My Lords, I of course agree with the noble and learned Lord, Lord Denning, because he supports me, but perhaps I should answer the specific point made by the noble Lord, Lord Morton. If a person rents a room for the purpose of carrying on a business from it—and that can be in any block, or it can be in a suite of offices owned by a law firm, an accountancy firm or any other kind of firm—and if he rents the room for the purpose of carrying out business, it will be maintained by him.

There is no implication that because he rents it and in our view maintains it, he necessarily has to carry out repairs, cleaning or maintenance in that sense. I believe the issue depends on exactly how one interprets the word "maintain". I think that this is the point the noble and learned Lord, Lord Denning, put to your Lordships.

Lord Morton of Shuna

My Lords, it is an extraordinary use of the English language to say of a maintaining lease that if you do not do anything to maintain the building you maintain the office. It seems to me to he a quite fantastic description. We press the amendment to the amendment.

On Question, amendment to Amendment No. 4 negatived.

On Question, Amendment No. 4 agreed to.

The Chairman of Committees (Lord Aberdare)

My Lords, the next three amendments have been printed in the wrong order. The correct order is Amendment No. 6, No. 4A and No. 5. Moreover, if Amendment No. 6 is agreed to, I cannot call Amendments Nos. 4A and 5. I now call Amendment No. 6.

Lord Lucas of Chilworth

moved Amendment No. 6: Page 2, line 9, leave out pargraph (b) and insert— (" (b) engages in the United Kingdom in one or more of the activities which fall within the paragraphs in Part II of that Schedule and are not excluded by Part III or IV of that Schedule and his doing so constitutes the carrying on by him of a business in the United Kingdom."). On Question, amendment agreed to.

[Amendment Nos. 4A, 5 and 7 not moved.]

Lord Morton of Shuna

moved Amendment No. 8: After Clause 1. insert the following new clause: ("Exemption from definition of investment business. .—( ) The Secretary of State may from time to time, on the application of any person. certify (subject to such conditions as he may think fit for the proper protection of investors and the proper regulation of investment business) that any transaction or category of transactions or advice or category of advice shall not constitute the carrying on of investment business if it appears to him that such transaction or category of transactions or advice or category of advice either—

1. (a) do not or will not constitute the carrying on of investment business; or
2. (b) are or are to effected by or between persons and are or are to be entered into either—

1. (i) pursuant to an agreement or arrangement not having for its principal purpose the engaging in of any activity falling within Part II of Schedule 1 and is not excluded by Part III or Part IV of that Schedule; or
2. (ii) in circumstances such that the proper protection of investors and the proper regulation of investment business makes it unnecessary for them to be regulated by this Act.

( ) Any such certificate shall be conclusive that the transaction or category of transactions or advice or category of advice concerned do and shall not constitute the carrying on of investment business for the purposes of this Act."). The noble Lord said: My Lords, this amendment is one about which we have heard something from the noble Lord, Lord Lucas, and we shall no doubt hear more. It is an amendment that we on this side of the House regard as of crucial importance, and an amendment which has really nothing to do with Amendment No. 57, which, as your Lordships will see, deals with certain activities and makes amendments to Schedule 1.

The intention of this amendment is to give the Secretary of State a power which of course could be delegated to the designated agency. The power is to grant on application an exemption certificate. This we see as being similar to the no-action letter that the SEC in the United States grants. It is in our view important, largely because of the change in the Government's philosophy behind the Bill. As we understood it, originally the Government had a definition of "investment" broadly speaking being a piece of paper giving rights as distinct from the actual physical property, which was not to be covered by the Bill.

Then we had a definition of "investment business" which related to dealing in those pieces of paper. The exemptions were clearly defined in Chapter IV. Everybody else doing investment business was caught by the Bill. The Government have broken that philosophy. They broke it on Committee stage in this House when they introduced new Clause 43 and new Schedule 5 relating to listed money market institutions, because there it is the Treasury and the Bank of England who approve the lists of exempt bodies. and the basis of doing so and how they are selected is wholly unspecific.

The philosophy was broken again when, according to press reports, due to pressure from the CBI and the Association of Corporate Treasurers, the Government introduced Amendment No. 57 which we are to discuss later. Amendment No. 57 creates another area of exemption which is very unspecific.

The Government have shown—and we welcome this—an unprecedented willingness to amend the Bill. We had 22 new Clauses on Committee and have 68 pages of government amendments to consider at this stage. But it is quite clear that no one in this Chamber, least of all perhaps on the Government side, is absolutely sure that everything is completely correct now; that all eventualities have been covered and all loopholes have been closed. This amendment is designed to provide an escape clause, to allow the Secretary of State to certify that specific transactions or types of transaction, specific advice or types of advice, are exempt.

During the Committee stage your Lordships' House heard various situations. My noble friend Lord Williams raised his position and the position of the Secretary to the Cabinet as advisers on finance to Christ Church, Oxford. The noble Lords, Lord Grimond and Lord Marsh, spoke to those giving advice to universities and charities and to whether they are caught. The noble Baroness, Lady Seear, at one stage raised whether her letting her cottage might in certain circumstances be caught. There may be many more instances of activities which may or may not be caught—for example, some of the small investors whom we now have in British Telecom or in the Trustee Savings Bank might form an investment club. Are they to be caught or are they exempt? A committee might be raising money for some activity such as a village hall and someone on the committee might be advising on the investment of that money until they have collected enough. Will that person be caught or not? We just do not know what particular activities or situations may turn up. There should be a process whereby people can be sure that they are not breaking the law. This is what the amendment seeks to provide: a method by which somebody can go to the Secretary of State or the designated agency and say: "This is what I am doing. Am I all right, or am I exempt?". The noble Lord, Lord Bruce-Gardyne, on 21st July at the Committee stage (at col. 43 of Hansard) pointed out very clearly and forcefully that it is no answer for the department to say in response to a request "We will never prosecute you anyway for doing that". That might or might not be so, but it would leave the person in complete doubt as to whether he was committing an offence and if so neither the Department of Trade and Industry, the Secretary of State, nor the Securities and Investments Board, could not protect the person from a civil claim to annul the contract. Therefore in my submission this provision of some sort of escape clause for the type of situation which may arise—the SEC in America has discovered it to be necessary—is necessary here in that there are bound to be people and situations which we have not properly covered. I beg to move.

4.15 p.m.

Lord Lucas of Chilworth

My Lords, while thanking the noble Lord, Lord Morton, for the way in which he has described his amendment, I should like to disabuse him of any thought that he may have in his mind that there has been a change by the Government in the general philosophy lying behind the Bill. I assure noble Lords that that is certainly not the case.

The noble Lord, Lord Morton, suggests that the new clause in his amendment has no relevance to the Government's Amendment No. 57. I am suggesting that Amendment No. 57 is directed to exactly the same point which he has described. That amendment is itself closely related to the other proposed government amendments to Schedule 1, especially those to paragraphs 17 and 18 and our own new paragraph 18A. It would have been for the convenience of the House if we had been discussing all these amendments as a group because their effect is cumulative and they have to be regarded as a whole package. It is unfortunate that we are taking this in isolation from the Government's Amendment No. 57; but that is a course which noble Lords opposite have preferred so we shall have to deal with it in this way.

This procedure means inevitably that on occasions during our debate I shall have to refer to amendments that we have not yet reached and on other occasions to repeat points which I might already have made, so I hope the House will bear with me in the knowledge that I should have wished things otherwise.

Your Lordships will probably recall that in introducing Amendment No. 1 earlier this afternoon I referred to representations that had been made to us particularly by the Confederation of British Industry and the Association of Corporate Treasurers about the effect that the Bill might have on the normal activities of industrial and commercial companies. We believe that the amendments we shall be proposing to paragraphs 17 and 18 and the new proposed paragraph 18A will solve most of the problems which have been raised with us on behalf of industrial and commercial companies. Nonetheless, there will remain a few companies whose activities will still be substantial enough to require them to be authorised. In most cases these companies will deal only with similarly sophisticated companies and with professionals in the investment markets. We shall then be proposing in Amendment No. 57 a procedure for exempting such companies from the requirement to be authorised. Exemption can only be granted if certain conditions are met. In particular, it is expected that exemption will be limited to persons who do not deal with members of the public.

I think that in the new clause which we are discussing I recognise a draft provision which the Confederation of British Industry and the Association of Corporate Treasurers put to officials in my department for discussion a little while back. I think noble Lords opposite will be interested to know that we had detailed discussions with both organisations after which both have accepted that the proposed new paragraph 21A of Schedule 1, which Amendment No. 57 introduces, meets their needs. In any case, this proposed new clause has a number of undesirable features. The clause would in effect give the Secretary of State an executive power to declare that a particular activity was not investment business even though Parliament had decided that it was. I do not think that it can be the noble Lord's intention that Ministers should be free to rewrite legislation. Again, the new clause provides no safeguard; there is no provision for matters to be referred to Parliament either before or after a decision has been made. If it is the intention of the noble Lord opposite to give Ministers that sort of executive power, I should have thought that he would be out of sympathy with the general feeling both in this House and indeed in another place.

The Bill itself provides safeguards on the exercise of ministerial powers to extend or restrict the scope of the Bill. This is done under Clause 2 or Clause 46. The new clause suggested cuts right across all this. It is not clear to me whether the noble Lord intends this power to be transferred to a designated agency. If so, I can only say that I find that proposal rather extraordinary. But, if not, then the division of responsibility would, I think, lead to much confusion. In the light of what has been said already, I am surprised that he should make this kind of proposal. In the light of my comments I hope that the noble Lord will be content to withdraw the amendment.

He said at the outset that he regarded this as being particularly important. I fear that it would appear, to me at any rate, that he has not taken on board the government amendments which are to follow later. If the noble Lord feels that it is of such importance that he wishes to press it, I would invite the House to reject the amendment. Having said that, I leave your Lordships with the thought that, while accepting that there is some need for some sort of exemption procedure, I believe that that need is far better met by our Amendment No. 57, which we shall come to later.

Lord Morton of Shuna

My Lords, obviously, I have not made myself clear to your Lordships or, at least, not clear to the noble Lord opposite. To say that Amendment No. 57 deals with the situation which I hoped that I was talking to is illustrated if one looks at Amendment No. 57. It does not do so. To come within the situation provided for by Amendment No. 57, you have to be a person who is either a principal or a body corporate or an agent for a purpose in a joint enterprise. Amendment No. 57 deals wholly with corporate activities. It may well satisfy the Association of Corporate Treasurers. I was not dealing at all with corporate treasurers. I had endeavoured to make clear that I was dealing with the small person on the margin, the person who might be on a committee raising money for the village hall, or a person who might be advising a charity. This was the sort of situation. I agree that the amendment has a similarity with the amendment that the corporate treasurers put forward to the department, but as the noble Lord, Lord Lucas, will see, it has alterations from that, as my amendment includes advice as well as the matters that were in the original amendment put forward by the association. But there are the difficulties of the people who are advisers to unversities, to charities, to committees and people like that, who give their time free. If they may be involved how are they to be excluded other than in this way? It is regularly the position that, by executive action, a government decide that there shall be no prosecution for a breach of the Act. That is the sort of situation that we want to cover here.

If it is decided that the breach, or the possible breach, if it is a breach, is so trivial that it should not be covered, there would be a decision to take no proceedings. It is in that situation that the SEC in America gives a "no action" letter. The advantage of that is that it protects the person who has the "no action" letter from civil liability. That is the point which it appears I have not got through to the noble Lord the Minister. It is for that reason—that there should be some escape clause for the people whom the Government have no intention of involving—that I must press this amendment.

4.25 p.m.

On Question, Whether the said amendment (No. 8) shall be agreed to?

Their Lordships divided: Contents, 95; Not-Contents, 107.

DIVISION NO. 1
CONTENTS
Airedale, L.	Gregson, L.
Amherst, L.	Grey, E.
Ardwick, L.	Grimond, L.
Banks, L.	Hacking, L.
Beswick, L.	Hampton, L.
Blease, L.	Harris of Greenwich, L.
Blyton, L.	Heycock, L.
Boston of faversham, L.	Hunt, L.
Brockway, L.	Irving of Dartford, L.
Bruce of Donington, L.	Jeger, B.
Carmichael of Kelvingrove, L.	Jenkins of Putney, L.
Chandos, V.	John-Mackie, L.
Chitnis, L.	Kagan, L.
Cledwyn of Penrhos, L.	Kilbracken, L.
Collison L.	Kilmarnock, L.
David, B.[Teller.]	Lawrence, L.
Dean of Beswick, L.	Leatherland, L.
Devonshire, D.	Listowel, E.
Diamond, L.	Llewelyn-Davies of Hastoe, B.
Donaldson of Kingsbridge, L.	Lloyd of Hampstead, L.
Elwyn-Jones, L.	Lloyd of Kilgerran, L.
Ezra, L.	Lockwood, B.
Falkland, V.	McIntosh of Haringey, L.
Gallacher, L.	McNair, L.
Galpern, L.	Masham of Ilton, B.
Gladwyn, L.	Mayhew, L.
Glenamara, L.	Mishcon, L.
Graham of Edmonton, L.	Monson, L.

Morton of Shuna, L.	Shepherd, L.
Mulley, L.	Silkin of Dulwich, L.
Nicol, B.	Simon, V.
O'Brien of Lothbury, L.	Somers, L.
Oram, L.	Stallard, L.
Parry, L.	Stoddart of Swindon, L.
Pitt of Hampstead, L.	Strabolgi, L.
Ponsonby of Shulbrede, L.	Taylor of Blackburn, L.
[Teller.]	Taylor of Gryfe, L.
Rhodes, L.	Tordoff, L.
Ritchie of Dundee, L.	Underhill, L.
Rochester, L.	Wallace of Coslany, L.
Ross of Marnock, L.	Walston, L.
Rugby, L.	Wells-Pestell, L.
Sainsbury, L.	Whaddon, L.
Scanlon, L.	White, B.
Seear, B.	Williams of Elvel, L.
Serota, B.	Willis, L.
Shackleton, L.	Winchilsea and Nottingham.
Shannon, E.	E.
Shaughnessy, L.

NOT-CONTENTS
Ailsa, M.	Kimball, L.
Alport, L.	Kinnaird, L.
Ampthill, L.	Knollys, V.
Annan, L.	Lane-fox, B.
Auckland, L.	Layton, L.
Beaverbrook, L.	Limerick, E.
Belhaven and Stenton, L.	Long, V.
Beloff, L.	Lucas of Chilworth, L.
Belstead, L.	McFadzean, L.
Bessborough, E.	MacLehose of Beoch, L.
Blake, L.	Macleod of Borve, B.
Blyth, L.	Mancroft, L.
Brabazon of Tara, L.	Margadale, L.
Bridgeman, V.	Marshall of Leeds, L.
Brougham and Vaux, L.	Merrivale, L.
Broxbourne, L.	Mersey, V.
Bruce-Gardvne, L.	Milverton, L.
Buckinghamshire, E.	Molson, L.
Butterworth, L.	Mottistone, L.
Caccia, L.	Munster, E.
Caithness, E.	Newall, L.
Cameron of Lochbroom. L.	Noel-Buxton, L.
Campbell of Croy, L.	Norrie, L.
Carnegy of Lour, B.	Nungent of Guildford, L.
Carnock, L.	Onslow, E.
Constantine of Stanmore, L.	Pender, L.
Cox, B.	Plummer of St Marylebone.
Craigavon, V.	L.
Crawford and Balcarres, E.	Porritt, L.
Cullen of Ashbourne, L.	Portland, D.
Davidson, V. [Teller.]	Quinton, L.
De Freyne, L.	Reay, L.
Denham, L. [Teller.]	Renton, L.
Denning, L.	Rodney, L.
Dilhorne, V.	St. Aldwyn, E.
Eccles, V.	St. Davids, V.
Effingham, E.	Saltoun of Abernethy, Ly.
Ellenborough, L.	Sandford, L.
Elliot of Harwood, B.	Sandys, L.
Elton, L.	Selborne, E.
Faithfull, B.	Sharples, B.
Fanshawe of Richmond, L.	Skelmersdale, L.
Forester, L.	Strathspey, L.
Fraser of Kilmorack, L.	Terrington, L.
Gisborough, L.	Thorneycroft, L.
Glanusk, L.	Tranmire, L.
Gray of Contin, L.	Trumpington, B.
Gridley, L.	Tryon, L.
Hailsham of Saint	Tweedsmuir, L.
Marylebone, L.	Vaux of Harrowden, L.
Harmar-Nicholls, L.	Vickers, B.
Hives, L.	Vivian, L.
Hood, V.	Ward of Witley, V.
Hooper, B.	Young, B.
Hylton-Foster, B.

Resolved in the negative, and amendment disagreed to accordingly.

4.34 p.m.

Schedule 1 [Investments and investment business]:

The Deputy Speaker (Lord Nugent of Guildford)

My Lords, in calling Amendment No. 9 I should explain that if this amendment is agreed to, it will pre-empt Amendment No. 10 and I shall not be able to call that amendment.

Lord Lucas of Chilworth

moved Amendment No. 9: Page 177, line 20, leave out from ("for") to ("to") in line 23 and insert (", or for money borrowed to defray, the consideration payable under a contract for the supply of goods or services; (aa)"). The noble Lord said: My Lords, in moving Amendment No. 9 I should like to speak also to Amendments Nos. 9A and 10, both standing in the names of the noble Lords, Lord Williams of Elvel and Lord Morton of Shuna. The Government's amendment ensures that a particular type of investment commonly used in export finance is excluded from the definition of "investment". The effect will be that where a customer borrows money from a bank to pay a supplier for goods and services, any instrument he may provide to the bank evincing his obligation to repay that money will not be regarded as an investment. However, in order to prevent abuse, the exclusion is limited to instruments relating to consideration payable under a contract for supply. Without this limitation a normal debenture or loan stock issued by a company could be described as an instrument creating or acknowledging indebtedness for money borrowed to defray the consideration payable by the company for the goods and services it needs to purchase in order to carry on its business. I believe that this meets the point addressed by Amendment No. 10 tabled by noble Lords opposite.

Additionally, government amendment No. 9 will also have the effect of deleting the requirement that the goods and services in question should be supplied by a person whose business it is to supply them. This limitation could have meant, for example, that an instrument of the type described would not be regarded as an investment if it related to the supply of cars by a car retailer but would be so regarded if it related to the sale by a machine tool company of its fleet of sales representatives' cars. This distinction seems to us unjustifiable.

Amendment No. 9A would limit the exclusion to instruments tradable on a recognised investment exchange. As I understand the matter, instruments of the kind in question are not traded on an exchange, so the amendment is unnecessary. In any case, the use of the word "tradable", as opposed, for instance, to the word "traded", might introduce an undesirable degree of uncertainty, as it is not precisely clear what criteria would apply in determining whether an instrument was "tradable" on an investment exchange. With that explanation of the government amendment and our views on the two amendments associated with it, I beg to move Amendment No. 9.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 9, Amendment No. 9A: Line 3, after ("services") insert (provided that the instrument is not tradable on a recognised investment exchange,"). The noble Lord said: My Lords, I beg to move the amendment standing in my name and that of my noble friend Lord Morton of Shuna. I would also follow the noble Lord, if the House is agreeable, in speaking to Amendments Nos. 9 and 10. First, if I may address the point he made about Amendment No. 10, perhaps I may say I fully accept that the wording put forward by the Government under Amendment No. 9 covers the point we were trying to make on Amendment No. 10, and therefore I shall waste no more time on it; that is agreed between us.

On Amendment No. 9A, I think we have a problem because while we fully accept present arrangements for the export of goods and services, all the ECGD requirements and the general practice in the market at the moment involve bank lending and lending against instruments, which are not, if I may use the expression without giving offence to the noble Lord, "tradable". However, there was in the past—and indeed I was involved myself in the business—and there may well be in the future a procedure by which notes which are designed for exactly the same purpose as a bank loan under ECGD guarantee are tradable. As an example, there was in the latter half of the 1970s a market developing in notes issued by companies for exactly the purpose the noble Lord described, which were guaranteed by the ECGD under the normal export insurance arrangements, but which were denominated in currencies other than sterling and were trading on the Euro-currency and Euro-bond markets. I do not see that the Government can deny that, because that is a fact of life.

There is no doubt in my view that, as this business goes forward and as the securitisation, as I call it, of bank lending gains pace—I am sure that noble Lords who are experts in this business will understand what I mean and it is gaining pace—this type of security will become more and more evident. There is no need for a customer wishing to grant an export credit to go to a bank and issue a non-transferable instrument. He may well wish in the future to do it on the basis of a transferable instrument, and such an instrument could be tradable—or, if the noble Lord prefers, traded—on a recognised investment exchange.

So I hope the noble Lord will reconsider what he has said because, as we said on Second Reading, we are trying to get this legislation right, and are trying to envisage circumstances which may not be present at the moment but could easily be present in the future, and, indeed, I am mentioning circumstances that have been present in the past. So I hope very much that the noble Lord will consider what I have said in moving our Amendment No. 9A.

So far as his Amendment No. 9, is concerned, subject to our amendment, we have no problems. In this we believe that the Government are responding to legitimate concerns of industry in wishing to promote exports and therefore we will not oppose it. However, I would wish the noble Lord to think again about the amendment that I am moving. I beg to move.

Lord Lucas of Chilworth

My Lords, I do not think I am in breach of the conventions of your Lordships' House in replying to comments that the noble Lord opposite has made on the amendment which I have moved which enables me thereby to answer his point on his own Amendment No. 9A. I should not want to cross swords with the noble Lord, Lord Williams, in his description of the various instruments that were used, might be used or could conceivably be used to a greater extent. However, if at some stage in the future these instruments come to be traded in any way which suggests that they should be treated as investments, then I am suggesting to him that the powers in Clause 2 could be used to bring them within the scope of the Bill. Therefore, for that additional reason it would seem that his Amendment No. 9A is not as necessary as he perhaps thought.

Lord Williams of Elvel

My Lords, I am very disappointed at the noble Lord's reply, because I tried to describe a market that had existed in the past, and in my view may well exist in the future. So far as I know it does not exist at the moment. But this is not a question of suddenly putting it in under the procedures that are in the Bill for revising investments under Schedule 1. This is a fact of life and, in my view, it would be quite wrong to allow such an amendment to go through which covers legitimately the points raised by the Association of Corporate Treasurers, without at least making allowance for a market which I believe will develop and for which we must make provision. I hope very much that the noble Lord will take account of this and will look at it again.

It is a technical point—but I see that some of your Lordships understand it, and there is a certain sympathy and I hope that the noble Lord will not regard this as simply pressing an amendment that is unnecessary. It really is liable to be an important market and it would be a great pity if companies were prohibited from doing certain things just because they had to wait for the procedures under the Bill to take place for the appropriate instrument to be allowed. So I hope very much that the noble Lord will think again about our amendment.

Lord O'Brien of Lothbury

My Lords, if it is not out of order perhaps I may add to what the noble Lord, Lord Williams, said about the securitisation of debt in the banking system. It is undoubtedly proceeding apace and many banks are now looking hard at their balance sheets, at the make-up of their balance sheets and at the new world which they face. I can well understand the noble Lord's belief that in the future these instruments which we are now discussing in relation to export credits, and which are not at the moment tradable pieces of paper, could very easily become so in the future.

On Question, amendment to Amendment No. 9 negatived.

On Question, Amendment No. 9 agreed to.

[Amendment No. 10 not moved.]

4.45 p.m.

The Lord Advocate (Lord Cameron of Lochbroom)

moved Amendment No. 11: Page 177, line 29, after ("property") insert (", a heritable security"). The noble and learned Lord said: My Lords, the note to paragraph 2 already excludes from the definition of "debentures" any lease or disposition of property and that would include a mortgage. These words are taking up a point of Scots law. They are intended to ensure that the same effect is also achieved under the law of Scotland where the creation of a heritable security may not give rise to a disposition of property. I beg to move.

Lord Morton of Shuna

My Lords, I welcome the conversion of the Department of Trade and Industry to the existence of Scottish law and Scottish procedures, and congratulate the noble and learned Lord the Lord Advocate on having got this Scottish matter through.

On Question, amendment agreed to.

Lord Hacking

moved Amendment No. 11A: Page 177, line 32, after ("of-) insert ("or in respect of which the payment obligations are guaranteed by"). The noble Lord said: My Lords, this is an amendment which was not moved in Committee, but the noble Lord the Minister has had some notice of it because representations have been made to him concerning it. Indeed, recently one of the senior officers in the Minister's department, Mr. Long, held a helpful meeting, which is how it was judged by representatives of the Public Securities Association of New York. Nonetheless, I apologise to the Minister for the fact that this amendment was not tabled earlier and that he therefore has not had as long as I should have liked him to have for considering this amendment as tabled for Report. The lateness of the tabling was caused by the lateness of the discussion. Nonetheless, there has been lateness and I apologise to the Minister for that.

This amendment concerns the definition in paragraph 3 of investment business which directs attention to Government and public securities. As such it affects not only United Kingdom government securities but also overseas government securities. There are already transactions in London concerning overseas government securities, particularly the securities of the United States Government. The business worldwide of United States Government securities is substantial. It is not unusual for single transactions to be of the value of 1 million dollars, nor is it unusual to have no fewer than £200 billion worth of United States Government securities transacted in one day. The best estimate I can give to your Lordships of the volume of these transactions in the United Kingdom is that it is thought to be on a daily basis of between 1 billion and 3 billion US dollars.

This business is also transacted by substantial institutions which can transact this form of business only if they are accorded "primary dealer" status by the Federal Reserve Bank of New York. For that purpose, there are stringent inquiries made of any institution which wishes to trade US Government securities. Therefore it is not surprising that United States securities are traded by substantial institutions such as the Chase Manhattan Bank, the Chemical Bank, the First Boston, Goldman Sachs, Lehman Brothers and indeed by United Kingdom banks based in New York such as Kleinwort Benson, which has also been accorded primary dealer status. It is therefore anticipated by these primary dealers, which are already transacting this business in London, that they will be authorised to carry out that business by their potential SRO—the International Securities Regulatory Organisation, otherwise known as ISRO.

This business is both important and prestigious for London. A difficulty, however, arises because a certain form of United States Government security does not fall within the definition in paragraph 3, of Schedule 1. The purpose of my amendment is to enlarge that definition so that that form of US Government security will fall within the terminology of this paragraph. I refer to the United State's Government security called a "guarantee obligation" which arises when another party has issued the loan and the government guarantees it. This occurs, for example, with an association in the United States of America called the Federal National Mortgage Association, which provides loans for residential mortgages.

The United States of America is not blessed with large commercial building societies such as exist in this country. In the main it is based for residential owners on small savings banks in local communities. For that reason the United States Government guarantee the loans—and this is an example of a guarantee loan—which are issued by a Federal National Mortgage Association. The guarantee obligation does not fall within the terms of paragraph 3 because such a guarantee obligation is not "issued by or on behalf" of the Government. In the circumstances, therefore, I am asking the Government to enlarge the definition of paragraph 3 so that it also covers "guarantee obligations".

The problem arises in Clause 156 of the Bill. Under this clause, if a guarantee obligation does not fall within the terminology of an investment business, the advertisement restrictions apply. This means that, before an advertisement is offered for securities such as a guarantee obligation, a prospectus would have to be registered with the Registrar of Companies and that advertisement could not be constituted into a contract and be binding at law unless the procedure for the registration of the prospectus has taken place. The business, which I have just been relating to your Lordships, is transacted by telephone or by electronic screens. Therefore the requirement of Clause 156 would be crippling on the business and would discourage the dealers in it from coming to London to transact that business. This does not form all the business in United States securities but it forms a small sector of it which would be caused difficulties; and, if people are coming here to carry out the totality of their business, they do not want an impediment to the smooth running of one area of it.

I hope that thus far I have found common ground with the Government. Faced with this difficulty, how is the solution provided? I have sought in my amendment to provide one solution, which, as your Lordships have heard, is to amend the drafting of paragraph 3 so that it includes this form of business. The Government have approached it in a different way. I think I am correct in saying that government Amendment No. 395 attempts to deal with this problem in a different way. If your Lordships will be kind enough to turn to Amendment No. 395 on page 72 of the Marshalled List you will see what the Government seek to do.

Since the real difficulty lies in the advertisement requirement, to which I referred your Lordships, Amendment No. 395 proposes to make exempt the advertisement requirement if the advertisement, relates to securities appearing to him [the Secretary of State] to be of a kind that can be expected normally to be bought or dealt in only by persons sufficiently expert to understand any risks involved". The process is for the Secretary of State to issue an order which complies with the form set out by the Government's proposed amendment.

In the choice that faces your Lordships the question is whether the amendment I propose or government Amendment No. 395 deals most aptly with the problem. My argument is that my amendment most aptly applies to the problem. In the first place it will appear on the face of the Bill. Secondly, it fits entirely in the design of the Bill because the Bill is designed not only in the present tense but in the future. Part I of Schedule 1 now sets out the forms of investment business which fall under the Bill but under Clause 2 of the Bill the Secretary of State has power to amend Schedule 1 to bring it up to date so that if there is a new form of financial instrument the Secretary of State can issue the appropriate order under Clause 2. Thus Schedule 1 would be amended to include that business.

By dealing with the problem in the way the Government propose—by creating a special exemption for the problem of advertisement—the matter is not clarified on the face of the Bill. It will also mean a special procedure which the Government will have to operate on a case-by-case basis. That is cumbersome and will add to the discouragement, which I am urging your Lordships against, concerning overseas government securities, not only United States Government securities but other government securities, being transacted in London. I beg to move.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord Hacking, for his complete explanation of the amendment; but I have to say that I shall invite him to withdraw his amendment. Although it is tabled, as he readily admits, at the instigation of the Public Securities Association of New York, we do not believe that its requirement should be dealt with in this way.

The amendment would have very little effect because it would reclassify from paragraph 2 of Schedule 1 to paragraph 3 debentures guaranteed by a government. The only consequence of that would be in Part V of the Bill which subjects debentures within paragraph 2 but not those within paragraph 3 to the prospectus provisions. There are some difficulties in the proposal put to us. First, it goes extremely wide. I think the noble Lord admitted that he wanted to open up this area; but it is extremely wide. It would remove from paragraph 2 some quite orthodox instruments, payment of which happen to be guaranteed by a public authority. It could also bring within the scope of the Bill instruments which we have been at some pains to take out—for example, instruments used in export finance where payment is the subject of a government guarantee.

The noble Lord said that he is concerned about particular kinds of United States mortgage-based securities which carry a Treasury guarantee. My understanding is that these securities are currently sold in this country only to the larger and professional investors. If that understanding is correct, it is possible for them to be excluded from the prospectus provisions by regulations made under Clause 1 56(6)(c). The noble Lord, Lord Hacking, referred to Government Amendment No. 395 in aid, as it were, of his own amendment. However, Amendment No. 395 is helpful but is not strictly needed within this context. Clause 1 56(6)(c) is sufficient for the purpose he seeks.

We would certainly be ready to consider any representations to the effect that the noble Lord seeks under the provisions of that clause. We believe that would be the preferable approach and could be reconsidered if the securities to which the noble Lord referred were offered to the public. With that explanation, I hope that the noble Lord, Lord Hacking, will feel able to withdraw his amendment.

5 p.m.

Lord Williams of Elvel

My Lords, the noble Lord, Lord Hacking, has raised a very interesting point, and your Lordships will be grateful to him for doing so. The noble Lord was being modest in referring only to the Federal Mortgage Corporation securities, because guarantee obligations guaranteed by a government or a local authority go much wider than the reference he made. Indeed, it is possible to conceive, and it is conceived, that guarantee obligations issued by companies or authorities which normally would issue their own loan stock or debentures would be guaranteed by different local authorities. They might be guaranteed in different manners, and I shall come back to that when I state my objections to the amendment.

However, in support of the noble Lord, and inviting the Government to take very seriously the point made by him, I believe that obligations which are issued other than by governments or local authorities but which are guaranteed by governments or local authorities rank in the market in exactly the same way as direct obligations of those governments or local authorities. There is, in market terms, no distinction between the two. For example, if one takes the old issues that used to be made by nationalised industries, covered by a Treasury guarantee, they ranked in the Euro-markets as a sovereign risk of the United Kingdom and traded in exactly the same markets.

The noble Lord, Lord Lucas, was addressing himself, in following the noble Lord, Lord Hacking, to the problem of advertisements. However, there are other passages in the Bill which would be affected by transferring the obligations that the noble Lord, Lord Hacking, has in mind from paragraph 2 of the schedule to paragraph 3. Notably, in Schedule 5, on page 192, a distinction is made in paragraph 1(2) between, in (b), debenture or instrument falling within paragraph 2 of Schedule 1 and (c), loan stock, or any other instrument, falling within paragraph 3 of Schedule 1". Indeed, there is another area in the Bill where a distinction between paragraphs 2 and 3 has some effect. I am not claiming it is a material effect, but when we were looking this morning at the amendment we came to the conclusion that not only would a transfer of these obligations from paragraph 2 to paragraph 3 of Schedule 1 affect the areas mentioned by the noble Lord, Lord Lucas, and the schedule to which I have drawn attention, but that there are other aspects where that distinction becomes important.

The noble Lord, Lord Hacking, has therefore raised a problem to which the Government must pay attention. Nevertheless—and I say this in support of the noble Lord, Lord Lucas, rather than the noble Lord, Lord Hacking—I have a real problem with the wording proposed by the noble Lord in his amendment. In my view, it is not sufficient to say that, payment obligations are guaranteed by". One must specify what sort of guarantee. There are many obligations which carry a several guarantee rather than a joint several guarantee. There are obligations which might be partially guaranteed. There are obligations still outstanding on which there is a foreign exchange guarantee but not a guarantee of principal. There are other obligations outstanding on which there is a guarantee of principal repayment but not a guarantee of interest repayment. There is a whole series and variety of instruments which carry some form of guarantee issued by governmental authority or local authority which, if one follows the route taken by the noble Lord, Lord Hacking, in moving the amendment, one has to pursue right to the end; otherwise it will cause enormous confusion in the market.

I am, as it were, poised between the noble Lord, Lord Hacking, and the noble Lord, Lord Lucas. On the one hand, I believe the noble Lord has raised an important point that guarantee obligations do rank and rate in the market—and are, in almost all respects, if fully guaranteed—as sovereign risk in the case of governments or full local authority risk in the case of local authorities. If they rank as such, they should therefore be treated as such for the purposes of this schedule. On the other hand, I accept that the expression "guaranteed by" needs a great deal of further work and clarification.

I hope that my contribution has been useful to the debate. I do not know what the noble Lord is going to do with his amendment, and I wait to see.

Viscount Chandos

My Lords, I speak briefly in support of the amendment tabled by the noble Lord, Lord Hacking, and the comments of the noble Lord, Lord Williams. The essential point is that which the noble Lord, Lord Williams, made—that a security guaranteed by government (or, for that matter, any entity) is in almost all respects as irrelevant to investor protection as, say, the direct obligation of that entity.

It seems a mistake to try to satisfy the legitimate concerns of people in the trading and sale of government-guaranteed securities through Amendment No. 395 when it is questionable whether the wholesale nature of a government-guaranteed securities market will necessarily continue. At present, I accept that the federal agency market, as it is traded in London, is exclusively with professional institu- tions. It is worth bearing in mind that, for example, in Germany there has been substantial retail interest in the major federal agencies whose paper is traded in the United States.

Therefore I ask the noble Lord, Lord Lucas, to reconsider his response to the noble Lord, Lord Hacking, so that we can have the government-guaranteed securities transferred from paragraph 2 to paragraph 3 of Schedule 1.

Lord Hacking

My Lords, in moving this amendment I was seeking to draw attention to the problem. Therefore I am grateful to the two noble Lords who have spoken in support of the principle I seek to focus upon. Both noble Lords have much greater experience than I do in the City. Therefore I hope that the Minister will listen to their comments and will accept them as further emphasising the problem to which I sought to draw attention.

In referring to the Federal National Mortgage Association, I was doing so by way of an example and as an example a guarantee obligation which carries the name of "Fanny Mae". But that was only an example. The problem is much wider. In my respectful submission it needs to be dealt with in Schedule 1 and I therefore ask the Government to give the matter further consideration and see how it can be dealt with in Schedule 1 and not dealt with either by regulations under Clause 156(6)—which I think was the one quoted by the Minister—or by way of Amendment No. 359.

The Deputy Speaker

My Lords, does the noble Lord wish to withdraw his amendment?

Lord Hacking

My Lords, I was hoping that the Minister would respond, but if the Minister does not intend to respond to the comments made both by me and other noble Lords, I do not beg leave to withdraw the amendment.

5.10 p.m.

On Question, Whether the said amendment (No. 11A) shall be agreed to?

Their Lordships divided: Contents, 88; Not-Contents, 111.

DIVISION NO. 2
CONTENTS
Ailesbury, M.	Elwyn-Jones, L.
Airedale, L.	Ewart-Biggs, B.
Ardwick, L.	Ezra, L.
Banks, L.	Falkland, V.
Barnett, L.	Gallacher, L.
Blyton, L.	Galpern, L.
Boston of Faversham, L.	Graham of Edmonton, L.
Brockway, L.	Grey, E.
Brooks of Tremorfa, L.	Grimond, L.
Bruce of Donington, L.	Hacking, L. [Teller.]
Carmichael of Kelvingrove, L.	Hampton, L.
Chandos, V.	Harris of Greenwich, L.
Chitnis, L.	Heycock, L.
Cledwyn of Penrhos, L.	Houghton of Sowerby, L.
Dean of Beswick, L.	Hunt, L.
Diamond, L.	Irving of Dartford, L.
Donaldson of Kingsbridge, L.	Jeger, B.

Jenkins of Putney, L.	Rugby, L.
John-Mackie, L.	Sainsbury, L.
Kennet, L.	Serota, B.
Kilbracken, L.	Shackleton, L.
Kilmarnock, L.	Shaughnessy, L.
Leatherland, L.	Silkin of Dulwich, L.
Listowel, E.	Simon, V.
Llewelyn-Davies of Hastoe, B.	Somers, L.
Lloyd of Hampstead, L.	Stallard, L.
Lloyd of Kilgerran, L.	Stoddart of Swindon, L.
Lockwood, B.	[Teller.]
Longford, E.	Strabolgi, L.
McIntosh of Haringey, L.	Taylor of Blackburn, L.
McNair, L.	Taylor of Gryfe, L.
Mayhew, L.	Taylor of Mansfield, L.
Mishcon, L.	Tordoff, L.
Monson, L.	Tryon, L.
Morton of Shuna, L.	Underhill, L.
Mulley, L.	Wallace of Coslany, L.
Munster, E.	Walston, L.
Nicol, B.	Wells-Pestell, L.
Oram, L.	Whaddon, L.
Parry, L.	White, B.
Ponsonby of Shulbrede, L.	Williams of Elvel, L.
Rhodes, L.	Willis, L.
Ritchie of Dundee, L.	Winchilsea and Nottingham,
Rochester, L.	E.
Ross of Marnock, L.	Winstanley, L.
NOT-CONTENTS
Abinger, L.	Hailsham of Saint
Ailsa, M.	Marylebone, L.
Alexander of Tunis, E.	Halsbury, E.
Alport, L.	Harmar-Nicholls, L.
Ampthill, L.	Hives, L.
Beaverbrook, L.	Hooper, B.
Belhaven and Stenton, L.	Hunter of Newington, L.
Beloff, L.	Hylton-Foster, B.
Belstead, L.	Kaberry of Adel, L.
Bessborough, E.	Kimball, L.
Blake, L.	Kinnaird, L.
Boardman, L.	Knollys, V.
Boyd-Carpenter, L.	Lane-Fox, B.
Brabazon of Tara, L.	Layton, L.
Bridgeman, V.	Limerick, E.
Brookeborough, V.	Long, V.
Brougham and Vaux, L.	Lothian, M.
Broxbourne, L.	Lucas of Chilworth, L.
Bruce-Gardyne, L.	McAlpine of West Green, L.
Buckinghamshire, L.	McFadzean, L.
Butterworth, L.	Macleod of Borve, B.
Caithness, E.	Margadale, L.
Cameron of Lochbroom, L.	Marshall of Leeds, L.
Campbell of Croy, L.	Merrivale, L.
Carnegy of Lour, B.	Mersey, V.
Carnock, L.	Molson, L.
Cathcart, E.	Mottistone, L.
Coleraine, L.	Newall, L.
Constantine of Stanmore, L.	Noel-Buxton, L.
Cowley, E.	Norrie, L.
Cox, B.	Nugent of Guildford, L.
Craigavon, V.	Onslow, E.
Cullen of Ashbourne, L.	Orkney, E.
Davidson, V. [Teller.]	Orr-Ewing, L.
Denham, L. [Teller.]	Pender, L.
Dilhorne, V.	Plummer of St Marylebone,
Eccles, V.	L.
Eden of Winton, L.	Polwarth, L.
Effingham, E.	Porritt, L.
Ellenborough, L.	Portland, D.
Elliot of Harwood, B.	Quinton, L.
Elliott of Morpeth, L.	Reay, L.
Elton, L.	Renton, L.
Fanshawe of Richmond, L.	Rodney, L.
Ferrers, E.	St. Aldwyn, E.
Forester, L.	St. Davids, V.
Fraser of Kilmorack, L.	Saltoun of Abernethy, Ly.
Gisborough, L.	Sandford, L.
Glanusk, L.	Selborne, E.
Gray of Contin, L.	Shannon, E.
Gridley, L.	Sharples, B.

Skelmersdale, L.	Trumpington, B.
Strathspey, L.	Vickers, B.
Terrington, L.	Vivian, L.
Thorneycroft, L.	Ward of Witley, V.
Torrington, V.	Young, B.
Tranmire, L.

Resolved in the negative, and amendment disagreed to accordingly.

5.19 p.m.

Lord Lucas of Chilworth

moved Amendment No. 12: Page 178, leave out lines 4 and 5 and insert— ("Notes

1. (1) It is immaterial whether the investments are for the time being in existence or identifiable.
2. (2) An investment falling within this paragraph shall not be regarded as falling within paragraph 7, 8 or 9 below.").

The noble Lord said: My Lords, in moving Amendment No. 12, I shall also speak to government Amendment No. 24. The noble Lord, Lord Hacking, very helpfully drew attention at an earlier stage in our proceedings to the problems which might be created by an overlap between different paragraphs in Part I of Schedule 1. In general, it is of no great importance if an investment falls within more than one paragraph of Schedule 1, since that schedule is concerned with establishing the requirement to be authorised. If a person is required to be authorised by virtue of the fact that he takes part in activities involving an investment within one paragraph of Part I, it is irrelevant that the investment also falls within another paragraph. However, the exclusion for dealings on own account in paragraph 17 of Schedule 1 operates differently according to whether the investment in question falls within paragraphs 1 to 6 or 7 to 10 (in each case including relevant rights and interests under paragraph 11). It is therefore desirable to avoid overlap between those two groups of paragraphs, and that is the purpose of the first amendment.

The second amendment makes it clear that the interests of beneficiaries of an occupational pension scheme, as well as the interests of members, are excluded from the definition of "investment". It also removes a possible overlap between paragraph 11 and some of the other paragraphs in Part I of Schedule 1. That is desirable because different monetary limits apply for the purpose of the exemption for listed money market instruments to investments falling within paragraphs 7, 8 and 9 and those falling within paragraph 11. Removing the overlap removes the risk of confusion as to which limit should apply. I am greatly obliged to the noble Lord, Lord Hacking, for drawing our attention to that matter. I beg to move.

Lord Hacking

My Lords, it is my turn to express my gratitude to the Minister for dealing with this amendment which I moved in Committee. The Minister and the Government have not dealt with the matter in the same way, but the amendment tackles the problem of overlap between those paragraphs. I am therefore grateful to the Minister.

Lord Williams of Elvel

My Lords, the Government have responded to the points made by the noble Lord, Lord Hacking, in Committee, and as far as I can understand—I use that expression advisedly—have dealt with those points. I say that because I am not entirely certain what the second note under Amendment No. 24 means. Am I right in thinking that it tries to exclude rights or interests which come under other parts of the schedule from the paragraph with which we are dealing here, which is occupational pension schemes?

My noble friend Lord Morton and I spent a great deal of time puzzling out what it meant. I hope that I have it right. If I have, we are happy with it, on the understanding that everyone else understands what it is all about.

Lord Lucas of Chilworth

My Lords, I had not anticipated being asked a question along the lines that the noble Lord, Lord Williams, has asked. I understand that he is right in what he is suggesting. I hope I shall receive confirmation that my understanding is the same as his. I am right. The note excludes occupational pension scheme rights and any other investment, which is the point to which he addressed himself.

On Question, amendment agreed to.

Lord Williams of Elvel

moved Amendment No. 13: Page 178, line 5, at end insert— ("Instruments entitling to interest in mortgage advances 4A. Notes or other instruments entitling the holder to hold or to hold an interest in an advance secured on residential property."). The noble Lord said: My Lords, to some extent the amendment relates to a discussion which took place in your Lordships' House during the passage of the Building Societies Act. At that time I drew attention to an existing market which had grown up for what I called securitised mortgages; in other words, those are advances made on security of residential property. The securities are traded in a secondary market. A major investment house from New York has set up a corporation specifically to deal with that and is conducting operations accordingly.

In this amendment I am not addressing a series of hypothetical securities that may or may not exist in the future—I refer to our discussion on export credit-type securities; I am referring to securities that exist at the moment and which are being traded at the moment in relatively small volume; nevertheless, the sponsors believe that this market will grow. It has grown very fast in the United States.

The Government in a later amendment have rightly introduced provisions for ensuring that commercial property, when securitised, is brought within the Bill's ambit. That is a proper amendment which we shall discuss at the appropriate time. Nevertheless, as far as I can see, the type of security to which my amendment is addressed is not yet considered as an investment within the Bill's ambit.

I leave aside for a moment the question of whether that type of security is desirable in the first place. That point I shall address when I come to the problem of the building societies and an amendment to the Building Societies Act which I have put forward in the context of this Bill. I leave aside that question because I want to address the narrow question of whether these securities should be considered within the Bill's ambit as investments. As I understand it, as the Bill is drafted, those investments are not considered to be within the Bill's ambit. If my understanding is wrong, I beg your Lordships' pardon and I shall withdraw my amendment.

At the moment, it seems to me there is no provision for these notes or securities to be classified as investments. I hope that the noble Lord will bear in mind that this is a growing market; a market which will be a retail market and which will be sold to investors. Investors therefore should be entitled to the same protection as they have on all other securities at the moment which come within the ambit of the Bill. I beg to move.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord Williams, for suggesting that if we were not careful, we might go into areas which are outside the Bill. He has addressed himself to the narrower point. I agree with him that the sale to investors of interests in advances secured on residential property is something which should rightly come within the scope of the Bill. I am glad to be able to tell him that it already does.

On the basis of United States experience, where the practice of securitising mortgages is more developed than here, there are two ways in which interests in mortgages may be packed and sold. The first is that the lender sells his mortgage book to a purchaser who finances the purchase by issuing his own debentures secured on the assets he acquires; that is to say, the interests in the mortgages. Such debentures fall within paragraph 2 of Schedule 1.

The alternative arrangement is for a person, either the original lender or someone else to whom he sells his mortgage book, to issue notes which give the holder a direct interest in a percentage of the mortgage book and the income therefrom. That is clearly a form of collective investment scheme as defined in Clause 73, as it enables the holders to participate in the income from the mortgages without giving them any day-to-day control over their management. The notes are therefore already covered by Schedule 1. We are, I think, at one with the noble Lord. We believe that the point that he seeks to introduce is already contained within the Bill. I suggest therefore that his purpose has been achieved and that his amendment is not necessary.

5.30 p.m.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for his explanation. I am sorry if this has become something of a Committee stage debate. I hope that he understands that we have to clarify these issues. The noble Lord said that in both forms of instrument that he described, the instrument related to an interest in the mortgage book. I believe that he used that expression in respect of both instruments. Does this cover interests in direct mortgages—a third form of security, I understand, that may or indeed is being issued? If it does, I am happy to accept the noble Lord's explanation and to withdraw the amendment. If it does not, I am afraid that I shall have to press my amendment.

Lord Lucas of Chilworth

My Lords, I can confirm that in fact it does.

Lord Williams of Elvel

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave withdrawn.

Lord Lucas of Chilworth

moved Amendment No. 14: Page 178, line 10, after ("right") insert ("to acquire, dispose of, underwrite or convert an investment, being a right"). The noble Lord said: My Lords, in moving this amendment, I wish to speak also to Amendment No. 14A, in the name of noble Lords opposite, and also to Amendments Nos. 15 and 16, the latter two being government amendments. The three government amendments are consistent with amendments proposed to other provisions of the Bill. They clarify the meaning of the term "rights conferred by an investment". They make it clear that, for example, a proxy form is not to be regarded as an investment on the basis that it confers a right to vote at a company's general meeting.

Amendment No. 14A causes me some puzzlement. If an investment confers a right to underwrite another investment, I do not really see why it should be treated differently from a right, for instance, to purchase that investment. It is, after all, just as valuable. The noble Lord may be able to help us a little in that respect. I cannot at the moment see the point of his proposal.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 14, Amendment No. 14A: Line 2, leave out ("underwrite"). The noble Lord said: My Lords, in moving this amendment, I shall address myself to the same amendments as the noble Lord, Lord Lucas, did in his introduction of Amendment No. 14. I accept that the noble Lord is responding to the problem as to what are rights. I have no particular problem with the formulation of Amendment No. 14. The reason that I move Amendment No. 14A is that a right to underwrite seems to involve an obligation rather than a right to invest. There is an important difference between having a right to an obligation and a right to purchase a security.

The noble Lord, Lord Lucas, in introducing his amendment and discussing mine, said that the right to underwrite was equivalent to a right to purchase the investment. I am bound to say that I disagree with the noble Lord. I believe that the underwriter assumes an obligation. The obligation may or may not be a favourable one. It may or may not be a good one. But, for every right to underwrite, there may be an obligation to underwrite. I know of no security where there is a right to underwrite without there also being an obligation in certain circumstances to underwrite. This is the reason I move my amendment.

In the context of the whole series of amendments that the Government are moving, the thrust of which I fully accept, there seems a distinction between underwriting and acquiring, disposing of or converting an investment. I hope that the noble Lord appreciates the argument that I make.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord for his explanation. I would merely go back to what I said earlier. If an investment confers a right to underwrite another investment, I do not see why it should be treated any differently from a right to purchase that investment. This is perhaps where the difference is. The right to do something that a person is then obliged to do—while this may bring a profit or a loss—is surely like any other investment. I still cannot see that there really is any difference in the way that the matter should be treated.

Lord Williams of Elvel

My Lords, let me try again. If a security confers a right to underwrite, underwriting is an obligation. It is therefore a right to assume an obligation. This is, in my view, quite different from a right to acquire, to dispose of, or to convert. The obligation may be a favourable obligation, or it may be an unfavourable obligation. But it is an entirely different category. I have tried twice to explain. I am perhaps not getting through. I accept that these are rather difficult and technical points. I shall not press the amendment but there is, I believe, a serious point that the Minister may wish to take on board.

On Question, amendment to Amendment No. 14 negatived.

On Question, Amendment No. 14 agreed to.

Lord Lucas of Chilworth

moved Amendment No. 15: Page 178, line 15, leave out ("Notes") and insert ("Note"). On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 16: Page 178, leave out lines 21 to 25. On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 17: Page 178, line 34, leave out ("or"). The noble Lord said: My Lords, in moving this amendment, I should like to address myself also to Amendments Nos. 18 and 19. It is clear, I believe, that the noble Lord, Lord Williams, and I are agreed that options over options should be included within the scope of the Bill. We think that the government amendments achieve this result more satisfactorily than the noble Lord's amendment, and I hope that he agrees.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for his explanation. I agree fully that his wording is rather better than mine, but I have never offered myself as a parliamentary draftsman. I shall therefore be happy not to pursue my amendment.

On Question, amendment agreed to.

Lord Williams of Elvel

moved Amendment No. 17A: Page 178, line 35, after ("gold") insert (", platinum"). The noble Lord said: My Lords, this is a minor point. We discussed in Committee the question of options other than those over gold and silver and other precious metals. The noble Lord opposite said that he saw no reason why platinum should not be included. I agree that platinum is a relatively minor market at the moment. But who knows? There may be a better market for it in the future, as indeed for other precious metals. It seems sensible to cover the point without having to go through the procedures already referred to in changing the schedule to the Bill. I beg to move.

Lord Lucas of Chilworth

My Lords, I recall our exchanges at the earlier stage. At that time I undertook to consider the point that the noble Lord, Lord Williams, then raised. We have considered the point. We are not, however, convinced that we should extend coverage of the Bill in the manner that the noble Lord suggests. I start from the position that we should not seek to regulate any activities unless there is a very good reason for so doing.

I do not think that there is a very good reason in this case. The noble Lord and I have no doubt been watching the rise and fall in prices over these last few weeks since we last discussed this matter. I think that the noble Lord will probably agree that there is at present very little trading in platinum options or indeed in options on any metal other than gold and silver. The benefit to investors by bringing platinum options under the Bill would, we believe, be minimal. To do so would impose unnecessary regulatory burdens on those concerned.

If, however, in the future trading in platinum options develops, then the powers in Clause 2 can always be used to add them to Schedule 1. But I think that we should defer doing so until a real case is made out.

Lord Williams of Elvel

My Lords, I fully understand the point that the noble Lord is making. I, too, would agree that one should not try to impose controls on markets which do not yet exist, or have not yet come to their full maturity, or are not likely to be markets of importance. In that context I am slightly surprised that the noble Lord brought forward a government amendment on options over options because, as far as I know, options over options are not a market that is fully developed. I believe that it will be fully developed, but I do not believe that it is fully developed at the moment. Other noble Lords may disagree with me.

I fully accept that the Government may wish to bring forward amendments to Schedule 1 under the Clause 2 procedures. I fully accept that platinum—if the point arises where that is a serious market-may well be subject to those procedures, and that may well be the right way to handle it. Nevertheless, I think that I ought to say that in my view platinum, gold or silver options are, generally speaking, traded in the same market by the same people in the same circumstances. It seems slightly odd that two of those options should be caught under the Bill and the other is not. However, in the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas of Chilworth

moved Amendment No. 18: Page 178, line 35, at end insert ("; or (d) an option to acquire or dispose of an investment falling within this paragraph by virtue of (a), (b) or (c) above."). On Question, amendment agreed to.

[Amendment No. 19 not moved.]

5.45 p.m.

Lord Cameron of Lochbroom

moved Amendment No. 20: Page 178, leave out lines 43 and 44 and insert— ("(2) A contract shall be regarded as made for investment purposes if it is made or traded on a recognised investment exchange or made otherwise than on a recognised investment exchange but expressed to be as traded on such an exchange or on the same terms as those on which an equivalent contract would be made on such an exchange. (2A) A contract not falling within Note (2) above shall be regarded as made for commercial purposes if delivery is to be made within seven days."). The noble and learned Lord said: My Lords, for the convenience of the House, in speaking to Amendment No. 20 I shall also speak to Amendments Nos. 21 and 23 in my noble friend's name, and to Amendments Nos. 20A and 22 in the names of the noble Lords opposite.

During the Committee debate on this part of the Bill my noble friends Lord Boardman and Lord Colville of Culross drew to our attention certain problems of interpreting the effect of the definition of "futures" in paragraph 8. We then undertook to look into the matter. Subsequently extensive discussions have been held with the commodity and futures exchanges and with the banks who do business both on such exchanges and off-exchange. The three amendments in the name of my noble friend are the result of the very helpful advice we received.

The current provisions in the Bill do not, we now acknowledge, fully deal with contracts made off a recognised investment exchange, albeit on the same terms as those of contracts made or traded on such exchanges and even where they are expressed to be traded as such. The futures exchanges expressed their concern that without an amendment, there would be a possibility of abuse by unscrupulous, unregulated brokers. We share that fear. We do not wish to see futures contracts being offered to the public on the standard terms of a recognised investment exchange where the broker has managed to avoid authorisation—and therefore regulation—simply by designating those off-exchange contracts as having a "commercial purpose". The first part of Amendment No. 20 is therefore brought forward to deal with that problem.

A further point which arose during these dicussions was the question of "spot" contracts. It was proposed that spot contracts—which are sometimes also called "cash" contracts—should be excluded from the definition of "futures" when made off a recognised investment exchange even though such contracts bear many of the characteristics of futures. For example, the Bill currently defines a contract as a "future" where, inter alia, delivery is to be made at a future date". I quote from page 178, lines 38 and 39. We are agreed that the purpose of entering into a spot contract is to obtain possession of the property in question, not, as is the case with "futures", to assume or to transfer the risk of commodity price changes. This is already the import of Note 3(b) of paragraph 8, but it is obviously desirable to put this beyond question. This is done by the addition proposed at (2A) in Amendment No. 20.

Perhaps at this point I may interject to say that the noble Lords opposite have put forward an amendment which is obviously intended to clarify. I am advised that in the terms in which the amendment presently stands it would be unsatisfactory because it could cause us some doubt. It simply provides the terms of the contract and proceeds to deal with the matter of the delivery of the particular commodity. While I think that the paragraph (2A), which is in Amendment No. 20, covers the point, if the noble Lords opposite were to suggest at a later stage some provision under the terms of the contract, I do not think I could possibly resist such an amendment. I have to say only that I think as presently drafted paragraph (2A) makes it perfectly clear that it has to be a term of the contract. I do not think I could reasonably advise the House that Amendment No. 20A is appropriate to deal with what noble Lords opposite see as a difficulty.

I now turn to the point raised in Committee by my noble friend Lord Boardman; namely, the effect of Note 3(c) of paragraph 8. I confirm that it never was the Government's intention to catch within the definition of "futures" any physicals forward delivery contracts which are entered into for commercial purposes. The problem stems from a possible interpretation of Note 3(c). We have given an assurance to the physicals markets associations which publish standard terms on which their members enter into contracts—including the British Bankers' Association and the Grain and Feed Trade Association—that the provisions relating to "futures" were not meant to extend to the foreign exchange, bullion or physical commodity dealings of their members when made for commercial purposes. Accordingly, to make this abundantly clear the amendment to Note 3(c) makes the provision a one-way indicator, the presence of which suggests a commercial purpose but the absence of which suggests nothing.

In relation to Amendment No. 22, in the names of the noble Lords opposite, I appreciate that as Note 3(c) presently stands they agree with the Government in this matter. I simply suggest that perhaps the government amendment No. 21 solves the problem in a less brutal way than the deletion of the whole paragraph.

Finally, I turn to Amendment No. 23. We have accepted that by no means all futures contracts require that a price is agreed upon when the contract is made. We have been advised that contracts are frequently made between brokers and "clients" expressed as a contract between principals under which the price is determined by the price at which a subsequent matching contract is executed by the broker on the market floor. Furthermore, it is common practice in some futures markets to allow quality and quantity tolerances to determine the price in the event of delivery. The provisions we have added as a new Note 5 take account of these matters. The text of the three amendments in my noble friend's name has been discussed with the exchanges themselves and I understand they have been welcomed by them. I commend them to the House, and I beg to move.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 20, Amendment No. 20A: Subsection (2A) after ("if") insert ("the terms of the contract are that"). The noble Lord said: My Lords, I beg to move Amendment No. 20A standing in my name and that of my noble friend Lord Morton of Shuna, in the words as on the Marshalled List. In moving this amendment, I shall also speak to the amendments which the noble and learned Lord the Lord Advocate has spoken to in his presentation of Amendment No. 20.

If I may address myself to Amendment No. 20 first of all, I was feverishly looking through our proceedings in Committee, because I thought that during Committee I raised the problem of on-the-kerb dealings off the recognised exchange, and I was assured by, I think it was, the noble Lord, Lord Lucas, that because the instrument in question was one which was traded on the exchange, even if it were traded off the exchange. it would still be within the ambit of the Bill. I cannot lay my hand upon that particular passage. This is only my personal recollection and I may be completely wrong. However, I remember raising the question of on-the-kerb trading.

1 agree with the noble and learned Lord the Lord Advocate that on-the-kerb trading or trading off the exchange should come within the ambit of the Bill, and I believe that is something which the commodity exchanges accept, and therefore Amendment No. 20 is correct.

Amendment No. 20A, however, seeks to address a point which I do not think is properly covered by Amendment No. 20, and I will explain, if I may, what that point is. In commodity exchanges, if I may take the example of the London Metal Exchange, pieces of paper are traded which represent physical commodities. These are called warrants. These warrants normally have a 90-day life, and the warrant is a contract which promises to deliver a certain lot of metal at a certain price on a certain date at the expiry of the warrant.

Under the new Amendment No. 20, subsection (2A), the question arises as to what is the status of a warrant if it has only six days to run. This is because the delivery, if the warrant expires and delivery is required under that contract, will be made within six days. If, on the other hand, the warrant has eight days to run, then it is outside the terms of subsection (2A) of the government amendment.

It seems to me rather absurd that you can have a warrant traded with eight days to run and a warrant traded with six days to run and they appear, under the Bill, to be treated in a wholly different way. One is for commercial purposes and the other is for investment purposes. That is the purpose of this amendment which I hope is fairly clear. Although the noble and learned Lord the Lord Advocate may not entirely approve of the wording, I hope that the intention of the wording is absolutely clear: to make sure that it must be the original contract that specifies a delivery to be made within seven days, rather than the contract for 90 days which then expires at a certain time and shifts from one category into another. I hope that the noble and learned Lord understands the explanation that I have given. I therefore would remove that.

If I may speak to Amendment No. 22, the noble and learned Lord the Lord Advocate is absolutely right, we put down this amendment to leave out head (c) simply for the reasons which the noble and learned Lord has put forward. That is because it is unfortunately the only way an opposition can make its presence felt. If it does not understand exactly what is going on, or does not think it can draft an amendment which is acceptable to the various parties involved, it may move an amendment leaving out the section asking the Government to cope with the mess. That is exactly what we were intending to do. However, the noble and learned Lord is absolutely right, in his Amendment No. 23 he covers the points which were worrying us, and indeed worrying some of our friends on the commodity exchanges.

I hope that the Government will feel able therefore to accept the thrust of my Amendment No. 20A, even though the noble and learned Lord might object to the drafting. Perhaps if the Government accept this for us, they will undertake to bring forward a Third Reading amendment, suitably drafted, on which we can all agree. I beg to move.

Lord Cameron of Lochbroom

My Lords, I am very grateful to the noble Lord opposite, I think I was perfectly well aware of what he was intending in Amendment No. 20A. All I would say is that under paragraph (8), the question of whether a contract is or is not made for investment purposes will of course be determined at the time at which it is made and on the terms which are expressed in it at that time.

The reason why I made some criticism of Amendment No. 20A was simply because it is not happily expressed. If the noble Lord feels that the government amendments (which I have been advised really amount to precisely the same thing) might be made more secure by the interpolation of wording such as I think I suggested, then, as I said, I would have no objection if that were to be brought forward at a later stage.

Lord Williams of Elvel

My Lords, I am most grateful to the noble and learned Lord for his reply. We feel that such a clarification to the government amendment is appropriate, and I shall undertake to bring forward a suitable amendment at a later stage, provided that I could perhaps have a little assistance in determining what the exact words of the amendment should be. I beg leave to withdraw the amendment.

Amendment to Amendment No. 20, by leave, withdrawn.

Lord Boardman

My Lords, if I may go hack to Amendment No. 20, I feel I ought to thank my noble and learned friend the Lord Advocate for meeting the point which I raised in Committee. His noble friend, Lord Lucas of Chilworth, said in Committee that he would look at the point to see if it could be clarified, and I am most grateful to him for doing that in a way which is, in my view, very satisfactory.

On Question, Amendment No. 20 agreed to.

The Deputy Speaker

My Lords, I have to tell the House that I have to take Amendment No. 22 before Amendment No. 21 as the amendments have been marshalled out of order.

[Amendment No. 22 not moved.]

Lord Cameron of Lochbroom

moved Amendment No. 21: Page 179, line 5, leave out ("(c))") and insert— ("(3A) It is an indication that a contract is made for commercial purposes that"). The noble and learned Lord said: My Lords, I beg to move this amendment to which I have already spoken.

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 23: Page 179, line 17, at end insert— ("(5) A price shall be taken to have been agreed upon when a contract is made—

1. (a) notwithstanding that it is left to be determined by reference to the price to which a contract is to be entered into on a market or exchange or could be entered into at a time and place specified in the contract; or
2. (b) in a case where the contract is expressed to be by reference to a standard lot and quality, notwithstanding that provision is made for a variation in the price to take account of any variation in quantity or quality on delivery.").

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 24: Page 180, leave out lines 20 to 23 and insert— ("Notes

1. (1) This paragraph does not apply to interests under the trusts of an occupational pension scheme.
2. (2) This paragraph does not apply to rights or interests which are investments by virtue of any other paragraph of this Part of this Schedule.").

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 25: Page 180, line 29, after ("make") insert ("(a)"). The noble Lord said: My Lords, in moving Amendment No. 25, I should also like to speak to government Amendments Nos. 26 and 27, and Amendment No. 28 in the name of the noble Lord, Lord Williams of Elvel, and his noble friend.

The government amendments have two effects. The first is to make it clear that nothing which a person does or offers or agrees to do with a view to a transaction to which he himself is to be a party as principal, or into which he is to enter as agent for one of the parties, is to be regarded as making arrangements for that transaction.

I think perhaps your Lordships may recall that at an earlier stage we discussed this matter and at that time I withdrew the government amendment to which the new opposition amendment, Amendment No. 28, bears something of a resemblance, in order for us to reconsider the way we had drafted that original.

The second effect of the amendments is to make quite clear what is meant by "making arrangements" for the purposes of the paragraph. It has been suggested, for example, that if an institution which is advising a company on a bond issue sets up a trustee company for the issue, syndicates a loan and prepares documentation for the issue, its activities might be said to be "making arrangements" within the existing definition because they are all engaged in with a view to bringing about a state of affairs in which persons may buy the bond in question.

The amendment which I am suggesting to the House this afternoon makes clear that such "arrangements" are not to be regarded as included within paragraph 13, since they are not arrangements which bring about, or would if put into effect bring about, the transaction in question.

As regards Amendment No. 28, all I would say is that I am quite sure that it seeks to do exactly what we sought to do originally. Indeed, it seeks to do what we are proposing in the three amendments which I am putting forward. However, I think that I would prefer, perhaps not unnaturally, the amendments which the Government propose in this connection. I beg to move.

6 p.m.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for explaining the government amendments and I agree with the noble Lord that the amendment which we tabled tried to respond to the same issues as the Government are now responding to in their amendment. Therefore I shall not be moving Amendment No. 28 and I shall not speak to it.

However, I should like to ask the noble Lord one or two questions about the amendment that the Government are moving. As I understood it, the problem to which the Government addressed themselves arose from the representations made by companies—either themselves, or through their associations or representative bodies—and related particuarly to the problem of advice on financing in relation to transactions for export and so on. Therefore, I was a little surprised when the noble Lord in his explanation said—if I heard him correctly—that the arrangements made by an issuing house for the purposes of a Eurobond issue, such as setting up a trustee company or whatever it might be, do not form part of arranging deals and investments. I may have misheard the noble Lord, but, as I understood it, that is what he said. As far as I can see, those arrangements would form part of arranging deals and investments.

I should be grateful if the noble Lord could give me clarification and tell me whether I have misheard him or whether I have the point wrong.

Lord Lucas of Chilworth

My Lords, the noble Lord is right. A number of representations were made. The first two amendments, Amendments Nos. 25 and 26, pave the way for the second note that is contained in the third amendment, Amendment No. 27. The first note has the effect that nothing which a person does or offers or agrees to do with a view to a transaction to which he is himself to be a party as principal, or into which he is to enter as an agent for one of the parties, is to be regarded as making arrangements for the transaction.

However, the second note relates to the making of arrangements falling in with, as it were, the first leg of the paragraph, that is to say, arrangements made with a view to another party buying, selling, subscribing for, or underwriting a particular investment. The note provides that this applies only where the arrangements are arrangements which bring about, or would bring about, the transaction in question.

The problem is not just, or even mainly, a company problem, because the main problem would concern legal advice, accountancy advice, and so on, about non-investment aspects of a deal. For example, arrangements made by a finance house of the kind that we have described would have fallen within the old definition, but not the new one which is suggested by way of the amendments.

Perhaps I may repeat what I said originally, in the hope that we shall not have to come back to the matter on another day. The example which I used was that of an institution advising a company on a bond issue. It sets up a trustee company for the issue, syndicates a loan and prepares documentation for the issue. Its activities might be said to be "making arrangements" within the existing definition because they are all engaged in with a view to bringing about a state of affairs in which persons may buy the bond.

We believe that the amendment that I am suggesting to the House this evening makes it clear that such arrangements as I described are not to be regarded as included within paragraph 13, because they are not arrangements which, if they were put into effect, would bring about the transaction in question. I hope that I have made the point clear.

Lord Williams of Elvel

My Lords, with the leave of the House, perhaps I may thank the noble Lord for his explanation. I am sorry to speak again on a government amendment but I think it is important that I understand the situation. Is the noble Lord saying that if an issuing house syndicates a loan, sets up a trustee company in order, subsequently, to underwrite, or syndicate the underwriting of, a bond issue, that those actions in themselves would not fall within the ambit of the Bill if this amendment were accepted?

If that is the case, what happens if a syndicated loan is syndicated among exactly the same banks who form part of the syndicate for the underwriting of the bond issue? In that case does the syndicated loan form part of the arrangements that bring about this bond issue or is the syndicated loan itself excluded? I think that there is an area there about which I am unclear. I do not wish to prolong this discussion as we are at Report stage. However, I hope the noble Lord accepts that my questions are asked with a genuine desire to seek information about what the Government mean by their amendment.

Lord Lucas of Chilworth

My Lords, I am really sorry, but I cannot answer the noble Lord this evening. What I should like to do is to consider the two positions which the noble Lord has described. Perhaps I can then talk with him and if our suggestion does not make it abundantly clear in such a way as to make the amendments acceptable to the noble Lord then, of course, I would want to come back to the matter at a later stage. However, I have the feeling that the setting up of a trustee company for the purpose of arranging the syndicating of a loan is not an arrangement, but if in fact the syndication of a loan takes place then that would be an arrangement.

Lord Williams of Elvel

It might, my Lords.

Lord Lucas of Chilworth

My Lords, I think it would be. Perhaps the noble Lord would like to consider what I have said. I shall of course want to consider very carefully what I have said and we may want to come back to the matter. If we do, or if the noble Lord wishes to, I should quite understand that.

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendments Nos. 26 and 27: Page 180, line 31, after ("or") insert— (b) arrangements"). Page 180, line 33, at end insert— ("Notes

1. (1) This paragraph does not apply to a person by reason of his making, or offering or agreeing to make, arrangements with a view to a transaction to which he will himself be a party as principal or which will be entered into by him as agent for one of the parties.
2. (2) The arrangements in (a) above are arrangements which bring about or would bring about the transaction in question.").

The noble Lord said: My Lords, I have spoken to Amendments Nos. 26 and 27. I beg to move them both.

On Question, amendments agreed to.

[Amendment No. 28 not moved.]

Lord Lucas of Chilworth

moved Amendment No. 29: Page 180. line 36, leave out from ("if") to end of line 38 and insert— ("(a) those assets consist of or include investments: or (b) the arrangements for their management are such that those assets may consist of or include investments at the discretion of the person managing or offering or agreeing to manage them and either they have at any time since the date of the coming into force of section 3 of this Act done so or the arrangements have at any time (whether before or after that date) been held out as arrangements under which they would do so."). The noble Lord said: My Lords, in moving Amendment No. 29, I should like to address myself also to Amendment No. 29A. The point we are discussing here was not raised at Committee stage. As I understand it, it meets concerns expressed in particular by the Association of Corporate Treasurers.

The government amendment excludes from the scope of the Bill arrangements for the management of assets where although the manager in principle has a discretion—perhaps only an implicit discretion—to invest some of the assets in investments within the scope of the Bill, in practice he never does so, and those for whom he is managing the assets have no expectation that he will do so. He may, for instance, simply put the money on deposit and be expected by the ultimate owners to do so. However, if the discretion to invest in investments is once exercised the arrangements will then fall within the paragraph even if at some subsequent stage all the assets are once more held in the form of non-investments. Similarly, if the arrangements are held out as arrangements under which some or all of the assets will consist of investments they will fall within paragraph 14 even if, in the event, the manager simply places funds on deposit.

Amendment No. 29A is a little difficult. Perhaps the noble Lord will explain it. It is a common feature of paragraphs 12 and 15 that offering or agreeing to engage in the relevant activity is as much investment business as doing so. It makes little sense to delete this single reference to "offering", especially since there is not any corresponding amendment proposed to the words introducing the paragraph. I hope that, with my short explanation of Amendment No. 29, the noble Lord, Lord Williams, may not find it necessary to move No. 29A. I beg to move.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 29, Amendment No. 29A: Paragraph (b) line 3, leave out ("or offering"). The noble Lord said: My Lords, I beg to move Amendment No. 29A, standing in my name and that of my noble friend Lord Morton of Shuna. It may be for the convenience of the House if, in moving this amendment, I speak also to Amendment No. 29, which the noble Lord introduced.

The purpose of No. 29A was to elicit from the Government a view as to whether "arrangements" could properly include an offer. If arrangements are made, they are arrangements made to do this and thus. They are not arrangements made to offer this and thus. I cannot think of any arrangement that I have entered into which is of a concrete nature—"I will do this if you will do that"—where one can properly go back a step, as it were, and say that that is an offer. It is a matter of deciding what constitutes an arrangement, both in terms of the Bill and in terms of the English language.

I accept the noble Lord's explanation about the main amendment. It was made clear in the notes that the noble Lord kindly let me have on these amendments what he was getting at. I simply note in passing that it seems a bit odd that if a company, in the circumstances that the noble Lord described, puts money of a customer on deposit, he is not within the ambit of the Bill, and if he puts that same money in certificates of deposit he is within the ambit of the Bill, because certificates of deposit are no more than instruments evidencing a deposit.

It seems a rather odd construction. This is the sort of contortion that one gets into when one tries to write amendments to Bills of this nature. Having said that, I should be grateful if the noble Lord could help me on this question of "offering", which is the subject of my amendment. I beg to move.

6.15 p.m.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord Williams, for his explanation of his amendment. I shall have to look a lot further at some of the amendments he puts down as being somewhat obscure, because it is obvious that he is using them more as probing amendments. While I have been looking for a more positive reason and not finding one, I have not acquainted myself with a suitable answer. He then pops up and I have to make the usual arrangements for provision of the answer.

The noble Lord has pointed out one of the difficulties we have in drawing boundaries. The point is that the notes are transferable evidence of deposits. They would therefore count as an investment. It is probably only a question of English language. The reference is really to the person who is managing or the person who is offering, or agreeing to manage assets. The sub-paragraph then goes on to talk about the arrangements made or offered by that person. I hope that, with that, the noble Lord will feel reasonably happy.

Lord Harmar-Nicholls

My Lords, the noble Lord, Lord Williams, is not disagreeing with leaving in the words "or agreeing". That is something which is fixed. But the "or offering" seems rather nebulous and uncertain. Offering in writing? By word of mouth? What does "offering" mean? "Agreeing" means something. The noble Lord, Lord Williams, seems to produce a neater paragraph than the one set out in my noble friend's amendment.

Lord Williams of Elvel

My Lords, I was expecting the noble Lord, Lord Lucas, to respond to the point made by his noble friend Lord Harmar-Nicholls, but I understand that he is not accepting the invitation to respond. Therefore I must respond and say that I agree with his noble friend that my amendment makes a tidier paragraph. Indeed, I did not hear, in anything that the noble Lord, Lord Lucas, said, a response to my problem, which is: how can arrangements include offering? Arrangements can include agreeing, or managing, but how they can include "offering" I do not understand. No doubt this debate has had its use and no doubt the Government will look again at this wording to see whether they can sharpen it up when we come to a later stage. In the meantime, unless the noble Lord has anything else he wishes to say, I shall withdraw my Amendment No. 29A.

Amendment to Amendment No. 29, by leave, withdrawn.

On Question, Amendment No. 29 agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 30: Page 180, line 39, leave out from beginning to end of line 17 on page 181 and insert— ("Investment advice 15. Giving, or offering or agreeing or agreeing to give, to persons in their capacity as investors or potential investors advice on the merits of their purchasing, selling, subscribing for or underwriting an investment, or exercising any right conferred by an investment to acquire, dispose of, underwrite or convert an investment."). The noble and learned Lord said: My Lords, for convenience I shall also speak to Amendments Nos. 30ZA, 30A and 31 in the names of noble Lords opposite.

The purpose of Amendment No. 30 is to narrow the definition of "investment advice" in response to concerns that as paragraph 15 presently stands certain types of advice have been included by inadvertence. This arises because of the form of that paragraph: that is to say that notes have been inserted to exclude particular types of advice. But that in itself raises problems because these exclusions may, by implication, incorporate within the terms of paragraph 15 as it presently stands similar activities which are not explicitly referred to, on the usual canons of construction that the inclusion of one matter is the exclusion of another.

It is in fact in reverse. The amendment deletes the existing definition and replaces it with one which defines the relevant activities positively. In passing I should express my gratitude to the noble Lord, Lord Williams, for his Amendment No. 30ZA, which corrects what ought to have been an obvious printing error in the amendment in my noble friend's name.

The explanatory notes on this amendment which were made available describe the main respects in which the amendment has been narrowed. It is clear that the new definition excludes not only advice about the matters referred to in the notes to the original paragraph, but also advice of the kind referred to in Amendment No. 31 standing in the name of the noble Lords opposite, which is an amendment to the existing paragraph.

The only other thing I should say is that I have found some difficulty in trying to determine what is the purpose of Amendment No. 30A. I assume that the intention is to include within the scope of the definition advice about investments generally rather than about particular investments. I may be speculating here, but as the briefing note on Amendment No. 30 makes clear this is one respect in which we have deliberately narrowed the definition to exclude general advice—for example, the kind of advice that a life assurance policy is generally a safer investment than a futures contract or about the relative merits of endowment and unit linked insurance policies as a class. It does not seem necessary to include such general advice in the definition. However, if an adviser has to be authorised it will be possible for the rules applying to him to regulate the way in which he provides general advice as well as advice related to particular investments.

As I have said, I am not persuaded that Amendment No. 30A has any useful functions. I shall listen to what may be said if it is moved. In the meantime I commend Amendment No. 30 to the House and I beg to move.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 30, Amendment No. 30ZA: line 4, leave out first ("or agreeing"). The noble Lord said: My Lords, I am grateful to the noble and learned Lord the Lord Advocate. These words appeared in several versions of government amendments including the final Marshalled List, and my noble friend and I thought that this must be a deliberate exercise on the part of the Government to puzzle the Opposition about what the Government meant. We were prepared to have an interesting discussion on what "agreeing advice" meant. However, in the light of the knowledge that the noble and learned Lord has now accepted the fact that there was an unfortunate printing error, I shall not pursue that particular amendment but I shall speak to Amendment No. 30A and also address myself to Amendment No. 30 in the name of the noble Lord, Lord Lucas of Chilworth.

I am sorry that the noble and learned Lord did not understand the purpose of my Amendment No. 30A. It seems that noble Lords opposite sometimes have some difficulty in understanding the purpose of my amendments. Nevertheless it is quite clear. The notes on the amendments, as the noble and learned Lord rightly said, pointed out that the new government amendment allows investment advisers to recommend insurance policies opposed to a commodity future as a form of investment. My problem is: is it right that such investment advice should distinguish between classes of investment, as broadly defined by the noble and learned Lord, and other classes of investment which may come within the ambit of the Bill'? For example, if I say to the noble and learned Lord one day," I think that a standard life endowment insurance policy is a better investment than a copper warrant", I understand the noble and learned Lord to have said that that is not within the ambit of the amendment. If on the other hand I say to the noble and learned Lord, "I think that a standard life endowment insurance policy is better than an equitable endowment insurance policy", do I then come within the ambit of the amendment? It seems to me from the way the amendment is drafted that I do not. But my amendment to insert "investments" in that one place and not in the other places would seem to be an appropriate amendment to make to the government amendment.

If I may speak for a moment toAmendment No. 31, I am afraid I perhaps did not catch entirely what the noble and learned Lord said about this amendment. If he is saying that the advice we have described in our Amendment No. 31 is already covered in the government amendment and that our amendment is unnecessary then I am happy that that should be so. If he is saying that anything else is the case, I should like to argue for that amendment. But I think I heard him say that it was an unnecessary amendment. If he could give me that assurance it would save us all a lot of time. I beg to move.

On Question, Amendment No. 30ZA to Amendment No. 30 agreed to.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 30, Amendment No. 30A: Line 7, leave out ("an investment") and insert ("investments").

Lord Cameron of Lochbroom

My Lords, perhaps I may just reply to the point which the noble Lord opposite asked about Amendment No. 31, as he asked for a response from me. I am advised that neither of these examples will be covered by the Bill as amended. The second will be excluded because it would not fall within the definition that it has to be advice as to the merits of an investment. I am advised that if the first were to fall within new paragraph 15 it is almost inconceivable that the directors, or the company which they represent, would engage in this activity frequently enough or in such a way as to constitute investment business. I think it is important to note that we are here dealing with that part of this schedule which defines activities constituting investment business; and that is against the background of the debate which we have had already so far as Clause 1 is concerned.

If I may, perhaps I should deal with one other matter which the noble Lord opposite put to me about examples of advice. Obviously, advice on choice between two particular life insurance policies would be caught—and again this is the point that I have just made—if it is given as part of the business of engaging in the business of giving advice; and so it should be because that is the essence of an investment advisory service. But if a person restricts himself simply to general advice and never mentions particular investments, then because that would be of the generality he will not require to be authorised. It scarcely seems likely that he could sustain a business doing so. If he does mention particular investments and so needs to be authorised, then his general advice will be subject to rules.

Again, we come back perhaps to the debate that we have had already within the House today. We are concerned with determining what activities constitute investment business, of course upon the assumption that there is a business already there. Perhaps that is helpful to the noble Lord.

6.30 p.m.

Lord Williams of Elvel

My Lords, I am grateful to the noble and learned Lord the Lord Advocate. I accept what he says about advice on investments. I hope that he accepts what I say: that there is a grey area between general advice and advice that is more specific. It is going to be extremely difficult in practice to determine where the area that is caught by the Bill stops and where the area which is not caught by the Bill starts. Having said that, I shall not pursue the argument further.

However, I should like to pursue the question of the second part of our Amendment No. 31. I accept that, unless it is a very extraordinary board of directors that goes in for the business of making acquisitions pretty well every day, it will not be part of investment business of the board of directors to give the advice that we have in mind in the first part. In the second part, there is a genuine problem because our amendment addresses itself to advice, again on the financial implications or the merit of an offer of investments or the acquisition of another body corporate.

The government amendment specifically includes advice on the merits of purchasing, selling, subscribing. The merits must include, for instance, the taxation aspects. If there is merit in the noble Lord, Lord Harmar-Nicholls, buying an investment and then selling it at enormous capital profit if he has no capital gains tax liability, there may be no merit in his doing the same thing if he has a large capital gains tax liability. So the merits of the investment (and particularly disposing of the investment itself) could easily be subject to the taxation and financial implications. This is the point to which our amendment addresses itself. I hope that the noble and learned Lord takes that point.

Lord Harmar-Nicholls

My Lords, I should like to raise a point which perhaps my noble friend will keep in mind on Amendment No. 30A. I understand the general advice but not the specific. Can one not give specific mention as an example of what one means by one's general advice? Would that be in breach of what one is allowed to achieve?

Lord Boardman

My Lords, I support my noble friend's amendment which I believe is a much clearer and simpler clause than that in the original Bill. I believe, too, that it is one of the rare occasions in this Bill when we have an amendment which is going to be shorter than the original—which is something which should commend it to us. With regard to the last point of the noble Lord, Lord Williams, on the second paragraph of Amendment No. 31, I believe that he could stretch that to apply to almost any type of comment, to advice on personnel relations, on management structures and all the rest of it. I believe that it is far wide of the intentions of the clause. I support the amendment as put forward by my noble friend.

Lord Cameron of Lochbroom

My Lords, perhaps with the leave of the House I may respond to the noble Lord's last point. I would say that so far as the second paragraph of Amendment No. 31 is concerned, if it were directed to taxation and so on, that would not be about the merits in a person's capacity as an investor. That is a point which I would put. I am bound to say again that we are talking about something which happens to be a business. I have said already that I think it is almost inconceivable that this situation would arise and, with all due respect to the noble Lord opposite, this is not really a grey area. I would suggest that his amendment would perhaps be unfortunate because of what it would do generally to this paragraph. In the circumstances I think I have made my position clear on Amendment No. 31.

Lord Williams of Elvel

My Lords, I am most grateful to the noble and learned Lord. I do not want to prolong the argument. I think that I probably disagree with it. I think that the merits of an investment in many cases depend on the circumstances of the investor or potential investor; and these are financial and taxation problems. However, if he takes his view and I take mine, there is no great harm done. I beg leave to withdraw the amendment.

Amendment to Amendment No. 30, by leave, withdrawn.

Amendment No. 30, as amended, agreed to.

[Amendment No. 31 not moved.]

Lord Lucas of Chilworth

moved Amendment No. 32: Page 181, line 24, leave out paragraph 17 and insert— (" 17.—(1) Paragraph 12 above applies to a transaction which is or is to be entered into by a person as principal only if—

1. (a) he holds himself out as willing to enter into transactions of that kind at prices determined by him generally and continuously rather than in respect of each particular transaction; or
733
2. (b) he holds himself out as engaging in the business of buying investments with a view to selling them and those investments are or include investments of the kind to which the transaction relates; or
3. (c) he regularly solicits members of the public for the purpose of inducing them to enter as principals or agents into transactions to which that paragraph applies and the transaction is or is to be entered into as a result of his having solicited members of the public in that manner.

(2) For the purposes of sub-paragraph (1)(c) above "members of the public", in relation to the person soliciting them ("the relevant person"). means any other persons except—

1. (a) authorised persons, exempted persons, or persons holding a permission under paragraph 21A below;
2. (b) members of the same group as the relevant person;
3. (c) persons who are or propose to become participators with the relevant person in a joint enterprise;
4. (d) any person who is solicited by the relevant person with a view to—
1. (i) the acquisition by the relevant person of 20 per cent. or more of the voting shares in a body corporate (that is to say, shares carrying not less than that percentage of the voting rights attributable to share capital which are exercisable in all circumstances at any general meeting of the body); or
2. (ii) if the relevant person (either alone or with other members of the same group as himself) holds 20 per cent. or more of the voting shares in a body corporate, the acquisition by him of further shares in the body or the disposal by him of shares in that body to the person solicited or to a member of the same group as that person; or
3. (iii) if the person solicited (either alone or with other members of the same group as himself) holds 20 per cent. or more of the voting shares in a body corporate, the disposal by the relevant person of further shares in that body to the person solicited or to a member of the same group as that person;
5. (e) any person whose head office is outside the United Kingdom, who is solicited by an approach made or directed to him at a place outside the United Kingdom and whose ordinary business involves him in engaging in activities which fall within Part II of this Schedule or would do so apart from this Part or Part IV.

(3) Sub-paragraph (1) above applies only if the investment to which the transaction relates or will relate falls within any of paragraphs 1 to 6 above or, so far as relevant to any of those paragraphs, paragraph 11 above. (4) Paragraph 12 above does not apply to a transaction which relates or is to relate to any other investment and which is or is to he entered into by a person as principal if he is not an authorised person and the transaction is or is to be entered into by him—

1. (a) with or through an authorised person, an exempted person or a person holding a permission under paragraph 21A below: or
2. (b) through an office outside the United Kingdom and with or through a person whose head office is situated outside the United Kingdom and whose ordinary business is such as is mentioned in sub-paragraph (2)(e) above.").

The noble Lord said: I beg to move Amendment No. 32 and at the same time to speak also to Amendments Nos. 32A, 32AA, 32B, 32BA, 32BB, 32C, 32D and 33. I should like to address my remarks to those amendments while moving government Amendment No. 32. The first point that I should like to make in addressing myself to this large group is that although Amendment No. 32 completely removes paragraph 17 from the Bill, it replaces it with a new paragraph and that new paragraph does not reflect any fundamental change in the philosophy underlying it. The new paragraph is still concerned with dealings by a person as principal, and the changes that have been made are mostly detailed ones.

Perhaps I should comment particularly on the change that will have the effect that a person will not be required to be authorised in order to solicit shareholders for the purpose of acquiring a strategic stake in a company. The effect will not be to allow such solicitation to take place without any controls. Unauthorised as well as authorised persons will be subject to the rules made under Clause 55 about unsolicited calls and investment advertisements will be subject to controls under Clause 56. The only effect therefore is that a person will not be required to be authorised solely by virtue of his regularly soliciting persons for this particular purpose.

Noble Lords opposite have tabled a number of amendments. Amendment No. 32A seeks to amend paragraph 17(1)(a) which deals with continuous market makers. This is done by deleting the reference to prices determined "generally" by the person concerned. As I understand it, it is a characteristic of market makers that they determine prices not only continuously in the sense that they are prepared at any time to quote buying and selling prices, but also generally in the same sense that the price will be quoted regardless of the identity of the counter-party. I do not think that the noble Lords' amendment is therefore an improvement on what we have before us.

Amendment No. 32B, which also stands in the names of the noble Lord, Lord Williams, and the noble Lord, Lord Morton, would have the effect of deleting paragraph 17(2)(a) with the result that a person who regularly solicits authorised or exempted persons or persons holding a permission tinder paragraph 21A would be regarded as soliciting members of the public and so would lose the benefit of the exclusion of this paragraph. That is a rather odd proposition. Is the noble Lord suggesting here that a person who regularly contacts his stockbroker in order to acquire shares for his own account ought to he regarded as engaging in investment business? That is what I see as the effect of the amendment, and I do not think it is realistic.

Amendment No. 32C would subject transactions in options and contracts for differences to the tests in paragraph 17(1), rather than those in 17(4). The reason for there being two different sets of tests is that in the case of investments within paragraphs 7 to 10 the value of the rights one holds will be determined by the ability of the ultimate counter-party to fulfil his corresponding obligations. This is as true in the case of options and contracts for differences as it is in the case of futures and insurance contracts. Consequently we are not really attracted to Amendment No. 32C.

Amendment No. 33 seems to be concerned with what may be termed "occasional market makers"; that is, people who, in the words of paragraph 17(1)(b), hold themselves out, as engaging in the business of buying investments with a view to selling them". I think the noble Lord would prefer the test to be whether they made a market, whether or not continuously, in investments. I have to tell him, however, that his amendment does not say what is meant by "making a market"; and indeed, if it did, I suspect it would come very close to the provisions in the existing paragraph 17(1)(b). Those, then, are the explanations for our objections to the Opposition amendments. I regret also that I cannot accept Amendments Nos. 32BA and 32BB, standing in the name of the noble Lord, Lord Ezra. Those seek to clarify the circumstances in which one person may be said to solicit another. I am advised that in each of the cases addressed in the amendments the effect of the paragraph as drafted is as the amendments indicate the noble Lord would wish it to be. The amendments are therefore unnecessary.

However, Amendments Nos. 32AA and 32D are most helpful in that they clarify the underlying intentions of the paragraph. I am grateful to the noble Lord for those amendments and I can indicate that we shall be happy to accept them. I beg to move.

6.45 p.m.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 32, Amendment No. 32A: Paragraph 17(1)(a), line 2, leave out ("generally and"). The noble Lord said: My Lords, I beg to move Amendment No. 32A, standing in my name and that of my noble friend Lord Morton of Shuna. In doing so, I should like to address myself to the same group of amendments that the noble Lord discussed. One of the problems in trying to understand government amendments and indeed getting the Government's responses to one's own amendments is that things tend to get turned around, in other words, the Minister starts to reply to my amendment before I have had a chance to explain what it is about. This gives rise to a great deal of confusion, because if I had been able to explain what it was about perhaps he could have replied to the point I was trying to make rather than to a point I was not trying to make.

Amendment No. 32A looks at the expression "generally and". I understand from what the noble Lord has said that the expression "generally" means "regardless of the identity of the other party": that is the meaning of the word. I interpreted "generally" to mean "generally", if I may put it like that. It seems to me that, regarding prices determined by somebody holding himself out as willing to enter into transactions, prices are determined by the market as much as by him and by maybe the market generally or by him continuously. In other words, I think that there is a point left out and I wish to draw the noble Lord's attention to it by using the normal Opposition technique of putting down an amendment to probe what is meant.

However, the noble Lord has said that "generally" means doing what a jobber in present circumstances does, which is quoting a spread on the prices, regardless of whether the person in front of him is a buyer or a seller, and regardless of identity. In that case there is no particular problem, but I believe there may be some misinterpretation of that wording by people other than myself.

In Amendment No. 32B, we were looking at the definition of "members of the public". Members of the public, if I may quote from the suggested paragraph 17(1)(c), are those people who are regularly solicited for the purpose of inducing them to enter as principals or agents into transactions". We are here concerned with exactly who is being solicited and whether authorised persons, exempted persons and persons holding a permission under paragraph 21A should properly be regarded as members of the public. That is what we are concerned with here, because it seems to me that authorised persons and exempted persons in this sense are not members of the public; but, again, perhaps the noble Lord has an explanation of why I am wrong and he is right. It seems to me that if he regularly solicits authorised persons, exempted persons or anything else, he is engaging in exactly the same sort of business as the noble and learned Lord was talking about earlier. I do not see why authorised persons and exempted persons should not be members of the public for the purpose of this particular definition. That is why we have put down our Amendment No. 32B.

Turning to Amendment No. 32C, again, we are trying to clarify exactly what investments the Government are referring to in their amendment. Paragraph 6, which refers to units in a collective investment scheme, as I understand it, does not seem to us necessarily to fall properly within the definition the Government are seeking, and paragraphs 7 and 9 seem to us to be concerned with the sorts of securities—options and contracts for differences —which people might, as a business, solicit members of the public for and indeed might carry on a business of so doing.

On Amendment No. 33, the noble Lord complained that I had not defined "making a market". I am sorry if the expression "making a market" is unclear. I hope it is clear to everybody who has to do with these markets, and I am sure it is clear to those who have experience in the City and elsewhere. It seems to me that in trying to avoid the expression "making a market" the Government may be landing themselves in difficulties which they could avoid.

I accept that the thrust of this amendment is not very different from the thrust of the Government's amendment. I am trying to get something that is clear. Paragraph 17(1)(b) reads, he holds himself out as engaging in the business of buying investments with a view to selling them", and I ask myself: what happens if he holds himself out as engaging in the business of selling investments with a view to buying them? That is an activity not unknown in the market. It is known as shorting, going short, and jobbers and others regularly go short.

There used to be in the United States a group of funds called "hedge funds" which regularly shorted the market in that way. They sold securities that they did not have, bought them back at what they hoped to be lower prices, and that was an activity or a business. So I am wondering whether that particular activity is covered within the Government's definition.

I am sorry to have taken up a long period of your Lordships' time in describing the amendments and in the comments that we have on government Amendment No. 32. But as the noble Lord said, it is a large block of amendments. As the the noble Lord also said, we have put down certain amendments which we think improve what the Government are trying to do. We believe that the Government should pay serious attention to what we have put down, although I again say that I do not hold myself out, and my noble friend Lord Morton does not hold himself out, as a parliamentary draftsman: so if the wording is wrong or is incorrect, I apologise to your Lordships. What we are trying to do is to say what we mean. I beg to move.

Lord Lucas of Chilworth

My Lords, I am so conscious of Standing Orders and of the Companion to the Standing Orders and I accept what the noble Lord, Lord Williams, said in his opening remarks this afternoon about conducting our affairs at Report stage in the spirit as well as the letter of Standing Orders. But I was just wondering whether the noble Lord, Lord Ezra, wishes to speak to his amendments which we have grouped together. That would save my having to take up your Lordships' time later and I could answer three or four points, one after the other.

Lord Ezra

My Lords, I should like—

Lord Ponsonby of Shulbrede

My Lords, if I may make a point, the second amendment cannot be called. Discussion is on the earlier amendment.

Lord Lucas of Chilworth

My Lords, with the indulgence of your Lordships, I have moved an amendment embracing a lot of other amendments and it is the first amendment to the principal one that has been put and is being discussed. But it is open to any noble Lord to speak to any amendment within the group which I have suggested should be taken and which the House has agreed to take. I hope that that is of help and I apologise to the House for making it sound rather like a schoolroom lecture point.

Lord Ezra

My Lords, I should like to thank the noble Lord, Lord Lucas, for having agreed to two of the amendments which I propose in this grouping. I suppose that scoring two out of four is pretty good going, judged by the progress we have made so far. On the other two amendments, I should like to emphasise that there is a very real purpose behind them, because I have the feeling that the effect of government Amendment No. 32 is unclear where solicitation is made either by or to an agent or employee of the person concerned. The two amendments which the noble Lord, Lord Lucas, has rejected—namely, Amendments Nos. 32BA and 32BB—are intended to clarify the position in that regard.

Where the solicitation is made to an authorised, exempted or permitted person as agent for someone who does not fall into any of these categories, the solicitation should be regarded as being made only to the agent and not also to his principal. Conversely, where the solicitation is made by an authorised, exempted or permitted person as agent for someone who does not fall into these categories, this should be regarded as being made only by the agent and not also by the principal.

So we are attempting here to clarify the position in regard to solicitation being made by either an agent or employee of the person concerned. I hope that the Government will take this intention into account as being further clarification.

Lord Ponsonby of Shulbrede

My Lords, may I point out that we are discussing Amendment No. 32A and that debate is taking place on Amendment No. 32A. Further amendments cannot be moved until that amendment is disposed of. Therefore a further amendment cannot be called as we are taking a debate on Amendment No. 32A.

The Deputy Speaker (Lord Cullen of Ashbourne)

My Lords, it is rather complicated. We are talking about Amendment No. 32 with all these other amendments. The Question is that Amendment No. 32A be agreed to.

Lord Lucas of Chilworth

My Lords, we have been talking about Amendment No. 32A with others. The noble Lord, Lord Williams, who moved it, addressed three specific questions. I think I am within the rules of your Lordships' House in responding to those points. The first point he made was about paragraph 17(1)(a) and leaving out "generally and", but I think, if he reads the whole piece together, he holds himself out as willing to enter into transactions of that kind at prices determined by him generally and continuously rather than in respect of each particular transaction", he will probably see how the two fit together. He asked me about the position of authorised, exempted and other such persons who should, or should not, be regarded as members of the public. They are not regarded as members of the public under the amendment as drafted. The noble Lord's amendment would mean that they would be regarded as members of the public and sub-paragraph (b) lists the people who are not to be so regarded.

The noble Lord made a small comment about my answering his amendment before he had spoken to it. Yes, of course, there is a problem. I look at the noble Lord's amendments and attempt to find out what he is about. I think about it and prepare some kind of answer. Sometimes I get it right and sometimes the noble Lord proves to me that I have got it wrong. I do not quarrel with him about that. I just do the best I can. The noble Lord said that perhaps I did not understand what "making a market" was about. I think I know what "making a market" is about. The noble Lord may think that his amendment clarifies the definition. I have to say to him with some sorrow that I do not think it does.

Secondly, someone doing what the noble Lord described as shorting is likely to be engaged in the business of buying with a view to selling, even if sometimes the selling happens first. In other words, I think we mean that the one equates to the other.

It would be appropriate while I am on my feet to answer the noble Lord, Lord Ezra. I am glad that he is happy that I am able to accept two of his amendments. He made the point with regard to solicitation made to an agent or an employee. I cannot agree that there is any lack of clarity in our paragraph. One has to consider who actually does the solicitation. Where an agent solicits on behalf of his principal it is the agent and not the principal who is to be regarded as soliciting. Similarly, where an authorised person who is a body corporate is solicited, this can be done only through an employee in his capacity as such so that a solicitation directed to such an employee must be regarded as addressed to the authorised person rather than the employee as an individual. That is my comment to the noble Lord, Lord Ezra.

I believe I have addressed all the questions that have arisen in this rather fascinating and interesting debate. I am inviting the noble Lords who moved Amendments Nos. 32A, 32B, 32BA, 32BB, 32C and 33 to withdraw them in favour of government Amendment No. 32, supported, as it would be, by Amendments Nos. 32AA and 32D in the name of the noble Lord, Lord Ezra.

7 p.m.

Lord Williams of Elvel

My Lords, before the noble Lord sits down, I wonder whether he could repeat his explanation of why my Amendment No. 32B, the purport of which he correctly explained, is unacceptable. I am not quite sure that I heard the explanation.

Lord Lucas of Chilworth

My Lords, I ask leave of the House to come back on that question. Amendment No. 32B would delete paragraph 17(2)(a) so that a person who regularly solicits authorised or exempted persons or persons holding a permission under paragraph 21A would be regarded as soliciting members of the public and then would lose the benefit of the exclusion of the paragraph. I did not feel that was the noble Lord's intention.

Lord Williams of Elvel

My Lords, I am most grateful to the noble Lord for his explanation of Amendment No. 32A, to which amendment I think I am still talking. I have noted his points about Amendment No. 32A. I have noted his points about Amendment No. 32B and his replies to my points about the Government's amendment. I do not quite see why, authorised persons, exempted persons or persons holding a permission under paragraph 21A below", should not be regarded as members of the public for this purpose, but I shall read very carefully what the noble Lord has said and see if I come to a different conclusion.

The noble Lord and I will have to agree to differ about whether the expression "making a market" improves the text of the Bill or otherwise. I heard the first time the noble Lord explaining why he did not like my Amendment No. 32C, and I shall have to read in the Official Report what he said because he made one or two points before I had begun talking to it. I should like to have a look to see whether I am satisfied with what the noble Lord said in that context. I therefore beg leave of the House to withdraw Amendment No. 32A.

Amendment to Amendment No. 32, by leave, withdrawn.

Lord Ezra

moved, as an amendment to Amendment No. 32, Amendment No. 32AA: Sub-paragraph (2), line 1, leave out ("For the purposes of subparagraph (1)(c) above") and inert ("In sub-paragraph (1) above "buying" and "selling" means buying and selling by transactions to which paragraph 12 above applies and"). On Question, amendment to Amendment No. 32 agreed to.

[Amendments Nos. 32B, 32BA, 32BB, 32C, as amendments to Amendment No. 32, not moved.]

Lord Ezra

moved, as an amendment to Amendment No. 32, Amendment No. 32D: Sub-paragtraph (4)(b). line 1, after ("United Kingdom") insert ("maintained by a party to the transaction"). On Question, amendment to Amendment No. 32 agreed to.

On Question, Amendment No. 32, as amended, agreed to.

[Amendment No. 33 to Amendment No. 32, not moved.]

Lord Lucas of Chilworth

moved Amendment No. 134: Page 182, line 7, leave out ("or, subject to sub-paragraph (2) below. as agent for"). The noble Lord said: My Lords, I beg to move Amendment No. 34 and speak at the same time to Amendments Nos. 35, 36, 37, 38, 39, 39A, 39B, 39C, 39D and 40, and to Amendments Nos. 41, 42, 43, 44, 45 and 45A.

The basic principle underlying paragraph 18 is that nothing which is done between companies in the same group or between participators in a joint enterprise is to be regarded as constituting investment business, and that in considering transactions between any member of the group or participator in the enterprise and a third party, any transaction into which a member or a participator enters on behalf of another member or participator is treated as if it were entered into by him as principal. The government amendments in this group— Amendments Nos. 34, 36, 38, 39, 40, 42 and 45—ensure that this objective is achieved. Again I am grateful to the noble Lord, Lord Ezra, for his amendments which clarify a number of points of detail and I shall be happy to accept them.

I think I can deal with the amendments standing in the names of noble Lords opposite. The point addressed by Amendment No. 35 is dealt with, we believe, quite comprehensively by government Amendment No. 65. Amendments Nos. 36 and 42 to 45 deal more comprehensively with the point raised by Amendment No. 37. I fear that I am inclined at this stage to reject Amendment No. 33 in the previous group because I believe that government Amendment No. 40 deals rather better with the point to which I think his Amendment No. 39A is addressed. I beg to move.

Lord Williams of Elvel

My Lords, we find ourselves in some difficulty here because this whole part of the schedule—that is, paragraph 18 of Schedule 1—was put in by the Government at the Committee stage in this Chamber. We now find ourselves presented with some substantial amendments to that particular part of the Bill. The Government, having devised a schedule at a very late stage in the Bill, suddenly decide that it is wholly inadequate and they rewrite much of it. Some of the amendments we have tabled were, I confess, put down before the government amendments and therefore I accept, as the noble Lord said, that they may not now be necessary because they are covered by other government amendments. For example, the noble Lord referred to our Amendment No. 35. He is absolutely right. Our Amendment No. 35 is clearly covered by a later government amendment. However, I hope the Minister accepts that our Amendment No. 35 was tabled before we had a chance to see the government amendment. This is an unfortunate occurrence which happens when the Bill is so frequently changed.

Referring to the government amendments and the amendments we have tabled, Amendment No. 37 was designed to amend the original schedule; and by "original" I mean the schedule in the reprinted Bill after the Committee stage. Again, it may be something that is covered better by an amendment the Government have tabled. I cannot be sure until I see the noble Lord's explanation.

The general thrust of what the Government are trying to do has our support. We have heard what the Association of Corporate Treasurers said. Indeed, it has been in touch with us, as the noble Lord knows. We have no quarrel about the thrust of the proposals. The difficulty I have is knowing whether I am speaking to amendments to the schedule in the reprinted Bill or a totally new schedule which has suddenly come up in the government amendments. Having said that, I do not wish to detain the noble Lord any longer. I hope he accepts that the amendments we tabled are perhaps not now necessary in the light of the government amendments. I have nothing further to add.

Lord Ezra

My Lords, I express my appreciation to the noble Lord, Lord Lucas, for being prepared to accept the amendments I have put forward in this group of amendments.

Lord Lucas of Chilworth

My Lords, I am grateful to noble Lords.

On Question, amendment agreed to.

[Amendment No. 35 not moved.]

Lord Lucas of Chilworth

moved Amendment No. 36: Page 182, line 11, after ("are") insert ("or propose to become"). The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 34. I beg to move.

On Question, amendment agreed to.

[Amendment No. 37 not moved.]

Lord Lucas of Chilworth

moved Amendments Nos. 38 and 39: Page 182, line 12, after ("of") insert ("or in connection with"). Page 182, line 14, leave out sub-paragraph (2) and insert— ("(2) Paragraph 12 above does not apply to any transaction which is or is to be entered into by any person as agent for another person in the circumstances mentioned in sub-paragraph (1)(a) or (b) above if—

1. (a) where the investment falls within any of paragraphs 1 to 6 above or, so far as relevant to any of those paragraphs, paragraph 11 above, the agent does not—
1. (i) hold himself out (otherwise than to other bodies corporate in the same group or persons who are or propose 742 to become participators with him in a joint enterprise) as engaging in the business of buying investments with a view to selling them and those investments are or include investments of the kind to which the transaction relates; or
2. (ii) regularly solicit members of the public (within the meaning of paragraph 17(1)(c) above) for the purpose of inducing them to enter as principals or agents into transactions to which paragraph 12 above applies:
2. (b) where the investment is not as mentioned in paragraph (a) above—

1. (i) the agent enters into the transaction with or through an authorised person, an exempted person or a person holding a permission under paragraph 21A below; or
2. (ii) the transaction is effected through an office outside the United Kingdom and with or through a person whose head office is situated outside the United Kingdom and whose ordinary business involves him in engaging in activities which fall within Part II of this Schedule or would do so apart from this Part or Part IV.").

The noble Lord said: My Lords, I have already spoken to these amendments. I beg to move.

On Question, amendments agreed to.

[Amendment No. 39A not moved.]

Lord Ezra

moved, as an amendment to Amendment No. 39, Amendment No. 39B: Sub-paragraph (2)(a)(ii), leave out ("(within the meaning of paragraph 17(1)(c) above)"). On Question, amendment agreed to.

Lord Ezra

moved, as an amendment to Amendment No. 39, Amendment No. 39C: Sub-paragraph (2)(a), at end insert— ("and the transaction is not or is not to be entered into as a result of his having solicited members of the public in that manner:"). On Question, amendment agreed to.

Lord Ezra

moved, as an amendment to Amendment No. 39, Amendment No. 39D: Sub-paragraph (2)(b)(ii), line 2, after ("United Kingdom ") insert ("maintained by a party to the transaction"). On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 40: Page 182, line 27, leave out from ("make") to end of line 35 and insert ("if—

1. (a) that person is a body corporate and the arrangements are with a view to another body corporate in the same group entering into a transaction of the kind mentioned in that paragraph; or
2. (b) that person is or proposes to become a participator in a joint enterprise and the arrangements are with a view to another person who is or proposes to become a participator in the enterprise entering into such a transaction for the purposes of or in connection with that enterprise.").

On Question, amendment agreed to.

[Amendment No. 41 not moved.]

Lord Lucas of Chilworth

moved Amendments Nos. 42, 43, 44 and 45: Page 182, line 40, after ("are") insert ("or propose to become"). Page 182, line 41, after ("or) insert ("or in connection with"). Page 182, line 46, after ("are") insert ("or propose to become"). Page 182, line 47, after ("of") insert ("or in connection with"). The noble Lord said: My Lords, I spoke to these amendments with Amendment No. 34. I beg to move.

On Question, amendments agreed to.

Lord Ezra

moved Amendment No. 45A: Page 182, line 47, at end insert— ("( ) The definitions in paragraph 17(2) above shall apply also for the purposes of sub-paragraph (2)(a) above except that the relevant person referred to in paragraph 17(2)(d) shall be the person for whom the agent is acting."). On Question, amendment agreed to.

7.15 p.m.

Lord Lucas of Chilworth

moved Amendment No. 46 Page 182, line 47, at end insert— ("Sale of goods and supply of services 18A.—(1) This paragraph has effect where a person ("the supplier") sells or offers or agrees to sell goods to another person ("the customer") or supplies or offers or agrees to supply him with services and the supplier's main business is to supply goods or services and not to engage in activities falling within Part II of this Schedule. (2) Paragraph 12 above does not apply to any transaction which is or is to be entered into by the supplier as principal if it is or is to be entered into by him with the customer for the purposes of or in connection with the sale or supply or a related sale or supply (that is to say, a sale or supply to the customer otherwise than by the supplier but for or in connection with the same purpose as the first-mentioned sale or supply). (3) Paragraph 12 above does not apply to any transaction which is or is to be entered into by the supplier as agent for the customer if it is or is to be entered into for the purposes of or in connection with the sale or supply or a related sale or supply and—

1. (a) where the investment falls within any of paragraphs 1 to 6 above or, so far as relevant to any of those paragraphs, paragraph 11 above, the supplier does not—
1. (i) hold himself out (otherwise than to the customer) as engaging in the business of buying investments with a view to selling them and those investments are or include investments of the kind to which the transaction relates; or
2. (ii) regularly solicit members of the public (within the meaning of paragraph 17(1)(c) above) for the purpose of inducing them to enter as principals or agents into transactions to which paragraph 12 above applies;
2. (b) where the investment is not as mentioned in paragraph (a) above, the supplier enters into the transaction—
1. (i) with or through an authorised person, an exempted person or a person holding a permission under paragraph 21A below; or
2. (ii) through an office outside the United Kingdom and with or through a person whose head office is situated outside the United Kingdom and whose ordinary business involves him in engaging in activities which fall within Part II of this Schedule or would do so apart from this Part or Part IV.

(4) Paragraph 13 above does not apply to arrangements which the supplier makes or offers or agrees to make with a view to the customer entering into a transaction for the purposes of or in connection with the sale or supply or a related sale or supply. (5) Paragraph 14 above does not apply to the supplier by reason of his managing or offering or agreeing to manage the investments of the customer if they are or are to be managed for the purposes of or in connection with the sale or supply or a related sale or supply. (6) Paragraph 15 above does not apply to advice given by the supplier to the customer for the purposes of or in connection with the sale or supply or a related sale or supply or to a person with whom the customer proposes to enter into a transaction for the purposes of or in connection with the sale or supply or a related sale or supply. (7) Where the supplier or the customer is a body corporate references in sub-paragraphs (2) to (6) above to the supplier or customer include respectively references to any other body corporate which is a member of the same group."). The noble Lord said: My Lords, in moving Amendment No. 46, I should like also to address some remarks to Amendments Nos. 46A, 46B, 46C, 46D and 46E. Those are in the names of the noble Lords, Lord Williams and Lord Ezra.

Amendment No. 46 introduces a new series of exclusions from Part II of Schedule 1 for certain-activities undertaken in connectionwith the supply of goods and non-investment services. Sales finance, especially export finance, frequently involves—particularly where large sums of money are concerned—the use of instruments which fall within the definition of investments.

The attractiveness of the financial package associated with an offer to supply goods or services is frequently an important consideration for the customer, and many industrial and commercial companies have developed in-house the expertise to assemble these packages rather than relying always on external financial advisers. This amendment is intended to exclude such operations from the requirement to be authorised so long as certain conditions are complied with.

The principal condition is that the activities will only be excluded if they are engaged in for the purposes of, or in connection with, the sale or supply by the supplier of particular goods or services or a related sale of supply. It may be helpful to explain the concept of a related sale or supply with an example. A construction company may contract with a customer to build a power station, the turbines for which are to be sold, direct to the customer, by a third party. The sale of the turbines would be a related sale or supply, and activities engaged in by the construction company in connection with that sale would benefit from the exclusion provided for.

The second main condition is that where the provision of sale finance involves the supplier acting as the customer's agent in dealing with the outside world, the supplier can only gain the benefit of the paragraph if he confines himself to activities which, if he were dealing on his own account rather than as the customer's agent, would themselves be excluded from the definition of investment business.

I think that on reflection the noble Lord, Lord Williams, will recognise that his Amendment No. 46A is unnecessary, given the references in the new paragraph to members of the group. The amendments standing in the name of the noble Lord, Lord Ezra, are a helpful clarification of the intentions underlying the paragraph and I am happy to accept them.

I believe that this amendment, with the further amendments to which I have just referred, is of great importance, particularly to some major manufacturing and commercial companies. It will certainly remove an unintended constraint on their ability to provide sales finance without exposing ordinary investors to any risk. I commend this series of amendments to your Lordships, and I beg to move.

The Deputy Speaker

My Lords, I call Amendment No. 46A as an amendment to Amendment No. 46.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 46, Amendment No. 46A: Line 1, after ("person") insert ("or the group of which the person is a part"). The noble Lord said: My Lords, I beg to move Amendment No. 46A, in my name and that of my noble friend Lord Morton of Shuna, with the words as printed on the Marshalled List. The objective of this amendment to the government amendment may be satisfied by what the noble Lord has said. The worry that we had when we read this new amendment, the thrust of which we generally support, was that where a company has an affiliate or a subsidiary which may provide these services but the rest of the group, which may have nothing to do with the service company within the group, is in fact the person referred to in the amendment, the service company was not covered by the amendment itself. That was our worry and we put down the amendment in order to cover it, because of course many companies have subsidiary, affiliated or joint companies with other companies to provide the kind of services that the noble Lord mentioned when he moved the amendment (and which indeed the amendment covers) and we wanted to be absolutely certain that that situation was properly dealt with by the government amendment. I beg to move.

Lord Lucas of Chilworth

My Lords, I ask pardon of the noble Lord the Deputy Speaker. The noble Lord, Lord Williams, was suggesting that I should respond hut in fact I did not think that there was a response, because he said that Amendment No. 46A, to which he has just addressed himself, was intended to ensure that there was clarification as to who was and who was not involved. He suggested that when I introduced my amendment, Amendment No. 46, I had probably satisfied him and he would want to look at it. Therefore I did not feel that there was any point in my responding positively. Of course, it remains for the noble Lord, Lord Ezra, if he so wishes, to make his contributions and speak to those amendments that are standing in his name, to which I have indicated that I shall agree when in due course he comes to move them.

Lord Williams of Elvel

My Lords, in the light of the noble Lord's comments I am grateful for the clarification that he has given and I beg leave to withdraw my amendment.

Amendment No. 46A to Amendment No. 46, by leave, withdrawn.

The Deputy Speaker

My Lords, I call Amendments Nos. 46B to 46E as amendments to Amendment No. 46.

Lord Ezra

moved, as amendments to Amendment No. 46, Amendments Nos. 46B to 46E: Sub-paragraph (3)(a)(ii). line 1, leave out ("(within the meaning of paragraph 17(1)(c) above)"). Sub-paragraph (3)(a), at end insert— ("and the transaction is not or is not to be entered into as a result of his having solicited members of the public in that manner;") Sub-paragraph (3)(b)(ii), line 1, after ("United Kingdom") insert ("maintained by a party to the transaction"). Leave out sub-paragraph (7) and insert— ("(7) Where the supplier is a body corporate and a member of a group sub-paragraphs (2) to (6) above shall apply to any other member of the group as they apply to the supplier; and where the customer is a body corporate and a member of a group references in those sub-paragraphs to the customer include references to any other member of the group. (8) The definition in paragraph 17(2) above shall apply also for the purposes of sub-paragraph (3)(a) above.") The noble Lord said: My Lords, I beg to move Amendments Nos. 46B to 46E and I express my appreciation to the Government for taking the view that these amendments will help to clarify their amendment. I beg to move.

On Question, amendments to the amendment agreed to.

On Question, Amendment No. 46, as amended, agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 47: Page 183, line 3, leave out (", or a body corporate connected with it,") and insert (", a body corporate connected with it or a relevant trustee") The noble and learned Lord said: My Lords, in moving Amendment No. 47 I shall speak also to Amendments Nos. 48 and 49, in the name of my noble friend, and to Amendment No. 48A, in the name of the noble Lords opposite. Amendments Nos. 47 and 48 are designed to ensure that this paragraph deals adequately with the position of trustees of employees' share schemes. It is now clear that paragraphs 12 and 13 do not apply to anything done by the trustees for the purpose of the scheme.

Perhaps I shall await rather than speculate upon the intention of Amendment No. 48, which is concerned simply with an amendment to the definition of "a relevant trustee". Of course the thrust of this paragraph is to be found in subparagraph (1). To enable a point to be put before the noble Lord should he wish to move his amendment, I think I should perhaps just say that I have some difficulty with it, not least because it refers to securities, and these, as I think the noble Lord will know, are defined differently in the various parts of the Bill: in Part IV in Clause 138 and in Part V in Clause 154.

Amendment No. 49 is made following a helpful suggestion put forward at Committee stage by the noble Lord, Lord Hacking, the effect of which is that, in considering whether a body corporate is connected to another, regard is to be had to the control exercised over the voting rights attaching to all of the shares and not simply to the voting rights attributable to ordinary share capital. I beg to move.

On Question, amendment agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 48: Page 183, line 14, at end insert— ("( ) In this paragraph "a relevant trustee" means a person holding shares in or debentures of a body corporate as trustee in pursuance of arrangements made for the purpose mentioned in sub-paragraph (1) above by, or by a body corporate connected with, that body corporate."). The noble and learned Lord said: My Lords, I have spoken to this amendment. I beg to move.

Lord Williams of Elvel

My Lords, I have tabled an amendment to this amendment which is Amendment No. 48A and perhaps I may move this amendment as an amendment to Amendment No. 48.

The Deputy Speaker

My Lords, I call Amendment No. 48A as an amendment to Amendment No. 48.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 48, Amendment No. 48A: Line 3, after ("debentures") insert ("or other securities"). The noble Lord said: My Lords, I beg to move Amendment No. 48A, standing in my name and the name of my noble friend Lord Morton of Shuna, which has the words as set out on the Marshalled List, and if I may I shall speak to Amendments Nos. 47, 48 and 49, as did the noble and learned Lord the Lord Advocate. The purpose of this amendment again is to make quite certain that in the definitions involved in employees' share schemes we are not ruling out other forms of security and purely limiting them to shares and debentures. I am bound to say I agree with the noble and learned Lord that there have not been any cases to date, but there may be cases when other securities—and I use that expression in the generic sense—may be used in employee share schemes; for instance, convertible preference shares, or other forms of securities that I could possibly devise. I am concerned only that these securities should not be ruled out and that the primary legislation should not have to be changed to satisfy the general thrust of this paragraph if new forms of employees' share schemes embodying new instruments or new securities are devised. This is the reason for the amendment and I hope that the noble and learned Lord understands why I am moving it. I beg to move.

Lord Cameron of Lochbroom

My Lords, I am very grateful to the noble Lord for explaining the purpose. In response I think I shall have to say that the paragraph in which he seeks to make the point is not an apt one in which to make it. The intention is that paragraph 19 will affect transactions in shares or debentures of the body corporate, which is to be found in paragraph 19(1). Sub-paragraph (3) defines shares and debentures as including: any investment falling within paragraph 1 or 2 above and also include any investment falling within paragraph 4 or 5 above so far as relating to those paragraphs or any investment falling within paragraph 11.". I am bound to say that I have not taken that through to see whether it covers the point raised by the noble Lord. It seemed to us that that definition was wide enough to incorporate everything that should be covered. It may be—I am guessing at what the noble Lord was meaning—that he was possibly thinking of options. If that be so, I am advised that no amendment is necessary to deal with the case where the company or trustee grants options to the employees.

The grant of those options is for the purposes set out in paragraph 19(1) and is therefore excluded from paragraphs 12 and 13. Therefore the fact that options are not mentioned in paragraph 19 is irrelevant. I do not know whether that assists the noble Lord. I am speculating as to what he intended by the word "securities".

Lord Williams of Elvel

My Lords, I am grateful to the noble and learned Lord for his speculation and for his reply to his speculation. His speculation was not wide of the mark. I am grateful to him and I beg leave to withdraw the amendment. Amendment to Amendment No. 48, by leave, withdrawn.

On Question, Amendment No. 48 agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 49: Page 183, line 25, leave out ("ordinary") and insert ("the"). The noble and learned Lord said: My Lords, I have already spoken to this amendment. I beg to move.

On Question, amendment agreed to.

Lord Beaverbrook

My Lords, I beg to move that further consideration on Report be now adjourned until 8.30 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 7.32 to 8.30 p.m.]

Lord Williams of Elvel

moved Amendment No. 50: Page 183, line 34, leave out from ("shares.") to end of line 47. The noble Lord said: My Lords, it may be for the convenience of the House if, in moving this amendment, I speak also to Amendments Nos. 51, 52, 53 and 54. This part of Schedule1—paragraph 20 —was inserted by the Government at the Committee stage in this Chamber following a commitment that had been made. The noble and learned Lord the Lord Advocate, moving this part of the schedule in Committee, emphasised that it was in many ways a difficult part to formulate; that the Government had had to take a view of some figure or other and that 75 per cent. was the figure that the Government had chosen; and that the whole question of "connected individuals" was one that was fraught necessarily with problems. We on our side accept that the Government have had a number of major problems in working out how they should honour their commitment.

We support the general idea that private companies should be excluded from the ambit of the Bill. I want to make that clear at the outset. Nevertheless, we are not entirely happy with the part of the schedule before us as it is now drafted. The amendment that we seek to introduce would have the effect, in our view, of eliminating private companies in a sense altogether from the Bill without drawing any lines or distinctions. The reason that we wish to press the amendment is our belief that whatever line is drawn, there are bound to be difficulties. We are here dealing in general with companies that are small. We are dealing in general with companies that may be family-owned or owned by a small group of shareholders who know each other and who have set up the company for one purpose or another. I do not believe that we are dealing here with major corporations.

There are many circumstances—I cannot describe all of them—experienced by myself and other people where transactions in shares in a private company need to take place in one form or another for one reason or another. The most common form of transaction in a private company—I do not use the word "common" in a statistical sense but in an anecdotal sense—is where one member of a family decides for various reasons that he or she wishes to dispose of his or her shares and may wish to seek to dispose of them outside the family. This is frequently the case where a block holding of 20 per cent., 15 per cent., 10 per cent. or whatever goes to a banking adviser and says, "Would you invest in this company?" There are plenty of institutions prepared to take on such an investment if the commercial terms are favourable. The deal is then concluded. One hopes that this is not the sort of transaction which the Government wish to catch within the Bill.

The other problem to which this paragraph has given rise is to some extent dealt with by government Amendments Nos. 51, 52, 53 and 54. It is of course the problem that has been raised about the extension of ownership, the problem of someone already holding 51 per cent. going to 75 per cent. or 76 per cent. Nevertheless, even those amendments carry with them the same problems of delineating exactly where the boundary lies between what is within the Bill and what is outside the Bill. That is a problem that any formulation is bound to encounter.

Our solution in Amendment No. 50 is very simple. We believe that by adopting our amendment the Government would ensure that private companies, whatever the transactions they engage in in respect of the ownership of those companies, go outside the Bill and that advice given for the disposal of shares in those companies or any other securities in those companies is outside the Bill. I understand that this is a rather radical reformulation of this part of the schedule. Nevertheless, I see so many problems with the schedule as at present drafted and with the schedule as the Government propose to amend it that I would prefer simply to say that private companies—the small businesses that we are really talking about—should be outside the Bill altogether and that transactions in such shares should be outside the Bill.

There is, however, one case where I argue slightly against myself. I put it for the purposes of hypothesis. We would be prepared to see within the Bill the sort of case where a private company was acquired by a public company. I suspect, without referring in detail to the Bill, that the acquisition by a public company of the totality of a private company would fall within the ambit of the takeover provisions of the Bill. It would certainly fall within the rules and codes of the takeover panel. Since the noble Lord, Lord Lucas, looks at me, I question that it does fall within the rules of the takeover panel. I speak as one who has conducted a number of takeovers of private companies that do fall within the rules of the panel.

This is a case where we would probably like to make an exception if the exception is not already in the Bill. Nevertheless, the main thrust of our amendment stands. We would like to see private companies taken out of the legislation. We do not believe that there is a satisfactory way of making sense of the schedule as at present drafted. We would like the Government to give serious consideration to what we have in mind and what I have said. I beg to move.

The Deputy Speaker (Viscount Simon)

My Lords, I have to warn your Lordships that if this amendment is agreed to, I shall be unable to call Amendments Nos. 51 or 52.

Viscount Chandos

My Lords, I should like briefly to support the noble Lord, Lord Williams, especially in view of the Government's consistent support over the past few years for the promotion of investment in small companies. It seems to me that the proposals made by the noble Lord, Lord Williams, are entirely consistent with the Government's own policies. I accept, obviously, that there are grey areas, as in many other instances, that we are trying to catch. I believe, however, that the simplification proposed by the noble Lord, Lord Williams, would be an improvement to the Bill as it stands.

Lord Cameron of Lochbroom

My Lords, I regret that I cannot accept the arguments which either of the noble Lords have put forward for what is a radical departure from the policy behind paragraph 20. Noble Lords will observe that the paragraph has a headnote "Sale of private company". This paragraph is concerned not with ordinary trading of shares in private companies but with the sale of large blocks of shares. Those are blocks which are large enough for control of the company to pass to the purchaser.

In passing, I take up a point made by the noble Lord opposite with regard to the sale of shareholding of, say, 15 per cent. of a stake in a private company. That would be excluded in the terms of the Bill under paragraph 17 and Clause 1, because in those circumstances the noble Lord opposite will recognise that he would not be carrying on the business. The paragraph is aimed at the people who arrange, procure or advise on these transactions as a business. It should not inhibit private transactions in shares. Your Lordships will recall that the Government's White Paper said that the definition of investment business would exclude the sale of a company as a whole.

That is why at the outset I made my point that this is part of the policy of this Bill. It was recognised that there are difficulties. I alluded to these in the course of discussion in Committee. Nevertheless, with the amendments which are proposed in the name of my noble friend I believe that paragraph 20 will exclude from the Bill the vast majority of sales of private owner-managed companies and the activities of transfer agents who arrange or procure such sales. These amendments proposed by the Government make a number of minor changes to make the provision more workable.

The amendment which has been proposed by the noble Lord opposite goes much further and removes from the Bill's scope anything done for the purpose of the acquisition or disposal of shares in a private company, regardless of the number of shares involved or the identity of the parties to the transaction. That would not simply extend the paragraph; it would change its intentions entirely. If amended, it would deal with the ordinary trading of shares without a change of control. I should like to know on what grounds it could be suggested that shareholders in private companies are less deserving of protection than other investors in other companies.

I am also advised—although obviously in this matter I recognise the knowledge of the noble Lord opposite of the Takeover Panel—that the takeover code generally does not cover takeovers of private companies. I may say that the acquisition by a public company of a private company is also not covered by the Bill except to the extent that Schedule 12 applies. Purchase of shares for own account is specifically excluded. It may well be that later in the course of our discussions on Report we shall be debating whether the Bill should cover takeover bids.

Nothing that has been said convinces me that this proposed amendment should be acceded to. It departs from the policy of the Bill. It seems to me to do injustice to what, at the end of the day, is one of the basic purposes of this Bill: to provide for investor protection. For all the reasons I have outlined, I would oppose this amendment.

8.45 p.m.

Lord Williams of Elvel

My Lords, I am grateful to the noble and learned Lord the Lord Advocate for setting out the Government's position. I agree with him on one point only: that this marks a rather radical change in this section of the schedule. I am afraid that I do not agree with the advice he has received that the sale of private companies to public companies does not come within the ambit of the Takeover Panel. That is not my experience. I have tested myself with the Takeover Panel. I speak—as the Americans say—from my own knowledge. However, the noble and learned Lord may be advised differently. No doubt he is advised differently, but I can assure him that his advice is not right.

Lord Cameron of Lochbroom

My Lords, if the noble Lord will allow me to say this, I do not think I was disputing that certain takeovers might not be covered. I was merely saying that the takeover code does not generally cover takeovers of private companies. I hope that that elucidates the advice that I received.

Lord Williams of Elvel

My Lords, I do not want to continue with this argument, but the takeover code covers all companies. There is normally a general remission which one clears with the panel before one makes an acquisition of a private company. It is probably true in general that the advice given is by practice only and not by the fact that the code does not cover private companies. It does cover private companies.

The question of whether investors in private companies should enjoy similar protection to investors in public companies again raises the point about striking the balance between investor protection and the proper operation of a trading company. As I am sure the noble and learned Lord is aware, the Bill is trying to steer that middle course between not impeding the companies and at the same time giving proper investor protection. We are not arguing about a matter of kind but of degree. It is our view that shareholders in a private company come into a rather different category from those who have shares in public companies, given that public companies have a very strong duty to their shareholders to publish information, and given that in general—and again I speak anecdotally and not statistically—shareholders in private companies tend to have more access to knowledge about the company in question than shareholders in a public company, other than on the published documents.

The noble and learned Lord also said that this applied to advice and did not affect small shareholders wanting to get into the kind of transaction I described in my opening remarks. I accept that there are other parts of the Bill that refer to this point. However, I believe that advice which is given for the purposes of the sale of shares in a private company should be a matter in a rather special category and is not the kind of advice that is given to large investors or to large companies or when making large issues of securities or large takeovers. In short, I tend to take the view that the noble and learned Lord has rested his case on the argument that this would make a radical change in the schedule. As I opened, I did not think it would make a radical change in the schedule. But I think that it is a change that we should make.

I believe that the noble and learned Lord might well like to study what we have said and the arguments we have put forward. If small businesses are to be encouraged, and if, as the noble Viscount, Lord Chandos, said, the Government's policy of encouraging such businesses is to be pursued, it seems to me—in the context of what the noble Lord, Lord Young of Graffham, announced in the House about deregulation and removing the burdens from small business— that this is one of the burdens that could be removed. I hope very much that the noble and learned Lord will agree with what I am saying.

8.50 p.m.

On Question, Whether the said amendment (No. 50) shall be agreed to?

Their Lordships divided: Contents, 24; Not-Contents, 51.

DIVISION NO. 3
CONTENTS
Airedale, L.	Morton of Shuna, L.
Blease, L.	Parry, L.
Boston of Faversham, L.	Stedman, B.
Brooks of Tremorfa, L.	Stoddart of Swindon, L.
Chandos, V.	[Teller.]
Elwyn-Jones, L.	Taylor of Blackburn, L.
Gallacher, L. [Teller.]	Underhill, L.
Graham of Edmonton, L.	Walston, L.
Hacking. L.	Whaddon, L.
Houghton of Sowerby, L.	Williams of Elvel, L.
Kagan, L.	Willis, L.
Kilmarnock, L.	Wilson of Rievaulx, L.
McNair, L.
NOT-CONTENTS
Abinger, L.	Gisborough, L.
Ampthill, L.	Greenway, L.
Beaverbrook, L.	Grimston of Westbury, L.
Beloff, L.	Hives, L.
Boardman, L.	Hooper, B.
Brabazon of Tara, L.	Kimball, L.
Brougham and Vaux, L.	Layton, L.
Buckinghamshire, E.	Lindsey and Abingdon, E.
Butterworth, L.	Long, V.
Caithness, E.	Lucas of Chilworth, L.
Cameron of Lochbroom, L.	Macleod of Borve, B.
Carnegy of Lour, B.	Masham of Ilton, B.
Cathcart, E.	Merrivale, V.
Davidson. V. [Teller.]	Mersey, V.
De Freyne, L.	Molson, L.
Denham, L. [Teller.]	Pender, L.
Effingham, E.	Reigate, L.
Elliot of Harwood. B.	Renton, L.
Ferrers, E.	Russell of Liverpool, L.

St. John of Bletso, L.	Ullswater, V.
Saltoun of Abernethy, Ly.	Vinson, L.
Skelmersdale, L.	Whitelaw, V.
Swinfen, L.	Windlesham, L.
Torrington, V.	Young, B.
Tranmire, L.	Ypres, E.
Trumpington, B.

Resolved in the negative, and amendment disagreed to accordingly.

8.58 p.m.

Lord Cameron of Lochbroom

moved Amendment No. 51: Page 183, line 35, leave out ("carry") and insert ("consist of or include shares carrying"). The noble and learned Lord said: My Lords, I spoke to this amendment in the course of a discussion on the previous amendment. I beg to move.

On Question, amendment agreed to.

Lord Cameron of Lochbroom

moved Amendments Nos. 52 to 54: Page 183, line 37, leave out ("and") and insert ("or (aa) the shares, together with any already held by the person acquiring them, carry not less than that percentage of those voting rights: and"). Page 183, line 38, after ("(b)") insert ("in either case,"). Page 184, line 3, after ("1985") insert ("or the corresponding Northern Ireland provision"). The noble and learned Lord said: My Lords, it may be for the convenience of the House if I move Amendments Nos. 52, 53 and 54 together. Again, I spoke to these amendments in response to Amendment No. 50 of the noble Lords opposite. I beg to move.

On Question, amendments agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 55: Page 184, line 7, after ("21") inser— ("(1A) Paragraph 12 above does not apply to a person by reason of his buying, selling or subscribing for an investment or offering or agreeing to do so if—

1. (a) the investment is or, as the case may be, is to be held by him as bare trustee or, in Scotland, as nominee for another person;
2. (b) he is acting on that person's instructions; and
3. (c) he does not hold himself out as providing a service of buying and selling investments.").

The noble and learned Lord said: My Lords, perhaps I should confirm that I have moved Amendment No. 54, and I am now speaking to Amendment No. 55 in the name of my noble friend, as well as Amendment No. 56 in his name. I shall speak at the same time, if I may, to Amendment No. 55A in the name of the noble Lords opposite.

Amendments Nos. 55 and 56 are designed to deal with the position of bare trustees; that is to say, trustees who simply hold assets on trust for their clients and buy and sell only on the clients' instructions. Usually such trustees will be dealing as principal, and would thus benefit from the exclusion in paragraph 17 so long as the conditions in that paragraph are met. But it has been suggested that there may be cases in which there is doubt whether the trustee acts as principal or as agent, and these amendments make clear that, so long as the condition in sub-paragraph (c) is complied with, the activities of a bare trustee are excluded from paragraph 12 regardless of the capacity in which he acts.

The condition in sub-paragraph (c) of the first amendment—Amendment No. 55—is included because the activities of a bare trustee may in some circumstances be indistinguishable from those of an execution-only broker. The latter activities will be caught by the Bill and it is intended that they should be because they can be held out as a professional investment service. It would create a loophole if activities of this kind could be carried out by a bare trustee without regulation under the Bill. Therefore the amendments which stand in the name of my noble friend provide that the exclusion for the activities of bare trustees only apply so long as the trustee does not hold himself out as providing a service of buying and selling investments.

The amendment in the name of noble Lords opposite would replace the reference to "providing a service" with a reference to "carrying on the business". In the context of the amendment, I should certainly suggest "providing a service" is the better formulation because it describes more accurately what it is that people of this kind might hold themselves out as doing. In other words, they will be offering the service of holding a person's investments for him and, as part of the service, buying and selling on his instructions. The noble Lord's formulation of Amendment No. 55A might have the implication that they would offer to buy and sell to the customer in question, which would not be the case.

For those reasons, I say to your Lordships that I prefer the formulation which has been suggested in Amendment No. 55 to that which noble Lords opposite have suggested to deal with the matters that we intend to cover. I beg to move.

Lord Morton of Shuna

moved, as an amendment to Amendment No. 55, Amendment No. 55A: In paragraph (c), leave out ("providing a service") and insert ("engaging in the business"). The noble Lord said: My Lords, we have no objection to the general thinking behind Amendment No. 55. The reason that Amendment No. 55A is put forward is that this is the first time in this schedule that the words "providing a service" have occurred. Rather than the words that the noble and learned Lord quoted, we are suggesting not "carrying on a business" but "engaging in the business" which are the words used throughout this schedule for that type of activity.

If one suddenly changes from "engaging in the business" to "providing a service" I should have thought that the normal reaction of most judges in Britain—speaking only of course for Scotland, but hoping that other parts of the realm may have the same kind of approach—would be that "providing a service" means something different from "engaging in the business". If that is right, then the reasons for it seem rather obscure, and certainly the reasons that the noble and learned Lord has put forward do not seem convincing to us. Therefore I beg to move the amendment.

Lord Cameron of Lochbroom

My Lords, the noble Lord opposite is quite correct. Perhaps I put a gloss upon the amendment which he was suggesting, but it is to that effect. I was trying to make clear that the use of the phrase "providing a service", which we have suggested, in the context of this paragraph—and it is only in the context of this paragraph that it would in fact be interpreted—is more accurately descriptive of what we are trying to define here; namely, that these persons are persons who offer the service of holding a person's investments for him, and, as part of the service, buying and selling on his instructions.

The phraseology which is imported by Amendment No. 55A goes further than that because it can mean the offer to buy and sell to the customer in question beyond the service in relation to the investments held for that person. That would import something which is not intended to be incorporated into the phraseology in Amendment No. 55.

We are fully aware that we are using a different formulation. It is for the very reason that we are thinking of something different that we do so; and that, as the noble Lord opposite will understand, is as good an indication to their Lordships that they should think about it in context, as any others that I can think of.

Lord Morton of Shuna

My Lords, that was a fairly convincing reason—whether or not it has validity! I beg leave to withdraw Amendment No. 55A.

Amendment to Amendment No. 55, by leave, withdrawn.

On Question, Amendment No. 55 agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 56: Page 184, line 31, at end insert— ("(4) Sub-paragraph (1A) above has effect to the exclusion of paragraph 17 above as respects any transaction in respect of which the conditions in sub-paragraph (1A)(a) and (b) are satisfied."). The noble and learned Lord said: My Lords, I beg to move Amendment No. 56. I have already spoken to this amendment.

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 57: Page 184, line 31, at end insert— ("Dealings in course of non-investment business. 21A.—(1) Paragraph 12 above does not apply to anything done by a person—

1. (a) as principal;
2. (b) if that person is a body corporate in a group, as agent for another member of the group; or
3. (c) as agent for a person who is or proposes to become a participator with him in a joint enterprise and for the purposes of or in connection with that enterprise,

if it is done in accordance with the terms and conditions of a permission granted to him by the Secretary of State under this paragraph. (2) Any application for permission under this paragraph shall be accompanied or supported by such information as the Secretary of State may require and shall not be regarded as duly made unless accompanied by the prescribed fee. (3) The Secretary of State may grant a permission under this paragraph if it appears to him—

1. (a) that, apart from the activities for which permission is sought, the applicant's main business does not consist of activities for which a person is required to be authorised under this Act;
756
2. (b) that the applicant's business is likely to involve such activities which fall within pragraph 12 above; and
3. (c) that, having regard to the nature of the applicant's main business and, if he is a member of a group, the main business of the group taken as a whole, the manner in which, the persons with whom and the purposes for which the applicant proposes to engage in activities that would require him to be an authorised person and to any other relevant matters, it is inappropriate to require him to be subject to regulation as an authorised person.

(4) Any permission under this paragraph shall be granted by a notice in writing; and the Secretary of State may by a further notice in writing withdraw any such permission if for any reason it appears to him that it is not appropriate for it to continue in force. (5) The Secretary of State may make regulations requiring persons holding permissions under this paragraph to furnish him with information for the purpose of enabling him to determine whether those permissions should continue in force; and such regulations may, in particular, require such persons—

1. (a) to give him notice forthwith of the occurrence of such events as are specified in the regulations and such information in respect of those events as is so specified;
2. (b) to furnish him at such times or in respect of such periods as are specified in the regulations with such information as is so specified.

(6) Section 60 of this Act shall have effect in relation to a contravention of any condition imposed by a permission under this paragraph as it has effect in relation to any such contravention as is mentioned in subsection (1)(a) of that section. (7) Section 102 of this Act shall apply to a person holding a permission under this paragraph as if he were authoried to carry on investment business as there mentioned; and sections 103 and 104 of this Act shall have effect as if anything done by him in accordance with such a permission constituted the carrying on of investment business."). The noble Lord said: My Lords, in moving Amendment No. 57, I should like to include in our discussion Amendments Nos. 57A, 57B, 57BA, 57C, 57D, 57E, government Amendment No. 234, Amendment No. 234A and Amendment No. 517A. Earlier this afternoon I talked about representations made to us by the Confederation of British Industry and the Association of Corporate Treasurers. Indeed, in this part of the Bill we have received representations from these two bodies and others.

We believe that the amendments we have made to paragraphs 17 and 18 and the new paragraph 18A will solve most of the problems which have been raised with us on behalf of industrial and commercial companies. Nonetheless, there will remain a few such companies whose activities would still be substantial enough to require them to be authorised. In most cases these companies will deal only with similarly sophisticated companies and with professionals in the investment markets.

The new paragraph 21A therefore provides a procedure for exempting such companies from the requirement to be authorised. Exemption can only be granted if the conditions in sub-paragraph 3 are met. In particular, it is expected that permissions granted under the paragraph will be limited to persons who do not deal with members of the public. I may say that I am grateful to the noble Lord, Lord Ezra, for his Amendment No. 57BA to this amendment, which I am happy to commend to the House. It makes clear that a permission can be granted under the paragraph to a financial subsidiary of a non-financial group in appropriate circumstances.

Your Lordships will observe that paragraph 21 A does not lay down any procedure for the grant or withdrawal of permissions, and leaves scope for the exercise of considerable discretion as to the grounds on which a permission is granted or withdrawn. We believe this flexibility to be desirable, given the problem which the provision is designed to solve. But the absence of settled procedures and criteria should not be taken as an indication that the power will be exercised in an arbitrary manner.

I would expect the Secretary of State or designated agency to make public the guidelines he, or it, would follow in deciding whether to grant or to withdraw a permission under the paragraph, and also to institute administrative arrangements so that decisions were taken on a reasonable time-scale. Certainly, in considering any proposal that powers should be transferred to a designated agency, the Secretary of State will wish to consider carefully the availability of such guidelines and how it is proposed that the powers under this paragraph should be exercised.

The noble Lord opposite has tabled a number of amendments to this paragraph. I shall listen with great interest to what he has to say before I make so bold as to answer him. But I think it would be important at this stage briefly to mention the government amendment to Clause 2. We have agreed to the request of noble Lords opposite to take that amendment separately, but I ought to mention the point here because it is consequential on the new paragraph.

The existing power in Clause 2 to amend the definition of "investment" or "investment business" would not have been sufficient to amend the powers of the Secretary of State to grant permission under the new paragraph or to confer further powers on him. It would not therefore have been possible to extend the paragraph to cover other activities within Part II of Schedule 1, or to restrict it to certain activities only within paragraph 12; or indeed to amend the criteria against which applications are to be judged.

The amendment gives the Clause 2 powers this desirable flexibility, and I rather doubt whether it would have the necessary effect if it were amended as proposed by the noble Lord, Lord Williams. This is a point we shall come on to when we reach the relevant grouping, but I felt that it was important that I should mention it at this time because we feel that it goes together with our own amendment, which I beg to move.

[Amendment No. 57A not moved.]

9.15 p.m.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 57, Amendment No. 57B: Line 16, leave out from ("require") to end line 17. The noble Lord said: My Lords, I beg to move Amendment No. 57B, standing in my name and that of my noble friend Lord Morton of Shuna. The noble Lord opposite will recognise that I have not moved Amendment No. 57A because I believe that this was a point which we satisfactorily covered when we debated earlier in the proceedings the new clause which we proposed to insert after Clause 1. I therefore accept that that decision has been taken by your Lordships and I propose to concentrate on the corporate question to which the noble Lord, Lord Lucas, has addressed himself.

Before I start I must say that glad as I was to hear what the noble Lord, Lord Lucas, had to say about government amendment No. 67 and our amendment No. 67A, I am afraid he will have to repeat all that later when my noble friend Lord Morton of Shuna is in the Chamber because it will be Lord Morton of Shuna who will be responding to the government amendment and moving our amendment on the subject.

The whole question of exemptions is one which has worried us for some time. The noble Lord was quite honest in his assertion that it has worried a number of commercial operators and companies. They have made a number of representations to the Government on whether they would be caught by the Bill and they—by "they" I mean commercial companies going about their proper commercial activity—are not the sort of people the Government have a mind to catch within the Bill.

Nevertheless, although the government amendment deals with that situation —and it is an amendment the thrust of which we broadly support — there are one or two points on the amendment and on our amendments to it which I might talk about. While I am talking to the government amendment I am addressing myself also to the grouping which the noble Lord referred to when he presented Amendment No. 57.

The question of whether there should be a fee is one which is addressed by our amendment No. 57B. I find it difficult to see why there should be a fee. Perhaps the noble Lord can explain why there should be a fee. After all, there is an exemption, a statutory provision which companies can enjoy. I am not quite sure why they should be obliged to pay for the privilege of enjoying that exemption. I have not noticed elsewhere in the Bill that the Bank of England or the Society of Lloyd's have to pay a fee for the privilege of being an exempt person. I wonder why the Government have put in a fee at this point rather than at other points in the Bill.

Our second point, which is referred to in Amendment No. 57C, concerns the business of a person. We are just a little concerned that the word "business" does not cover all the possibilities that the Government have in mind. It may be a private company, a personal company, or a person engaging in these things. The noble Lord said that these are probably exceptions to the general rule and that there might be exceptions which require a slightly wider definition than the word "business". We have suggested that we should put in the word "occupation" to make that clear. The noble Lord may reply that that is adequately covered, in which case the point has been made.

The third amendment, or rather two amendments, Amendments Nos. 57D and 57E, try to simplify the whole schedule. It is difficult when one has these long schedules or parts of schedules drafted and put in. It is extremely difficult for us to understand why a lot of it is included, and it is up to the Government to justify why they put these large slices of legislation into what appears to us to be a relatively simple sort of formulation and what appears to us, as the noble Lord, said, to be something of an exception. After all, if the Secretary of State has the power to grant permission and if he has the power to withdraw such permission, it seems to us that that is all that is seriously required. Those are the points to which we refer in our amendments.

On the generality of the government amendment, we have no particular objection to what it is trying to do. We shall certainly not oppose that, but there are a sufficient number of points to merit a short debate on whether our ideas in the schedule are sensible and relevant, looking at it from the Government's point of view. I beg to move.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord Williams, for his very concise explanation as to what he is seeking to elicit on what I might call a number of probing amendments. In the interests of time, I will answer as simply as I can in the simple way in which he posed his questions. He raises the question of fees. We feel that his amendment would remove the designated agency's ability to charge fees for permissions granted under that paragraph. He asks why fees should be introduced at all. We see this as meaning that the costs of granting permissions for those who want to be excluded from the requirement to be authorised would have to be borne by those who are carrying on a similar business but who accept the requirement to be authorised.

We do not think it is fair. It is almost the same argument that one observes from time to time when one talks about the "free riders". If you want something in particular then it is not unreasonable that fees should be paid for it. In our view, it is not simply that those who accept the requirement to be authorised should have to bear the costs burden of those who seek an exclusion. The noble Lord, in speaking to his amendment, Amendment No. 57C, refers to the addition of the description "occupation". If a person is not carrying on a business, then he will not be covered by the Bill; so he will not need an exemption.

I should like to assure the noble Lord that the word "business" is sufficiently wide to cover what he suggests in advancing the word "occupation"; or one might produce a number of other types of description. We believe that "business" embraces occupations and like activities. So far as concerns his comments with regard to his Amendments Nos. 57D and 57E, his amendments would allow the Secretary of State or the designated agency to grant permission under the paragraph solely by reference to an applicant's main business. That is, without considering whether the issue of the permission was justified, given the circumstances in which the investment business in question was to be carried out.

These amendments would remove the power of the Secretary of State or the designated agency to require the information that he or it needs to decide whether permission should continue in force or be withdrawn. They would at the same time remove the power to seek injunctions and restitution orders if conditions imposed under the terms of the permission were breached.

I do not believe that the noble Lord really intends these; but that is the effect of those two amendments. With that, I hope that he would not seek to persist in the amendments which are in his name.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his reply to what effectively were, as he rightly said, probing amendments. I think he understands that even at this stage of the Bill we have to put down such amendments—

Lord Lucas of Chilworth

Certainly, my Lords.

Lord Williams of Elvel

—because these are new items in the Bill. Normally of course one would not wish to move such amendments at Report stage. I accept that the Government—and I do not feel strongly about the point — wish to charge a fee. I accept the assurance about "business" embracing occupation and anything else. It is wide enough to cover what we have in mind. I am not entirely convinced by the noble Lord's response to the third amendment, but at this rather advanced stage in the discussion of Schedule 1 to the Bill I am not prepared to press my amendment. I beg leave to withdraw it.

Amendment No. 57B. by leave, withdrawn.

9.30 p.m.

Viscount Chandos

moved, as an amendment to Amendment No. 57, Amendment No. 57BA: Leave out sub-paragraph (3)(a) and insert— ("(a) that the applicant's main business, or if he is a member of a group the main business of the group, does not consist of activities for which a person is required to be authorised under this Act;"). The noble Viscount said: My Lords, I beg to move the amendment standing in the name of my noble friend Lord Ezra. I should like to thank the noble Lord, Lord Lucas, for his indication that he will accept this amendment. I should like to thank him also for Amendment No. 57 as a whole, which I think goes a long way towards solving the difficult position of finance companies owned by companies that are not engaged in financial or securities markets. As your Lordships know, there is a continuing trend in the financial markets of non-banks and non-financial institutions playing an increasingly active role. I believe that Amendment No. 57, as amended by Amendment No. 57BA, is a very satisfactory solution.

I should like to ask briefly whether, when the noble Lord, Lord Lucas, replies to this amendment, he can clarify whether he intends to accept Amendments Nos. 234A and 517A, to which he spoke. Speaking, as I am, on behalf of my noble friend Lord Ezra, I am afraid that my unfamiliarity with the subject meant that I did not quite follow him when he spoke earlier.

On Question, amendment agreed to.

[Amendments Nos. 57C, 57D and 57E not moved.]

Lord Lucas of Chilworth

My Lords, I think I am obliged to reply to the noble Viscount, Lord Chandos, because he sought some clarification on Amendment No. 57A and the amendment standing in the name of his noble friend. He referred to Amendment No. 234A and, I think, No. 517A. "Yes" is the answer to his question. On Question, Amendment No. 57, as amended, agreed to.

Lord Williams of Elvel

moved Amendment No. 58: Page 184, line 44, leave out ("does not apply") and insert ("only applies"). The noble Lord said: My Lords, I beg to move Amendment No. 58, standing in my name and that of my noble friend Lord Morton of Shuna. It may be for the convenience of the House if I speak also to Amendment No. 59. We come here to a particularly controversial part of the schedule and one which has given rise to a great deal of debate ever since the Bill was first mooted. Indeed, I think I am right in saying that Professor Gower himself drew attention to the problems involved.

The problem is quite simple. The Bill seeks to provide investor protection. It therefore seeks to control in one form or another those who give advice, who manage investments and who engage in investment business, in order that investors should be protected. There is a large area of advice to investors and potential investors which, as the Bill is at present drafted, is excluded. I refer particularly to newspapers and magazines, periodicals and publications of one form or another which give advice about buying and selling investments.

There have been many discussions about this and some people say that it is impossible to control these people, ranging from the responsible City editor of a Sunday newspaper right down to a tipsheet provided by somebody of whom nobody has ever heard. There are people who say that they should not be controlled or come within the ambit of the Bill because they are, after all, doing no more than disseminating information to the public and are not trying to give advice. I do not think either of those arguments will really stand up. If we are to go in, as the Government have gone in, for a serious measure of investor protection, it seems to me impossible to ignore the influence that newspapers particularly, but not only newspapers, have on investor behaviour.

The amendment that we are moving—and I am speaking now more to Amendment No. 59 than No. 58, as No. 58 simply paves the way for No. 59—seeks perhaps imperfectly (and I accept that noble Lords on the Government Front Bench may say that my amendment is perhaps imperfect) to bring publications that have certain characteristics within the ambit of the Bill, and especially those publications which have a particular section or which publish certain articles which comment on investments and may lead persons to invest in a particular investment, or to disinvest as well, as there are buy and sell recommendations in newspapers.

Newspapers have a wide circulation. Any objective assessment of what governs private investor behaviour must take account of newspapers. I emphasise the words "private investor behaviour", because I do not believe that the institutions are necessarily governed by what a newspaper says. But I believe—and all experience supports this—that private investors are seriously influenced by what they read in the newspapers, particularly in the City columns of the Sunday newspapers.

I recognise that we have had this debate before in Committee and that at that stage your Lordships felt that you did not wish to change the schedule to include the sort of publications that I have in mind. Nevertheless I should be failing in my duty if I did not impress upon your Lordships the importance that we on this side of the House attach to the thought that newspapers have to be within the ambit of the Bill. They are part and parcel of investor advice, and if investors are to get proper protection which the statute should properly provide, we must make provision for the newspapers to be included. I beg to move.

Viscount Chandos

My Lords, I should like to support Amendments Nos. 58 and 59 of the noble Lord, Lord Williams. I think that the original wording of the Bill which attempts to limit the ambit of the Bill to only the most specialised publications is a matter of drawing a line in one place, and the drafting which the noble Lord, Lord Williams, has suggested is trying to draw a line in another place. He has suggested that his drafting may be imperfect, but the sense behind the amendment is that the influence of the financial pages of non-specialist publications can be very much greater on individual investors than is the case with specialist publications. Therefore, even if the drafting is imperfect, it gives an opportunity for the Government to reconsider at this late stage whether this important matter of principle should be amended.

Lord Lucas of Chilworth

My Lords, I pause before I reply because I recognise, as does the noble Lord, Lord Williams, that this is an important matter and I hope to afford any noble Lord the opportunity of speaking before I do.

I say at the outset that we are in the serious business of investor protection in this Bill. I quote the noble Lord, Lord Williams, who made the statement with, I thought, an interrogatory mark at the end. I confirm to him that this is the business we are in and this is the general philosophy of the Bill. This is a controversial issue and indeed Professor Gower referred to newspapers and to this subject area in his report. I shall invite your Lordships to reject the amendment, but before I give my reasons for doing so I should like to assure the noble Lord, Lord Williams, and the noble Viscount, Lord Chandos, that this has nothing to do with perfections or imperfections in drafting. I do not quarrel with the drafting on this occasion; I quarrel with the general thrust of the amendment.

We have, as the noble Lord, Lord Williams, has already reminded us, discussed this matter a number of times since the Bill was first introduced. I acknowledge at the same time that the details of these amendments differ from those of previous amendments. But I have to tell the House that in practice the effect of the amendments would be virtually the same as that of an amendment to delete the exemption for bona fide newspapers altogether.

Advice about investments given in a newspaper would only not be regarded as investment advice for the purposes of the Bill if the advice were not given in a separate section or "particular article"—whatever that may mean—or if it was not likely to lead people to invest in a particular investment. Any advice which is not likely to have that effect is most unlikely in any case to come within the definition of investment advice, as we have now agreed that it should be amended. On the other hand, most of the daily and weekly press would be regarded as publishing investment advice as they regularly carry articles about the merits—or demerits—of particular investments. I take the liberty of reminding the House of the reasons why I believe that we should not require bona fide newspapers to be authorised if they wish to continue to publish the sort of articles they now carry.

First, authorisation would make newspapers subject to conduct of business rules. These rules could govern the sort of advice they could give, the basis for recommendations, and so on—rules which would be entirely appropriate for, say, a broker's circular but might inhibit an investigative journalist. I think that we should be very careful before we start down such a road. It could be a step on the slippery slope towards press censorship. Of course, there can be abuse, but this is best dealt with by the newspaper industry itself. I have mentioned previously the Press Council's declaration of principle setting out guidelines for financial journalists and their editors to follow. I believe that this is the right way of dealing with any concern about abuse that there might be.

The Bill, and the general law, does in any event provide some important safeguards. In particular, a newspaper which fraudulently or recklessly makes a false statement with the intention of persuading someone to make an investment will be guilty of an offence under Clause 47 and thereby liable to prosecution. As with other aspects of the law, a newspaper will be responsible for what it prints and subject to any constraints and penalties the law may provide. But to bring newspapers within the scope of the Bill would subject them to a system of prior licensing. This would I believe be a new and unfortunate departure; and one we should try hard to avoid.

If, contary to my hope and expectation, the press fails adequately to regulate itself, then the powers in Clause 2 of the Bill could be used to limit, or if necessary remove, its exemption. It is up to the press to demonstrate that it can do the job properly without statutory regulation. I believe that that is the way we should proceed. It is on the basis of that explanation that I urge the noble Lord, Lord Williams, and those who might support him, to withdraw the amendment.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his reply. I, too, was looking round to see whether any other noble Lords wish to join in this important debate. I agree with the noble Lord that this is a very difficult, controversial but important subject.

I regret that I cannot take very seriously the noble Lord's indications that were we to go down this road it might at some point lead to this dreaded press censorship. I do not find that argument convincing. I find the noble Lord's argument about the Press Council's rules, if I may say so without any disrespect to the Press Council, also to be somewhat less than convincing. The Press Council has not, in my view, had the best of records in making sure that journalists follow its code of practice.

At all events, the noble Lord has clearly indicated that he is prepared, if journalists do not behave properly according to Press Council rules or other guidance, to see the powers in Clause 2 activated and newspapers brought under the Act, as it will be. The noble Lord said that quite clearly.

Our view is very simple. It should be done now. The noble Lord has not advanced any argument to persuade me not to seek the opinion of the House, because this is a point where the lines are clearly drawn. We argued this out on a number of occasions and we are at a point where it should be decided by a Division of this House. I therefore seek to to press the amendment.

9.43 p.m.

On Question, Whether the said amendment (No. 58) shall be agreed to?

Their Lordships divided: Contents, 23; Not-Contents, 45.

DIVISION NO. 4
CONTENTS
Airedale, L.	McIntosh of Haringey, L.
Blease, L.	McNair, L.
Boston of Faversham, L.	Morton of Shuna, L.
Chandos, V.	Parry, L.
Elwyn-Jones, L.	Stedman, B.
Ezra, L.	Stoddart of Swindon, L.
Gallacher, L. [Teller.]	[Teller.]
Graham of Edmonton, L.	Taylor of Gryfe, L.
Hacking, L.	Underhill, L.
Houghton of Sowerby, L.	White, B.
Kagan, L.	Williams of Elvel, L.
Kilmarnock, L.	Willis, L.

NOT-CONTENTS
Abinger, L.	Layton, L.
Ampthill, L.	Limerick, E.
Beaverbrook, L.	Lindsey and Abingdon, E.
Beloff, L.	Long, V.
Boardman, L.	Lucas of Chilworth, L.
Brabazon of Tara, L.	Macleof of Borve, B.
Brougham and Vaux, L.	Merrivale, L.
Buckinghamshire, E.	Orr-Ewing, L.
Butterworth, L.	Pender, L.
Caithness, E.	Renton, L.
Cameron of Lochbroom, L.	Saltoun of Abernethy, Ly.
Carnegy of Lour, B.	Skelmersdale, L.
Cathcart, E.	Swinfen, L.
Davidson, V. [Teller.]	Torrington, V.
De Freyne, L.	Tranmire, L.
Denham, L. [Teller.]	Trumpington, B.
Elliot of Harwood, B.	Tryon, L.
Ferrers, E.	Ullswater, V.
Gisborough, L.	Whitelaw, V.
Greenway, L.	Windlesham, L.
Grimston of Westbury, L.	Young, B.
Hives, L.	Ypres, E.
Hooper, B.

Resolved in the negative, and amendment disagreed to accordingly.

9.51 p.m.

[Amendment No. 59 not moved.]

Lord Lucas of Chilworth

moved Amendment No. 60: Page 185, line 17, leave out from ("person") to end of line 18 and insert ("; or") The noble Lord said: My Lords, I should like to speak also to Amendment No. 61. These amendments reflect the further consultations on the Bill's provisions relating to overseas persons. The first amendment deletes the requirement that a transaction entered into by an overseas person, with or through an authorised person, is excluded from paragraph 12 only if it is within the ordinary business of the authorised person. It should be sufficient that the transaction is entered into with or through an authorised person. It should be possible to ensure, through the conduct of business rules, that an authorised person does not enter into or arrange such a transaction if it is of a kind falling outside his main business.

The second amendment is consequential on amendments to paragraph 13 made earlier. There are, in effect, two legs to the definition of "arranging deals in investments". Essentially, they are making arrangements with a view to a person buying or selling a particular investment; and making arrangements with a view to participants in those arrangements buying and selling investments generally.

The provision of an investment exchange, for instance, would fall within the second leg of that definition. Paragraph 24(2), as it stands, relates only to arrangements of the first kind. The amendment extends that so as to relate to arrangements of the second kind, but only so long as the participants in the United Kingdom are authorised or exempted. I beg to move.

Lord Williams of Elvel

My Lords, I well understood what the noble Lord was saying when he said that the amendment was the result of further consultations with interested parties after the Bill had passed through your Lordships' Committee. It is an extremely difficult and technical subject and not one upon which we take a particular view. I am therefore satisfied with the noble Lord's explanation and should not wish to oppose the amendment.

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 61: Page 185, line 21, leave out from ("if") to end of line 28 and insert— ("(a) the arrangements are made by an overseas person with, or the offer or agreement to make them is made by him to or with, an authorised person or an exempted person and, in the case of an exempted person, the arrangements are with a view to his entering into a transaction in respect of which he is exempt; or (b) the transactions with a view to which the arrangements are made are, as respects transactions in the United Kingdom, confined to transactions by authorised persons and transactions by exempted persons in respect of which they are exempt."). On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 62: Page 186, line 28, leave out ("of insurance"). The noble Lord said: My Lords, as currently drafted, paragraph 26(2)(c) applies only to rights under a contract of insurance. But it is possible for rights under other contracts to be surrendered, assigned or converted. For instance, the grantee of an option might assign his rights to another party. The amendment ensures that any such action is to be regarded as a disposal of the investment for the purposes of the Bill. I beg to move.

Lord Williams of Elvel

My Lords, I understand that the Government are trying to widen paragraph 26(2)(c). I cannot quite understand why it is not covered already by (2)(a). The noble Lord can perhaps help me.

Lord Lucas of Chilworth

My Lords, I only wish that I could help the noble Lord. I do not know why it is not covered under (2)(a).

Lord Williams of Elvel

My Lords, if the noble Lord is not clear, he would perhaps like to withdraw the amendment and we can think about it.

Lord Lucas of Chilworth

My Lords, no. I do not think that I would like to follow that course. In fact, I would resist the temptation. I shall find the answer to the noble Lord's question. In the event that this does not satisfy him, I shall be happy to reopen the subject at a later stage.

On Question, amendment agreed to.

10 p.m.

Lord Lucas of Chilworth

moved Amendment No. 63: Page 186, line 32, after ("debentures") insert ("or debenture warrants"). The noble Lord said: My Lords, in moving this amendment, I should like to speak also to government Amendments Nos. 64 and 65. We are of course including here, too, Amendments Nos. 63A and 65A.

The introduction of references to debenture warrants in paragraph 26 fulfils a commitment I gave at Committee stage to the noble Lord, Lord Hacking. As in a previous group, the noble Lord opposite has introduced amendments to include within this paragraph also the issue of "other securities". I am sorry to have to say again that "securities" is a term which is relevant only to Parts IV and V of the Bill; it has a rather different meaning in each part. For the purposes of the rest of the Bill, it is undefined. I find it impossible therefore to tell which securities the noble Lord has in mind. But no doubt he will advise us what his concern is.

Amendment No. 65 introduces two new paragraphs. The first clarifies what is meant by entering into a transaction through another person. That concept is used in several places in the schedule and it is obviously helpful to make clear what it means. The second new paragraph extends the meaning of "group" for the purposes of Schedule 1. This is a point which has been raised with us in particular in connection with paragraphs 17 and 18 and the new paragraphs 18A and 21A.

On reflection, we accept that those paragraphs should treat transactions with or for associated companies in the same way as transactions with or for group members as the term would normally be understood. The noble Lord opposite earlier tabled a rather narrower amendment directed at the same point. I make that point merely so that we may be reminded of the fact. I beg to move.

Lord Williams of Elvel

My Lords, I shall speak to Amendment No. 63, which the noble Lord has just moved, and also to Amendments Nos. 63A, 64 and 65; and with the leave of the House perhaps I may cover Amendment No. 65A also. If the debate goes reasonably smoothly, I do not propose to move Amendment No. 65A.

The difficulty that I am trying to overcome with our amendments is, as always, not to put a provision in the Bill which would be too narrow. We are here talking about the interpretation section of this schedule, which provides that, A company shall not by reason of issuing its own shares or share warrants and a person shall not by reason of issuing his own debentures"— if we accept the government amendment— and debenture warrants". The noble and learned Lord the Lord Advocate said that anything which is not specifically included is specifically excluded. I am concerned that we may be leaving matters out, such as a company which makes an issue of some piece of paper which is not included here. It is therefore in some way excluded from this interpretation.

This gives me a chance to raise one worry that I have on the general question. I have not raised this before but I think that the noble Lord may wish to take account of it. It is on the question of the definition of what is security and what is investment. I accept that, for the purposes of this Bill, there is a certain definition of security for a certain section outside that. We do not know what the definition is.

In the essential part of Schedule 1 we have covered the definition of investment. I am worried that when bills of exchange are issued by a company they fall outside paragraph 2 of Schedule 1. Yet, so far as I can see, if bills of exchange were accepted by a bank they would probably fall within that paragraph. If they do not fall within that paragraph it is odd, because they are in effect bank obligations in the same way that certificates of deposit are bank obligations. This is the last chance I shall have at this stage of the Bill's progress to raise a worry that has been nagging away at me while we have been discussing investments.

Nevertheless, the main thrust of my amendment is this. I believe that we should think very seriously before rejecting anything that might widen the possibilities of companies which issue their own paper not being regarded as disposing of that paper. I wonder whether the noble Lord would be prepared to look at this in the light of what I have said. I beg to move.

Lord Lucas of Chilworth

My Lords, for the sake of clarity perhaps I may expand a little on what I said on the amendments of the noble Lord, Amendments Nos. 63A and 65A. As I see it, those two amendments would extend the provisions of paragraph 26(3) to cover the issue of securities other than shares, debentures, and warrants for either. Since security, as we have already said, is undefined in the amendment and in the Bill—except for the purposes of Parts IV and V where different meanings are used—it is difficult for me to divine the intended effect.

The noble Lord asked me a specific question. I answer it in this way. Shares and debentures are already defined quite widely in paragraphs 1 and 2 of the schedule; and warrants are covered. I cannot think of any example of a security issued by a company which is not covered by one or other of those paragraphs.

The new paragraph 26A, which is also introduced by the third amendment, No. 65, defines the circumstances in which a person is to be regarded as entering into a transaction through another person. It has the effect that one person, person A, enters into a transaction through person B, if B enters into the transaction as an agent or if he arranges for A to enter into the transaction as a principal or as an agent.

In the event where one is considering, in this context, the Bills of exchange or certificates of deposit, I said earlier that the dividing line was invariably arbitrary. If it is wrong or found to be wrong in the light of subsequent events, it can be changed under Clause 2. But bills of exchange are not debentures and are not covered by the Bill. They are not normally traded and not regarded as investments. So I think that if the noble Lord cares to take that explanation alongside the explanation I gave a little earlier when I was describing the definition of shares, debentures and warrants, he could then be reasonably satisfied as to the intention.

On Question, amendment agreed to.

[Amendment No. 63A not moved.]

Lord Lucas of Chilworth

moved Amendments Nos. 64 and 65: Page 186, line 39, after ("warrants"") insert ("and "debenture warrants""). Page 186, line 40, at end insert ("or, as the case may be, to debentures issued by the person concerned. 26A. For the purposes of this Schedule a transaction is entered into through a person if he enters into it as agent or arranges for it to be entered into by another person as principal or agent. 26B. For the purposes of this Schedule a group shall be treated as including any body corporate which is a related company within the meaning of paragraph 92 of Schedule 4 to the Companies Act 1985 of any member of the group or would be such a related company if the member of the group were a company within the meaning of that Act."). The noble Lord said: My Lords, I have already spoken to Amendments Nos. 64 and 65. I beg to move these two amendments together.

On Question, amendments agreed to.

[Amendment No. 65A not moved.]

Lord Lucas of Chilworth

moved Amendment No. 66: Page 186, line 46, at end insert— ("27A. Where a person is an exempted person as respects only part of the investment business carried on by him anything done by him in carrying on that part shall be disregarded in determining whether any paragraph of Part III or IV of this Schedule applies to anything done by him in the course of business in respect of which he is not exempt."). The noble Lord said: My Lords, I beg to move Amendment No. 66, which deals with the position of a person who is exempted and who also engages in investment activities in respect of which he is not exempt. The effect is that in such a case any activities in respect of which he is exempt are to be disregarded for the purpose of determining whether any paragraph of Part III or Part IV of Schedule 1 applies to anything done by him in the course of business for which he is not exempt.

This is really a technical amendment—and I use that term in perhaps quite a narrow sense. I hope therefore the noble Lord opposite and indeed your Lordships will accept the amendment.

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 67: Page 2, line 22, at end insert— ("( ) The amendments that may be made for the purposes of subsection (1)(b) above include amendments conferring powers on the Secretary of State, whether by extending or modifying any provision of that Schedule which confers such powers or by adding further such provisions."). The noble Lord said: My Lords, in moving Amendment No. 67 I think we should also embrace Amendment No. 67A. I believe that this is to be moved by the noble Lord, Lord Morton of Shuna. Our amendment, No. 67, is consequential on Amendment No. 57, which your Lordships will recall we discussed earlier this afternoon.

The existing power in Clause 2 to amend the definition of investment or investment business would not have been sufficient to amend the powers of the Secretary of State to grant permissions under the new paragraph 21A in Schedule 1 or to confer further powers on him. It would not therefore have been possible to extend the paragraph to cover other activities within Part II of Schedule 1, or to restrict it to certain activities only within paragraph 12, or to amend the criteria against which applications are to be judged. The amendment gives the Clause 2 powers the desirable flexibility. I have to say that I doubt whether it would have the necessary effect which I have described as being desirable if it were to be amended as proposed by Amendment No. 67A, to which the noble Lord, Lord Morton, will speak in a moment. I think that I have said enough at this stage in support of the government amendment. I beg to move.

Lord Morton of Shuna

moved, as an amendment to Amendment No. 67, Amendment No. 67A: Line 3, leave out from ("amendments") to end and insert ("which extend or modify any provision of that Schedule"). The noble Lord said: My Lords, this is merely an amendment which is designed, first, to simplify the English; and, secondly, to derive some explanation. I should have thought that to allow power to extend or modify any provision of the schedule gives a very complete power to do almost anything that might be wished. With due deference to the drafting, I should have thought that my amendment is couched in happier English than the three and a half lines we propose to take out. However, if the noble Lord. Lord Lucas, says there is some technical reason why he has to have the rather involved English of his amendment, I would not wish to press this amendment. However, I really do not see any reason why that should be so. I beg to move.

The Deputy Speaker (Baroness White)

Amendment proposed as an amendment to Amendment No. 67: Line 3, leave out from ("amendments") to the end and insert ("which extend or modify any provision of that Schedule"). The Question is, That the amendment to the amendment be agreed to? As many as are of that opinion will say, "Content"? To the contrary, "Not-Content". The "Contents" have it.

Amendment to Amendment No. 67 agreed to.

Lord Lucas of Chilworth

My Lords, I am "Not-Content".

The Deputy Speaker

My Lords, you have had your chance! The amendment was technically carried.

On Question, Amendment No. 67, as amended, agreed to.

Clause 4 [Offences]:

Lord Morton of Shuna

moved Amendment No. 68: Page 3, line 17, leave out from ("and") to end of line 18 and insert ("was unaware that he was committing an offence in circumstances where it would not have been reasonable for him to be aware."). The noble Lord said: My Lords, we are now moving very quickly. We have reached Clause 4. This amendment is to change the meaning of the defence. Subsection (2) of Clause 4 says: In any proceedings brought against any person for an offence under this section it shall be a defence for him to prove that he took all reasonable precautions and exercised all due diligence to avoid the commission of the offence". As I read that subsection it entails two matters: First, that a person knows the offence; and secondly, that he knows that he might be liable to commit it. The difficulty in this particular Bill is that we shall be in a position where somebody does not know that what he is doing constitutes an offence, and he does not know that what he is doing is against some provision of this Bill. Therefore, it is for that reason that we wish to amend it to say: it shall be a defence for him to prove that he took all reasonable precautions"— which we agree is necessary—and then continue: and was unaware that he was committing an offence in circumstances where it would not have been reasonable for him to he aware". In other words, to give a defence of lack of knowledge when it was reasonable for him not to know. That lack of knowledge is not covered in subsection (2) under the trite maxim: "ignorance of the law is no excuse". No doubt the noble and learned Lord the Lord Advocate will defend subsection (2), but I would point out that if he turns to government Amendment No. 74 we get the same lack of knowledge coming in as a defence. There we say: (a) in a case within paragraph (a) of that subsection, that the person mentioned…reasonably believed that his entering into the agreement did not constitute a contravention". That is precisely the same type of thing, and we have not covered in subsection (2) somebody who, reasonably having exercised all reasonable precautions, does not know that he is committing an offence. I should have thought that it is only fair that we should cover it, and in those circumstances I beg to move this amendment.

10.15 p.m.

Lord Cameron of Lochbroom

My Lords, I am somewhat surprised at the noble Lord opposite. He, as well as I, knows of analogous statutory provisions. For instance, in the Banking Act 1979, the Estate Agents Act 1979, the Consumer Credit Act 1974, where offences are created and a defence is provided in precisely the same terms. With respect to the noble Lord's argument, of course Amendment No. 74 is not concerned with offences but with an entirely different matter; namely, the question of whether a person be liable to make civil reparation in certain particular circumstances.

The defence provided here is one that is well precedented and indeed well known. I might just give an example of how it would apply. A case where a company had prepared sales literature while awaiting a decision on its application for authorisation and employees were instructed not to send out the literature before authorisation is granted, but the literature intended to be sent to solicitors for checking is put into the wrong envelope by mistake, and thus an offence, or a contravention, would technically arise.

With great respect to the argument put forward by the noble Lord opposite, the test in the amendment, based on being unaware of committing the offence, is not an adequate substitute. Rather than merely taking steps to become aware of an offence if it occurs, we wish businesses to be diligent in trying to avoid committing an offence. These are words well known, and I think have been the subject of interpretation in the courts. For these reasons I would strongly resist this amendment.

Lord Morton of Shuna

My Lords, it is an old trick to use words which are not in an amendment. I have not said "taking steps". The clause as amended is that the person putting forward the defence first of all "took all reasonable precautions", not just taking steps; secondly, "was unaware that he was committing an offence in circumstances where it was not reasonable for him to be aware". That is completely different from just taking inadequate steps, as I am sure the noble and learned Lord is well aware.

If the noble and learned Lord feels that this deals adequately with the position and will not result in people being convicted and sentenced to a term of imprisonment of two years for something where they did not know, and reasonably did not know, that they were committing any offence at all, I would withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Cameron of Lochbroom

moved Amendment No. 69 Page 3, line 19, leave out ("investment agreement") and insert ("agreement to which this subsection applies"). The noble and learned Lord said: My Lords, in moving this amendment, I speak also to Amendments Nos. 70, 71, 71A, 72, 73, 158, 159, 166, 167, 168, 259, 260, 262 and 263. The amendments in the name of my noble friend in the catalogue which I have read are intended to reflect the useful debate on the clause at Committee stage and also comments from several sources, including and in particular, the Law Society and the Law Society of Scotland, the CBI and the Association of Corporate Treasurers.

The group of amendments has two themes which require amendment to Clause 5 and to several subsequent provisions in the Bill. The first theme in this group is the technical issue of the definition of "investment agreement", because that now needs modification in the light of other changes made to the Bill. The second theme is the recompense to which an investor is entitled if he has handed over property under an unenforceable investment agreement.

The present text of the Bill confines any recompense to interest payable on such money as has been handed over. Provision is also made for the return of property. It has been suggested that this is too narrow and, for example, would fail adequately to compensate a person who, having handed over shares under an unenforceable investment agreement, missed out on a bonus or rights issue and was only able to recover the number of shares originally transferred.

Accordingly, the amendments before your Lordships enable compensation to be paid for such loss as had been sustained by an investor as a result of his having handed over property other than money. The compensation will be at a level to he agreed between the parties or as a court may determine. This amendment will give greater flexibility to enable justice to be done. I observe that noble Lords opposite have tabled an amendment to the same end in slightly different terms. It may be that on consideration they will not press their amendments in this matter.

I would only add that in regard to Amendment No. 71A, which provides for the insertion of "reasonable" before the word "compensation", this reflects upon what the court is to do. I should be reluctant to have this word included. I think the court is given proper discretion and would always operate in a reasonable way. It would be unfortunate in a Bill such as this to put in "reasonable" where, where courts act, the word was not included before. For these reasons I suggest that your Lordships should not accept the amendments in the names of noble Lords opposite. I beg to move.

Lord Morton of Shuna

My Lords, the difficulty about speaking to this whole group is that there is little I have to say about Amendment No. 69, which is without any difficulty at all. The amendments standing in my name and in the name of my noble friend Lord Williams were, as the noble and learned Lord will appreciate, tabled before the government amendments. Subject to one point we are perfectly happy with the government amendment, but there is one issue which appears to be covered by our amendment and not covered by the government amendment. If somebody enters into this type of transaction and transfers something in the way of shares or whatever, that may be changed by rights issues, bonus issues or whatever, into something that is entirely different from what he transferred. Our amendment gives an alternative. Either the person is entitled to get return of the property with interest or he is entitled to such compensation as may seem just; and therefore he has the choice.

As I understand the government amendments and as I read them, he has no choice; he has to get back the property, which may be a mere shell of a property and of no interest whatever to him. I wonder whether the Government have really considered that. If the property has changed wholly in its nature, is it really fair to ask the original transferee to take is back? That does not appear to be covered by the government amendment but it is covered by our amendment. I take the point about Amendment No. 71A, and I shall not be moving it; but I shall be pleased to hear from the noble and learned Lord what his views are on the alternatives.

Lord Cameron of Lochbroom

My Lord[...]s, with the leave of the House, perhaps I may reply. I think that the answer is that the words we have suggested should now be incorporated in Amendment No. 71 provide for compensation even where what he gets back is a shell which would compensate him for the loss he has sustained as a result of having parted with it—that is, the property.

In these circumstances, while I entirely appreciate what it was that the noble Lord opposite was concerned about, it seems to me that the amendment fully covers that. He would not merely get back his shell—and no doubt it would not be of much interest to him—but he would also be entitled to compensation to make up for what he would otherwise have lost. I hope that that will satisfy the noble Lord opposite.

Lord Morton of Shuna

My Lords, with the leave of the House, it does not wholly satisfy me because, as I understand it, the shell that he may get back may have a value but be totally untransferable and of no interest to the person. Therefore he is not getting the full compensation to which he should be entitled. In congratulating the Government on getting perhaps 51 per cent. for meeting the difficulty, I do not wish to divide the House and I shall not move my later amendment.

On Question, amendment agreed to.

[Amendment No. 70 not moved.]

Lord Cameron of Lochbroom

moved Amendment No. 71: Page 3, line 34, leave out ("interest on any such money") and insert ("compensation for any loss sustained by him as a result of having parted with it."). On Question, amendment agreed to.

[Amendments Nos. 71A and 72 not moved.]

Lord Cameron of Lochbroom

moved Amendment No. 73: Page 3, line 36, leave out ("interest") and insert ("compensation"). On Question, amendment agreed to.

10.30 p.m.

Lord Cameron of Lochbroom

moved Amendment No. 74: Page 3, line 42, leave out from beginning to end of line 13 on page 4 and insert— ("(a) in a case within paragraph (a) of that subsection, that the person mentioned in that subsection reasonably believed that his entering into the agreement did not constitute a contravention of section 3 above; (b) in a case within paragraph (b) of that subsection, that the person mentioned in sub-paragraph (i) of that paragraph did not know that the agreement was entered into as mentioned in sub-paragraph (ii) of that paragraph; and (c) in either case, that it is just and equitable for the agreement to be enforced or, as the case may be, for the money or property paid or transferred under it to be retained."). The noble and learned Lord said: My Lords, in moving this amendment in the name of my noble friend, I shall refer also to Amendment No. 264, and to Amendment No. 74A, in the name of the noble Lord, Lord Ezra. These amendments concern the circumstances in which a court may decide to allow an otherwise unenforceable agreement to be enforced. The amendments provide that a court may allow an agreement to be enforced if it considers this to be just and equitable, having regard to all the circumstances of the particular case. These are the cases and the circumstances set out in paragraphs (a) and (b) of subsection (1) of this clause.

Thus in Case A the court would have to be satisfied that if a person entered into it in the course of carrying on investment business in contravention of Clause 3, he reasonably believed that his entering into the agreement did not contravene the requirement to be authorised. So the person who concludes on reasonable grounds that he is not carrying on an authorisable business may very well be allowed by the court to enforce his agreement. So, too, on this wording may the person who did not know that he had to be authorised and whose ignorance was reasonable.

I believe that these amendents, in conjunction with the various changes to Clause 1 and Schedule 1 to which your Lordships have agreed, will substantially reduce the risk of a person, in a field of business other than investment business, inadvertently crossing the boundary line and finding contracts held to be unenforceable. But the careless and the criminal will continue to have this sanction applied against them.

In the second case, case B, where an authorised person has entered into an investment agreement as a consequence of something done by a person acting in contravention of Clause 3, a court will have to be satisfied, before allowing an agreement to be enforced, that this would be just and equitable and that the authorised person did not know of the unauthorised person's involvement. A claim of ignorance which a court did not believe could lead to the contract being held to be unenforceable.

These changes to the clause will generally give more discretion to a court to consider the circumstances of a particular case before deciding whether a particular investment agreement should be enforced. I believe that this increased discretion will ensure that a court is able to see that justice is being done, without being restricted by the working of the statute to take account of what may be irrelevant matters in particular cases.

The noble Lord, Lord Ezra, has tabled an amendment to this provision which would allow an agreement to be enforced if the person concerned did not know that his entering into it contravened Clause 3 and, in doing so, had acted honestly and reasonably. The amendent is not one which I can accept. I suggest that it may have been tabled because of concern expressed by, among others, the CBI and the Association of Corporate Treasurers that the defence as drafted in the amendments which I am moving would not apply to a person who, in genuine ignorance of the authorisation requirements, and whose normal line of business is not investment business, entered into an investment agreement in contravention of Clause 3.

I am satisfied that the wording of the clause, if the House agrees to the amendment which I am proposing, is sufficient to provide a defence for a person who did not know that his entering into an agreement constituted a contravention of Clause 3 and whose ignorance was reasonable. This defence would still be available if he had not considered the point, provided that it was reasonable in the circumstances not to have done so, say, because the particular activity was not usually considered to be investment business.

In so far as the noble Lord's amendment is intended to achieve that result, I would advise the House that I consider it to be unnecessary. The amendment refers to whether a person, in entering into an agreement, acted honestly and reasonably. I find this reference ambiguous. If it is intended to mean that the agreement can be enforced only if the person's ignorance is honest and reasonable, then, as I have explained, I believe this is already the effect of the Government's amendments. If it means that in other respects his behaviour must be honest and reasonable, so that the agreement can then be enforced even if his ignorance is unreasonable, then such an amendment could weaken the clause and make it easier for a person to enter into investment agreements without proper regard to the requirement to be authorised and to attempt to justify himself by a plea of ignorance.

I believe that the defences in the clause are adequate to ensure that non-culpable inadvertence does not lead to an agreement being made undeservedly unenforceable. I therefore suggest that the noble Lord's amendment is at best unnecessary. I suggest to him, or to the noble Viscount, that it should not be pressed. I beg to move.

Viscount Chandos

had given notice of his intention to move, as an amendment to Amendment No. 74, Amendment No. 74A: Leave out paragraph (a) and insert— ("(a) in a case within paragraph (a) of that subsection, that the person mentioned in that subsection either—

1. (i) reasonably believed that his entering into the agreement did not constitute a contravention of section 3 above: or
2. (ii) did not know that his entering into the agreement constituted a contravention of section 3 above but in so doing acted honestly and reasonably:").

The noble Viscount said: My Lords, if I may speak to Amendment No. 74A on behalf of my noble ally Lord Ezra, I should begin by confirming to the noble and learned Lord, Lord Cameron, that this has been tabled with the advice of the CBI and the Association of Corporate Treasurers. I believe that the ambit of the Bill is so wide and its provisions so complicated that there will undoubtedly be some people who inadvertently carry on investment business without realising the need for authorisation.

In some cases, these people may be entirely blameless and the other parties to the investment agreements entered into may suffer no loss or prejudice. However just and equitable it may be for the court to allow such investment agreements to be enforced, there is a risk that it will have no power to do so. If the person concerned was simply unaware that the Bill did not apply to him, he may not be able to show that he reasonably believed that his entering into the agreement did not constitute a contravention of Clause 3. There will be no basis for his belief other than ignorance.

The amendment is therefore intended to remove any doubt that the court has the power to exercise its discretion in such cases. Obviously there may be cases where the ignorance was not reasonable and where the person concerned should have been aware that what he was doing required him to become authorised. The amendment will not protect such people, since the court will still have the ability in exercising its discretion to decide that the agreement should not be allowed to be enforced.

I have listened carefully to the arguments of the noble and learned Lord, Lord Cameron, but still believe that the amendment of my noble ally Lord Ezra creates some greater clarity and greater protection for an innocent offender against this clause of the Bill. I hope that he will give further consideration to it, but, in the meantime, I shall not move the amendment.

[Amendment No. 74A not moved.]

Lord Boardman

My Lords, may I once more thank my noble and learned friend the Lord Advocate for meeting the point which was causing considerable concern to a number of your Lordships when this matter came up in Committee and when my noble friend Lord Colville raised the matter? I believe that my noble and learned friend has met that point very effectively and I am grateful to him for improving the Bill in this way.

On Question, Amendment No. 74 agreed to.

Lord Morton of Shuna

had given notice of his intention to move Amendments Nos. 75 and 76: Page 4, leave out lines 1 and 2 and insert ("did not believe that his entering into the agreement constituted a contravention of section 3"). Page 4, line 8, at end insert ("or, if he has not so acted, that his failure to do so has not materially and adversely affected the other party."). The noble Lord said: My Lords, I thought that Amendments Nos. 75 and 76 had gone, because Amendment No. 74 has taken out the lines that Amendments Nos. 75 and 76 were to amend. Therefore, I am not moving them.

[Amendments Nos. 75 and 76 not moved.]

Lord Cameron of Lochbroom

moved Amendment No. 77: Page 4, line 28, leave out from ("(7)") to ("constitutes") in line 29 and insert ("Subsection (1) above applies to any agreement the making or performance of which by the person seeking to enforce it or from whom money or other property is recoverable under this section"). The noble and learned Lord said: My Lords, in moving this amendment, I speak also to Amendments Nos. 139, 261, 298 and 511. These amendments concern the definition of what constitutes an investment agreement. They are technical amendments, and that being so I think they speak for themselves. Unless any of your Lordships wish me to expand further, I beg to move.

On Question, amendment agreed to.

Schedule 2 [Requirements for recognition of self-regulating organisation]:

Lord Hacking moved Amendment No. 77A:

Page 187, line 23, at end insert— (" ( ) Notwithstanding sub-paragraph (3) above, no matter may be taken into account when it is based upon any information upon which it would not be safe or proper to rely or in circumstances which would amount to a breach of the rules of natural justice").

The noble Lord said: My Lords, I believe that this amendment and the other amendments on which I wish to address your Lordships are all of some importance. Therefore, it is somewhat disappointing that they have to be taken so late in the evening, at a time when only a fairly small body of your Lordships are able to be present. But I have drawn the straw. The amendment has been called, and therefore, with the leave of the House, I shall address your Lordships not only on Amendment No.77A but also on Amendments Nos. 77B, 80A, 101A and 225BA. If it assists the House, Amendments Nos. 77A, 77B and 80A are to be found on pages 22 and 23 of the Marshalled List; Amendment No. 101 A is to be found on page 27; and Amendment No. 225BA is to he found on page 51 of the Marshalled List.

After the Bill comes into force, probably the most important procedures under it will be the authorisation procedures under which persons are permitted to carry out investment business in the City of London. It is clearly important to the applicant, for his livelihood is at stake; it is important to the City that its procedures concerning authorisation should be fair and open; and it is also important to the City that it in no way operates—or has a reputation for operating—on a closed club basis. The purpose of the amendments is to try to ensure that the procedures for authorisation are fair and open and that there is access, when all remedies under the Bill have been exhausted, to the courts when justice has been denied to an applicant; or, in the case of a holder of an authorisation, justice has been denied to him during the process of his authorisation being suspended or withdrawn.

Yet there is something more important about these amendments. By seeking to open up the reasons why these decisions are taken in the City under the Bill, the amendments are seeking prevention rather than a cure. I ask your Lordships to bear that particularly in mind when considering the amendments, because it is in the very opening up of these authorisation proceedings that prevention will be created rather than the necessity for a cure to be found by the applicant by recourse either to the Financial Services Tribunal or to what other recourse is available to him, including the courts.

Perhaps I may explain the present position as set out in the Bill. When an applicant makes an application to the SIB for authorisation under the Bill, the SIB, when it is minded to reject that application, or, in the other circumstance of the authorisation having already been granted, when it is minded either to withdraw or suspend it, there is a requirement on the SIB to state to the applicant its reasons for the decision. That is to be found under Clause 29 of the Bill. However, there is no requirement on the SIB, under the terms of the Bill, to identify the information or the source of information upon which it proposes to act. The obligation under the terms of Clause 29 is simply an obligation to state its reasons.

As regards SROs, procedures or regulations will be imposed upon them—or to put it the other way round, SROs will be obliged to set out regulations covering certain features which are outlined in Schedule 2. Unlike an SIB, there is no requirement on an SRO to give any notice to the applicant in the circumstances that I have described which fall upon the SIB Clause 29. Therefore, there is a distinct difference in the treatment accorded by an SIB concerning notice to the treatment accorded by an SRO.

More than that, as the Bill is presently drafted, it will be possible for an SRO to take into account highly prejudicial evidence in breach of the rules of justice without leaving the applicant any recourse to the Financial Services Tribunal or to the courts. That proposition itself should give your Lordships concern. It is unsatisfactory, without going into great detail, to go into any case that has been considered recently in the City of London but it will suffice to draw attention to one recent case. This concerned an application to an exchange—I shall not go further to identify that exchange—and as a result of a complaint made by the applicant a Commissioner was appointed by the Governor of the Bank of England to investigate.

The Commissioner reported that he found that the exchange had withheld important information from the applicant. Furthermore, the Commissioner expressed the hope that once the Financial Services Bill was in force that this lacuna would not exist any more and that a different decision could therefore be made concerning that case. The worry is—and it is the reason why I am moving these amendments—whether that will come to be the case.

As the hour is late, I merely draw attention in a little more detail to the purport of my various amendments. As regards Amendment No. 101A, on Clause 29, I seek to have included into the notice to be given to the applicant, in the circumstances I have described, not only the reasons but identification of the information and sources in the possession of the SIB. That will mean first of all, that the applicant will know in more detail, which is only fair, the reasons why the SIB is minded to reject the application or withdraw or suspend the authorisation. It will also have the result of giving a route through, or evidence, for the applicant to take his appeal to the Financial Services Tribunal. It will further give the applicant, when he has exhausted the remedies under the Bill, recourse to seek a public remedy through the courts, the SIB being a quasi-judicial body, and it then being open to the applicant to move a writ of mandamus.

Moving on to Amendments Nos. 77A and 77B, the purpose of Amendment No. 77A is to seek to impose more discipline on SROs and to focus their minds upon the very important need not to base their decisions on information on which it is not safe or proper to rely, or on circumstances which would amount to a breach of natural justice; for example, by not giving the applicant a proper opportunity to be heard in his own cause.

Amendment No. 77B seeks to impose the same obligation on an SRO that is already imposed on an SIB under Clause 29 to give notice to the applicant. In order to bring it entirely into line with my amendment under Clause 29, it also places the further duty upon the SRO to state its reasons in circumstances that I have described for Amendment No. 101A.

Lord Bruce-Gardyne

My Lords, I apologise for interrupting the noble Lord, but I am not learned in the laws as he is and there is one aspect of Amendment No. 77B in particular, but also perhaps of the other amendments, on which I should like clarification. In Amendment No. 77B, the noble Lord refers to, The rules and practices of the organisation etc. For better or worse—and I sometimes think perhaps for worse—we have given legal immunity to the SRO. I am not clear on this point. Let us suppose that we pass these amendments and the SRO—or for that matter the SIB—chooses to ignore the injunctions placed upon them in these amendments. How would the offended party pursue his grievance when the SRO or the SIB, as the case may be, has already been endowed with legal immunity?

10.45 p.m.

Lord Hacking

My Lords, sometimes noble Lords say that they are grateful for an interruption when they are not grateful at all, but I am truly grateful for this intervention by the noble Lord, Lord Bruce-Gardyne. The answer is that under Clause 182(1) of the Bill the immunity given to an SRO is only immunity against liability in damages. There is no immunity under the Bill for bringing proceedings against an SRO for judicial review, and I think there would be a great deal of concern in your Lordships' House if there were.

Lord Parry

Hear, hear!

Lord Hacking

My Lords, I thought someone was saying "No" to me, but it is "Hear, hear". It is an important distinction to make—to know one's supporters from one's enemies—and I am very glad to hear that there was a voice of support.

Unless I have misunderstood the position, the immunity provisions are not applicable in the circumstances of my amendment, which, inter alia, is seeking to open up the avenue of judicial review as a last resort if injustice has been perpetrated on the applicant.

The next amendment, Amendment No. 80A, is seeking something that is quite important; namely, to give a common law right to an applicant against the SRO. The position is that a person who has been admitted as a member of an SRO but who then has his authorisation either suspended or withdrawn has by then created a contractual relationship between himself and the SRO which will enable him, if there is injustice perpetrated, to seek the common law right against the SRO. On the other hand, an applicant who is outside the membership of the SRO and who will only be admitted into it when he is given authorisation under the Bill has no such common law right. It is for that reason that I put before your Lordships Amendment No. 80A, which purports to create the existence of a contract between the SRO and the applicant on the making of the application.

The last amendment, which is an amendment to Clause 95, seeks to give in this Bill the same right of appeal as is already available for an applicant to an SIB for an applicant who has been dissatisfied with a decision of an SRO and who wishes to take his remedy to the Financial Services Tribunal under the appeal procedures of the Bill. I do not want to take the argument into any greater detail and length at this time of night.

There are just two further points that I should like to make, and then perhaps I may invite the House, despite the lateness of the hour, to join in in comment upon these amendments. The "fit and proper" test, which is the primary test that is to be applied under the Bill for both SROs and SIBs, has so far never been tested, certainly so far as it refers to companies. It is not difficult, although it has not been tested by the courts, to consider what a fit and proper person is as an individual. It opens up much more difficult considerations, still untested, when one applies that to companies.

When Mr. Michael Howard, the Minister in the Department of Trade and Industry, was asked how the "fit and proper" test should be applied, his reply in Standing Committee in another place, if I have understood it correctly, was that the matter could be tested by the courts. The difficulty is, as I have tried to explain, that as the Bill is drafted there will not be clear access to the courts for the matter to be tested. The opening up of the authorisation proceedings, which I am urging upon your Lordships, would allow that test to be carried out.

It can be said that if an applicant is rejected by an SRO, he has the alternative of making his application to the SIB. Apart from the fact that the SIB, understandably, has said that it does not want applications to be made directly to it and would much prefer them to be made through an SRO, there are other disadvantages to the applicant. In the first place, he loses the benefits of membership of the SRO; and, secondly, he has the delay and cost of a much longer procedure. He has to apply to the SRO. If his application is then rejected in circumstances where there could well have been a breach of the rules of natural justice, he has to start all over again with the SIB.

I have spoken at some length. In one sense I am apologetic and in another I am not. I am apologetic for having kept your Lordships waiting upon my words for 17 minutes; but I am not apologetic in the sense that I believe that this is one of the more important areas of the Bill. I end as I began by saying that there are probably no more important procedures under the Bill than the authorisation procedures.

Lord Bruce-Gardyne

My Lords, I realise that here be lawyers and that those of us who are not lawyers must be careful when trespassing on this subject. I must confess that having listened with care to the noble Lord and having, in principle, a great deal of sympathy with the purposes of his amendment, and strongly supporting the notion that those who are at risk of having their applications rejected or licences withdrawn should be properly informed of all the evidence against them, I still do not understand how we propose to square these amendments with the legal immunities which—I am bound to say, mistakenly—we have given to the SROs and the SIB. The noble Lord said that they apply only to damages, but if I have my licence withdrawn or my application rejected, what satisfaction will I have if I cannot obtain damages?

It may be good to have a procedure by which I can be informed of the case against me so that I am properly prepared and able to protect myself, but unless I can obtain damages it does not seem to me that I am liable to be anything but out of pocket to precious little satisfaction.

Lord Morton of Shuna

My Lords, I support the amendment moved by the noble Lord, Lord Hacking. As there is nothing much that I can say to him other than "ditto", I shall endeavour to answer the noble Lord, Lord Bruce-Gardyne. The remedy open to someone in these circumstances is to go to the court and say, "You have not obeyed the rules in dealing with this. Therefore, re-hear the case, and admit me or do not disqualify me, or whatever it is". He gets back. That is sometimes much more important than damages. One can get judicial review very quickly. That, shortly, is the answer.

11 p.m.

Lord Tryon

My Lords, I support most of the amendments of the noble Lord, Lord Hacking. I have some difficulty with this group, largely because the immunities mean that the attack on the SRO or SIB is difficult. The courts are there for those who feel that they have not been properly dealt with. But the nod and the wink is still important. It has been immensely important in the City over a great many years. I do not believe that it should be done away with totally and utterly, so arriving at a situation where people have to spell out in the greatest detail why they do not think that someone is a fit and proper person to be doing whatever he is supposed to be doing.

This is a very difficult matter to be articulate about in public. It is something that has worked extremely well for a great many years. To put the onus on giving sources of information—this is what the amendments, I believe, call for—will cause the sort of rows that occur in the journalistic world when they are called upon to say where they heard about this, that or the other. The amendments go a little too far.

The Earl of Limerick

I share the misgivings of the noble Lord, Lord Tryon. Despite the characteristically persuasive and eloquent manner in which the noble Lord, Lord Hacking, introduced the amendments, there would be considerable difficulty in importing them into the Bill. I have the clearest recollection of debates in 1973 on the Insurance Companies (Amendment) Bill when very much the same issue was faced—the definition of a fit and proper person and the rules for determining who was to be cleared through these procedures and how it would be done. At that time I was driven to the conclusion that despite the obvious attraction of freedom of information and natural justice—all principles to which we generally adhere—the practicalities of how information is received and acted upon and the faith in which it is given become extremely difficult. The effect of pushing matters to the extent suggested would be to deny to the regulators the very sources of information on which they are obliged to depend, and that would govern their proper assessment of the suitability of these people.

Lord Cameron of Lochbroom

I have listened with great care to the noble Lord, Lord Hacking, and indeed all noble Lords who have spoken on what all of us recognise to be an important matter—the question of authorisation. I have to say, however, that I am not persuaded that we are wrong in what is set out in Schedule 2 as the requirements for recognition of self-regulating organisations.

I should perhaps say, as mention has been made of judicial review, that it may be possible, although it is not certain, given the present state of the law, that if an SRO acted unreasonably or unfairly in considering an application, it might be subject to judicial review procedure. We are content that this should be so if the law develops in that direction. We consider that the concern that we have about the matter is properly met in the Bill itself.

Perhaps I may remind noble Lords of paragraph 2 of Schedule 2. That provides specifically that, the rules and practices of the organisation relating to the admission and expulsion of members … must be fair and reasonable and include adequate provision for appeals". An SRO must satisfy the Secretary of State or the designated agency that its rules and practices relating to admission and expulsion are fair and reasonable and make such adequate provision for appeals. The Secretary of State or the designated agency will be able to take enforcement action under Clause 12 against an organisation which failed to apply its rules on admission fairly and reasonably. I think that there are safeguards enough in the Bill without depriving recognised organisations of their essentially self-regulatory character.

Perhaps I should make one comment about Amendment No. 80A. The noble Lord, Lord Hacking, made its purpose clear: to provide some form of common law remedy. I would find it a very curious proposition that a contract should be deemed to exist between two parties merely because one party delivers a demand on the other. In any event, the amendment does not specify the terms of the contract which is to be deemed to exist in such circumstances. Furthermore, I have to point out that placed as it is among the criteria for recognition in Schedule 2, it is difficult to see what rights it could confer on either the applicant or the SRO.

On the question of appeal, I would suggest to your Lordships that it would not be appropriate to subject the decisions of SROs to the Tribunal. These organisations are not to be exercising statutory powers, and they should be free to decide for themselves who their members are to be with the important proviso about fair procedures and appeals. I take particular note of what the noble Lord, Lord Tryon, said in this matter and my noble friend Lord Limerick. It is not as though a person who is refused membership is thereafter prevented from obtaining authorisation otherwise. He has the right to apply for authorisation by the Secretary of State or the designated agency. Before such authorisation can be refused he will have the right to have his case referred to the tribunal. The tribunal is there as a last resort to safeguard against depriving a person unjustly of the ability to carry on investment business.

The noble Lord, Lord Hacking, has suggested an amendment to Clause 29. But we do not think it necessary to do so beyond the requirements of Clause 29, as it stands, in specifying the contents of a notice in the case of rejection by the Secretary of State or the designated agency. The Secretary of State or the agency will have to give their reasons. That will often involve setting out some of the information which they possess. But we want the Secretary of State to be able to issue a notice quickly where he believes action to be necessary. In all cases the person in question has the right to have his case referred to the independent tribunal. The tribunal's task is then to investigate the case; and in considering any relevant information which the Secretary of State offers it may wish to investigate the sources. But we see no need for a requirement that the sources be stated before the person decides whether to go to the tribunal.

I have dealt, I think, with the main concerns which the noble Lord, Lord Hacking, has put before the House, but I should like just to deal with the two subsidiary points which he raised. First of all, as regards "fit and proper", I suggest that it is really unnecessary to try to define these words further. They are in a sense quite clear as to what they mean. We consider it would be wrong to interfere further than is necessary in the way in which SROs conduct their affairs. They should be entitled to conclude that a person should not be admitted as long as they follow fair and reasonable procedures and, of course, have available appeal procedures which, if invoked, are applied again fairly and reasonably. Therefore, I should be opposed to the suggestion that the meaning of "fit and proper" should be further defined. It would only, I suggest, make difficulties.

I might take a different view if rejection by an SRO were the end of the road, but of course, as I have said, it is not. No doubt there has been a stated preference by SIBs that individuals or businesses should join SROs, but of course the Bill provides that anyone who applies to the Secretary of State or the designated agency for authorisation will have to be judged according to the criteria in the Bill. If rejected, of course he has the right to an investigation by the independent tribunal. There again, I suggest, adequate safeguards are provided.

For all these reasons, I do not find it possible to suggest that the House should accede to these amendments.

Lord Hacking

My Lords, my purpose in moving Amendment No. 77A and addressing your Lordships on my other amendments was to make an opportunity for this matter to be discussed in your Lordships' House, albeit very late in the evening.

We have had that discussion, we have heard the noble and learned Lord's reply and in the circumstances I certainly would like to consider the comments that have been made during this debate, and in the reply of the noble and learned Lord. I should like to withdraw this amendment.

Amendment, by Leave, withdrawn.

[Amendment No. 77B not moved.]

Lord Lucas of Chilworth

moved Amendment No. 78: Page 187, line 37, at end insert— ("(1A) The rules under that Chapter to be taken into account for the purposes of sub-paragraph (1) above include the rules made under section 49 and under sections 53 and (Compensation fund) so far as not themselves applying to the members of the organisation."). The noble Lord said: My Lords, bearing in mind the hour, I fear that I should like, in moving Amendment No. 78, to address myself also to the following amendments: 92, 152, 153, 153ZA, 153A, 153AA, 153B, 153C, 154, 155, 238, 239, 257, 272, 299, 300, 301, 336, 446, 449, 454, and 457.

Let me say straight away that these government amendments follow up points which were raised during our consideration of the Bill at Committee stage during the summer, in particular points which were raised by my noble friend Lord Limerick and the noble Lord, Lord McIntosh of Haringey.

There are really two main issues here. The first concerns the machinery which the Bill provides. The existing Clause 53 is based on the concept of compulsory indemnity along the lines of the Solicitors Act. This certainly provides a means by which investors can benefit from payments. Then, on further reflection, the Government have concluded that additional powers, involving the ability to set up a compensation scheme such as those established under the Banking and Building Societies Acts, should be taken if the objectives that we set down in the White Paper published in January 1985 are to be realised. The White Paper envisaged arrangements to compensate investors directly when an investment business could not do so. Therefore, the new clause which we have tabled follows the provisions of the Banking and Building Societies Acts.

The second issue was whether businesses authorised through membership of recognised self-regulating organisations should, in some circumstances, be obliged to participate in a central scheme established under the Bill. This issue was raised during consideration of the Bill in another place, and since then the SIB have argued persuasively that a scheme which is restricted to a possibly small and variegated range of directly authorised businesses may not be able to provide the level of protection for investors which we would all wish to see as the basic standard in the industry. The SIB have argued that the larger the coverage of a central fund, the easier it will be to obtain adequate finance and thus the better will be the compensation which investors can expect and the less will be the cost of making compensation available. The Government have considered these arguments very carefully. We acknowledge the excellent record, for instance, of the existing Stock Exchange compensation scheme. However, we believe that the fundamental objective is that investors generally should be protected by compensation arrangements which are the best which can be reasonably made. Our approach to this question has been based on the policy set out in the Janaury 1985 White Paper. It stated: Compensation should be available for investors in the event of loss arising from investment businesses' fraud, negligence, or failure to comply with requirements for the protection of clients' assets … The aim should be for the private investor to receive full compensation". Your Lordships will be aware that the SIB put forward last year the idea of a scheme offering compensation of up to £30,000 to private clients of businesses in default. In a recent speech, the chairman of the SIB, welcoming the Government's proposal as one which was: essential in order to provide the level of protection which small investors have every right to expect", indicated in that speech that it might be possible to raise that top limit in a broadly-based scheme. I am sure this will be contrasted with the higher notional limits available under, say the existing Stock Exchange scheme. On that I would make three observations. First, not even the Stock Exchange scheme covers the range of liabilities mentioned in the White Paper—it would not for instance cover liabilities arising from an award of damages for negligence. Secondly, there is nothing to stop an SRO establishing a more generous scheme. The SIB proposals for a "federalstructure—if I can use that expression—are designed to assist this. Thirdly, my final comment on this matter is that a high limit on a compensation fund operating in one area is no comfort to the investor who has lost perhaps his entire life savings in another area.

This may be the appropriate point to mention the amendments to Amendment No. 153 tabled by the noble Lord, Lord Williams of Elvel. I shall not waste your Lordships' time by repeating in full the objections to changing "may" to "shall" in the rule-making powers. The fact is that it is unusual to impose such an obligation on the Secretary of State and the principle in Schedule 8 is sufficient to ensure that a designated agency uses the powers under the new clause and Clause 53 to: make the best provision that can reasonably be made Those words from paragraph 9 of Schedule 8: the best provision that can reasonably be made", are also relevant when we consider the more substantive amendment proposed by the noble Lord, Lord Williams, but which I think will be moved by the noble Lord, Lord McIntosh of Haringey. This will impose a requirement that the maximum compensation payable to individual investors should be not less than £100,000.

We wish to see the "best provision"—and that includes a high maximum limit on payments to investors who have a valid claim. Yet such a provision can only be made by levying investment firms. It is not necessarily to the benefit of investors if an extremely attractive compensation fund is achieved by levies which are so high that they drive many firms out of business. That is one of the things we mean by the provision being "reasonably made".

I do not know whether a scheme designed to provide a maximum level of compensation no lower than £100,000 would be reasonable or whether it would be an intolerable burden on too many firms. I do not believe the noble Lord opposite knows. The sums will depend on a number of factors. Under our approach it will be for the Securities and Investments Board to come forward with proposals which will be judged against the criteria in Schedule 8. That appears to me to be the right way to deal with matters of this complexity. It is the way we have dealt with other matters concerning the rules businesses will have to comply with. Frankly, I do not see how we can take a view on a matter like this at the tail-end of the Bill's progress through Parliament without even having the benefit of the SIB's views on what is realistically achievable.

This objection applies to the basic question of the figure which is inserted into such a provision. However, the practical problems go much wider. Once we try to deal with such things we will have to resolve more details. Which investors are to qualify? Is the maximum to refer to the level of claim or the level of payment? Are professional investors excluded? How are professional investors to be defined? The rules will eventually have to resolve these questions of course. I do not, however, believe that we will obtain the best answers by rigidly defining the boundaries in the statute.

I now return to what I believe will be the issue of most interest to your Lordships; namely, the participation of SROs in a central scheme. Having considered the various factors I have described, we concluded that it would be right to provide for the rules to allow, subject to certain conditions being met, the establishment of a central compensation scheme. We believe this will allow the creation of a scheme which is effective and well-funded. It will not be a feather-bedding scheme—the value of investments can go down as well as up, and there is no intention of relieving the investor of the responsibility to exercise judgment and care in deciding how to invest his money. Where an investment fails for straightforward commercial reasons he cannot look to any regulator to make good his losses. The scheme should, however, protect the interests of small investors who lose their money through an investment business's fraud or negligence or failure to comply with the rules.

We have at the same time recognised the concern that some SROs feel at the possibility of their members paying for claims on other businesses and the loss of independence in running their own schemes. The new clause therefore incorporates special safeguards in respect of cross-subsidisation and requires there to be adequate representation on the body administering a central scheme of the interests of members of participating SROs. As I have already pointed out, there is of course nothing to prevent an SRO from making arrangements for extra compensation to be available.

I recognise that this approach may not be welcome to some self-regulating organisations. This view is embodied in the amendment put down by the noble Lord, Lord Ezra. I have to say, however, that this issue turns on one question alone: are we to have an efficient and well-funded scheme for protecting investors generally, or are we to settle for a compensation scheme which for many investors may frankly prove to be second-best and lead to a level of protection overall lower than we could otherwise achieve? Our view on this must be that second-best is not good enough. We must provide the machinery to allow investors to enjoy, in the words used in Schedule 8, the best provision that can reasonably be made". We have been persuaded that our approach provides that and that the alternatives, including the solution of the noble Lord, Lord Ezra, do not provide it.

I am sorry to have taken so much time in explaining this matter. I believe it is very important that there should be complete and total understanding of what we mean by the federal solution and how we have come to this conclusion. Other amendments in this rather large group to which I have spoken are consequential on the policy that I have outlined. I beg to move.

Lord McIntosh of Haringey

My Lords, the noble Lord has nothing to apologise for. He set out very clearly the case for what is the central amendment in his group, Amendment No. 153. I say right at the outset that, with the reservations I shall express, we are in favour of this amendment and are opposed to the amendments in the name of the noble Lord, Lord Ezra, which would fatally weaken the proposal for a central compensation fund.

This proposal is the minimum that is acceptable in the light of the discussion that took place at Committee stage and the consultations that the Government have been having since then. As the Minister has said, this is a federal structure. It proposes basically common minimum standards. It requires that the individual SROs should use their own resources in nearly all cases when compensation is claimed, that they should make the compensation from a levy on their own members and that cross-subsidisation should take place only when there is the possibility of default by an SRO over an extended period of years; I think that is the phrase that is used. Anything less than that would not have been acceptable and we should have tabled much more fundamental amendments to the new clause than we have done.

We recognise, as we have done from the outset, the advantages of the administration of a central fund, with the security and the economy that brings. Sir Kenneth Berrill has estimated that the administration of this scheme is unlikely to exceed £300,000 a year. If we consider the number of SROs there are, it is fairly evident that if the cost of individual schemes were added together it would amount to substantially more than that.

In addition, we have to take into account the difference between the strong SROs and the weak SROs. We appreciate the position of the Stock Exchange, of ISRO, and of other strong SROs or potential SROs. We recognise that they are satisfied with and even proud of the compensation schemes they have set up, but the issue to which the House must address itself is the protection of the individual investor, the small investor, not the professional investor, who is dealing with less strong SROs. Unfortunately, there is very recent evidence from Canterbury, in a case involving FINBRA, where not only was the SRO not aware that there would be problems before they arose and before it was too late, but where it was quite clear that the level of compensation that would be required fully to redeem the misdeeds of the investment organisation concerned would be beyond the resources of the potential self-regulatory organisation.

Therefore a central compensation fund is necessary in order to impose the minimum standards on the weakest of the SROs as well as to bring into line the provisions of the strongest SROs; and the Minister has referred to some ways in which even the Stock Exchange scheme might not be adequate to the purposes which are being proposed.

Having said that and having said those words in support of the government amendment, I am not giving any undertaking that we will not wish to pursue the amendments that we have down, Amendments Nos. 153ZA, 153AA and 153C, to strengthen the new clause when we come to that point. We recognise that Schedule 8 sets out the general principles and that the most reasonable provision is required by Schedule 8 but we think that the advantages of a mandatory scheme which beyond any doubt will be imposed on the SIB are very great and may need further debate when we come to those amendments.

Also, with great respect to the Minister, we are not convinced by his argument about the maximum limit of compensation. He seems to think that, if you set a maximum limit of compensation of £100,000, that that means that you have to set all sorts of other specific requirements of a scheme in statute. That is not so. It is perfectly possible to set a maximum limit on a claim without specifying any of the other matters to which he referred. It is necessary to do so because the SIB itself has been naming figures. The first figure which Sir Kenneth named was one of £30,000. There are figures now around £45,000 being bandied around. Surely if that is the case and if maximum limits of compensation are being mentioned, it is as well for Parliament to have a view on the matter and to make sure that the figures are adequate to the needs of the non-professional investor.

These are welcome amendments. They reflect in many ways the concerns which we expressed at an earlier stage. We will support them against any attacks which seek to weaken them, but that does not mean that we shall not seek to strengthen them as and when it becomes necessary.

11.30 p.m.

Lord Boardman

My Lords, my noble friend and the noble Lord, Lord McIntosh of Haringey, concentrated on the cross-subsidisation between the various SROs. I am rather more interested in the amount of subsidisation provided not only across but within the SROs themselves. Here I must declare an interest as chairman of a clearing bank. I wonder to what extent those who are of a very low risk category are going to be required to provide a major contribution to compensation for those of a much higher risk not only within one SRO but in all of them; because the clearing banks are likely to be members of all the SROs.

I think it was my noble friend Lord Limerick whose amendment in Committee stated that one of the major reservations about industry-wide schemes is that the firms in the lower risk areas will end up bearing a disproportionate share of the contribution burdens compared to firms in those areas which give rise to greater claims. That perhaps was referring more to the cross-subsidisation between SROs than necessarily to those within them.

The real point which concerns me (and I believe it is one which my noble friend probably had in mind when he made that speech at Committee stage) are those businesses in low-risk areas bearing a disproportionate share of the contributions. It is not just the contributions between SROs or of SROs which should be adjusted, but those within them.

It is likely—and I hope that noble Lords will agree—that clearing bank groups certainly will be members of all the SROs. I hope that they will be viewed as being well-managed businesses regardless of the SROs which they manage. It is unlikely—I think the possibility is very remote—that they should ever be required to call upon the compensation fund to meet claims. It is within their own capacity to deal with those matters. I believe it would be very unfair and it would be a great load against them if they were required to support the higher risk areas within the SROs, of which each of them is a member, and indeed cross-subsidisation from the SROs themselves.

I wonder whether my noble friend can perhaps help me on one point. In subsection (3)(b) of Amendment No. 153, reference is made as follows: for securing that the amounts which they are liable to contribute reflect, so far as practicable, the amount of the claims made or likely to be made in respect of those persons. If my noble friend can assure me that the rules will assess the contributions to be made by members of SROs in relation to their risk factor, that would bring a considerable degree of comfort to me. I should hate to see those who have the lowest risk, because they have the maximum assets, being required to pay the maximum premium to bail out those who are the higher risk. I hope my noble friend will be able to give me some consolation on that point.

Viscount Chandos

My Lords, if I may respond to the noble Lord, Lord Lucas, and speak in particular to Amendment No.154, put down in the name of my noble ally, Lord Ezra, this is an exceptionally difficult problem and I regret that the main treatment of it comes so late. I hope therefore that the noble Lord the Minister will forgive us if possibly we come back to it when the later amendments are reached.

The noble Lord, Lord Lucas, said that second best is not good enough. That is certainly a principle and a philosophy to which those self-regulatory organisations which he mentioned and which are concerned over the proposals for a central fund would adhere most strongly. I think the proposal by the noble Lord, Lord Williams, for a minimum sum of £100,000 is in itself an indication that a central fund, as currently being proposed, is possibly second or even third best rather than best, when the sums that are being discussed by the individual self-regulatory organisations are a multiple not just of the amount mentioned by the chairman of the SIB but of the amount mentioned in Amendment No. 153C, proposed by the noble Lord, Lord Williams.

The noble Lord, Lord Lucas, said that the central compensation fund was not intended to feather-bed investors. Yet somehow all this talk of weaker SROs and, by implication, weaker member firms of SROs, and the need to protect investors from those firms' defaults in the same way as from the defaults of other firms, implies a degree of feather-bedding. If it is clear to an investor that, in dealing with one firm or a firm that is a member of one SRO, the maximum compensation he or she could get is £30,000, £40,000, £50,000 or £100,000, when the maximum compensation he or she could get from dealing with a member of another SRO is £250,000, that is a fair and understandable indication to the investor that there are greater risks in dealing with the weaker firm or the firm which is a member of a weaker SRO than with a firm which is a member of a stronger one. I suggest that, in a way, the problem comes back to something that I mentioned on Second Reading—that is, the inconsistencies created by a whole scheme of regulation that is based on self-regulation, but is increasingly seen by investors and the public as one of statutory regulation. I think that expectations have been raised of greater protection, and greater protection across the board, and this across the board increase in protection is not completely consistent with the degree of autonomy and independence that the different SROs have under the proposals within this Bill.

I think it is for this reason that, although my noble friend Lord Ezra and I both feel strongly that investors should have the best possible protection and that they are entitled to expect it, at the same time it is simply not acceptable or fair for SROs to be liable for the deficiencies of other SROs within the system that is being proposed. I think that the cost of a central fund potentially reduces the ability of the stronger SROs to increase the amount of compensation provided by that central fund on an individual basis.

In summary therefore we would expect to press strongly Amendment No. 154 when the time comes, which gives the ability to the individual SROs to, as it were, opt out of the central fund rather than be coerced into it after due consultation. I hope that the noble Lord, Lord Lucas, will forgive us if we come back to this point at the appropriate moment.

Lord Bruce-Gardyne

My Lords, I have considerable sympathy with the amendments moved on behalf of the noble Lord, Lord Ezra, by the noble Viscount. Before I refer to those, may I say that I was fascinated to watch the Front Bench opposite rising to the defence of what the French call the big vegetables. That seems to be the purpose of Amendment No. 153C. I am not sure whether it is grouped with these, so I had better not say any more about it. But I am always delighted to hear the Front Bench opposite rising to the defence of the interests of the big vegetables, as they appear to be doing on this occasion.

What I am mainly concerned about is the issue raised on the question of the desirability or otherwise of the notion of the central fund. To my mind, the objection to this proposition is encapsulated as well as anywhere in the representations that many of your Lordships will have received from the Building Societies Association against this proposition, and in particular their first and essential point that, It is unhealthy that riskier businesses should not suffer the competitive penalties of their relative insecurity that a central compensation scheme will encourage on the part of businesses. My noble friend said that we want to provide the best possible compensation that we can. Up to a point, I agree. To my mind, it is sensible that those who engage in the more hazardous businesses should recognise that their risk is greater and that their potential compensation may be less than those who are engaged in the more prudentially organised business affairs. Therefore, it seems entirely proper that one should have different degrees of compensation facility in different SROs. I hope that my noble friend will think very carefully before rejecting the argument that we should load onto those who are engaged in the more prudential SROs the cost to which my noble friend Lord Boardman also referred—and it may be a disproportionate cost to those who are engaged in the most prudential business—of bailing out those who have preferred to indulge in what I might crudely describe as the more bucket shop-type operations. I cannot believe that that is the right way to proceed and therefore I suggest to my noble friend that there is something to be said for the amendments in the name of the noble Lord, Lord Ezra.

11.45 p.m.

The Earl of Limerick

My Lords, it would be quite churlish on my part not to acknowledge with gratitude the very substantial response to the points which I raised at the Committee stage. I find myself in some difficulty. The points that I then raised were inspired, as I freely acknowledged, by the SIB. The SIB has expressed itself content with the proposals from the Government. There are, however, other regulatory organisations—the Committee of London and Scottish Bankers, ISRO and the Stock Exchange—which are less wholly enamoured of these proposals; and all for the basic reason that they continue to be concerned on the question of cross-subsidisation and the impact that it would have on their businesses and on their competitiveness.

There are points of reassurance on these issues. There is the federal structure, to which my noble friend Lord Lucas referred; the acknowledgment of this problem and the attempt to address; and the representation that will be given to the SROs on the administering body of the central fund.

The voices which have expressed concern on this have been rational. Without being frivolous or straining the analogy too far, doctors in California are subject to such very real risks in relation to their dealings with their clients that it is hard for them to obtain insurance. The current premium is around 100,000 dollars, which means that the first request faced by a client who crosses a doctor's door is for a contribution of about 10 dollars just to pay the share of the insurance premium. There are other people in California who are in low risk enterprises—for example, funeral directors. If they were all to be linked in one compensation scheme, one wonders what the effect of that would be on their premiums and on their competitiveness.

I do not intend to be frivolous but clearly the spectrum of risk which is run between different classes of business and between the different institutions which engage in them is wide. It would certainly be reassuring if my noble friend were able to say by way of amplification a few words on how this will work. To the best of my ability I have sought in the amendments to see the effect; and I am not at all sure that I have succeeded or that I have it right.

The new clause includes provisions for securing that the amounts which member firms of an SRO are liable to contribute must reflect so far as is practicable the amount of claims made or likely to be made in respect of those firms. Does that mean those firms collectively, grouped by activity according to the SRO which regulates them; or does it mean those firms individually, which comes back to the point made by my noble friend Lord Boardman that the institutions such as the bank of which he is chairman will be members of virtually all the SROs, as will other institutions such as the one I represent? This is a matter of some moment to us. If there is any information or assurance that can be given to us on this point, it would, at this stage, be most reassuring.

Lord Lucas of Chilworth

My Lords, this feels to me rather like a Second Reading debate. I think it would be proper for me, even at this late hour, to treat the matter in some detail, because it is important, rather than to suggest that we defer answering these questions until we reach much later stages.

I am most grateful to the noble Lord, Lord McIntosh, for his contribution to this evening's debate. He said, as did the noble Viscount, Lord Chandos, that they both may wish to return to some matters as we reach the later associated amendments. I accept that entirely and I look forward to any debates we may have; but undoubtedly no noble Lord has suggested that those other amendments are designed to weaken what I have sought to outline to your Lordships.

I shall touch on one or two points that have been raised. The noble Lord, Lord McIntosh, mentioned the SROs. Of course, we do not yet know the total number or indeed the strength of applicants that may emerge over the next few weeks so I would not want to prejudge that in any way.

The noble Lord, Lord McIntosh, spoke specifically about there being no precise details as to who might be eligible and how much compensation will be payable. I think that my noble friend Lord Limerick also raised a similar point. May I say to both noble Lords, and to the House, that in line with the approach elsewhere in the Bill these are matters to be determined by the rules. If the powers are to be transferred to the SIB, however, Schedule 8 will require that the arrangements made under Clause 53 and the new clause again make the best provision that can be reasonably made.

I would say again to the noble Lord, Lord McIntosh, and to the noble Viscount, Lord Chandos, that the £100,000 maximum which both want to see set in statute is the wrong way of going about matters. In many years to come this figure may be outdated. The Bill provides for the best provisions which can reasonably be made. We believe that this is a better formula than a fixed and rigid figure.

The noble Viscount, Lord Chandos, raised again the point that he made on Second Reading on the inconsistency of a self-regulatory system, still preferring an extension of a statutory system. I have to tell the noble Lord that were he to pursue this argument at later stages in our consideration I would have to reject his advances. We do not believe that this is the right way. We believe fundamentally that the success that we envisage the Bill having is by way of a self-regulatory system.

The noble Viscount referred also to weaker SROs. I do not think that is the right way of looking at the matter. I do not believe there are likely to be weak or strong SROs. Where I agree with him is that there are different SROs in different risk areas. That is the point raised by my noble friend Lord Boardman, and I should like to say to him that this risk element will be reflected in the arrangements.

For instance, he asked: what is the position of businesses (and he declared his own interest: banks, for example) who are members of more than one SRO? Let me assure my noble friend that nothing in the Bill requires the rules to levy businesses equally, regardless of the likelihood of claims against them. The Bill allows different provisions to be made in different cases. It will therefore be possible for contributions to take account of the risks which different types of businesses as represented by the SROs represent to the total scheme. Moreover, if a federal scheme is established which takes advantage of the provisions in subsection 4(b) of the new clause, the contributions made by individual SRO members will be largely a matter between them and the SROs.

Lord Boardman

My Lords, I am most grateful to the noble Lord for his very helpful remarks. Can he make quite clear that what he has now said means that the contributions as between individual members of an SRO will reflect the risk assessment as it is then assessed between those members, and that we are not just talking of the risk element between one SRO and another?

Lord Lucas of Chilworth

My Lords, we are really talking here of three things, which will be determined between members of the SRO and the SRO and the SIB. Individual members will have an assessment and will have the opportunity to make a contribution to that assessment. Then the SROs will be assessed in terms of the sectors which they represent and they will be able to make their representation to the SIB, which will then approve the federal scheme. I think that that is basically what my noble friend is talking about.

I suppose that the real element in all this is that it is not a question that the bodies will do anything: it is really that they may—and I think that my noble friend would probably expect that to be the position.

I want to return quite quickly to the point made by the noble Viscount, Lord Chandos, when he said that when we arrive at Amendment No. 154 he will be pressing for SROs to have the option of opting out of the federal scheme. I shall listen with great interest to any argument that he puts forward in support of that idea. At this moment, I can tell him that I am disenchanted with it. He also spoke about the SIB rules setting the industry-wide minimum. This is generally consistent with the different SROs setting higher limits at different levels above the SIB, if that is what they so wish.

Finally, I should like to turn to the contribution of my noble friend Lord Bruce-Gardyne. I can offer my noble friend one important assurance. The rules under which the compensation scheme will operate can make different provisions for different cases—that is to be found in Clause 199 (3)—all within their overall schemes. This is quite consistent with a minimum level of compensation. For example, the SIB is considering a percentage payment of the total individual claim and to some extent this will inject some level of risk to investors. On that point, I think that my noble friend will readily accept that one really cannot make a profit out of loss. I think that is quite inconsistent with the general practice.

I hope that I have answered all noble Lord's points with regard to the principle I have attempted to enunciate in moving this amendment, which I now beg to put before the House.

Viscount Chandos

My Lords, before the noble Lord sits down, I should like to clarify two or three points. First, I was not supporting the proposal of the Labour Front Bench that there should be a minimum enshrined in the legislation. I was using it, as I think the noble Lord, Lord Bruce-Gardyne, was using it, as an illustration that there was widespread unease at a maximum level of £30,000 or thereabouts, which is what the chairman of the SIB has said that an industry-wide central scheme might provide.

The argument about a more fully statutory system is a separate one and one which I said on Second Reading we did not propose to pursue. All I was saying was that the feeling of the SROs about a central fund—central fund is a more appropriate description than federal fund—is that it is inconsistent with the degree of self-regulation which the Bill proposes.

On Question, amendment agreed to.

12 midnight

The Earl of Limerick

moved Amendment No. 78A: Page 188, line 14, leave out ("(and without affecting its responsibility)"). The noble Earl said: My Lords, after that useful and rather lengthy debate the House may welcome a brief excursion into a rather different subject. In moving Amendment No. 78A, I should like also to speak to Amendments Nos. 93A, 103A, 105A, 235A and 513A.

One has to go to the last of those amendments for the substance of the matter. This series of amendments is designed to meet concerns about various provisions of the Bill which allow for the monitoring of compliance with the rules when that monitoring is shared with another regulator. I stress that it is monitoring and not enforcing compliance about which we are speaking.

That will be a useful provision where a firm becomes subject to more than one system of regulation. If a firm already has the adequacy of its capital, for example, properly monitored by one regulator, there is little to be gained by the task being duplicated by another even if the two regulators have, quite rightly, to take their own decisions on the results of the monitoring.

The Bill recognises that point by express provisions permitting potential designated agencies, recognised SROs and so on, to make arrangements providing for monitoring functions to be performed on their behalf by another body or person who is able and willing to perform them. So far so good.

The parts of the Bill concerned include also the strange requirement that the delegation must be made "without affecting the responsibility" of the regulator doing the regulating. It seems to me that if one shares a task with another competent person one does thereby affect one's responsibility. One's responsibility is shared with that other person and yet the Bill's provisions do not seem to permit that sensible and, I should have thought, virtually inevitable result. It may be suggested that those provisions are only requirements for recognition and that they are not self-standing provisions with a life of their own but merely criteria for recognition. That is true.

It is at the request of one of the potential recognising bodies, the SIB, that I advance these amendments. It is concerned, and I am told that its concern is shared by at least one of the potential recognising organisations, that those words could make it difficult for it to give recognition to a body which shared its monitoring role in that way. It has suggested that the body doing the delegating might need to announce its intention to take responsibility for the action of the monitor even where it was in fact in no real sense responsible for what it had done.

There could also be understandable reluctance on the part of potential recognised organisations to make arrangements with other monitors if they were to be held fully responsible for any mistakes made by the other party. Yet this is what the words, "without affecting its responsibility" included in all these provisions for shared monitoring would indicate. Of course, reluctance to enter into such arrangements would risk a far clumsier regulatory system than could otherwise be achieved. Naturally I wondered why those words had been included. The reason given, I understand, to the SIB is that they are needed for technical reasons to avoid any contention that the fact that delegation is permitted by legislation means that the body doing the delegating is released from any responsibility. Of course, I would not wish that to be the case. But it should surely be possible to recognise a happy medium under which responsibility can be shared with a fellow regulator. My amendments set out to do this. I believe that they would do the trick.

First, they go through the Bill taking out all references to delegation "without affecting its responsibility." The main amendment deals with the Government's concern about legal provisions for delegation by a public body relieving it from responsibility altogether by a special provision for the main public body, the designated agency, which also covers the transferee body that has the same role for friendly societies. My Lords, that is, I fear, a sentence that takes some digesting at this time of night.

These amendments do not cover the recognised self-regulating organisations and so on. I believe that the problem probably does not arise there in any event. I would certainly not object, however, to my noble friend taking a different view on this aspect if he accepted the substance. I would not claim that this is one of the great issues of principle in the Bill. But it is, I suggest, a legal and practical problem of sufficient importance which the Government, even at this late stage, should find possible to resolve. I hope very much to hear that the amendment commends itself in that sense. I beg to move.

Lord Cameron of Lochbroom

My Lords, I am very grateful to my noble friend for raising these points. I recognise the concern that he has expressed in relation to them. I am advised that the existing wording of the Bill in relation to paragraph 3(2) of Schedule 7—one of the points of concern, I believe, particularly of the SIB—enables the Secretary of State to delegate powers to the designated agency, and that provisions in other schedules relating to recognition enable the designated agency to recognise other bodies where the monitoring function is being done by another body without the parent regulator having to double check everything that the monitor does.

A point was raised about shared responsibility. Obviously, I should like to consider what my noble friend said. I do so without any commitment. Perhaps, however, with that assurance, he might feel able to withdraw the amendment.

The Earl of Limerick

My Lords, I am grateful for the response. Given the assurance of my noble and learned friend, I would naturally have no intention of proceeding with the matter further. I beg leave to withdraw the amendment.

Lord Beaverbrook

My Lords, I beg to move that consideration on Report be now adjourned.

Moved accordingly, and, on Question, Motion agreed to.

House adjourned at nine minutes past midnight.