Financial Services Bill

HL Deb 16 October 1986 vol 480 cc976-1014

Consideration of amendments on Report resumed.

Clause 43 [Listed money market institutions]:

Lord Williams of Elvel

moved Amendment No. 115: Page 29, line 11, after (" England ") insert (" and the Secretary of State "). The noble Lord said: My Lords, for the convenience of the House I am speaking also to Amendments Nos. 117 and 118. We come to an important part of the Bill. The clause that we are considering was introduced by the Government in Committee. In our view it represents a change of emphasis in the whole structure of the Bill, because before the new clause was introduced we considered that the Governments's intention was to define investments, the business of investment business, and to grant certain exemptions by statute which your Lordships could consider with the Bill. Furthermore, we considered that the Bill should be a responsibility of the Secretary of State rather than other parties.

Clause 43 introduced into the Bill a new element with an open-ended list of possible exempted persons, the list of which is not controlled by the Secretary of State.

Clause 43 provides: A person for the time being included in a list maintained by the Bank of England for the purposes of this section … is an exempted person in respect of". Schedule 5 defines the transactions and businesses from which a person on that list is excluded.

As my noble friend Lord Morton of Shuna said on the first day of Report, that is a departure from the Bill's major thrust. Your Lordships should give the matter due consideration before passing the responsibility for exempting from the Bill, if it is enacted, from the Secretary of State to an outside organisation, even though that organisation be as respected as is the Bank of England.

The amendments that we seek to make restore the authority of the Secretary of State, or at least allow him to influence who is and who is not included on the list specified in Clause 43.

Perhaps I may start with Amendment No. 115. Clause 43 states: A person for the time being included in a list maintained by the Bank of England for the purposes of this section". We should like to insert after "the Bank of England" the words "and the Secretary of State"; in other words, a list which includes, A person for the time being", should be a joint list by the Bank of England and the Secretary of State.

Our second amendment, Amendment No. 117, is designed to ensure that the conditions which are imposed by the Bank of England under the Bill as drafted should at least have the approval of, or at least be a joint imposition between, the Bank of England and the Secretary of State.

Our third amendment, Amendment No. 118, specifies that a person's admission to, and removal from, this list shall require the approval not only of the Treasury but also of the Secretary of State. In other words, we are trying to restore to the Secretary of State some authority—a joint authority—over the composition of the list. We believe that this is entirely necessary, not because we consider that the general thrust of the amendment is not reasonably satisfactory. We are not arguing that there should be certain exemptions for money market institutions. The financial community, I believe, has made out a perfectly fair case. That case has been ventilated extensively in the press and elsewhere.

Nevertheless, we ask the question whether this Bill, if enacted, will be the responsibility of the Secretary of State and, through the Secretary of State, the Department of Trade and Industry, or whether this Bill will be the responsibility of the Bank of England and, through the Bank of England, the Treasury. All of us know that there is a great distinction between the Treasury and the Department of Trade and Industry. Our contention is that it will be perfectly proper for the Government to make this a joint responsibility as, indeed, appointments to various bodies that are, or will be, created, if the Bill is enacted are joint responsibilities. We have no difficulty with joint responsibility. Our difficulty arises where the Bill concedes to an authority that is not responsible to the Secretary of State but is responsible to the Treasury. We have difficulty in understanding and accepting why that concession should be made. We have difficulty in seeing why the Department of Trade and Industry is in effect relinquishing authority over the major part of the Bill.

I understand the arguments that have gone to and fro between the Bank of England, the Treasury, City financial institutions and the Department of Trade and Industry. I understand fully that there is what I referred to at Committee stage as a turf problem between the Treasury and the Department of Trade and Industry. By a turf problem. I mean that there is the question of whose authority reigns over which particular section of legislation. Nevertheless, in spite of understanding this, we insist that it is perfectly proper that the Secretary of State, in the form of the Department of Trade and Industry, should at least have a say over which institutions are going to be on the list—which at present gives substantial exemptions—and the conditions that are imposed on those on the list. It is a very simple amendment. It is a very simple concept. It introduces, in our view, an important restraint on the Bank of England and the Treasury and ensures that the ultimate authority for the Bill, which is the property, if I may so put it, of the department that has worked hard in its drafting and that has properly undertaken consultations, rests with the Secretary of State and not with the Bank of England.

Joint authority is one thing; single authority is another. I hope that the noble Lord opposite will recognise, as he has done in previous debates, that we did not challenge this clause in Committee when it was produced by the Government at a rather late stage. We did not challenge the principle even then, although I did make one or two points about the problem to which I have referred—that is, disputes between the Treasury, the Bank of England and the Department of Trade and Industry. Nevertheless, the principle must remain—we believe that it must remain—that this is a Secretary of State's Bill and that, if enacted, becomes a Secretary of State's Act. I hope very much that the Government, even at this late stage, will recognise that the responsibility for establishing this list should be a joint responsibility, as it is for appointments to the Securities and Investments Board and others.

There are plenty of precedents in legislation for joint responsibility between the Bank of England and the Secretary of State. I must emphasise that we consider this a fundamental point in the Bill. I hope very much that the noble Lord, in his reply, will recognise the point. I beg to move.

Lord Lucas of Chilworth

My Lords, I am very grateful to the noble Lord, Lord Williams, for his introduction to this short series of related amendments. I recognise immediately the stance that he and his colleagues on the Opposition side took when this matter first came to our attention at the Committee stage. I do not quarrel one little bit with the way in which the noble Lord seeks this evening to debate the matter. However, I wonder whether I may take up the noble Lord on one point. He said in his closing remarks that this really was a DTI, a Secretary of State's Bill. It is not a Secretary of State's Bill; it is a Government Bill. It is a Government Bill with all that that implies.

I shall seek to persuade your Lordships not to support these amendments. It is probably right that I should start with a reminder of the background to the exemption for certain transactions in the money market. The Government decided earlier this year that the Bank of England should be responsible for the wholesale money, currency and bullion markets. These are all markets with which the Bank has long had close contacts. Transactions in them are relevant to the Bank of England's operational responsibilities. Many of the large participants in these markets are banks which are already subject to supervision by the Bank of England.

As far as the Financial Services Bill is concerned, some of the instruments dealt in in these markets are defined as being investments—short term debentures, gold and currency futures and so on—but others, for example, spot transactions, are not. It seems to us to make sense to rationalise the supervision of wholesale activities in these markets and to avoid unnecessary supervisory duplication.

The Opposition amendments—all three—would, as the noble Lord, Lord Williams, tells us, make the Secretary of State jointly responsible with the Bank for maintaining the list of institutions exempted from the Bill. Presumably, the intention is that responsibility for supervision should also be shared. I can understand the noble Lord's difficulty—I quote him—in understanding or, indeed, accepting our principle, but shared responsibilities, are, we believe undesirable. They certainly create uncertainties about who is responsible for what. Supervision of these markets is a natural extension of the Bank's responsibility for supervising the banking sector and its traditional role in these markets. Accountability to the Government (and I think this is important) and accountability to Parliament (which is perhaps even more important) is provided by the requirement that the conditions imposed by the Bank for admission to and removal from the list are subject to approval by the Treasury. I do not think that I take the words of the noble Lord, Lord Williams, out of context. I would hardly have described the Treasury as an outside agency. I do not believe in this area that there is any need also to involve the Secretary of State for the Department of Trade and Industry.

I hope that the noble Lord opposite will not take me to task too harshly when I say that how the supervision of the wholesale markets will work is not finally established. Before this year is out we propose to publish a consultative document on the subject; that will be in a matter of weeks. Interested parties will then have an opportunity to comment on them before the complete supervisory arrangements for the wholesale market are determined.

I have sought at some length to give as full an explanation as to the reasons why we would resist the amendments. I hope your Lordships will think that my explanation is rather more valid than the proposal of the noble Lord, Lord Williams.

Lord Williams of Elvel

My Lords, I am, as always, grateful to the noble Lord for his exposition of the Government's reasoning behind the clause that they inserted in Committee and for his reasons for resisting my amendments. I shall decline to thank the noble Lord for his exposition of what is involved in transactions in the money market because I am aware of what transactions in the money markets are and of the supervisory arrangements that are at present in place.

I do not believe that our amendments would involve supervisory duplication. Once the list is established, the Bank of England would supervise banks in the normal way as under the present arrangements. We are saying that the Secretary of State should be consulted and should have joint decision both in the compilation of the list and in the conditions attaching to those who are on the list.

I note both the indication by the noble Lord that there will be a consultative document on the wholesale market and how it is proposed that the Government will operate the supervision of the wholesale market. I note the point made by the noble Lord that it will be available to your Lordships before the end of the year, or in a matter of weeks, as he says. Nevertheless, I have to indicate that by that time this Bill will either have been enacted or it will not. The consultative document will therefore come after the Bill has been enacted. Therefore the fact that there is a consultative document promised to us before the end of the year does not seem to me to affect this debate.

This debate is fundamentally one of principle. Either the Secretary of State is responsible—jointly responsible perhaps, but responsible—for the operation of those who engage in investment activity and investment business, or he is not. Either he has power to say to the Bank of England, "I do not think you are right on this, perhaps we can talk about Bank X, or institution Y", or he has not. Either he is in a position to influence, determine and jointly decide the kind of parameters that are used in establishing the list, or he is not. These seem to me to be very fundamental points about the Bill to which I do not think the noble Lord has addressed himself.

I therefore say to the noble Lord that I very much hope he will accept this amendment. In our view it reinstates the Secretary of State as a joint authority over this group of people, the identity of whom we do not know. We do not know the conditions for removal from or admission to the list. They are not clearly set out, as other exemptions are, in the statute. I very much hope the noble Lord will accept that this is a very strong point we are making and will agree our amendment. I beg to move.

8.45 p.m.

On Question, Whether the said amendment (No. 115) shall be agreed to?

Their Lordships divided: Contents, 11; Not-Contents, 48.

DIVISION NO. 5
CONTENTS
Elwyn-Jones, L.	Stoddart of Swindon, L.
Graham of Edmonton, L.	[Teller.]
McIntosh of Haringey, L.	Strabolgi, L.
Morton of Shuna, L.	Underhill, L.
Phillips, B.	Williams of Elvel, L.
Ponsonby of Shulbrede, L.	Ypres, E.
[Teller.]

NOT-CONTENTS
Airedale, L.	Bruce-Gardyne, L.
Ashbourne, L.	Cameron of Lochbroom, L.
Auckland, L.	Carnock, L.
Beaverbrook, L.	Chandos, V.
Brabazon of Tara, L.	Coleraine, L.
Bridgeman, V.	Davidson. V. [Teller.]
Brougham and Vaux, L.	Denham, L. [Teller.]

Glenarthur, L.	Monk Bretton, L.
Greenway, L.	Mountevans, L.
Hacking, L.	Munster, E.
Hanworth, V.	Murton of Lindisfarne, L.
Hesketh, L.	St. John of Bletso, L.
Hives, L.	Sanderson of Bowden, L.
Hooper, B.	Shaughnessy, L.
Kimball, L.	Skelmersdale, L.
Layton, L.	Strathclyde, L.
Limerick, E.	Swinfen, L.
Lindsey and Abingdon, E.	Terrington, L.
Long, V.	Tordoff, L.
Lucas of Chilworth, L.	Trumpington, B.
Lyell, L.	Tryon, L.
McAlpine of West Green, L.	Winchilsea and Nottingham,
McNair, L.	E.
Margadale, L.	Young, B.
Marshall of Leeds, L.

Resolved in the negative, and amendment disagreed to accordingly.

8.53 p.m.

Lord Lucas of Chilworth

moved Amendment No. 116: Page 29, line 14, at end insert ("and in respect of any arrangements made by him with a view to other persons entering into a transaction to which Part III of that Schedule applies."). The noble Lord said: My Lords, in moving Amendment No. 116, I should also like to speak to my Amendment No. 131 and address some remarks to Amendment No. 131A.

The two government amendments fulfil a commitment that I gave during our consideration of the Bill in Committee earlier in the summer. Subsequent government amendments respond to a number of detailed comments which have been made by practitioners in the wholesale markets. The amendments in this group extend exemption to wholesale market transactions arranged by an institution on the Bank of England's list. As Schedule 5 is drafted at the present time, exemption applies only to transactions to which a listed institution is a party. Your Lordships will probably recall that I agreed in Committee that transactions arranged by a listed institution should also be covered. These amendments fulfil that commitment.

Obviously, I cannot prejudge what the noble Lord, Lord Williams, is likely to say in support of his amendment; but perhaps he will permit me to presume. I am presuming that his amendment would restrict the exemption to transactions arranged by a listed institution for which it receives a fee. We believe that such an amendment is unnecessary. Unless the institution either receives a fee, or makes the arrangement or arrangements as part of a wider service provided on a commercial basis, it is unlikely to be undertaking the business of engaging in arranging transactions. In that case it will not be carrying on investment business and will not be subject to the Bill.

However, if the listed institution arranges the transaction in the course of carrying on investment business but does not receive a specific fee for so doing, then it does need the benefit of the exemption and should be given it. I hope I have not presumed too far in this matter. I have sought to give an explanation in the fond hope that we can proceed at a somewhat brisker pace than we have in the past few hours. I beg to move.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for introducing his amendment. I should also like to speak to Amendment No. 130A which it has been agreed should be in the same grouping.

The noble Lord was quite right in his presumption about what my amendment sought to do. It sought to ensure that those who got exemption under the new schedule, or the new part of the schedule which forms part of the amendment the noble Lord was speaking to, would be in a commercial transaction and that any exemption thereby obtained would be in respect of a commercial transaction. I cannot think of any better definition of a commercial transaction than receiving a fee.

The noble Lord has explained that if there is a wider commercial basis for a series of transactions for which there may not be a fee for any specific transaction but nevertheless at the end of the day the listed institution does get the remuneration, then that would come within the new Part III of the schedule as drafted. This is the practice, if I may say so, very frequently engaged in. I speak rather slowly because I wish to get it clear in my own mind that I have understood the noble Lord. I refer to operations that many merchant banks and others engage in. When one has—if I may put it like this—closs leaders. One does a job for somebody and says: "I am not going to charge you a fee on this" in order to take it up on some other transaction. Speaking from my own experience, if it is a merchant bank there are occasions when the bank in question might decide to do a certain transaction in the hopes of getting certain business and therefore of being on a commercial basis but might lose the resulting benefit that it hoped to get.

I assume from what the noble Lord has said that in spite of the fact it might lose the business, therefore not receive any fee or any remuneration for the transaction in which it is again engaged, it still falls within Part III of the Schedule 5 that the Government are seeking to introduce. I hope I am right in that because, if I am not, I think there is a problem because many financial institutions, which will be, we assume, on this list, engage in this business. It is the normal promotional business of any financial institution or any financial institution of an entrepreneurial nature. I very much hope that the noble Lord is able to give me that assurance. If he can do so, then I have no problems with his amendments in lieu and I would not wish to oppose them.

9 p.m.

Lord Lucas of Chilworth

My Lords, I am most grateful to the noble Lord. The noble Lord's understanding of what I have sought to explain to your Lordships is correct. No doubt he will read very carefully what I have said and will ensure that his understanding is as I have sought to explain it. I believe that it is.

On Question, amendment agreed to.

[Amendments Nos. 117 and 118 not moved.]

Schedule 5 [Listed money market institutions]:

Lord Lucas of Chilworth

moved Amendment No. 119: Page 191, line 42, leave out ("between a listed institution and another such") and insert ("entered into as principal or as agent by the listed institution with another listed"). The noble Lord said: My Lords, in moving Amendment No. 119, I should also like to address some remarks to Amendment No. 119A; government Amendment No. 122; the amendment of the noble Lord, Lord Williams, Amendment No. 122A; my own Amendment No. 123; the amendment of the noble Lord, Lord Williams, Amendment No. 123A; and the government Amendment No. 130.

I am in a somewhat curious position. Although I am speaking to Amendment No. 119, I must tell your Lordships that I shall beg leave to withdraw the amendment. However, I think that it is necessary for me to give the reason why I want to do that so that your Lordships will give me permission so to do.

Amendments Nos. 119, 122, 123 and 130 all seek to deal with the position of a listed institution which enters into a wholesale market transaction, as an agent. Fortunately or unfortunately, comments on the amendments since they have been published have convinced us that the amendments deal with only part of the problem. Noble Lords opposite have clearly also identified this difficulty in their own amendments. Their amendments deal with another part of the problem. However, it still leaves us with some outstanding points. In particular, neither of our sets of amendments deals fully with the criteria to be met when a listed institution acting as an agent enters into a transaction with another person who is not a listed institution. What we want to achieve is that the listed institution should be exempt if it is entitled to treat both its principal and the other party to the deal as a wholesale counter-party. We have not yet achieved that, and I think that the best that I can do is to take the problem away, give it consideration in the light of whatever the noble Lord opposite may wish to say to his amendments, and to come back with revised amendments on Third Reading.

I can assure noble Lords that there is no change in policy. It may be that some recasting of the schedule will be needed to achieve what we want in a satisfactory way. Therefore, I do not believe that there is any point in making the amendments now. I obviously invite the noble Lord opposite to make whatever points, he wishes on his own amendments, but I also invite him to enter into discussions with us so that we can resolve the problem which we have jointly identified.

Lord Williams of Elvel

My Lords, as the noble Lord has announced his intention to withdraw the amendments I am put in something of a difficult position as regards moving my own amendment and, indeed, speaking to my own amendment and those that are grouped. Nevertheless, I shall take advantage of the noble Lord's invitation to make certain points.

The noble Lord is of course quite right. We identified a problem and I believe that the Government have understood that it is a problem which needs to be dealt with. However, it seems to me quite extraordinary that we have reached the Report stage in your Lordships' House and the Government are still withdrawing amendments and recognising that the Opposition has made a fair point, with all the resources that the Opposition commands, and are to bring back a different amendment on Third Reading, the Bill having been around since last December of January. I must beg the noble Lord that when he comes back—and it will be his last chance—at Third Reading with the appropriate amendment, for goodness sake! please will the Government get their act together, get it right and allow the Opposition to have a Bill and amendments with which we can actually deal? In the meantime, I am very grateful to the noble Lord for accepting that we, on the Opposition Benches, have made a serious point which the Government have accepted.

Lord Lucas of Chilworth

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 119A not moved.]

Lord Lucas of Chilworth

moved Amendment No. 120: Page 192, line 26, at end insert— ("(cc) a warrant or other instrument falling within paragraph 4 of Schedule 1 to this Act which entitles the holder to subscribe for an investment within paragraph (a), (b) or (c) above:"). The noble Lord said: My Lords, in moving Amendment No. 120 I should also like to address some remarks to Amendments Nos. 121, 121A, 121B, 124, 126, 127, 127A, 128 and 128A. The government amendments slightly extend the range of investments to be covered by the wholesale market exemption, again in response to comments from practitioners. In the light of the noble Lord's remarks on our last exchange, I merely comment that the Government have, from 10 months ago when the Bill was introduced in another place, kept to the policy of responding as best they may to representations that have been made. This amendment, as indeed others, and particularly the last series, is a direct response to comments and suggestions which have come from practitioners.

Going back to these amendments, the investments added to the range are warrants, options on options and options on futures, where the underlying investment is itself a money market investment. We are advised that these are investments which are being increasingly traded in in the wholesale markets and it is therefore sensible to extend the exemption to them.

The government amendments propose the same monetary limits for them as for the investments already covered by the exemption; that is to say, £100,000 sterling for debentures and loan stock and £500,000 sterling for the value of the underlying assets when the investment concerned is in effect a right to acquire an investment or a contract for differences.

The noble Viscount, Lord Chandos, suggested that the exemption should also cover options on contracts for differences. I am glad to be able to tell him that we accept his suggestion and would recomend that your Lordships' House should also accept his amendments. They cover the changes made in the government amendments, Nos. 121 and 128, which I shall therefore not be moving.

I turn now to the opposition amendments. Amendment No. 121A refers to bills of exchange. I recall explaining to the House earlier this week, when the noble Lord, Lord Williams, will remember that he had already tabled this amendment, that the first note to paragraph 2 of Schedule 1 has the effect that bills of exchange are not debentures for the Bill's purposes and there is therefore no need to exempt transactions in them.

Amendment No. 127A would increase the monetary limit for warrants so that the consideration payable on subscription would have to be not less than £1 million sterling to qualify for exemption rather than £500,000 sterling, as proposed in our amendment. I recognise that all such monetary limits are arbitrary. The figures we have put forward after consultation with the practitioners are those which we believe represent the level above which all participants in the market concerned can be regarded as professionals. We are not convinced that a higher limit should be set for warrants than for other investments. They are not intrinsically more risky than, for example, options; indeed, they are a form of option. The limits should be the same. It will be possible subsequently to change the limits should it be thought desirable to do so.

I therefore wish to move government Amendment No. 120 and, when we come to them, Nos. 124, 126 and 127. I confirm again that I am not proposing to move Amendments Nos. 121 and 128. I ask your Lordships to accept Amendments Nos. 121B and 128A in the name of the noble Viscount, Lord Chandos, and I fear that I must ask you to resist the opposition amendments, Nos. 121A and 127A. I beg to move.

Viscount Chandos

My Lords, I thank the noble Lord. Lord Lucas of Chilworth, for his co-operation in accepting Amendments Nos. 121B and 128A, and I commend them to the House.

Lord Williams of Elvel

My Lords, I apologise for being a little dilatory in rising; I thought that the noble Viscount, Lord Chandos, was going to speak a little longer than he did. The noble Lord, Lord Lucas, has been kind enough to explain the purport of these amendments, and indeed they cover essentially the points that we think would be necessary to make sure that wholesale money market institutions deal on an exempted basis in the wholesale money market and do not trespass on the normal investment protection arrangements that the rest of the Bill covers.

I am, however, a little concerned, and I repeat the concern which I think I mentioned in passing at the end of our discussion of the first part of Schedule 1. Acceptances—by which I means bills of exchange accepted by a recognised bank (this is a definition which comes out of my head but I shall call them acceptances)—somehow seem to fall between two stools in this Bill. We recognise that bills of exchange are not debentures as defined in paragraph 2 of Schedule 1; we recognise that certificates of deposit are debentures as defined by paragraph 2 of Schedule 1.

The fact of the matter in real terms is that bankers' acceptances trade in the same market as certificates of deposit. To make a distinction between the two, where one is exempt from this whole Bill (acceptances) and one is not (certificates of deposit) is difficult to understand when both are obligations of a bank. Both have the same credit rating. The bank's name stands behind the bill of exchange as it stands behind the certificate of deposit.

I am sorry to go back to a discussion which perhaps I should have had on paragraph 2 of Schedule 1. but I use the opportunity of my Amendment No. 121A in order to raise this matter on a fully formulated basis. because I believe that the acceptance is an instrument which is not catered for one way or the other in the Bill. I understand that a bill of exchange which is not accepted or endorsed by a second name, the hank name, is excluded from the Bill. On the other hand when you have a bank name on the bill and a hank name on a certificate of deposit I cannot see the distinction in market terms between the two, and I speak as a practitioner, as I am sure the noble Viscount, Lord Chandos, will recognise.

I am not going to move Amendment 121A but I would ask the Government to think seriously about the whole problem of acceptances. I believe that acceptances are properly in the wholesale money market activity, if you like, and I think I have said enough on this subject to alert the Government to this possible problem. Maybe they have thought about it and have an instant solution.

On the question of the limits, we are dealing with a wholesale money market, and the wholesale money market now deals in large volumes. As the noble Lord rightly says, you can draw the line wherever you feel it appropriate. If this power of exemption is to be granted to the Bank of England for certain institutions on certain criteria, which we do not at the moment have but which no doubt will become apparent in the consultative document to which the noble Lord referred earlier, we believe that it is important to ensure that the wholesale money market is really the wholesale market and does not get involved in potentially retail operations.

When you come to options on options, which the noble Lord has quite properly introduced into the instruments that can be dealt in in the wholesale money market on an exempted basis, the figure of £500,000 underlying is a tiny figure. I would simply draw the attention of the noble Lord to that remark. The more you go on trying to define options on options, or options on debentures or anything else, the more you try to extend the wholesale money market into the option area, the more you will find that the underlying amounts escalate in size. That is simply a fact of life to do with options.

That is why I would recommend to the noble Lord that he might look again not necessarily at my amendment but at the possibility of introducing a higher limit for options than exists for other wholesale money market instruments. That is a thought that I would leave with him.

9.15 p.m.

Lord Tryon

My Lords, I cannot support the noble Lord, Lord Williams, on Amendment No. 121A. For many years I was a director of an accepting house, and I do not think that the bills that we accepted ever got into the hands of anybody other than professional investors. On his second point, however, he has a very good point indeed.

Lord Williams of Elvel

My Lords, with the leave of the House may I respond to the noble Lord, Lord Tryon? The market has changed in acceptances. The money market has changed. Corporations deal extensively in acceptances and indeed certain private individuals deal in them now.

Lord Lucas of Chilworth

My Lords, I listened fascinated to both noble Lords. There are only two things I want to say. If we have the amounts wrong I reiterate that they can be changed both for Schedule 1 and Schedule 5. The other point I would make—and I think the noble Lord, Lord Williams, invited me to make it without commitment—is that I shall think further on what he said and will take into account what the noble Lord, Lord Tryon, said, particularly in the second of his remarks. Meanwhile, I beg to move Amendment No. 120.

On Question, amendment agreed to.

[Amendments Nos. 121 and 121A not moved.]

Viscount Chandos

moved Amendment No. 121 B: Page 193. line 2. at end insert— ("( ) an option to acquire or dispose of an investment within paragraph (e), (f) or (g) above."). On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 122: Page 193, line 4, leave out ("between a listed institution and another such") and insert ("entered into as principal or as agent by the listed institution with another listed"). The noble Lord said: My Lords, I spoke to this with amendment No. 119. I beg to move.

On Question, amendment agreed to.

Lord Williams of Elvel

had given notice of his intention to move Amendment No. 122A: Page 193, line 4, after second ("institution") insert ("acting as principal or agent"). The noble Lord said: My Lords, I rise not particularly to move this amendment, but there may be some information coming to the Minister—I see signs of agitation in certain quarters—and he may wish to receive that before I decide not to move amendment No. 122A. I had better pause before deciding what to do about it.

The Deputy Speaker (Lord Murton of Lindisfarne)

My Lords, I think perhaps we ought to move this amendment and then it can be negatived or withdrawn. We are left in limbo otherwise.

Lord Williams of Elvel

My Lords, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 123 and 123A not moved.]

Lord Lucas of Chilworth

moved Amendment No. 124: Page 193, line 20, leave out ("paragraph 1(2) above if') and insert ("sub-paragraph (2) of paragraph 1 above if the requirements of sub-paragraph (1)(a) and (b) of that paragraph and"). On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 125. Page 193, line 23, leave out ("sub-paragraph (6)") and insert "'paragraph 4A"). The noble Lord said: Yes, my Lords, something new. I should like also to speak to government Amendment No. 129 and address some remarks to Amendment No. 129A. The government amendments deal with a practical problem. Again this was raised with us by practitioners in the wholesale markets. They revised the definition of a "wholesale counterparty" to include all those with or for whom a listed institution has undertaken a wholesale transaction within the previous 18 rather than 12 months. I understand that this change will reduce the practical problems for large listed institutions in keeping their records of eligible counterparties up to date. It will enable them to update their records at quarterly or six monthly intervals and yet still include all those with whom they dealt in the 12 months preceding the update. Otherwise they would have needed to revise their records at very frequent weekly or perhaps even daily intervals to achieve the same result. This we believe would have imposed a heavy and totally unnecessary burden on the listed institutions.

Amendment No. 129 also spells out the types of previous transaction which are to be considered in deciding whether a person can be treated by a listed institution as a wholesale counterparty. Again we have concluded that the amendment does not properly deal with cases in which the listed institution acts as an agent. Therefore we may need to make some minor changes to the drafting on Third Reading.

We need to consider the whole subject further. However, I commend the government amendments to the House and perhaps I may suggest to noble Lords opposite on this occasion that the point which I perceive their amendment addresses is not a very good one as, when arranging transactions, the listed institution will be acting as a broker. So the question of whether it is a principal does not arise. I hope that with that explanation your Lordships will bear with me when we come to this matter again at Third Reading. Meanwhile, I beg to move the government amendment.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his explanation. We have considerable sympathy with the noble Lord when he is moving these rather difficult, technical amendments. Amendment No. 129A, which perhaps I may speak to in the same grouping to which the noble Lord refers, effectively puts the listed institution in the capacity of a broker —whatever "a broker" may mean. Does this mean that the transaction is exempt or that it is not exempt as a broker? I am not quite sure what the noble Lord meant when he said that this would put the listed institution in the capacity of a broker and that therefore in some way it was different. Perhaps he can let me have an answer to that.

Lord Lucas of Chilworth

My Lords, I do not think that I can add very much to what I have already said. I shall be happy to see whether I can be advised, but I do not think that the advice is readily forthcoming. I think I shall have to communicate with the noble Lord to see whether we cannot reach a mutual understanding.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for offering to communicate with me. I hope that we can reach a mutual understanding, for I confess that at the moment my understanding is somewhat less than perfect.

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 126: Page 193, line 26, leave out ("any of paragraphs 1(2)(a) to") and insert ("paragraph 1(2)(a),(b),(c) or"). The noble Lord said: My Lords, I spoke to Amendments Nos. 126 and 127 when discussing Amendment No. 120. I beg to move.

On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 127: Page 193, line 27, at end insert— ("(2A) The consideration payable on subscription in the case of an investment falling within paragraph 1(2)(cc) must be not less than £500.000."). On Question, amendment agreed to.

[Amendments Nos. 127A and 128 not moved.]

Viscount Chandos

moved Amendment No. 128A: Page 193, line 36, at end insert— (" (5A) In the case of an option falling within paragraph 1(2)(h) above the condition in sub-paragraph (3),(4) or(5) above, as the case may be. must be satisfied in respect of the investment to which the option relates."). On Question, amendment agreed to.

Lord Lucas of Chilworth

moved Amendment No. 129: Page 193,line 37, leave out sub-paragraph (6) and insert— ("4A.—(1) The conditions in paragraph 4 above do not apply to a transaction entered into by the listed institution as principal if the institution has in the previous eighteen months—

1. (a) entered into another transaction with the same person;
2. (b) entered into a transaction as agent for the other party to the first-mentioned transaction; or
3. (c) made arrangements as a result of which that party has entered into a transaction,

being, in each case, a transaction in respect of an investment specified in paragraph 1(2) above in the case of which those conditions were satisfied. (2) Those conditions do not apply to a transaction entered into by the listed institution as agent if the institution has in the previous eighteen months—

1. (a) entered as principal or agent into a transaction with each of the parties to the first-mentioned transaction; or
2. (b) made arrangements as a result of which each of those parties has entered into a transaction,

being, in either case, a transaction in respect of an investment specified in paragraph 1(2) above in the case of which those conditions were satisfied."). The noble Lord said: My Lords, I have spoken to this amendment with Amendment No. 125. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 129A and 130 not moved.]

Lord Lucas of Chilworth

moved Amendment No. 131 Page 194, line 15, at end insert— ("PART III TRANSACTIONS ARRANGED BY LISTED INSTITUTIONS

7. This Part of this Schedule applies to any transaction arranged by the listed institution which—

1. (a) is entered into a principal or as agent by another listed institution with a person other than a listed institution; or
2. (b) is entered into by persons neither or none of whom is a listed institution,

if the transaction is in respect of all investment specified in subparagraph (2) of paragraph I above and the requirements of sub-paragraph (1)(a) and (b) of that paragraph and the conditions in paragraph 8 or, as the case may be, paragraph 9 below are satisfied. 8. In relation to a transaction within paragraph 7(a) above the conditions referred to above are those specified in paragraph 4 above except that those conditions do not apply if the person who is not a listed institution has in the previous eighteen months entered into another transaction with or through the agency of the listed institution making the arrangements or as a result of arrangements made by that institution, being a transaction in respect of an investment specified in paragraph 1(2) above in the case of which those conditions were satisfied. 9. In relation to a transaction within paragraph 7(b) above the conditions referred to above are those specified in paragraph 4 above except that those conditions do not apply if each of the parties has in the previous eighteen months entered into another transaction with or through the agency of the institution making the arrangements or as a result of arrangements made by that institution, being a transaction in respect of an investment specified in paragraph 1(2) above in the case of which the conditions specified in paragraph 4 above were satisfied. 10. This Part of this Schedule also applies to any transaction arranged by the listed institution which would fall within Part I of this Schedule if it were a transaction entered into by the institution or which would in that event fall within Part II of this Schedule by virtue of paragraph 5 above."). The noble Lord said: My Lords I spoke to this amendment with Amendment No. 116. I beg to move.

On Question, amendment agreed to.

[Amendment No. 131A not moved.]

Clause 44 [Appointed representatives]:

9.30 p.m.

Lord Cameron of Lochbroom

moved Amendment No. 132: Page 29, line 38, leave out ("subsection (4)") and insert ("subsections (4) and (5)"). The noble and learned Lord said: My Lords, in moving Amendment No. 132 I shall speak to Amendments Nos. 133, 134, 135, 136, 138, 180, 181, 182, 183 and 319. I shall also allude to Amendment No. 134A. I think I ought to explain a little more about what Clause 44 does and why it is in the Bill. Your Lordships may know that it is a common practice in the insurance industry for company representatives often to be self-employed rather than direct employees of the insurance company. Without Clause 44, such persons would either have to become employees of authorised businesses or become authorised under the Bill as separate businesses in their own right. It would clearly strain the resources of the regulatory system if it had to accommodate the separate authorisation of the many thousands of people who make their living as self-employed insurance company representatives.

Accordingly, Clause 44 provides that they do not need separate authorisation. But it provides also that their authorised principal—that is to say, the insurance company—is responsible for their actions, and if the representative offends against any of the rules laid down under the Bill it will be the same as if the authorised person had himself broken the rules. Your Lordships will recognise that underlying this is the intention to ensure that in all respects that matter to this Bill appointed representatives are treated effectively as if they were employees of their authorised principal and not independent businesses.

In seeking to tie appointed representatives to their principals in this way it is important to limit the sort of investment business they may carry on. We have come to recognise, however, that as presently drafted the clause unrealistically restricts their activities. The amendments therefore widen the business they may do to include, for example, advising a customer on whether to surrender a policy issued by their principal.

The second main effect of the amendments is to allow an appointed representative to have more than one principal, each of which would be responsible for part of the appointed representative's business. As the note on amendments explains, this is to get over the problem created for insurance companies by the fact that the Insurance Companies Act prevents them from accepting responsibility for any other sort of business. We nevertheless expect that rules will be made restricting what sort of principals an appointed representative may have.

As noble Lords will know, the SIB has suggested that appointed representatives should only be able to act for a single company or group. The amendments are fully in accordance with this proposal, as they would allow an appointed representative to act on behalf of one company or the companies in one group, while still enabling the designated agency to prevent him acting for any other principals. I therefore commend the amendments to your Lordships.

Amendment No. 134A seeks to make one alteration to the phrase "his principal" where that appears in Clause 44(2)(b)). Looking at the way in which this whole clause is drafted, I cannot suggest that it would be a happy solution to alter the phrase "his principal". That is because in subsection (2) your Lordships will see that an appointed representative is a person, who is employed by an authorised person (his 'principal') under a contract for services", and so we are dealing here with a contract. It goes on: and for whose activities in carrying on that investment business his principal has accepted responsibility.". One finds in subsections (4) and (5) reference to the contract and "his principal" in that regard.

I think it is really quite clear that "his principal" ought to remain precisely the phraseology throughout. If one looks at subsection (2), it does not prevent an authorised person entering into more than one contract for services, and in a second contract it will be the person who enters into the contract who will be his principal for the purpose of that contract. For that reason I would simply say that the clause as presently drafted aptly covers both situations. It does not prevent, as it were, an independent contractor having more than one principal. I beg to move.

Lord Graham of Edmonton

My Lords, I am grateful to the Minister for having taken the trouble to remind us of the genesis and the gravamen of this particular clause. This is very important to many people who might be called the ordinary or small people of the insurance business. At this stage I certainly cannot cavil with the further steps which the Government have taken to try to get it right. I am certain that these are not merely second thoughts on the part of the Minister, his team and his advisers but are also the result of consultations at each stage with various bodies and individuals.

When this matter was considered in another place and also in your Lordships' House at an earlier stage, we discussed the very delicate position with regard to the licensing of insurance salesmen. They may be called by other names, such as appointed representatives, but we are speaking in the main of people in the industrial insurance companies such as the Prudential, the Pearl, the Britannic, the Liverpool Victoria, the Manchester Refuge, and the Co-op. We are speaking of the insurance man who calls upon customers, and the Minister is absolutely right in saying that the relationships and contractual arrangements between companies and individuals have taken much time to work out and must be jealously guarded.

Perhaps this is the best stage to look at Clause 44 with which, as the Minister points out, we are very concerned. I have been advised by ASTMS (the Association of Scientific, Technical and Managerial Staff) that they have a number of points of unease with regard to how their members who are covered by this clause will fare. I am told that they are far from clear on what their responsibilities will be, not as a union but as individuals. Perhaps I may quote from their letter: We understand that salesmen will be required to keep a record of each and every canvass. No details have been published as to the manner in which these records are to be compiled. Will it be a universal record, drafted by the SIB, or will the insurer have the responsibility for drafting a form of record of the canvass? I of course understand that these are matters on which the appropriate SRO which deals with the insurance world—and no doubt LAUTRO may very well come into this as well—will be beavering away in order to get it right. Can the Minister assure me that he is satisfied that the bodies to which he has given a great deal of responsibility consult as widely as indicated and include the trade unions? The authorised representatives have, in this instance, a considerable stake. We are not merely talking about an investor who wins some and loses some, but about people whose livelihoods are at stake and who are literally on the doorstep. I should be grateful if the Minister could say something to satisfy this anxiety which has been communicated to me by one union representing a proportion of those who will be affected by the clause.

Lord Cameron of Lochbroom

My Lords, perhaps I should first say that what we are doing here is dealing with a person who is to be exempted from the provisions of the Bill, and an appointed representative is an exempted person if—and only if—he complies with certain conditions. Those conditions will he the conditions to be contained in his contract. In those circumstances, he will then be exempt from the provisions of the Bill. If his contract does not comply with those conditions, he does not then become an exempt person and presumably what he would then have to do is either become a member of an SRO if that were possible, or make application in the normal way to the Secretary of State or the designated body. But we imagine that these self-employed persons will arrange their affairs and contracts and it will obviously be in the interests of their principals to have their contracts exempt for the purposes of the Bill.

All I would say on the other matter of the individual's responsibilities is that they will be determined by the SIB or SRO rules which apply to his principal. Perhaps I should say as regards consultation with interested unions, that it will be for companies, the SIB and the SROs to consult as widely as possible. I hope that that will assist the noble Lord on the points that he put to me.

Lord Graham of Edmonton

My Lords, as the Minister and his colleagues are well aware, matters which appear on the record—for example, what the Minister has said tonight—are, if nothing else, a starting point for those outside either to have their understanding confirmed or to realise that there are things which they should do. If a large trade union such as the one I mentioned has some need of clarification as to precisely how its members will be affected. it at least raises this interesting point. If the widest possible consultation, which is the phrase used by the Minister, still leaves a responsible trade union like ASTMS in some uncertainty as to its responsibilities in protecting its members, then I very much hope that those outside the House, having read what is said, will perhaps even remind unions and others of what is going on.

To the best of my knowledge, employers and employees—that is, the principals and agents in this matter—have a good accord. It is not a question of a major dispute. I know that the employees would certainly have favoured licensing of each salesman, but that battle was fought earlier in the other place with the advice of SIB and MIBOC, and the heat of the matter has perhaps abated a little. I am grateful to the Minister as. I am sure are my friends in ASTMS, for having put on record one or two points which they can perhaps take up in another place at another time.

Lord Williams of Elvel

My Lords, I am sure that your Lordships are most grateful to my noble friend Lord Graham for giving us the benefit of his expertise on the insurance sales industry, with which he is very well connected. We are very grateful to the noble and learned Lord the Lord Advocate for having spent time responding to the points that my noble friend made.

If I may speak to Amendment No. 134A, which is in my name—and I speak to the groupings that the noble and learned Lord put forward—that covers partly the ground which the noble and learned Lord guessed, if I may put it like that, when he spoke. However, it also covers another piece of ground which is outside the insurance industry. As I understand it, the Bill as drafted does not specify that an appointed representative is necessarily confined to the insurance industry or to insurance selling. As I understand it, an appointed representative can be appointed by contract to carry on any investment business that his principal wishes him to carry on and for which there is a proper contract.

The noble and learned Lord concentrated his remarks on my putative reasons, if I may put it that way, for tabling my amendment on the insurance business. I should like the noble and learned Lord to address himself to the problem of what happens to appointed representatives in businesses outside the insurance business. For example, there are many stockbrokers who have representatives who are self-employed. They have appointments and contracts of varying natures.

I assume that they would he covered by the exemptions under Clause 44, but if, as is frequently the case, they do other things and have concerns other than stockbroking, and other principals for other forms of business—for example, an insurance salesman who also works for a stockbroker—I imagine that the contracts would be, first, with the insurance principal and, secondly, with the stockbroker. That is why I tabled Amendment No. 131A: to make quite certain that multiple contracts—if I may use that expression—by appointed representatives in different investment businesses are covered by the exemptions under the clause. Perhaps the noble and learned Lord has anticipated what I have said, but I should be grateful for some clarification on that point.

9.45 p.m.

Lord Cameron of Lochbroom

My Lords, with the leave of the House, I think I can give the clarification. In reading Clause 44(1) with Clause 44(2) it is apparent that, An appointed representative is an exempted person as respects investment business"— and we know that is defined— carried on by him as such a representative.". Clause 44(2) reads: For the purposes of this Act an appointed representative is a person— (a) who is employed by an authorised person (his 'principal')". So every contract into which he enters with an authorised person, for any form of investment business which he carries on, will be exempted for the purpose of the Act. It depends on how many contracts there are, so it covers the multi-contract self-employed individual, if I may so put it.

Lord Williams of Elvel

My Lords, I am grateful to the noble and learned Lord. I also assume that my Amendment No. 134A, which seeks to insert "a principal of his" instead of "his principal"—in other words it envisages several principals—is also covered satisfactorily by the remarks that the noble and learned Lord made earlier in the circumstances I mentioned.

Lord Cameron of Lochbroom

My Lords, again with the leave of the House, I give that assurance.

On Question, amendment agreed to.

Lord Cameron of Lochbroom

moved Amendments Nos. 133 and 134: Page 29, line 39, after ("on") insert ("the whole or part of'). Page 29, line 41, at end insert— ("and the investment business carried on by an appointed reprsesentative as such is the investment business for which his principal has accepted responsibility").

The Deputy Speaker (Lord Murton of Lindisfarne)

My Lords, I understand the noble Lord, Lord Williams, does not wish to move Amendment No. 134A, which is an amendment to Amendment No. 134.

Lord Williams of Elvel

No, my Lords.

[Amendment No. 134A not moved.]

On Question, Amendments Nos. 133 and 134 agreed to.

Lord Cameron of Lochbroom

moved Amendments Nos. 135 and 136: Page 30, line 6, leave out ("or"). Page 30, line 10, at end insert (" ; or (c) giving advice as to the sale of investments issued by this principal or as to the exercise of rights conferred by an investment whether or not issued as aforesaid.") The noble and learned Lord said: My Lords, I have already spoken to both these amendments. I beg to move.

On Question, amendments agreed to.

Lord Williams of Elvel

had given notice of his intention to move Amendment No. 137: Page 30, line 22, leave out ("enabling") The noble Lord said: My Lords, we ought to make progress and therefore I do not propose to move this amendment.

[Amendment No. 137 not moved.]

Lord Kimball

moved Amendment No. 137A: Page 30, line 32, at end insert— (" (6A) The Secretary of State may make regulations for the purposes of this section to require appointed representatives to inform any person whom they procure to enter into an investment agreement that the cost of premiums payable under each individual agreement will be the same whether that agreement be entered into through the appointed representative or any authorised person"). The noble Lord said: My Lords, I tabled this amendment as a result of the debate in another place on the unfairness in the Bill between the position of a tied agent and an independent intermediary in the rules governing disclosure. When this point was debated in another place the Government undertook to reflect on the arguments and suggestions that had been made there, and I have tabled this amendment tonight so that the Government can now say what is the result of those reflections. As has already been mentioned in some degree by the noble Lord, Lord Graham, the present proposals highlight the fact that independent intermediaries are paid by commission when in fact charges borne by the consumer are the same whether he concludes the contract through an independent intermediary or a company representative. The independent intermediaries feel that they will lose business. They ask only for fair competition.

I hope that the Government will bear in mind that here we are dealing with a very important group of people. They are in close contact with many of their clients throughout the country, and the Government should reflect very carefully before treating them unfairly. I beg to move.

Lord Marshall of Leeds

My Lords, the amendment moved by my noble friend Lord Kimball seeks to require that when selling life assurance an appointed representative should declare to all potential policyholders that the premium which they will be paying for a particular policy will be the same irrespective of the type of intermediary from whom they purchase it. When a similar amendment was moved at the Report stage of this Bill in another place, its supporters argued that this requirement would underpin the SIB's proposals for equivalence of treatment between appointed representatives and independent intermediaries in the area of disclosure. In my view the Government were right to point out during the debate in the other place that premiums are not always the same when policies are sold by different outlets, and it would not be sensible to require appointed representatives effectively to make an untrue statement when they may have no way of knowing what costs or premiums are payable under investment agreements offered by authorised businesses.

In any event, insurance companies' pricing policies should be left to market forces and not be subject to either the Government or their designated agencies' control. Also, such an amendment is unnecessary because as the SIB's draft conduct of business rules stand at the present time they do not give to company representatives an unfair competitive advantage over independent intermediaries.

For all those reasons I am opposed to the amendment, which in my view would not be in the best interests either of the insurance industry generally or the Association of British Insurers in particular.

Lord Graham of Edmonton

My Lords, I understand what the noble Lord, Lord Kimball, is seeking to do. He is trying to have carried in this House a point that failed to be carried by his friends perhaps in another place. That is perfectly legitimate, and like the noble Lord, Lord Kimball, we shall of course wait to see what mature reflection has produced. His friends have thought that it was worth making another attempt to carry this point, which the Minister would have anticipated in the summer months, and he may now have reached the stage where perhaps he can respond.

I am bound to say that as I read the amendment it appears to be putting an enormous burden on the shoulders of appointed representatives—and as well as appointed representatives I would use the designation "insurance salesmen". Whenever he is engaged in selling insurance and reaches a certain stage in this process—the term "procure" is used on the face of the Bill—he has to go through the device which is contained in the amendment. He has to tell the person to whom he is selling insurance that the cost or premiums payable under each individual agreement will be the same. The insurance agent is not privy to the nitty-gritty of how the cost of each policy or class of insurance is made up, but this amendment provides that he has to tell that person that, the cost or premiums payable under each individual agreement will he the same whether that agreement be entered into through the appointed representative or any authorised person". I understand the point that the noble Lord, Lord Kimball, was making. He wants equity and fairness for the two different classes of insurance salesman—the intermediary, who has an honoured place in the insurance world, and the salesman. I do not see how he will achieve that by this amendment.

I listened carefully to what the noble Lord, Lord Marshall. said. He told us that under the guidelines the SIB and LAUTRO have a responsibility to look after representatives and intermediaries. We have had arguments before as to who will go on to the SROs. We talked earlier about balance and about ensuring that all groups were represented. I am sure that the guidelines will be studied carefully by authorised representatives, insurance salesmen and intermediaries. I am sure that everyone will fight to ensure not that they have an advantage but that they are not disadvantaged as compared to others in the insurance world.

Lord Cameron of Lochbroom

I am grateful to my noble friend for raising this matter and to noble Lords who have spoken. My noble friend Lord Marshall and the noble Lord, Lord Graham, made powerful points. As my noble friend Lord Kimball said, my honourable friend in another place recognised that there was genuine concern about the potential for abuse. He asked the board to consider what had been said during the debate on Report in another place. That has been done.

I recognise the point of concern, which has been put well tonight. It may be possible that company representatives, who will not be required to disclose their remuneration, unlike independent intermediaries, will attempt to mislead the client by arguing that it is cheaper and better to arrange a policy with them when that may not be the case. The board fully accepts what I might refer to as the spirit of the amendment; namely, that there should be fair competition between independent intermediaries on the one hand and company salesmen on the other. In particular, it would not be acceptable to the board, for example, for a company salesman to say or even to imply that it would be more expensive to go through an independent intermediary if that were not the case. Indeed, to go further, it would not be acceptable for a company salesman to make such a statement unless he could justify the claim. The board has already proposed rules against any form of misleading statement in carrying on investment business, and apart from the board or SRO rules there are criminal sanctions in the Bill.

There will be nothing to preclude the board from considering making a much more specific rule along the lines proposed under the powers which it already possesses under Clause 48 if it is persuaded that that is the right thing to do. The considerable advantage of proceeding by that route would be that the rule could be applied to company salesmen generally and not just appointed representatives; in other words, it would cover employees as well as appointed representatives.

I believe that that is the proper way to approach the matter and I very much hope that it will meet the concern expressed by noble Lords and in particular by my noble friend. I hope that with that assurance he will withdraw his amendment.

Lord Kimball

My Lords, in view of my noble friend's reply, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Cameron of Lochbroom

moved Amendment No. 138: Page 30, line 34, leave out from ("with") to ("shall") in line 41 and insert— (" (a) any provision contained in or made under this Act; or (b) any rules of a recognised self-regulating organisation or recognised professional body, anything which a person who at the material time is or was an appointed representative of the authorised person has said, done or omitted as respects investment business for which the authorised person has accepted responsibility shall be treated as having been said, done or omitted by the authorised person. (7A) Nothing in subsection (7) above"). On Question, amendment agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 139: Page 30, line 45, at end insert— ("(8) In this Act "investment agreement" means any agreement the making or performance of which by either party constitutes an activity which falls within any paragraph of Part II of Schedule 1 to this Act or would do so apart from Parts III and IV of that Schedule.") On Question, amendment agreed to.

Lord Cameron of Lochbroom

moved Amendment No. 140: Page 31, line 40, leave out ("222 of the Insolvency Act 1985") and insert ("399 of the Insolvency Act 1986") The noble and learned Lord said: My Lords, I shall speak also to Amendments Nos. 141, 151, 455 and 456. These deal with the situation when a bankruptcy or a winding-up order is made concerning an authorised person operating as a sole trader or in a partnership. In those circumstances, the authorisation to carry on investment business under which that firm has operated will not be transferable with the business to the trustee in bankruptcy or the liquidator appointed by the court.

In the course of winding-up the affairs of that business, the trustee or receiver may occasionally need to do things which constitute the carrying on of investment business especially if part of the business is to be sold as a going concern. So he must have some form of authorisation or exemption if he is not to breach the authorisation requirement of this Bill. As the trustee will already have satisfied the "fit and proper" test imposed by the Insolvency Act to qualify as an insolvency practitioner, it seems over-elaborate to require further authorisation. It is thus proposed in this amendment to exempt insolvency practitioners from any authorisation requirement in these limited circumstances.

Even though the trustee or liquidator will not require authorisation for the conduct of investment business, he should be subject to the appropriate conduct of business rules. This amendment provides that any investment business shall be carried on according to the same rules as applied to it before the court order for bankruptcy was made. So the liquidator of a partnership which belonged to a recognised SRO will, during its winding-up, be bound to carry on business in accordance with the rules of that SRO. With that explanation, I beg to move.

On Question, amendment agreed to.

10 p.m.

Lord Cameron of Lochbroom

moved Amendment No. 141: Page 31, line 43, at end insert— ("(2) Where a bankruptcy order is made in respect of an authorised person or of a person whose authorisation is suspended under section 28 above or who is the subject of a direction under section 33(1)(b) above or a winding-up order is made in respect of a partnership which is such a person, the trustee in bankruptcy or liquidator acting in his capacity as such is an exempted person but—

1. (a) sections 48 to 70 below and, so far as relevant to any of those provisions, Chapter IX of this Part of this Act; and
2. (b) sections 102, 103 and 104 below,

shall apply to him to the same extent as they applied to the bankrupt or partnership and, if the bankrupt or partnership was subject to the rules of a recognised self-regulating organisation or recognised professional body, he shall himself also be subject to those rules. (3) In the application of subsection (2) above to Scotland—

1. (a) for the reference to a bankruptcy order being made in respect of a person there shall he substituted a reference to the estate of that person being sequestrated;
2. (b) the reference to a winding up order in respect of a partnership is a reference to such an order made under section 71 below;
3. (c) for the reference to the trustee in bankruptcy there shall be substituted a reference to the interim trustee or permanent trustee within the meaning of the Bankruptcy (Scotland) Act 1985; and
4. (d) for the references to the bankrupt there shall he substituted references to the debtor.

(4) In the application of subsection (2) above to Northern Ireland for the reference to a bankruptcy order there shall be substituted a reference to an order of adjudication of bankruptcy and the reference to a trustee in bankruptcy shall include a reference to an assignee in bankruptcy. On Question, amendment agreed to.

Clause 46 [Power to extend or restrict exemptions]:

Lord Williams of Elvel

moved Amendment No. 142: Page 32, leave out lines 9 to 11. The noble Lord said: My Lords, it will be for the convenience of the House if I speak also to Amendment No. 143. Clause 46 deals with the power to extend or restrict exemptions. Your Lordships have spent a great deal of time this evening discussing the question of who should be exempt, under what circumstances and in what conditions. As it stands, Clause 46 adopts the procedure outlined in subsection (2) where an order-making provision under paragraph (a) relating to additional exemptions shall be subject to the negative procedure in Parliament, while no order-making provision mentioned in paragraph (b) shall be made unless a draft of it has been laid before both Houses of Parliament. In other words, paragraph (a) is the negative procedure and paragraph (b) is the affirmative procedure.

Our problem is with: exemptions additional to those specified in the foregoing provisions of this Chapter", unless such exemptions come in draft form before both Houses of Parliament. The ability to give exemptions is one that is very important and fundamental for the Secretary of State and requires certain vetting from the Houses of Parliament. It is not simply negative procedure. We believe that removing, restricting, and providing for additional exemptions—all Clause 46 in effect—should be subject to affirmative procedure rather than negative procedure. I know that this is a topic upon which Oppositions always claim to have a better solution than the proposition put forward by the Government. But in this case the power to extend or restrict exemption is so important that we believe that this should be an integral part of the system. I beg to move.

Lord Beaverbrook

My Lords, when this matter was debated in Committee, it was indicated that the great majority of instruments to be brought before your Lordships under the provisions of Clause 46 were likely to concern miscellaneous exemptions under Clause 45 and adjustments to the provisions on listed money market institutions. As the Government said during Committee, most of these adjustments will be technical, for example to take account of changing statutory functions or titles which should benefit from an exclusion under Clause 45, or changing market circumstances which affect the coverage of the money markets exemption. I put it to the House that instruments of this degree of technicality do not warrant the affirmative resolution procedure. And if there are brought forward instruments which fall outside these technical categories and raise issues of substance, then the procedures of your Lordships' House permit a debate on that particular subject. I believe that it is right to be selective here. I hope therefore that your Lordships will reject this amendment.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his response. I cannot say that I am satisfied with what he has said. Nevertheless, in the interests of trying to make progress on this difficult and complex Bill, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

[Amendment No. 143 not moved.]

Clause 47 [Misleading statements and practices]:

Lord Morton of Shuna

moved Amendment No. 144: Page 32, line 22, leave out ("recklessly") and insert ("without due diligence"). The noble Lord said: My Lords, Amendment No. 144 is in the grouping with Amendments Nos. 231 and 501. If I may, I shall speak to those also.

This amendment concerns the use of the word "recklessly" in creating offences. Clause 47 provides that: Any person who—… (b) recklessly makes (dishonestly or otherwise) a statement, promise or forecast which is misleading, false or deceptive", and so on, is liable, on conviction on indictment, to imprisonment … not exceeding seven years". So that is a fairly serious offence.

With regard to Amendment No. 231, Clause 109 provides that: Any authorised person and any officer, controller or manager of an authorised person, who knowingly or recklessly furnishes an auditor", with certain information, is liable on conviction to two years' imprisonment.

Clause 194—to which Amendment No, 501 relates—provides that, A person commits an offence if— (a) for the purposes of or in connection with any application under this Act … he furnishes information which he knows to be false or misleading in a material particular or recklessly furnishes information which is false or misleading in a material particular". The difficulty about the words "reckless", "recklessly" or "recklessness" is what they mean. In certain circumstances "reckless" has a connotation of carelessness or being very careless. It is perhaps a stronger word than "careless". Precisely what the Government mean by this word it is difficult to say. How the courts will interpret it is also difficult to predict. I would suggest that it means that the person is reckless or recklessly makes a statement when he is aware of the risk and deliberately chooses to run that risk. But there is another interpretation: that he is just very careless as to whether there is a risk or not. On that connotation I do not see how anyone can recklessly make a dishonest statement. Clause 47(1)(b) includes the words, recklessly makes (dishonestly or otherwise)". "Dishonestly" implies that one was deliberately doing something which one knows to be dishonest. If one is doing it deliberately, is one also doing it recklessly? If so what does that mean? We would suggest that the words "without due diligence" would avoid that difficulty.

Perhaps your Lordships will allow me to quote from a reported Scottish case which quoted the Law Commission of England. It is the case of Allan v. Patterson, which is concerned with "reckless". The Law Commission of England said: a person is reckless if (a) knowing that there is a risk that an event may result from his conduct or that a circumstance may exist, he takes that risk, and (b) it is unnecessary for him to take it having regard to the degree and nature of the risk which he knows to be present". In a comment on the case, the author of Wilkinson's Road Traffic Offences said: The test in (a) is subjective and the test of necessity in (b) is objective. The Court of Criminal Appeal in Scotland said of that definition: The Law Commission's definition is, in any event, one which, if it did not confuse a judge would bemuse most juries. I think that is precisely the difficulty we are going to get into if the courts are asked to deal with somebody who is accused of recklessly making a statement, promise or forecast which may turn out to be misleading, false or deceptive.

What is the meaning that the Government intend the court to put on it? Why would it not be better to say, "without due diligence makes a statement", which implies that he has some duty to consider the validity of the statement he makes? The same provision would apply in Section 109 and Section 194. I beg to move.

Lord Renton

My Lords, with respect to the noble Lord, Lord Morton of Shuna, I think that it would cause confusion and difficulty if this amendment were to be accepted. One must bear in mind that the word "reckless" has a somewhat different meaning when used in relation to motoring offences, as it has been in the past, and when used in relation to false statements, as it is used here. The two possibilities are quite clearly covered. In one case the person who is knowingly dishonest is caught by paragraph (a). However, the person who makes a false statement or is deceptive in some other way, not knowing, not taking the trouble to find out, not caring whether it is true of false, is known in the courts as having been "reckless". The courts would have no difficulty whatever in interpreting this, and in advising juries upon it. However, if we adopt this somewhat milder term, as the noble Lord suggests in his amendment, I can see that there would be cases coming up to the Judicial Committee of your Lordships' House which need not do so.

Lord Cameron of Lochbroom

My Lords, I am very grateful to my noble friend because he has said most succinctly what I was going to say at perhaps more length.

I would say to the noble Lord opposite that this comes in in place of the Prevention of Fraud (Investments) Act 1958, which is intended to be repealed by this Act. In Section 13 of that Act the noble Lord will find provision dealing with the penalty for fraudulently inducing persons to invest money, which is in almost the same terms as that proposed in this clause.

I have not understood that the word "reckless" in regard to this kind of making of statements has caused any difficulty in the courts. It is, for instance, to be found in the Trade Descriptions Act, and has in fact been subject to some Scottish authority which has followed English authority as to the effect of the word "reckless". Perhaps I may also say that the effect of the amendment would be to dilute the offence, because it would mean that, if a person makes a statement which he believes to be true but which he has made some attempt to check, then he might be guilty of a criminal offence because he had not been sufficiently diligent in checking it. That would then lead him on to being subject to seven years' imprisonment. For all those reasons and particularly the reason which my noble friend has put forward, I urge the noble Lord to withdraw the amendment.

10.15 p.m.

Lord Morton of Shuna

My Lords, I appreciated that the words "without due diligence" made it less difficult to get a conviction. I do not necessarily think that it is a fault for legislation to attempt to protect the consumer.

I am very much obliged to the noble Lord, Lord Renton, for his remaks about "reckless'. I suggest that the difficulty is that although the Acts passed in 1958 have been interpreted, Parliament has chosen to change Sections 1 and 2 of the Road Traffic Act so that "danger" goes out and "recklessness" comes in. That has caused the problem which has troubled the Judicial Committee of this House on several occasions. However, I do not wish to test the opinion of the House at this late hour. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Deputy Speaker

My Lords, the next amendment is Amendment No. 145. I should mention to your Lordships that if Amendment No. 145 were to be agreed to I would not be able to call Amendment No. 146.

Lord Morton of Shuna

moved Amendment No. 145: Page 32, line 32, leave out subsection (2) and insert: ("(2) Any person who does any act or engages in any course of conduct which creates a false or misleading impression as to the market in or the price or value of any investments is guilty of an offence if he does so for a dishonest purpose"). The noble Lord said: My Lords, this amendment concerns a redrafting of Clause 47(2) which as it stands at present in the Bill is rather difficult to understand. We are informed that it has caused problems in that it is difficult to see how wide its effect may be. It says: Any person who does any act or engages in any course of conduct which creates a false or misleading impression"— there is no intention; he just does it. He creates the false or misleading impression honestly for the sake of this argument. He does so in a perfectly straightforward manner, but he is wrong and creates a misleading impression. It goes on: as to the market in or the price or value of any investments is guilty of an offence if he does so for the purpose of creating that impression"— If he believes in it, then he wants to create that impression. It continues: and of thereby inducing another person to acquire, dispose of, subscribe for or underwrite those investments or to refrain from doing so". If somebody perfectly honestly believes that ICI shares will double in price and says so but he is wrong, he may say so in order to induce other people to buy those shares. Is he creating an offence? I do not think that that is what the clause is aimed at.

The amendment which my noble friend Lord Williams and I have put forward is one which I am sure some noble Lords will be glad to know has been drafted by an English lawyer of great experience. It says: Any person who does any act or engages in any course of conduct which creates a false or misleading impression as to the market in or the price or value of any investments is guilty of an offence if he does so for a dishonest purpose". That makes it clear that the subsection is aimed at dishonesty. I think that that is the Government's purpose in introducing Clause 47(2). However, dishonesty is not necessarily written in, and on our information Clause 47(2) as it stands is causing trouble among those who have to give advice as to what extent they can safely give advice. I beg to move.

Lord Hacking

My Lords, I should like briefly to support the amendment. It is drafted with much greater clarity and has much clearer purpose than the drafting in the Bill. For that reason it certainly has my support, and I hope that it may have the support of the noble Lord, Lord Renton, for that reason and for that reason alone.

Lord Renton

My Lords, I must confess that purely from the drafting point of view I prefer the amendment to what is in the Bill. However, I should like to hear what my noble and learned friend the Lord Advocate has to say about a possible change of substance if the amendment were accepted.

Lord Cameron of Lochbroom

My Lords, this amendment would place upon the prosecutor the onus of establishing dishonesty; "dishonesty" is a term which does not itself appear in this clause for good reasons. The noble and learned Lord, Lord Roskill, in his commission's report on fraud—and I refer to paragraphs 3.1 to 3.18—identified the existing problems which the courts had found when they were asked to consider what was meant by the terms "fraud" and "acting fraudulently" and the synonymous concept of dishonesty. The purpose here was to provide a clear and direct description of the offence, avoiding the confusions which the noble and learned Lord described.

In general, I would very much favour using three words in place of 41, but the 41 words here which would effectively be deleted would both assist the courts and give clear guidance to the financial markets as to what is prohibited. It must be borne in mind that they are to be read in parallel with subsection (3), which provides that: In proceedings brought against any person for an offence under subsection (2) above, it shall be a defence to prove that he reasonably believed that his act or conduct would not create an impression that was false or misleading as to the matters mentioned in that subsection". The Crown in prosecuting would have to show that he did an act or engaged in a course of conduct for the purpose of creating that impression.

I hope that with the explanation that we seriously considered the matter and took the view that the formulation which appears in the Bill was better than our placing or bringing in the word "dishonesty", the noble Lord will withdraw this amendment.

Lord Morton of Shuna

My Lords, I am obliged to both the noble Lords, Lord Hacking and Lord Renton, for praise of the amendment and its drafting. The difficulty about subsections (2) and (3), as I see it, is that the provision is a complete transfer over. A criminal offence is committed and it is for the accused to prove his innocence. Under subsection (3), if a statement or a forecast turns out to be false, the accused has to prove his honesty to get out of a seven-year prison sentence. Is that really what the Government are doing? I am sorry, I think this is a very serious amendment and I am not prepared to withdraw it.

10.23 p.m.

On Question, Whether the said amendment (No. 145) shall be agreed to?

Their Lordships divided: Contents, 10; Not-Contents, 28.

DIVISION NO. 6
CONTENTS
Chandos, V.	Ponsonby of
Graham of	Shulbrede, L. [Teller.]
Edmonton, L. [Teller.]	Shaughnessy, L.
Hacking, L.	Tryon, L.
McIntosh of Haringey,L.	Williams of Elvel, L.
Morton of Shuna, L.	Ypres, E.

NOT-CONTENTS
Ailesbury, M.	Hooper, B.
Beaverbrook. L.	Lauderdale, E.
Brabazon of Tara. L.	Limerick, E.
Bridgeman, V.	Lindsey and Abingdon, E.
Bruce-Gardyne,L	Long, V.
Butterworth. L.	Lucas of Chilworth, L.
Caithness, E.	Margadale, L.
Cameron of Lochbroom, L.	Marshall of Leeds, L.
Carnock. L.	Murton of Lindisfarne, L.
Coleraine. L.	Skelmersdale, L.
Davidson. V. [Teller.]	Strathclyde, L.
Denham. L, [Teller.]	Terrington, L.
Glenarthur, L.	Trumpington, B.
Hesketh, L.	Whitelaw, V.

Resolved in the negative, and amendment disagreed to accordingly.

10.31 p.m.

[Amendments Nos. 146 and 147 not moved.]

Clause 48 [Conduct of business rules]:

Lord Williams of Elvel

moved Amendment No. 147A: Page 33, line 28, at end insert— ("(aa) prohibiting a person or persons who carry on or hold themselves out as carrying on one or more kinds of investment business from carrying on or holding themselves out as carrying on another kind or other kinds of investment business specified in the rules or regulations"). The noble Lord said: My Lords, I am sorry that this comes at a rather late hour in the evening because this amendment embodies a principle on which we had a fairly extensive debate in Committee, but nevertheless we felt it should be raised at Report stage.

We sought in Committee to extend the concept of the Chinese wall to something built of brick rather than of paper. Your Lordships decided in Committee that this was not appropriate. When the noble Lord, Lord Lucas, replied to the debate he said that in his view the SIB would, as a designating agency, have sufficient powers to be able to enforce the Chinese wall principle, if I may put it like that, without further amendment to the Bill. Nevertheless, we feel that this should be made explicit on the face of the Bill that a person or persons who carry on or who hold themselves out as carrying one or more kinds of investment business should be prohibited from carrying on other types of investment business where there is a clear conflict of interest identified by the appropriate regulations.

I do not want to go over all the arguments that we developed in Committee. I do not want to go over all the arguments that have been developed over many years on the question of the Chinese wall. I should like to ask the noble Lord whether he would be prepared to consider putting on the face of the Bill some amendment, not necessarily drafted in the way that we have drafted it, but drafted in a manner satisfactory to the Government which would make it perfect!y clear to your Lordships and to the outside world that there are powers—and indeed those powers must be enforced—should there be any breach of the Chinese wall. By "Chinese wall" I mean conflicts of interest between one type of investment business and another where that is to the detriment of investors.

I do not wish, again, to take the noble Lord through the arguments that we had, but there was a lot of feeling in the Chamber at Committee stage that maybe the amendment we moved in Committee was a little premature, that it would create confusion in the markets and in the industry if we were to insist, and if the Bill when enacted were to insist, that there should be a timetable for separating investment management—which is what we had in mind—from the other aspects of the investment business. I accept that that may be so. Nevertheless, I still think that there should be some sensible provision in the Bill that would allow that to happen if this unfortunate conflict-of-interests situation develops out of hand. I beg to move.

Lord Tryon

My Lords, the noble Lord did me the credit of looking at me several times while making that speech. I did not support him at Committee stage on this point and I am afraid that I cannot do so tonight. It may well be that we shall have to come back to this "Chinese wall" point at some time in the future, but I think at the moment that if we carried this amendment it would cause undue confusion at too early a stage.

Again, I do not want to take up too much of the time of the House but I must just say again very quickly that, as I see it at the moment, there are quite a lot of benefits from what I think the noble Lord sometimes sees as conflicts. To have investment houses where there is a certain amount of talk and interplay among different departments, if they are properly organised and decent people—and much of this Bill is organised to see that they are so—is often to the benefit of clients of both sides when it appears to the outside world that there is a conflict. People should be allowed to carry on different sorts of investment business in the same house. The noble Lord may get his way in a few more years' time if these things do not work, but this is premature.

Lord Lucas of Chilworth

My Lords, I do not wish to spend much time going over the ground of "conflicts of interest", which we covered in Committee. Whether the noble Lord, Lord Williams, feels that the amendment which was put down during Committee was premature or not, the bald fact is that we discussed it and your Lordships made clear what you felt when that amendment was negatived by way of a Division. Our position is that conflicts of interest must be managed. The noble Lord, Lord Tryon, I think, was saying just that. The rule-making powers under Clause 48 allow them to be managed. I would particularly draw attention to paragraphs 3 and 5 of Schedule 8 because there are set out the principles that require these conflicts to be managed.

The noble Lord, Lord Williams, has a point in suggesting that in the event there may turn out to be a situation or situations where the conflicts between different types of activity may prove to be such that they ought not to be carried out in the same business. The discussions that have taken place with regard to polarisation have highlighted one such area. But the Bill already provides machinery for requiring that any person engaged in any one activity should not engage in others. I draw your Lordships' attention to Clause 48(2)(a). It is on that clause that reliance may be placed for the making of different provisions in different cases, as becomes appropriate.

I appreciate what the noble Lord, Lord Williams, says, but I suggest to the House that the amendment adds nothing to that provision. In the light of what I have said, I say quite firmly that I do not feel it necessary to give further consideration to putting anything more in this matter on the face of the Bill. I hope that the noble Lord will feel able to withdraw his amendment.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord, Lord Lucas, and also to the noble Lord, Lord Tryon, for making the comments that he did. I am not going to press this amendment. I do not believe that it is one which we shall wish to move again. Nevertheless, it was put down with a serious purpose, as I am sure the noble Lord opposite understands, because we genuinely believe that there is a serious problem here which in the course of time will have to be dealt with. We should like to mark our intention that in the course of time, whenever it is, somebody—either this Government or some future government—will have to deal with it. In the light of the noble Lord's assurances that the powers exist in the Bill, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Viscount Chandos

moved Amendment No. 147B: Page 34, line 23, leave out ("of international securities of any specified description") and insert ("or an offer of investments of any specified description falling within any of paragraphs 1 to 5 of Schedule I to this Act"). The noble Viscount said: My Lords, I beg to move the amendment standing in my name. I believe that it may be for the convenience of your Lordships if at the same time Amendments Nos. 147C. 148, 149, 150, 237, 237A and 442 were considered.

The noble Viscount, Lord Colville of Culross, introduced an amendment at Committee stage on the question of stabilisation of equity issues, which the noble Lord, Lord Lucas, kindly agreed to consider over the summer. I know that the noble Viscount. Lord Colville, is as grateful as I am that the noble Lord, Lord Lucas, has now accepted the principle of stabilisation for the issue of a wide range of investments, including both share and debt issues.

As I stated at Committee stage, I believe that the provision for stabilisation within the proper guidelines and requirements for disclosure will ensure that corporate fund-raising in all the relevant markets can take place as cheaply and effectively as possible with no adverse consequences on the protection of investors, large or small. Indeed, I believe that stabilisation can on occasions be of material benefit to the investors themselves, since undampened volatility in the price of a new issue in its immediate after-market may easily lead to small investors suffering sharp and unnecessary losses.

Amendment No. 147B is intended to remove one awkward anomaly, arising. I believe, from the divergence between legal language and common parlance. I am sure that most of your Lordships—and certainly most of your noble and learned Lordships—would refer to any offer of securities as an issue. Certainly in the banking world, surrounded though it is by expert and expensive lawyers, in everyday speech the phrase "new issue" would be used to cover every form of offering. In law, however, shares, once issued to the original subscriber, can only be re-offered; and that subsequent re-offering technically is not an issue. A company raising capital through the issue of new shares would therefore be able to have its shares stabilised for an appropriate period under the wording of the amendments being proposed by the Government, whereas a vendor of pre-existing shares would not be able to see those shares subsequently stabilised.

Theoretically at least therefore the proprietor of a private company, selling shares through the flotation of his or her company, would not have the benefit of stabilisation to ensure that the best but still fair price was achieved. In practice it should be admitted that some device or another could be found to gain the right to stabilise, such as a bonus or scrip issue, shortly before the offer for sale or the simultaneous issue of a token number of new shares, even if additional funds for the company were not required. But surely we should endeavour, after all the hours spent on this Bill, to make full and fair provision for stabilisation in all appropriate circumstances without the reliance on either an artificial device or the fortuitous association of another transaction.

The Government themselves could have an interest in this point, in view of their continuing programme of public sector asset sales. Of course, not all your Lordships are in favour of any or all of these privatisation activities; but all your Lordships, I suspect, would wish to see the Exchequer receive the best price on any sales that do take place. In the case of companies such as British Telecom or Britoil, stabilisation under the Bill as the Government propose to amend it would be permitted, because the plc formed to incorporate the activities of the predecessor public corporation would have issued shares to the Government shortly before those shares were offered to the public. But if the Government were to sell any further part, for instance, of its shareholding in BP (as indeed has been suggested is their intention in recent press articles), stabilisation of such an offering would not be permitted without a device of the sort I mentioned earlier.

The recent sale of the Libyan government's shareholding in Fiat, conducted by a London-based, albeit German-owned, bank, would have also been caught by the arbitrary distinction. This transaction was widely regarded as politically and economically desirable but, given its size, was exceptionally difficult to complete. I am sure that the prohibition of stabilisation would have been unhelpful and jeopardised either the transaction's ultimate completion or the role of the London capital market in achieving it.

I believe that this is an unintended and accidental distinction between primary and secondary offerings of securities which would not provide any additional protection for investors but would add an unnecessary distortion to the efficient workings of the capital markets. It could penalise vendors of shares in successful companies, ranging from the Government themselves to individual entrepreneurs. It could handicap companies seeking to raise funds through the sale of shares in associated companies as an alternative to issuing their own shares and effectively thereby counteract the thrust of the Government's attempts to encourage demergers and the streamlining of conglomerates.

I am a little puzzled by Amendment No. 147C in the name of the noble Lord, Lord Williams, which would exclude domestic issues of debt from the general provisions for stabilisation. If we were able to achieve one rule for all forms of securities, I should be loath to reintroduce any differentiation. Perhaps I can await the noble Lord's exposition of his case before saying anything further.

I believe that the provisions for stabilisation as proposed by the Government strike the appropriate balance between market efficiency and, through the rules laid out in subsection (2) of this clause, investor protection. These rules could apply equally to the stabilisation of secondary offerings. I therefore commend my amendment to your Lordships' House.

10.45 p.m.

Lord Williams of Elvel

moved, as an amendment to Amendment No. 147B, Amendment No 147C: Line 3. leave out ("1 to 5") and insert ("1, 2, 4 plus 5 or paragraph 3 in the case of international securities"). The noble Lord said: I beg to move Amendment No. 147C standing in my name and that of my noble friend Lord Morton of Shuna on the Marshalled List. Generally speaking, I am sympathetic to the case that the noble Viscount, Lord Chandos, has made for the stabilisation of secondary issues. However, there is one case where I have a problem and I shall try to explain to the noble Viscount, who invited me to do so, where that problem lies.

We are now entering an era where the marketing of gilt-edged securities will be done through a series of powerful intermediaries. Whether there will be 27 or six intermediaries at the end of the day we do not know. The Bank of England already has it in mind to put primary issues of gilt-edged securities out to tender, and in my view, and I think in the view of any informed commentator on the market, this is the way the market will go. It is the way the market operates in the United States and I believe it is the way it will operate in London. It would be possible, I believe, if the noble Viscount's amendment is accepted as it stands, for a house which had tendered successfully for a large issue of gilt-edged securities from the Bank of England then to re-issue those securities and to stabilise that secondary issue.

My amendment seeks to eliminate government and public securities in the form of loan stocks, bonds and other instruments, as spelt out in paragraph (3) of Schedule 1, from the noble Viscount's amendment. I believe that if these large transactions are to take place by tender in the gilt-edged market there will be a serious possibility that powerful operators, who may bid at any one time for £5,000 million of gilt-edged securities, may well, if allowed to stabilise the market in any secondary offering on that, be in a position to influence the general level of interest rates in the gilt-edged market. This is the problem that I have and that my amendment seeks to redress. Therefore, I beg to move.

The Earl of Limerick

My Lords—

Lord Lucas of Chilworth

My Lords, I wonder whether my noble friend will allow me to intervene, because I think that I can be fairly helpful to the House. I was particularly interested in what the noble Viscount, Lord Chandos, had to say. He put his amendment forward as an alternative to government Amendment No. 148, and I think it would be right for me to spend a few moments on the background to the government amendment, and on how it is different from the noble Viscount's amendment, so that all noble Lords can compare them without necessarily taking one side or the other.

Your Lordships will remember that during our debate in Committee on 23rd July on stabilisation practices, my noble friend Lord Colville of Culross spoke persuasively in favour of amendments drafted by the International Securities Regulatory Organisation—ISRO. I want to quote him from the Official Report of 23rd July, col. 319. He said: The existing market, which has been used for ages, has built up a practice whereby when a new stock is issued, the people who are dealing with it—the leading dealer—provide an arrangement whereby the price is held for a period of time in order that the issue shall succeed. I emphasise that my noble friend put the case to the Committee in terms of new issues.

In the same debate the noble Viscount, Lord Chandos, when he spoke in support of the amendments of my noble friend Lord Colville, referred specifically to the needs of those raising funds—the issuers of new investments. He said at that time—and I refer to the same Hansard, col. 320—that: The grounds on which the SEC approved the practice of stabilisation in the early 1940s was essentially that fund raisers would be unnecessarily handicapped if the practice of stabilisation were disallowed; and in the interest of … investors and the interests of fund raisers, I think that stabilisation, in the broad definition that the noble Viscount, Lord Colville, has suggested, is clearly in the interests of fund raisers. When I came to answer the speeches of both my noble friend Lord Colville and the noble Viscount, I gave an undertaking to the Committee that the Government would give consideration to their points and come back at a later stage with firm proposals. This we have done with the five government amendments, Nos. 148, 149, 150, 237 and 442, and I assure the noble Viscount that these government amendments fulfil that commitment. Indeed, the amendments were drawn up in consultation with members and staff of ISRO and on the very point where his amendment conflicts with government Amendment No. 148 we use the same wording which ISRO's own legal advisers used; namely, "the issue of investments". I believe that we have fulfilled, fully and properly, the commitment given to the Committee.

Only when the Government's amendments were tabled at the end of last month in accordance with our undertaking did the question arise which we are now debating. The question is really whether the Bill should go further so as to enable the market manipulation defence in relation to stabilisation to be extended. This would enable the provisions currently relating to the stabilisation of new issues to extend to the stabilisation of offers of particular kinds or, in theory, any offer of the specified investments.

I do not want to make this an excuse, but it is a fact that we have been given a very short time in which to give the matter full and proper consideration. I can, however, give an immediate response which I hope will enable the noble Viscount, Lord Chandos, to withdraw his amendment. Even at this late stage we do not want to shut the door on new financial techniques being developed in the City which are of interest both to issuers and investors. We have been persuaded that there is merit in introducing a formula into the Bill which will allow for the development of stabilisation provisions without the need for us to agree today on what is the right formula to cover syndicated secondary share offerings and other offers which could be subject to stabilisation.

The proposal I wish to make to your Lordships is this. The Government will come forward on Third Reading with new provisions to be added to the Bill at that time which will allow the possibility of the market manipulation defence to be extended to cover stabilisation in relation to certain offers of existing investments when the stabilisation is done in conformity with specified rules. The proposal would enable such an extension to be made by order, subject to affirmative resolution by both Houses of Parliament.

If my suggestion is acceptable I do not think that there is great point in discussing in detail the amendment of the noble Lord, Lord Williams, which I must confess I found a little surprising, as I believe did the noble Viscount, Lord Chandos. His amendment would restrict stabilisation rules being applied to secondary offerings of blocks of United Kingdom local authority securities even when the authority is not involved. I do not believe that the distinction can have any justification.

The Government have no wish to have special treatment under market rules. I believe that the government amendment does not put the gilts market in any special position. Therefore, with my proposal to bring forward further government amendments at a later stage, I ask the noble Viscount to withdraw his amendment and I ask the House to accept the government amendment, subject to the undertaking I have given.

The Earl of Limerick

My Lords, I wish merely to say that the intervention of my noble friend is extremely welcome. It recognises the point that in the absence of the provisions that he has described to us we should have been denying the City the ability to operate competitively in an international field which is intensely competitive and where, in the absence of these provisions, there is a high probability that the business in question would have gone to other centres. I greatly hope that these discussions will lead quickly and smoothly to an agreement on those lines.

Lord Williams of Elvel

My Lords, I am grateful to the noble Lord for his assurance. I shall withdraw the amendment with the comment that it is sad to see further substantial amendments coming back at a late stage on Third Reading.

Amendment to Amendment No. 147B, by leave, withdrawn.

Viscount Chandos

My Lords, I thank the noble Lord, Lord Lucas, for his assurances. In view of the changes that the Government have had to make as the Bill has progressed I hope the changes I have attempted to introduce in this area can be considered in the same light. Therefore, I ask leave to withdraw my amendment.

Amendment No. 147B, by leave, withdrawn.

11 p.m.

Lord Lucas of Chilworth

Amendment No. 148: Page 34. line 23, leave out ("international securities of any specified description") and insert ("investments of any specified description falling within any of paragraphs 1 to 5 of Schedule 1 to this Act"). On Question, amendment agreed to.

[Amendment No. 148A not moved.]

Lord Lucas of Chilworth

moved Amendments Nos. 149 and 150: Page 35, line 3,leave out subsection (6). Page 35, line 14, leave out from first ("of') to end of line 17 and insert ("section 47 above; and nothing done in conformity with rules made under paragraph (i) of that subsection shall be regarded as a contravention of subsection (2) of that section.") The noble Lord said: My Lords, perhaps I may move Amendments Nos. 149 and 150 en bloc since we have just been discussing those two amendments.

On Question, amendments agreed to.

Clause 49 [Financial resources rules]:

[Amendment No. 151 not moved.]

Clause 51 [Cancellation rules]:

Lord McIntosh of Haringey

moved Amendment No. 151A: Page 36, line 17. leave out ("such period") and insert ("a period of twenty-eight days"). The noble Lord said: My Lords, this amendment must be in the form of a probing amendment. It arises out of a lengthy debate at Committee stage, when I indicated, without moving an amendment to that effect. that we were not satisfied that there was adequate protection in the particular case of unsolicited calls, but also, more generally, adequate protection in the form of a cooling-off period. In his reply the noble Lord, Lord Lucas, said that the Government's mind was moving in the rule-making procedure to a period which he at that time envisaged as being no more than 15 days for cases in which a cooling-off period was applicable. At that time I thought that 28 days might be the right period. I still think that that is right for applicable deals, but I move this amendment now in a rather general form, which I can see could he subject to criticism, in the hope that the Government's mind has advanced somewhat on the position in July and that they are able to indicate a greater commitment than they were at that time to a cooling-off period and to a better period than the 15 days which was then in their mind. I beg to move.

Lord Lucas of Chilworth

My Lords, I am grateful to the noble Lord, Lord McIntosh of Haringey, for explaining his amendment. I believe that there are two ways of approaching it: one is to argue about the correct period for cancellation rights—should we allow 14,21 or 28 days in the case of this or that investment? That is not the basis on which I wish to proceed. The opportunity for such a discussion will come if and when the Securities and Investments Board applies to become a designated agency and Parliament is called upon to approve the designation order.

Clause 112 requires that the draft rule book of a designated agency should offer an adequate level of protection to investors, and we must decide at that stage whether the cancellation period provided in those draft rules is consistent with that requirement. I believe that it would be premature for me to express a view at this stage.

This procedure arises from the approach in the Bill of giving wide rule-making powers and leaving the detail to be dealt with later. This amendment would run counter to that approach. However, it may be helpful to recall why the rule-making approach was adopted in the first place. It was not because we were too lazy or too indifferent to draft specific requirements. It was first and foremost because we wanted to construct a framework which could respond flexibly to take account of changing circumstances. Once we introduce specific requirements, we begin to inhibit that flexibility.

Let me use as an example the noble Lord's own amendment and let me further assume—just for the sake of discussion—that it was accepted that 28 days was the appropriate cooling-off period in the case of the investments which it is at present envisaged will be subject to these rules. I stress that this is purely for the sake of argument and I am not expressing a view, though I understand that suggestions for a cooling-off period longer than 14 days have not been a major feature of the comments on the SIB's draft rules. The noble Lord may find that there are not many who would agree with his views on what is appropriate. Even accepting all that, I should still find the amendment unacceptable.

What do we do if a new form of investment arises which it is considered should also be subject to cancellation rights, but for which a shorter period was appropriate? The amendment would preclude that. What if there is a new type of investment with such characteristics that investors should have an even longer cancellation period? The amendment would preclude that. I do not believe that that is the noble Lord's intention.

The powers in this clause have been framed deliberately to provide the right amount of flexibility. The amendment would undermine that approach. which we believe is the right one. We believe that we need the flexibility to deal with the variety of circumstances that I have described. For those reasons. I invite the noble Lord to withdraw his amendment.

Lord McIntosh of Haringey

My Lords, I described the amendment as a probing one. I did not intend to accuse the Government of being lazy or indifferent with their drafting. They have been enormously conscientious and gone to great lengths with the drafting. I had hoped to bring the Government a little more out their shell and that they would express an opinion about the appropriateness of cooling-off periods under certain circumstances. To that extent the Minister has been helpful. He has given some examples of cases where longer or shorter cooling-off periods might be appropriate.

I am still disappointed that the Minister chooses to use the rule-making procedure as a way of not expressing a more formal government view on what are, after all, important issues, especially for small investors. That is a feature which arises on a number of occasions in the Bill, but at this time of night and at this stage of the Bill it may be somewhat fruitless to seek to change the Government's mind about the way in which they wish to proceed. On the basis of the reply that has been given, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Denham

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

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