Lords Sitting of 20 October 1986

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR On the Woolsack.
Prayers—Read by the Lord Bishop of Chelmsford.

Nuclear Weapons: Response to Attack
2.37 p.m.
Lord Molloy: My Lords, I beg leave to ask the first Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are still prepared to be the first to use nuclear weapons in the event of conventional war.
The Minister of State, Foreign and Commonwealth Office (Baroness Young): My Lords, all British nuclear weapons are committed to NATO which is a purely defensive alliance. NATO heads of government have pledged publicly that no NATO weapons, either nuclear or conventional, will ever be used except in response to an attack. Given the Warsaw Pact's superiority over NATO in conventional forces in Europe, a declaration that NATO would never be the first to use nuclear weapons could heighten rather than reduce the risk of war.
Lord Molloy: My Lords, I am very grateful to the noble Baroness for that encouraging reply. When she talked about "in the event of an attack", does that mean that nuclear weapons could be used if there were a conventional attack by the Russians, or is she saying that the Russians must use a nuclear weapon before NATO will retaliate?
Baroness Young: My Lords, I do not intend to go into hypothetical questions of that nature.
Lord Mayhew: My Lords, is it the Government's policy so to increase the conventional strength of NATO that we can contain a Soviet conventional attack without recourse to nuclear weapons?
Baroness Young: My Lords, the noble Lord, Lord Mayhew, will know what the Government's policy is from the Answer that I gave to the original Question.
Lord Mellish: My Lords, is it not a fact that this is a nonsensical question? Britain's attitude since 1945 has demonstrated to the world that we need peace more than any other nation. What sort of rubbish are we being asked now?
Baroness Young: My Lords, I think that once again the noble Lord, Lord Mellish, has spoken for many of us. What is important is that, in effect, we have had the longest period of peace in Europe this century. The nuclear deterrent has made a major contribution to that.
Lord Gladwyn: My Lords, is it not a fact that whatever NATO's decision may be, if there is an attack by the Russians anywhere in Europe in which only conventional weapons are used, whether to use nuclear weapons to check that conventional onslaught will in practice depend upon the President of the United States? He may indeed seek our advice, but whether in such circumstances nuclear weapons are to be employed will be an American decision. Personally I think that it is doubtful whether they would use them.
Baroness Young: My Lords, as I said in answer to an earlier question, it is not profitable to go into hypothetical questions.
Lord Jenkins of Putney: My Lords, is it not permissible and not at all hypothetical to ask the noble Baroness whether the Government might not be well advised to change their policy? Is their present policy not quite incredible? There is no possibility, if nuclear weapons were not used, that we would be the first to use them. In those circumstances, if we are not going to use nuclear weapons, what the devil is the use of having them?
Baroness Young: My Lords, the reason for having them is the reason that was given by the noble Lord, Lord Mellish, in an earlier question. They have deterred. The noble Lord, Lord Jenkins, may well

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laugh at all this but since the ending of the Second World War we have had the longest period of peace in Europe this century. The nuclear deterrent has contributed to that and in our view the Labour Party's policy is a dangerous one.
Lord Beloff: My Lords, does my noble friend agree that our anxieties have been considerably allayed by Mr. Kinnock's announcement that it is proposed to raise a home guard among British residents on the Continent to support the army of the Rhine? Are there not also reliable reports that the Russian Red Army is now shaking in its shoes? Is it therefore perhaps unnecessary to consider the problem of deterrence any more?
Lord Molloy: My Lords, does the noble Baroness agree that this question is serious? Will she make it clear that she meant that on its own Britain would never hurl a thermo-nuclear bomb at anybody, but that it may be necessary to do so in conjunction with our NATO partners? The only thing we can do to try to reduce that risk is to improve our conventional weapons and to encourage our NATO allies to do the same so that the eventuality that I have just mentioned need never arise.
Baroness Young: My Lords, I take this whole issue very seriously and so do the Government. What is important is that the whole object of the NATO weapons system is to deter aggression against us. In that, it has so far been successful.
Lord Mayhew: My Lords, may I ask the noble Baroness the serious question whether it is the British Government's policy that NATO should build up its conventional strength in order to be able to resist a Soviet conventional attack without recourse to nuclear weapons? When I asked that question before, the noble Baroness said that she had answered it in her original Answer. If that is the case, was the answer yes or no?
Baroness Young: My Lords, the policy of NATO is that it is a defensive alliance. We have repeatedly made clear that NATO would never use any weapons except in response to an attack.
Viscount Mountgarret: My Lords, would my noble friend not agree that, quite honestly, in all things flexibility is entirely desirable? It must surely be impossible to give a categorical answer to a somewhat hypothetical question. If one is going to have to give a definite answer, one's hands might be tied behind one's back. It must therefore surely be impossible to give a definitive answer in a hypothetical situation.
Baroness Young: My Lords, I should like to thank my noble friend Lord Mountgarret for that question. As I have indicated in reply to other supplementary questions, it would be most unwise to speculate on hypothetical situations. I do not therefore wish to be drawn into this matter.
Lord Chalfont: My Lords, may I ask the noble Baroness whether it is not true that the policy of
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NATO is to meet any attack by the Soviet Union with all the force at its command, and to use it flexibly? Are we not members of NATO, and is it not true therefore that the British Government subscribe entirely to that NATO doctrine?
Baroness Young: Yes, my Lords, that is correct. It is a policy of flexible response that is pursued not only by us but by our NATO allies.
Lord Leatherland: My Lords, may I ask the noble Baroness whether it is not desirable that our strategy in the event of war should not be disclosed?
Baroness Young: My Lords, I am extremely sorry. I did not hear the last part of the noble Lord's question.
Lord Leatherland: My Lords, I asked whether it was not desirable that our strategy in the event of war should not be disclosed. I am an old company sergeant-major of the first war, so my voice has not perhaps penetrated to the other side of the Chamber.
Baroness Young: On the contrary, my Lords. I heard the noble Lord perfectly the second time. I apologise for missing part of the question when he asked it originally. I am sure that what he says is very wise advice. That is why the answers are given in general terms.
Lord Jenkins of Putney: My Lords, I seek your Lordships' permission to assure the noble Baroness that I was not laughing at her. I was merely laughing at her reliance on the noble Lord, Lord Mellish.
Lord Mellish: My Lords, that is an honour, anyway.
Baroness Young: My Lords, it never crossed my mind that the noble Lord, Lord Jenkins, was laughing at me. This is not, I think, actually a laughing matter. It is a very serious matter. We need to consider the facts of the case. The Government are very concerned at the Labour Party's proposed policy on ending nuclear weapons.
Lord Molloy: My Lords, is the noble Baroness not aware that people are alarmed? Does she not agree that those who were not born at the time but who have seen films of Nagasaki believe it would be a frightful situation if that could possibly happen again? They see no humour whatever in the matter. Anyone who does so needs to be medically examined. Can the noble Baroness say that it would be in an extreme circumstance that we should be compelled within NATO to use the nuclear weapon, but that in order to try to avert that we shall build on our nuclear force, make our conventional forces as modern as possible, and provide the attractive conditions in which people find satisfaction in being part of the British armed forces?
Baroness Young: My Lords, I believe that I have answered both parts of the noble Lord's question, once in replying to the noble Lord, Lord Chalfont, and again in replying to the noble Lord, Lord Molloy, at the beginning of his Question.

Cancer Screening: Working Women
2.46 p.m.
Lord Graham of Edmonton: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government whether they are satisfied with the current arrangements for the provisions of cancer screening facilities for working women.
The Parliamentary Under-Secretary of State, Department of Health and Social Security (Baroness Trumpington): My Lords, we shall not be satisfied until we have covered the whole field. Under existing arrangements, women, whether they work outside the home or not, may have a cervical smear taken by their general medical practitioner, or in a community health clinic; for example, a family planning clinic. Appointments are generally outside working hours. The computerised call and recall systems now being introduced should help to ensure that women who have not been screened within the recommended period receive personal invitations to be tested.
Lord Graham of Edmonton: My Lords, I am grateful to the noble Baroness for that reply. Is the Minister aware, however, that the incidence of cervical cancer among women in the 20 to 34 age range is on the increase, and that 2,000 women die from cervical cancer and 11,000 from breast cancer every year? Is she aware that many of these cases are preventable? I know that the Minister appreciates that early detection is crucial. Will she, therefore, lend support to those trade unions. among them the Union of Shop, Distributive and Allied Workers, who are increasingly negotiating with employers a facility whereby women at work are enabled to leave work to attend NHS facilities, or the firm encourages visits to its factories, shops or offices by mobile screening facilities?
Baroness Trumpington: My Lords, with regard to the early part of the noble Lord's question, the department's guidance to health authorities is that all women who are, or have been, sexually active should be screened every five years, irrespective of age. However, 94 per cent. of deaths occur in women aged 35 or over, and screening for this age group remains a priority.
With regard to the last part of the question, workplace cancer screening facilities are provided by some employers. These are additional to those available within the National Health Service. I should like to pay tribute to the Women's National Cancer Control Campaign which, if invited, with its mobile units, is certainly welcome in this field.
Lord Ennals: My Lords, in view of the many occasions on which the need for a call and recall system for cervical cancer screening has been raised in the House, and in view of the strong pressure from the British Medical Association and the National Association of Health Authorities, what real progress
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has been made? How much money has been put into the development of the sort of scheme that the noble Baroness talked about? And how many district health authorities still have no effective system?
Baroness Trumpington: My Lords, with regard to computerised call and recall systems, we are closely monitoring health authorities' progress towards achieving implementation no later than March 1988. As at 31st March 1986, 33 health authorities had implemented such systems; 76 plan to do so during 1986–87 and 82 in 1987–88.
Baroness Macleod of Borve: My Lords, may I ask my noble friend the Minister whether she will encourage this aspect? Will the Minister issue an instruction that women under the age of 35 should also be screened? The medical profession is aware that younger women also need to be screened. If the noble Baroness accepts this, will she also ensure that the medical profession will be paid for the screening of women under the age of 35, which does not happen at the moment?
Baroness Trumpington: My Lords, I think that I answered the first part of the question by my noble friend Lady Macleod in answer to a previous supplementary question. I said that we were certainly keen that all women should be screened. With regard to paying extra to doctors who screen women, surely as a GP the doctor is responsible for the whole of each patient's health.
Lord Wigoder: My Lords, will the Government consider positively encouraging employers to consider on-site screening facilities?
Baroness Trumpington: My Lords, we are most anxious that this screening should be available to all women for whom it is considered necessary that the screening should take place. We would do everything we could to encourage employers. But in the end it is up to each employer.
Lord Rea:My Lords, the noble Baroness, Lady Macleod, asked whether GPs should not be paid for women who are screened between the ages of 20 and 35. This age group is now showing an increase of a particularly nasty form of cervical cancer. If it is thought that doctors should be paid for screening women over 35, why should they not be paid for screening women under 35? I wonder whether the noble Baroness could clarify that situation.
Baroness Trumpington: My Lords, I cannot clarify the question of payment. However, I am aware of research work in which it has been suggested that there could be an increase in deaths. This underlines the importance of improving the effectiveness of the screening programme.
Lord Chalfont: My Lords, can the Minister confirm the findings of a report I read recently? One of the conclusions stated that the problem was not only the provision of facilities but persuading women to attend for screening, especially on recall.
Baroness Trumpington: My Lords, yes. It is difficult to persuade women. We believe that younger women can do a lot by asking their relatives to be screened. We believe that doctors can do the most by encouraging their patients to be screened. We believe that knowledge on a local basis, and local advocacy of screening, is the most effective.
Baroness Seear: My Lords, in reply to my noble friend Lord Wigoder, the noble Baroness said that the Government would give every encouragement to employers to have screening carried out at the place of work. This undoubtedly makes it easier for women to attend to be screened than if they have to take time off to go to their practitioner. Can this encouragement not take a financial form? There are costs involved for companies who are laying on private screening through their health departments. These include tax liable expense, and women lose time. A lot of costs are involved in putting on a service of this kind. Can the Government not be more practical in their assistance?
Baroness Trumpington: My Lords, if the noble Baroness, Lady Seear, looks at my original reply she will see that I said that whether or not women are working outside the home—in other words, women who are working in the home are still working women so far as I am concerned—appointments are generally available outside working hours. There are a great many different options as to where they can have the smears taken.
Baroness Seear: My Lords, that does not answer my question. That is a completely different point. My question suggested that employers who are laying on the service through their medical department should have some financial encouragement for so doing. Apart from anything else, it is much easier for women to attend.
Baroness Trumpington: My Lords, I quite agree that that is another question entirely. But I do not see why the women involved should not take advantage of the options outside working hours. If they have their smears taken during working hours, it is surely better for the employer to lose a little time—and it does not take very long to have a smear test—than to have one of his workers away very ill.
Lord Wallace of Coslany: My Lords, does the noble Baroness appreciate the urgency of a speedy follow-up of any positive case? What steps are being taken to ensure that there is no unnecessary delay in follow-up after a case has been proved to be positive?
Baroness Trumpington: My Lords, all women should be told how to get the result of their tests. We are currently consulting the medical profession on draft guidelines on the follow-up of abnormal smears.
Lord Graham of Edmonton: My Lords, I am grateful to the Minister for using, more than once, the word "encourage". Can the noble Baroness tell us in regard to the 41 health authorities who in June 1985 had no system whatsoever, how far the number has been reduced? Has the Minister taken careful note of the
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report this month from the BMA which is calling for every family practitioner council to have the call and recall facilities available in their areas?
Baroness Trumpington: My Lords, we are closely monitoring health authorities' performance to ensure that laboratories can meet demand and avoid backlog. Health authorities' annual outturn reports show that at 31st March—I have already indicated this to the noble Lord, Lord Ennals—out of a total of 191 district health authorities, 40 health authorities, served by 33 laboratories, had backlogs that exceeded one month's work. Problems in individual laboratories are a matter for local management. Regional health authorities will ensure that remedial action is taken before they report to us again.

Religious Education in Schools
2.57 p.m.
Baroness Cox: My Lords, I beg leave to ask the Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government how many schools are failing to fulfil the requirements of the Education Act 1944 with regard to religious education and religious worship.
Baroness Hooper: My Lords, the Government do not collect such information, nor would it be appropriate to do so. However, we believe that religious education and collective worship make a special contribution to the education of all pupils; and we look to the schools themselves and their local education authorities to observe the requirements which the Act lays on them.
Baroness Cox: My Lords, I thank my noble friend the Minister for her reply. Is she aware that in Brent the recently agreed syllabus for religious education defines faith in such a way that it includes non-theistic religions and life stances? Does my noble friend agree that that not only seems to be a contradiction in terms but also opens the floodgates for teaching topics such as militant atheism or Marxism? Does my noble friend think that is acceptable?
Baroness Hooper: My Lords, I have been made aware of the situation in Brent. The syllabus was drawn up and agreed by a properly constituted conference in which members of the Church of England, other Christian denominations and other world religions were represented. I understand that the agreed syllabus defines faith as any consistent, coherent and ethical life stance, whether theistic or non-theistic, and that it seeks to encourage knowledge and understanding and respect for, the beliefs of others as well as an awareness of the importance of the commitment to personal faith.
Lord Soper: My Lords, does the Minister agree that there is a fundamental problem nestling in this Question? Does she not agree that there is a world of difference between religious education and religious worship? As I see it, those who are technically

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committed or uncommitted can undertake a very great deal of religious education. Only those who are committed to the faith of which that worship is an expression are competent to conduct Christian worship. In that regard would it not be a great advantage if more of those who are already committed to the various religions (which are now multi-faith in most schools) were used in the Christian worship aspect of education?
If the cynicism, which is so abundant now in religious education in schools, were divided between that part of it which is the information about Christianity and other faiths, and that religious activity which is the committal in worship, would this not undo the kind of problem or create the situation which is necessary to the tenets of that faith?
Baroness Hooper: My Lords, I fear that this Question raises certain theological points as well as legal points. In terms of the agreed syllabus, specifically in relation to the Brent situation, the normal procedures were complied with, and in addition to the seven members of the Church of England Committee, the conference included eight representatives of other Christian denominations; 14 representatives of other world religions; and one Humanist. Since the responsibility lies with the local authority it is in that area that we must look to repair any damage that might be done.
Viscount Tonypandy: My Lords, is it not still a requirement that the terms of the 1944 Education Act should be fulfilled by local education authorities? Is the Minister aware that, however many Church people were on this committee, it is not a fact that the majority of schools are multi-faith? It is not a fact that in the greater part of this country there are many faiths. In some of our big cities there are schools predominant with another faith. Is she also aware that many of us are deeply anxious that at this particular time our children should have a good grounding in the Christian faith in our schools.
Baroness Hooper: My Lords, I am aware of the concern and anxiety and within the statutory framework an introduction to the Christian tradition remains central to the religious education provided in our schools. The law does not require that the act of worship should be Christian in content, although the authors of the 1944 Education Act presumably envisaged that it should be so at the time.
The Earl of Lauderdale: My Lords, can the noble Baroness clarify one point in her first Answer? As I understood, she said that it would not be proper to keep account of schools' performances in this matter. Is that really what she said, and what she meant? If so, is that not a rather strange? If the law has been broken, it has been broken, and we should know.
Baroness Hooper: My Lords, yes; but under the statute, the responsibility lies with the school and with the local authority to conduct the religious education in a school, and the remedies are there. It is only if people remain dissatisfied that they should complain to my right honourable friend the Secretary of State.
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However, over the past few years very few such complaints have been received.
Lord McIntosh of Haringey: My Lords, would the noble Baroness care to remind the House that the 1944 Education Act provides for religious instruction and collective worship? Would she not agree that what has happened in the past 40 years has been enormously to the benefit of religious education in that the range of religious faiths among the parents and children in our schools has increased very greatly? Is that not a benefit for religious education rather than a disadvantage?
Baroness Hooper: My Lords, yes indeed. The Government believe that the statutory framework for religious education and collective worship has stood the test of time. I think I said in my first response that religious education and collective worship make a special contribution to the education of pupils and for educational as well as legal reasons have a significant place within the school curriculum.
Lord Nugent of Guildford: My Lords, is my noble friend aware that the thought behind the 1944 Education Act, was that all that is best and great in the life of our country has come from the Christian tradition and Christian teaching? Therefore, all children should be given at least a rudimentary knowledge of that in the schools. Is that not the very best tradition that we should try to maintain today?
Baroness Hooper: My Lords, yes; and that is the Government's policy.
Baroness Seear: My Lords—
Lord Denham: My Lords, I wonder whether the noble Baroness will excuse me for half a minute, and then I will give way to her. We have spent 28 minutes on three questions. Already we have been eight minutes on this particular question. Therefore, after the noble Baroness has asked her question, and my noble friend has replied, I think the House may feel we should move on to the next Question.
Baroness Seear: My Lords, does the noble Baroness agree that many of us believe that these matters are better settled by a responsible committee at local level, representing local views which are bound to vary in different parts of this now multi-cultural country? Many of us would be deeply alarmed if the Government as such were to dictate what we put into syllabuses of this kind. After all, we do not know what kind of Government we are going to have in the future.
Baroness Hooper: My Lords, as I have said, the ultimate recourse only is to the Secretary of State. In view of the very small number of complaints which have followed that channel, clearly that is the general view.

Unemployment Benefit: Personnel Costs
3.8 p.m.
Lord Molloy: My Lords, I beg leave to ask the second Question standing in my name on the Order Paper.
The Question was as follows:
To ask Her Majesty's Government what are the costs of, and the number of personnel required in, counting the unemployed, paying unemployment benefit and maintaining records.
The Secretary of State for Employment (Lord Young of Graffham): My Lords, the cost of counting the unemployed, paying unemployment benefit and maintaining records is expected to be some £277 million in 1986–87; about 28,500 staff are engaged in this work. These figures include the cost of paying supplementary allowances to unemployed people. A very small proportion of these resources is devoted to counting the unemployed and maintaining records.
Lord Molloy: My Lords, I wish to thank the Minister for his reply and the work he has obviously done to arrive at the answer. Would he not agree that it is a rather serious situation when we are spending so much in order to count, and pay, those of our fellow Britons who are unemployed? Would he not further agree that perhaps we have not got to the root cause of unemployment? Would he not also agree that in the past four or five months of the Callaghan Government unemployment began to decrease from 1·3 million to almost 1·2 million? It was decreasing. What has happened thereafter which has now sent the figure soaring to nearly 3·5 million?
Lord Young of Graffham: My Lords, I am grateful for the opportunity to tell the noble Lord, Lord Molloy, that it was world conditions since 1978 which caused unemployment to more than double in the United Kingdom; to more than double in France; to more than double in Germany; and to nearly treble in Spain. Economic conditions at that time had a great deal to do with it. If we look round the whole of Europe, we will see that unemployment is endemic to Europe. The costs that we incur here are possibly greater than the costs that are spent in European countries because we pay unemployment benefit for longer periods than most other countries.
Lord Molloy: My Lords, I am sure that the House would agree that the noble Lord has striven to introduce all sorts of schemes to help alleviate the effects of unemployment. Would he not agree that that is not enough? It is not possible to give comfort to any British family where the breadwinner and the son are on the dole by saying: "But do not worry, so are the French; so are the West Germans; so are the Belgians." They do not accept that. They know that during the past few months of the Labour Government unemployment started to come down. It has now risen astronomically. Perhaps there is one basic cause of unemployment in this country which we could tackle together.
Lord Young of Graffham: My Lords, if there was an answer, and if there was an alternative policy, I suspect that the socialist Government of France; the socialist Government of Spain, the socialist Government of Italy and the socialist Government of Ireland would have seized upon such a policy, even if this Government would not. The simple fact is there was no easy answer to unemployment. We are all making progress, and I suspect that the progress we are making is as good as anybody. The noble Lord will have to comfort himself with that. Let me assure all in your Lordships' House that high unemployment is not very conducive to the employment prospects of politicians, and no government actually wants or welcomes high unemployment.
Lord Kilbracken: My Lords, would the noble Lord correct his statement that there was a socialist government in Ireland?
Lord Young of Graffham: My Lords, over the period we were talking about, and in the period 1980 to 1985 or 1986 there have been socialist and centre governments in Ireland.
Noble Lords: Coalition.

Western Isles Islands Council (Berneray Harbour) Order Confirmation Bill
Read a third time, and passed.

Financial Services Bill
3.10 p.m.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth): My Lords, I beg to move the Bill be now further considered on Report.
Moved, That the Bill be further considered on Report.—(Lord Lucas of Clulworth.)
On Question, Motion agreed to.
Clause 53 [Indemnity rules]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 152:
Page 37, line 30, at end insert ("; and any such request shall not be capable of being withdrawn after rules giving effect to it have been made but without prejudice to the power of the Secretary of State to revoke the rules if he thinks fit.")
The noble Lord said: My Lords, I beg to move Amendment No. 152, but perhaps I should advise your Lordships that, due to a clerical error, another minor amendment to Clause 53 deleting subsection (5) was not tabled. We shall be rectifying this omission by tabling that amendment at Third Reading. In the meantime, I beg to move Amendment No. 152.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 153:
After Clause 53, insert the following new clause:
("Compensation fund.
.—(1) The Secretary of State may by rules establish a scheme for compensating investors in cases where persons who are or have been authorised persons are unable, or likely to be unable, to satisfy claims in respect of any description of civil liability incurred by them in connection with their investment businesses.
(2) Without prejudice to the generality of subsection (1) above, rules under this section may—

(a) provide for the administration of the scheme and, subject to the rules, the determination and regulation of any matter relating to its operation by a body appearing to the Secretary of State to be representative of, or of any class of, authorised persons;

(b) establish a fund out of which compensation is to be paid;

(c) provide for the levying of contributions from, or from any class of, authorised persons and otherwise for financing the scheme and for the payment of contributions and other money into the fund;

(d) specify the terms and conditions on which, and the extent to which, compensation is to be payable and any circumstances in which the right to compensation is to be excluded or modified;

(e) provide for treating compensation payable under the scheme in respect of a claim against any person as extinguishing or reducing the liability of that person in respect of the claim and for conferring on the body administering the scheme a right of recovery against that person being, in the event of his insolvency, a right not exceeding such right, if any, as the claimant would have had in that event; and

(f) contain incidental and supplementary provisions.

(3) A scheme under this section shall not be made so as to apply to persons who are members of a recognised self-regulating organisation except after consultation with that organisation or except at the request of a recognised professional body to persons who are certified by it and subject to its rules in carrying on all the investment business carried on by them; and no scheme applying to such persons shall be made unless the Secretary of State is satisfied that the rules establishing it make sufficient provision—

(a) for the administration of the scheme by a body on which the interests of those persons are adequately represented; and

(b) for securing that the amounts which they are liable to contribute reflect, so far as practicable, the amount of the claims made or likely to be made in respect of those persons.

(4) Where a scheme applies to such persons as are mentioned in subsection (3) above the rules under this section may—

(a) constitute the recognised self-regulating organisation or recognised professional body in question as the body administering the scheme in relation to those persons;

(b) provide for the levying of contributions from that organisation or body instead of from those persons; and

(c) establish a separate fund for the contributions and compensation payable in respect of those persons, with or without provision for payments and repayments in specified circumstances between that and any other fund established by the scheme.

(5) A request by a recognised professional body under subsection (3) above shall not be capable of being withdrawn after rules giving effect to it have been made but without prejudice to the power of the Secretary of State to revoke the rules if he thinks fit.
(6) Rules may be made—

(a) for England and Wales, under sections 411 and 412 of the Insolvency Act 1986;

(i) under the said section 411; and

(ii) in relation to the application of this section where the persons who are or have been authorised persons are persons whose estates may be sequestrated under the Bankruptcy (Scotland) Act 1985, by the Secretary of State under this section; and

(c) for Northern Ireland, under Article 613 of the Companies (Northern Ireland) Order 1986 and section 65 of the Judicature (Northern Ireland) Act 1978,
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for the purpose of integrating any procedure for which provision is made by virtue of subsection (2)(e) above into the general procedure on a winding-up, bankruptcy or sequestration.").

The noble Lord said: My Lords, I spoke to Amendment No. 153 when we discussed Amendment No. 78 during our first day's proceedings on Report. At that time I outlined all that we had to say about this group of amendments. It might be for the convenience of your Lordships if I now listen to any further representations, of which notice was given late on Tuesday night, before I add anything further. I beg to move Amendment No. 153.
[Amendment No. 153ZA to Amendment No. 153 not moved.]
3.15 p.m.
Lord Graham of Edmonton Lord Graham of Edmonton moved, as an amendment to Amendment No. 153, Amendment No. 153A:
Subsection 1, line 4, after ("persons") insert (", except persons authorised by virtue of section 22 above,").
The noble Lord said: My Lords, the point I wish to raise is whether the Government appreciate that initially here is a value and perhaps an attractiveness in looking at the question of a compensation fund, with all the problems with which that is likely to deal. In Clause 22 of the Bill there is a whole raft of very prominent, respectable and experienced organisations which are already concerned with, covered by, and caught by the provisions of the Bill. My amendment asks the Government to consider excluding those which are covered by Clause 22, and I ask the Government to look at whether there is a need for them. I beg to move.
Lord Lucas of Chilworth: My Lords, I do not think that I can add anything further to what I said on Tuesday night concerning this group of amendments. I am quite happy to look at what I think the noble Lord, Lord Graham, is driving at; but I must tell him that at this time I can offer him very little hope that we shall be inclined to change the view which we currently hold on this matter.
Lord Graham of Edmonton: My Lords, I am grateful that the Minister is willing to look at the point which I seek to make. Perhaps I may elaborate my point. The Policyholders' Protection Act provides the possibility of compensation broadly in line with the kind of situation and circumstance which the Government seek to meet in what is a major new provision. Since the Government announced their intention, albeit to provide better consumer protection and better policyholder protection, in general I can see a great deal of merit in it. I am simply arguing, as we have argued before on other aspects of the Bill, that we do not wish to add two layers of bureaucracy and certainly two layers of financial provision to anybody within the financial services sector. Therefore, the Minister having said that he will consider whether something may happen as a result of discussion or correspondence, not least with the organisations involved and certainly those that will be covered by the SRO and LAUTRO, which will have a great deal to do with the conduct of business rules, which will affect insurance companies and societies, on the basis

15
that the Minister is at least prepared to see whether he can lessen the unease of that body of people, I am prepared to withdraw the amendment.
Amendment No. 153A to Amendment No. 153, by leave, withdrawn.
[Amendments Nos. 153AA and 153E to Amendment No. 153 not moved.]
Lord McIntosh of Haringey Lord McIntosh of Haringey moved, as an amendment to Amendment No. 153, Amendment No. 153C:
Subsection (2)(d), at end insert ("provided that the maximum compensation payable to any single investor shall not be less than £1.00,000.").
The noble Lord said: My Lords, I appreciate that this amendment is grouped with a number of amendments to which we have already spoken. Not only do we have a somewhat larger House than we had approaching midnight last Thursday, but at that time I warned the Government that this was not a matter which we could let pass.
Our position in relation to the basic amendment, Amendment No. 153, which sets up a central compensation fund, is one broadly of support and welcome. We are pleased that the Government have recognised the logic of the argument for a central compensation fund. We are pleased that they have recognised that not all SROs will have the same financial standing and backing as the stronger ones will have, and that therefore it is necessary for the SIB to take a positive step in setting up the central compensation fund. To that extent we congratulate the Government.
However, at the end of that debate I also said that we would wish to see the central compensation fund strengthened and we would certainly oppose any amendments, such as that in the name of the noble Lord, Lord Ezra, which would have the effect of weakening the central compensation fund.
One of the most important ways in which the central compensation fund can be strengthened is by securing that there is an adequate fund available and that adequate compensation will be payable to any individual investor. Figures have been bandied around in a non-statutory way by the Securities and Investments Board. Figures have been suggested of a maximum payment for any one claim of £30,000; there have been other suggestions of a maximum of £45,000.
The Stock Exchange, being, as we well recognise, perhaps the strongest of the SROs, already has a scheme which provides a very much larger maximum payment on any individual claim. To that extent, this amendment is a compromise. It says that there shall be the possibility of compensation payable of not less than £100,000. It is not that every claim will be for £100,000. Obviously many claims will be for smaller amounts because the degree of involvement of the investor will be very much smaller. However, it is important that as few claims as possible should be scaled down on the grounds that the scheme is not adequate to meet the risk and the shortfall which has been incurred by the failure, by fraud or otherwise, of the investment oganisation concerned. We believe it is
16
so important that there should be clearly for the public, and known to the public, a reasonably high limit for payment under any one claim that we think that this matter should be written on the face of the Bill.
I hasten to say, because the noble Lord, Lord Lucas, hinted that this would involve all sorts of other requirements for the face of the Bill, that this is not the intention of the amendment. We are not saying here that every single item of the constitution of the compensation fund should be on the face of the Bill. We say that there should be a figure, that it should be a reasonably high figure but not an excessively high figure, and that everybody should know about it. To that extent, we think that this amendment is an important and valuable addition to the valuable additions made to the Bill by the government Amendment No. 153. I beg to move.
Lord Lucas of Chilworth: My Lords, again, I am sorry to have to come back to the Box and say that I think I have said all I can say about this, because that is the truth of the matter. Let me just repeat what I said, because the noble Lord, Lord McIntosh, has not added anything to the fairly short remarks he made last Tuesday. We would not wish to impose such an obligation on any of the bodies concerned, because our new Clause 53 provides that the bodies shall make the best provision that can reasonably be made.
For the reasons that the noble Lord, Lord McIntosh, suggests I hinted at, which I think I spelt out fairly firmly on Tuesday, I am suggesting that this amendment is inappropriate and I would ask your Lordships to reject it. There is a principle in Schedule 8 which requires compensation to be the best that can reasonably be made. If we attach any particular figure, that would definitely be a second best. I fear that I cannot help your Lordships any further in this general matter of numbers against the much wider description "best provision that can reasonably be made".
Lord Shepherd: My Lords, I am sorry that I was not present when this matter was discussed earlier. The noble Lord used the phrase "the best provision that can reasonably be made". I suppose this follows on establishing a fund out of which compensation is to be paid. Who would take a view whether the best provision has in fact been made?
When that fund has been created as a consequence of the new clause is there any organisation (or is it the Secretary of State) that can say whether that fund is adequate, or that it could have been better within the resources of the organisation concerned? Who would make the judgment that the words of the noble Lord had been fulfilled?
Lord Lucas of Chilworth: My Lords, with the leave of the House, I shall rise again to answer the specific question. The SROs will produce their compensation plan. That will go to the SIB and will have to be broadly within the SIB's general rules, but then it is for the Secretary of State, when deciding whether to delegate the powers to the designated agency which we are calling the SIB, to assure himself that, bearing in mind all the factors, such a compensation scheme within an SRO is the best that can reasonably be made.
Lord McIntosh of Haringey: My Lords, I can scarcely say that I am disappointed by the Minister's reply since, as he said, he gave his reply in virtually the same terms of Tuesday night. But I have to say that I am disappointed by the replies he has made both on that occasion and on this occasion, because his replies sit uneasily in the mouth of a government who claim to be protecting the interests of the small investors.
It may be that Schedule 8 provides for reserve powers for the Secretary of State and ultimately no doubt from the courts, but that is not any guidance that can be used and prepared for by the small investor. A small investor who is committing his financial resources to an investment on the advice of one of the members of the self-regulatory organisations under this Bill needs to know in advance the extent to which there is likely to be compensation available for him in the event of fraud, malpractice, or financial failure on the part of the investment house.
That is what is not provided by Schedule 8, and that is what ought to be provided in public and in advance in the terms of this amendment. This is not in any way a wrecking amendment. It is a supportive amendment, and one that the Government, if they are serious about their concern for the small investor, ought to be supporting. I fear that this is a matter on which I shall have to seek the opinion of your Lordships.
3.27 p.m.
On Question, Whether the said amendment (No. 153C) shall be agreed to?
Their Lordships divided: Contents, 45; Not-Contents, 110.

DIVISION NO. 1

CONTENTS

Ardwick L.

McIntosh of Haringey, L.

Blyton, L.

Mishcon, L.

Briginshaw, L.

Molloy, L.

Brockway, L.

Morton of Shuna, L.

Bruce of Donington, L.

Parry, L.

Carmichael of Kelvingrove, L.

Pitt of Hampstead, L.

Cledwyn of Penrhos, L.

Ponsonby of Shulbrede, L. [Teller.]

Collison, L.

David, B. [Teller.]

Rea, L.

Dean of Beswick, L.

Ross of Marnock, L.

Denington, B.

Shackleton, L.

Ennals, L.

Shepherd, L.

Falkender, B.

Silkin of Dulwich, L.

Gallacher, L.

Stallard, L.

Graham of Edmonton, L.

Stewart of Fulham, L.

Jenkins of Putney, L.

Stoddart of Swmdon, L.

John-Mackie, L.

Strabolgi, L.

Kearton, L.

Taylor of Mansfield, L.

Kilbracken, L.

Turner of Camden, B.

Leatherland, L.

Underhill, L.

Listowel, E.

Wallace of Coslany, L.

Llewelyn-Davies of Hastoe, B.

Williams of Elvel, L.

Lockwood, B.

Young of Dartington, L.

NOT-CONTENTS

Ailesbury, M.

Boyd-Carpenter, L.

Annan, L.

Brabazon of Tara, L.

Beaverbrook, L.

Bridgeman, V.

Belhaven and Stenton, L.

Broadbridge, L.

Beloff, L.

Brougham and Vaux, L.

Belstead, L.

Broxbourne, L.

Bessborough, E.

Buchan, E.

Blyth, L.

Byron, L.

Boardman, L.

Caithness, E.

18

Cameron of Lochbroom, L.

Layton, L.

Campbell of Alloway, L.

Lloyd of Hampstead, L.

Campbell of Croy, L.

Long, V.

Carnock, L.

Lucas of Chilworth, L.

Colville of Culross, V.

McAlpine of Moffat, L.

Constantine of Stanmore, L.

McAlpine of West Green, L.

Cottesloe, L.

Macleod of Borve, B.

Cox, B.

Mancroft, L.

Cullen of Ashbourne, L.

Manton, L.

Davidson, V. [Teller.]

Margadale, L.

De Freyne, L.

Merrivale, L.

Denham, L. [Teller.]

Mersey, V.

Dilhorne, V.

Molson, L.

Dudley, B.

Morris, L.

Eccles, V.

Mountgarret, V.

Effingham, E.

Newall, L.

Ellenborough, L.

Nugent of Guildford, L.

Elliot of Harwood, B.

O'Brien of Lothbury, L.

Elliott of Morpeth, L.

Penrhyn, L.

Elton, L.

Peyton of Yeovil, L.

Faithfull, B.

Porritt, L.

Fortescue, E.

Portland, D.

Fraser of Kilmorack, L.

Redesdale, L.

Gainford, L.

Reigate, L.

Gibson-Watt, L.

Renton, L.

Gisborough, L.

Robertson of Oakridge, L.

Glanusk, L.

Rodney, L.

Gormanston, V.

St. Davids, V.

Gridley, L.

Saltoun of Abernethy, Ly.

Hailsham of Saint

Sanderson of Bowden, L.

Marylebone, L.

Savile, L.

Halsbury, E.

Shannon, E.

Hankey, L.

Skelmersdale, L.

Hayter, L.

Somers, L.

Henderson of Brompton, L.

Stodart of Leaston, L.

Hesketh, L.

Terrington, L.

Hives, L.

Trumpington, B.

Hood, V.

Tryon, L.

Hooper, B.

Vaux of Harrowden, L.

Hylton-Foster, B.

Vickers, B.

Ironside, L.

Vivian, L.

Kaberry of Adel, L.

Ward of Witley, V.

Kimball, L.

Wolfson, L.

Kinloss, Ly.

Wynford, L.

Kitchener, E.

Yarborough, E.

Lane-Fox, B.

Young, B.

Lauderdale, E.

Resolved in the negative, and amendment disagreed to accordingly.
3.35 p.m.
Lord Ezra Lord Ezra moved, as an amendment to Amendment No. 153, Amendment No. 154:
Subsection (3), line 3 leave out ("after consultation with") and insert ("at the request of").
The noble Lord said: My Lords, I should also like to speak to Amendment No. 155, which goes with this amendment. Although this subject of the compensation fund was briefly debated when Amendment No. 78 was taken late on 14th October, it was then agreed that we would come back to it with later amendments. I am glad that we have done so because this is a matter of considerable importance, as previous amendments have indicated.
I believe that there is agreement on all sides of the House that we should aim for an effective compensation scheme. However, there are differences of view as to how that might be achieved. The SIB takes the view that there should be a central scheme. Indeed, that is enshrined in the amendment which the noble Lord, Lord Lucas, has moved on behalf of the Government to come after Clause 53. I put forward amendments as amendments to that new clause because I feel that before we make up our minds on

19
this point we should seriously ponder whether there is another route. We are, after all, putting in place a self-regulatory system which Will be supervised by the SIB and largely operated by the SROs.
The essence of that system is that rules should be applied by the SROs which will be adequate for their functioning and approved by the SIB. There must clearly be an effective surveillance system to make sure that the rules are effectively applied. There must be a compensation system for the benefit of investors if those rules for any reason are not effectively applied. The three go together; effective rules, an effective surveillance system and an effective compensation system. If the compensation system is now looked at as a common operation, then it calls in question whether the surveillance system, and indeed the rules, should not be treated in the same way.
I feel that there is some inconsistency in the approach to this; but it is not only a matter of inconsistency; it is a question of whether we can achieve the best results through a common compensation fund or through SRO-based compensation funds.
The Stock Exchange is a notable example of an SRO which since 1950 has operated a very effective fund, and at a level much higher even than was envisaged by the Labour amendment we have just discussed. If we have a common compensation fund arrangement, the fear is twofold. First, it will tend to weaken the impact of the surveillance system, because those SROs which are least in a position to provide adequate compensation may feel least impelled to provide adequate surveillance. Secondly, the disadvantage is that it could drag down the standard of those which operate a high standard because it will impose on them a further obligation.
In the discussion which took place on this matter at an earlier stage the case of McDonald Wheeler of Canterbury was mentioned—a very important issue indeed and one which must not be allowed to recur. There must be adequate compensation for those who suffer from the failure of such a firm. But what I should like to submit is that there should be adequate compensation arrangements at the SRO level to cope with that situation. This is what we should aim for, and it should be a condition of the acceptance of an SRO in the role which it is to play under this legislation.
I should like the House to consider very seriously the alternative approaches. The objectives of the protagonists of both the common scheme and the individual SRO scheme are identical. We wish to get the best possible scheme in operation, but I submit that if we go for a self-regulatory scheme, the obligation to provide adequate compensation should rest on the SRO and the SIB should see that the individual SROs are capable of operating such a scheme as a condition of their taking on these responsibilities, just as they will have to have adequate rules and an effective surveillance system. It is with that objective in mind that I should like to commend these two amendments. I beg to move.
Lord Terrington: My Lords, as I have spent most of my working life as a member of the Stock Exchange,
20
I should like to say a few words about these amendments because personally I feel that it would be a great pity if the exchange's excellent compensation fund was compelled to join a central scheme. Also, I say this partly because I am a member of the Wider Share Ownership Council, and I rather fear that this new approach, which has come very late in the day, threatens to provide less protection for the individual investor than is at present available from the Stock Exchange. After all, the Stock Exchange has a very long and well-proven record of financial regulation of its members. As a result, those members are very ready to stand behind their compensation fund. Furthermore, insurance cover has been obtained because of the confidence of underwriters in the Stock Exchange's record.
Bearing that point in mind, I am very uneasy that an organisation such as the Stock Exchange, which goes beyond the regulatory requirements for surveillance laid down by the SIB, should have to accept a liability for any weaknesses of less-strict regulators over whom it has neither control nor influence. I read the Official Report of last Tuesday's debate on Amendment No. 78, which, unfortunately, I was unable to attend. I should like to refer briefly to one or two points which were made during the course of that debate.
First of all, the noble Lord, Lord Lucas of Chilworth, said that he felt a system run under the auspices of the SIB which did not include the larger SROs would be only second-best. With the greatest respect to him, I find it difficult to agree with the noble Lord's comment when figures of only £30,000, or possibly a bit more, were being talked about for a central fund while the Stock Exchange arrangements are for £250,000 per claim in respect of a failure of a member firm. This £250,000 limit is increased to £500,000 above the £250,000 attributable if attributable to a misappropriation of securities registered or cash deposited in the name of a nominee company which is owned by a member firm. In addition, where a claim arises as a result of losses incurred by lenders of securities to a failed Stock Exchange money broker, no limit at all to the amount of claim will be applied.
The noble Lord, Lord Lucas, also said that it would be possible for SROs which chose to do so to provide a top-up scheme, but I am rather afraid that their ability to do this is likely to be severely hampered by the economics of the central scheme. The Stock Exchange's existing scheme is very cost effective, partly as a result of the insurance cover it is able to obtain and, in the light of the added liability to which members would be subject if they were required to participate in a central scheme, insurance cover would probably be very difficult to obtain, and certainly more costly. May I also add that a major body such as ISRO (International Securities Regulatory Organisation) is equally opposed to the establishment of a single industrywide compensation scheme. It, understandably, is concerned about the position of its international members under these new proposals.
I can only conclude by saying that I cannot go along with a proposal which appears to pay insufficient attention to the all-important, fundamental link between compensation and financial surveillance—a point which has been already very strongly brought

21
out by the noble Lord, Lord Ezra, when he moved his amendment. This seems to me to be the crux of the whole matter. Having said that, perhaps I may ask the noble Lord the Minister whether he will consider taking another look at his proposals, as, indeed, Lord Ezra also asked, even at this late stage.
3.45 p.m.
Lord O'Brien of Lothbury: My Lords, with nearly 400 amendments still before your Lordships I shall not delay you by repeating the arguments so admirably deployed by the noble Lords, Lord Ezra and Lord Terrington. However, I should like to say that I strongly support this amendment. I believe that it is the very essence of self-regulation (which I think your Lordships know I strongly believe in) that compensation should derive from the self-regulating organisations. This is not a case where it seems to me reasonable for the strong to be asked to support the weak and thus preserve the weak from their own deficiencies. I believe that this amendment should be supported.
Viscount Bridgeman: My Lords, I have to declare an interest as a member of the Stock Exchange. I understand that the chairman of the Stock Exchange has been in correspondence with Mr. Michael Howard to voice the Stock Exchange's concern over the cross-subsidisation provisions of this clause in particular. I understand that in a recent letter Mr. Howard has said that the answer lies in our own hands, in the success of the SROs and the SIB in minimising the chance of default. Would that it did! With the greatest respect to the Minister, this is simply not so. The conduct and standards of other SROs are out of our hands entirely, as the noble Lord, Lord Ezra, has said.
As the Government's amendment now stands, less well-regulated SROs may be tempted to drop their standards of surveillance in the knowledge that in the case of default by one of their members the fellow SROs will be there with their cheque books. It is this issue of cross-subsidisation, the liability to pay compensation on behalf of bodies over which it has no control, which is of such concern to the Stock Exchange.
The noble Lord, Lord Terrington, referred to the underwriting of the Stock Exchange's own fund and to the very cost-effective cover that it is now able to obtain. If it is now to have liability to claims on other SROs, this will have to be met initially from a levy on its own members, and I am advised that the top-up of our own arrangements (as the noble Lord, Lord Terrington, has said) merely to restore its own current levels of compensation will be expensive and difficult. As a working member responsible to my clients, I believe that the effect must inevitably be one of two unsatisfactory alternatives. First, the cost of providing this cover and this levy will be passed on to the members; or—and possibly even less satisfactory—the Stock Exchange may be forced to review its own levels of compensation—effects surely neither intended nor envisaged by this Bill.
Lord Robertson of Oakridge: My Lords, I am sorry not to have been present for the debate on Tuesday. I
22
should like to support Amendments Nos. 154 and 155 because I have misgivings about the new clause in Amendment No. 153. First, I must declare an interest in that I, too, am a member of the London Stock Exchange. As such a member I have confidence in the Stock Exchange compensation arrangements because I have confidence in the surveillance exercised by the Stock Exchange. It cannot be emphasised too much that, if a compensation scheme is to be fair and workable, surveillance and compensation must go hand in hand. I believe that the government proposals breach this principle. Other noble Lords have spoken on this all-important point and I shall say no more on it.
The main point that I want to make concerns civil liability. The present Stock Exchange compensation fund is designed to ensure that in the event of a failure of a member firm no client who has an outstanding transaction with that firm should lose financially because of its failure. Now we are faced with proposals that would cover any civil liability; for example, for negligence or misdemeanour. That would drastically extend the scope of the compensation arrangements.
At present in this country, it is mercifully rare for action to be taken in the courts against financial firms for failing in their duties. However, I understand this is by no means the case in the United States and I fear there must be a chance that we shall follow its lead. Furthermore, the figures could be very large indeed. I wonder whether the Government or the SIB realise quite how large they might be and whether they have fully worked out the implications. Only last Thursday The Times reported that it is estimated that Lloyd's insurance brokers pay 10 per cent. of their brokerage income in professional indemnity costs. Some firms are paying up to 20 per cent., which is calling their viability into question.
In last Tuesday's debate, the Minister pointed out that the Stock Exchange compensation fund did not cover an award of damages for negligence, and I think there was an implied mild criticism in his remark. The reason the fund does not do so is that professional indemnity is much better covered by firms taking out the appropriate insurance cover. That is the best way to maximise investor protection.
I fully share the obvious desire of your Lordships for adequate compensation arrangements. However, the proposals in Amendment No. 153 have been produced at a very late stage during the passage of this Bill. I do not believe they have been fully thought out, and I feel they are unlikely to prove fair and workable. I urge the Minister to consult again with the SIB in the light of the points which have been made during this debate, with a view to producing at Third Reading either revised proposals or assurances on the points that have been raised and on the particular issues that I have raised on the question of civil liability. For the present, as the best way out of an unsatisfactory situation, I support Amendments Nos. 154 and 155.
Lord Boardman: My Lords, my point on this amendment differs slightly from those of noble Lords who have spoken so far, but I think it may be for the convenience of the House if I raise it at this time because really it is a point for clarification on

23
Amendment No. 153. I raised the point with my noble friend late on Tuesday night. I was anxious to get clarification or assurance on a matter which has been particularly troubling the clearing banks; and I have to declare an interest in that I am chairman of one of them.
At that late hour, I may not have put my question to the Minister as clearly as he would have wished; and so this afternoon perhaps he can give me the assurance I should like to have. It is that the contribution by each member to the compensation fund to which he is contributing shall reflect the amount of the claims likely to be made in respect of that member: in other words, it will reflect the risk factor. To some extent that is already covered in the proposed subsection (3)(b), which reads:
"so far as practicable, the amount of the claims made or likely to be made in respect of those persons".
There are three separate sets of circumstances to which this could apply, and it is clarification there for which I seek my noble friend's assistance. The first is of course the contribution made as between members of an SRO. One may have within an SRO some very powerful members with large resources, such as the clearing banks, and other members whose resources are considerably less and where the risk factor may be considerably higher. How are the contributions to be assessed between them? I hope my noble friend will be able to say that it would reflect the risk factor.
Secondly, there is the relative contribution to be made between the separate SROs. In so far as cross-subsidisation can be raised, is it likely or is there a risk that SROs will be expected to bear a larger proportion of the load to support the higher-risk ones? There is also the third circumstance, which came up because of a press release put out by the chairman of the SIB earlier this month. There, referring to the compensation fund, he said:
"Each SRO's operation of their part of the central scheme would be a stand-alone arrangement. Other SROs would only be involved if a particular SRO found itself with such a bad experience of claims that it believed its members would be unable to bear the levy required either immediately or over a period of years".
I think the concern there is that it implies that if an SRO is not able to meet the full obligation of the fund then it can tap another of the SROs or the central fund. But that applies only when they have exhausted the resources of the particular SRO which is in default, so that the larger and richer members of that SRO will be obliged to dip right into their pockets before there is any resort to anyone else.
I believe that is an unsatisfactory state of affairs. It really creates a joint and several liability among each of the members of an SRO, and that would put a very heavy burden on those with greater resources in that they would be having to support all their weaker brethren in that SRO. It would leave the clearing banks in this case virtually underwriting the whole of the operations of each of the SROs. I am sure that my noble friend thinks that would be an unfair burden, so I hope he will be able to give an assurance that contributions in all circumstances will be related to the risk attached to the contributor. If my noble friend can give that assurance, that will more than satisfy me.
4 p.m.
Lord Lucas of Chilworth: My Lords, I am grateful to all noble Lords who have taken part in this further debate on the compensation clauses, which we discussed at fairly great length last Tuesday night. I should say that at this moment in time I remain very much of the view that I expressed to your Lordships on that occasion. However, it would be quite wrong if I were to rest there without making some response to the various points that have been raised. In general terms, we remain convinced that it is right that the rules should be able to allow, subject to certain safeguards, the establishment of a central compensation scheme because this will enable the compensation arrangements to be effective and, we believe, well funded.
The noble Lord, Lord Ezra, in making his remarks, made two statements and asked one particular question. His first statement was that the federal scheme would weaken the surveillance system, and he gave his reasons for suggesting that. I do not agree with him. If the noble Lord feels that because of monetary considerations the SROs' monitoring system is going to be particularly weakened—almost wittingly weakened—I would suggest to him that the SRO setup would be quite wrong. However, I do not think he means that. He also said that the arrangements which the Government envisage would drag down the higher standard people. I do not believe for one minute that in the City the people of recognised high standards are going to be dragged down by any compensatory arrangements that may be made.
His question was: is there another route? Yes, there is. It is in part the route he suggested: that is for the Bill to provide a fragmented compensation arrangement. That in fact would be the result of his Amendments Nos. 154 and 155. Consistency in a high-standard compensation fund can best be achieved by the route the Government have proposed, and that is when we envisage the possibility of a single, industry-wide scheme. This does not require compensation in the cases he mentioned in detail. For example, the amendments we have tabled go to great lengths to incorporate the safeguards which meet the concerns of the Stock Exchange and others.
I address myself in my next remarks to my noble friend Lord Bridgeman, the noble Lord, Lord Terrington, and to some extent to the noble Lord, Lord Robertson of Oakridge. The Stock Exchange has to be congratulated on having longer established regulations than any other embryonic SRO, but it is fundamental to the regulatory system that all recognised bodies provide adequate levels of protection for their investors. I hope that they will not overlook the possibility of using the Stock Exchange's own compensation fund to provide investors using the services of Stock Exchange members with compensation cover well above the maximum level which may be set by the SIB rules.
My noble friend Lord Bridgeman suggested that there were no safeguards so far as concerns that scheme. However, there are safeguards. The safeguards in the Bill are twofold. The first safeguard protects against cross-subsidy. Subsection (3) of the new clause states that the rules must make sufficient provision for securing that the amounts which firms

25
are likely to contribute reflect, so far as practicable, the amount of the claims made or likely to be made in respect of those firms. I am advised that there is considerable force in the words "so far as practicable". They mean that cross-subsidy should be avoided where it can be avoided.
The second safeguard is built into the management of the compensation scheme. There is a requirement for consultation on the rules. There is a further requirement that the body administering the scheme must have adequate representation of the interests of the firms who will be covered by this scheme. If Stock Exchange members are brought into a central scheme, this provision will require that their interests are properly represented.
I believe it was the noble Lord, Lord Terrington, who drew our attention to the fact that the Stock Exchange scheme has higher compensation levels, but I think he will recognise that that is only in and for certain circumstances in which investors may suffer loss. The SIB scheme which we envisage can provide compensation where there are losses arising from the negligence of the firm for which the Stock Exchange does not compensate, and both he and the noble Lord, Lord Robertson of Oakridge, who raised this point, are quite right. In the investor's eyes, the SIB scheme with its wider coverage may well be seen as "better"—I put the word in inverted commas. This of course does not rule out the top-up by the Stock Exchange or indeed by any other SRO.
The noble Lord, Lord Robertson of Oakridge, admitted that the indemnity costs to himself and like members approach something between, I believe, 10 per cent. and 20 per cent. He said that insurance would be a very difficult matter for the new regulatory bodies, and I accept that, with no track record, any one of the five or possibly six SROs that are envisaged would have very great difficulty. However, in an industry-wide scheme that difficulty might well be minimised.
I finally turn to the point which my noble friend Lord Boardman made. He kindly reminded us of his particular interest, which is the worries that the banks have. I should apologise to him, as I do to the House, if my remarks last Tuesday night were not as clear as I should have liked them to be. Let me remind my noble friend that I have already offered an assurance to him. Let me repeat that assurance. Nothing in the Bill requires the rules to levy businesses equally, regardless of the likelihood of claims against them. The Bill specifically allows, by virtue of Clause 199(3), for different provisions to be made for different cases.
My noble friend is concerned about the position of a firm—for example, a bank—belonging to several regulatory organisations. I assure him and all noble Lords that this is a matter which we have considered most carefully. The new clause provides in subsection (4)(b) for the possibility of contributions being made by individual SRO members, rather than the contribution coming from the SRO as a whole. This provision therefore allows a particular SRO member to contribute according to arrangements worked out by the SROs and the SIB, which accommodates the point my noble friend raised.
My noble friend is also concerned with a bank's position as a member of one SRO which is being levied
26
by the SIB. Let me offer my noble friend two assurances here. First, the body taking any decision on the circumstances and on the amounts where levies are made will be the body administering the compensation scheme and not the SIB. This administering body has to be representative of the firms within its scope. Secondly, the rules determining when any cross-subsidy might arise will have to be made public in advance of any levy, so there is an opportunity and a requirement for consultation.
I believe that this exchange which we have had across the House highlights the quite proper concerns that various noble Lords have, and I am quite confident that when Sir Kenneth Berrill has reflected on these matters in the light of the discussions in your Lordships' House, and when he publishes his draft rules on compensation, he will have been able to have regard to the concerns that have been expressed and also to the view which Her Majesty's Government have expressed through what I have said.
Simply put, the issue is this. The Government and the Opposition have generally supported industry-wide compensation schemes as representing the best possible arrangement. Any fine tuning to represent particular interests within the industry-wide scheme which is generally agreed would, I believe, be extremely damaging. I urge your Lordships to reject the amendment being put before us this afternoon, leaving intact the Government's proposal for a federal and industry-wide scheme supported in the manner which I variously described on Tuesday and again this afternoon.
Lord Boardman: My Lords, I am most grateful to my noble friend for the assurances he has given, but I ask whether he can go a bit further and confirm—as I understand is implicit in what he has said—that it is the Government's intention that the contributions made by the members of the scheme should, so far as practicable, relate to the risk attached to each contributor.
Lord Lucas of Chilworth: My Lords, with the leave of your Lordships' House, I am reluctant to go further. I do not believe it is for the Government as such to contemplate these things. I have expressed views which I think will be reflected in the compensation schemes that are arrived at. It is for the various bodies making up the SROs—they are representative—to pursue that detail. I have suggested that such compensation rules will have to have regard to all the various factors, particularly the one my noble friend mentioned, which are practicable to achieve the result for which we are all looking; that is, to get the best practicable provisions.
Lord McIntosh of Haringey: My Lords, I rise to confirm the support of Her Majesty's loyal Opposition for the strongest possible industry-wide compensation scheme that can be achieved, and to indicate that if these amendments are taken to the vote, I shall be asking my noble friends to accompany me into the Government Lobby on this question.
The debate that has taken place seems to me to have been both misconceived and partial, in both senses of the latter word—partial in that it is incomplete and

27
partial in the sense that many of the arguments have been self-interested. I am not convinced in any way by the argument about the need to keep together surveillance and compensation. The ultimate sanction on surveillance will be the claims made by those who have had wrong done to them, and will happen whether or not there is an adequate compensation scheme.
I do not believe it will be any protection of the investment community against the general public, and the body of individual and small investors in particular, if they seek to divide themselves up in such a way as to provide poorer compensation, poorer protection, for some investors than for others. That cannot be an acceptable conclusion, it cannot be an acceptable decision, and it cannot be the wish on behalf of the investment community.
The noble Lord, Lord Terrington, referred to the risks for the Stock Exchange in being compelled to join the scheme and the costs of the improved scheme which the Stock Exchange would wish to have. I do not in any way question the bona fides of the Stock Exchange or the fact that they have had an excellent scheme since 1950. But if it has been possible for their whole scheme to be costed, funded and' insured over that period, surely the top-up scheme which they are proposing, and which they would wish to have to maintain their standards, could not cost very much on the insurance market and could not be a serious risk to members of the Stock Exchange.
One would think, listening to some noble Lords this afternoon, that there was to be no Big Bang in a week's time. One would think that investment advisors were to be members of a single self-regulatory organisation instead of, as they inevitably will be, a number of SROs. The point about that is that the individual investor will not know to which SRO his advisor belongs. What he will demand, and demand rightly, is that he shall have the same level of compensation, the same level of security, wherever he chooses to place his investment business. That is what will only be achieved by an industry-wide scheme and that is what will be destroyed by the amendment proposed by the noble Lord, Lord Ezra, which we are against.
Lord Ezra: My Lords, I am indebted to the noble Lord the Minister for the time that he has devoted to commenting on the various interventions, and I was heartened by his remark that the SIB will undoubtedly be taking careful note of all that is said. I believe that the interventions made by noble Lords in support of the amendments which I moved were motivated by a desire to get the best possible compensation scheme going, and they raised various points in relation to the proposition put forward by the Government.
Therefore, I very much regret the highly critical way in which the noble Lord, Lord McIntosh of Haringey, referred to those interventions, when their whole purpose was to put another point of view which is genuinely held. However, having aired this matter—and I think that we were justified in spending a certain amount of time on it—I beg leave to withdraw the amendment.
Amendment No. 154, to Amendment No. 153, by leave, withdrawn.
[Amendment No. 155 not moved.]
Amendment No. 153 agreed to.
Clause 54 [Clients' money]:
4.15 p.m.
Lord Hacking Lord Hacking moved Amendment No. 155A:
Page 38, line 42, leave out ("shall be") and insert ("is").
The noble Lord said: My Lords, this amendment directs attention to Clause 54 of the Bill, which deals with the treatment of clients' money, and it draws particular attention to Clause 54(2)(a). Under the Bill, the Secretary of State has power to bring in regulations concerning the treatment of clients' money and the question here concerning paragraph (a) is whether it is intended in the regulations to give a direction to the authorised person on the handling of clients' money, or whether it is intended in the regulations that the clients' money will be put on trust.
If it is the former, then, if the direction is not carried out by the authorised person, the clients' money will remain at risk. But if it is the latter, the clients' money will be protected from the moment it comes into the possession of the authorised person. My amendment is therefore directed to deal with that. As your Lordships will see, it is a very small amendment on the Marshalled List, to leave out the words "shall be" and to substitute the word "is". I understand that the Government are minded to accept the amendment and in those circumstances I do not intend to enlarge further upon it. I beg to move.
Lord McIntosh of Haringey: My Lords, from these Benches we should like to welcome this amendment. It seems to tighten the nature of the trust on which clients' money is held. As the House will observe from the amendment which follows immediately afterwards, and on which I hope that we might have the support of the noble Lord, Lord Hacking, we are very concerned that there should be both adequate accounting and adequate recompense if, in any way, a client should lose out on either the capital or the interest.
Lord Lucas of Chilworth: My Lords, there is nothing between any of us on the policy of this matter. Since it appears that the alternative wording which the noble Lord, Lord Hacking, has suggested may clarify matters for practitioners, I should express my gratitude to him and advise the House that the Government are prepared to accept the amendment.
On Question, amendment agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 156:
Page 39, line 24, leave out paragraph (f).
The noble Lord said: My Lords, this amendment follows a number of amendments which have already been considered by your Lordships' House at Report stage and which concerned the question of the interest on clients' money. The Government have taken the view in a whole series of amendments that, rather than specify what should happen to the interest on clients'

29
money, there should be provision for compensation to be paid if, in any way, the client loses out through the misbehaviour of those investment advisers who hold his funds. We have accepted and indeed welcomed those amendments and there is no difference between us on those matters.
Therefore, it is all the more surprising, despite many amendments in which the word "interest" has been taken out and "compensation" has been substituted, that paragraph (f) of subsection (2) of Clause 54 should still authorise the retention of so much of clients' money as represents interest. It is not only out of keeping with the Government's wording which removed the word "interest" from the face of the Bill; it is also out of keeping with the Government's intention of seeking to protect the interests of clients, that they should have not only the capital but the interest on their money. I hope that on reflection the Government will realise that what has been proposed here with the deletion of paragraph (f) is entirely in keeping with the Government's own intention and with undertakings given by the Government when this question of interest on clients' money has been debated in the past. I hope therefore that, even though the noble Lord may not have been briefed to do so, he might feel able to support the amendment or at least give an undertaking that the Government will reconsider it before we reach the next stage of the Bill.
Lord Lucas of Chilworth: My Lords, quite frankly, we do not want to support this amendment because we believe that it would remove a useful provision. On the one hand, the provision makes clear the intention that interest earned on a client's money should be clients' money for the purpose of the rules. On the other hand, it specifically enables the rules made under subsection (2) of the clause to permit authorised persons to retain small amounts of interest where it would be administratively inconvenient—perhaps it might be better to say "administratively impracticable"—to arrange for their separate payment. Such provisions are already a feature of other rules on client money accounts. We believe that it may well be more in the interests of investors in such circumstances to benefit from the lower administrative costs by paying lower charges, which would not be possible were the amendment to be carried.
This does not mean that we wish to suggest that interest earned on clients' money is itself anything other than clients' money—as indeed this provision indicates. I made the Government's position on this matter clear in response to the noble Lord, Lord McIntosh of Haringey, when we discussed it in Committee. Nor does it mean that authorised persons will have a blank cheque to retain any amount of interest. When a designated agency makes rules under this clause it will have to satisfy paragraph 8 of Schedule 8, which requires that the rules,
"make proper provision for the protection of property for which an authorised person is liable to account to another person".
The amendment would take care of what we believe to be an impracticable solution, and because of the opportunity there will be for lower administrative costs we feel that the amendment would not make a great contribution to the Bill. We are concerned here with money. If one looks, as the noble Lord, Lord
30
McIntosh, has looked, at other places, one sees that the concern then was not only money but also property. Here it is money alone, and I do not believe that the rather difficult parallel the noble Lord sought to draw is valid.
Lord McIntosh of Haringey: My Lords, I am afraid that I find that argument deeply unconvincing both in terms of the words which are in the Bill and in terms of the arguments which the noble Lord has put forward. This is one of those cases where, in order for the law to be effective and understood, it is necessary for everybody to be in no doubt that it is the client's interests and the investor's interests which are paramount.
It may well be true that in some cases of very small amounts of interest the administrative costs of the computation of that interest would be fairly high, though I notice that that has never caused any difficulty for the banks: whether the amounts of interest are small or large, or whether the period is in minutes, hours, days or weeks, they still manage to compute it and they still manage to pass on the administrative costs to their customers. That is true of many other financial organisations as well. Why it should be different in the case of other authorised persons I fail to see.
The Government's usual argument is that these questions are better dealt with by regulation than on the face of the Bill. That, indeed, is what the noble Lord, Lord Lucas, has just said in relying on Schedule 8. But here is a case where the Bill, as drafted, and as it has continued throughout all its stages in another place and through Committee here, says quite clearly—and nobody has said that it is defective in wording—that the client's interests are paramount. Why should it not stay here? What is the difficulty in leaving it on the face of the Bill? There seems to be no good reason whatsoever for not bringing the Bill in this respect in line with the other amendments on compensation which the Government have brought forward, and I invite your Lordships to take a view on the matter.
4.25 p.m.
On Question, Whether the said amendment (No. 156) shall be agreed to?
Their Lordships divided: Contents, 76; Not-Contents, 112.

DIVISION NO. 2

CONTENTS

Airedale, L.

Diamond, L.

Amherst, E.

Donaldson of Kingsbridge, L.

Ampthill, L.

Ennals, L.

Ardwick, L.

Ewart-Biggs, B.

Aylestone, L.

Ezra, L.

Blyton, L.

Gallacher, L.

Bonham-Carter, L.

Gladwyn, L.

Brockway, L.

Graham of Edmonton, L. [Teller.]

Bruce of Donington, L.

Carmichael of Kelvingrove, L.

Grey, E.

Chandos, V.

Grimond, L.

Cledwyn of Penrhos, L.

Hacking, L.

Collison, L.

Hampton, L.

David, B.

Irving of Dartford, L.

Denington, B.

Jeger, B.

31

Jenkins of Putney, L.

Sainsbury, L.

John-Mackie, L.

Seear, B.

Kearton, L.

Sefton of Garston, L.

Kilbracken, L.

Shackleton, L.

Kissin, L.

Shepherd, L.

Leatherland, L.

Silkin of Dulwich, L.

Listowel, E.

Stallard, L.

Llewelyn-Davies of Hastoe, B.

Stedman, B.

Lloyd of Kilgerran, L.

Stewart of Fulham, L.

Lockwood, B.

Stoddart of Swindon, L.

McIntosh of Haringey, L.

Strabolgi, L.

McNair, L.

Taylor of Gryfe, L.

Mayhew, L.

Taylor of Mansfeld, L.

Molloy, L.

Tordoff, L.

Morton of Shuna, L.

Turner of Camden, B.

Nicol, B.

Underhill, L.

Northfield, L.

Wallace of Coslany, L.

Oram, L.

Walston, L.

Parry, L.

Wells-Pestell, L.

Pitt of Hampstead, L.

Whaddon, L.

Ponsonby of Shulbrede, L. [Teller.]

Williams of Elvel, L.

Winstanley, L.

Ross of Marnock, L.

Young of Dartington, L.

NOT-CONTENTS

Beaverbrook, L.

Hooper, B.

Belhaven and Stenton, L.

Hylton-Foster, B.

Beloff, L.

Kimball, L.

Belstead, L.

Kitchener, E.

Bessborough, E.

Lane-Fox, B.

Blyth, L.

Lauderdale, E.

Boardman, L.

Layton, L.

Boyd-Carpenter, L.

Lloyd of Hampstead, L.

Brabazon of Tara, L.

Long, V.

Bridgeman, V.

Lucas of Chilworth, L.

Brougham and Vaux, L.

McAlpine of Moffat, L.

Bruce-Gardyne, L.

McAlpine of West Green, L.

Caithness, E.

Malmesbury, E.

Cameron of Lochbroom, L.

Mancroft, L.

Campbell of Alloway, L.

Manton, L.

Carnock, L.

Margadale, L.

Coleraine, L.

Maude of Stratford-upon-Avon, L.

Colville of Culross, V.

Constantine of Stanmore, L.

Merrivale, L.

Cottesloe, L.

Mersey, V.

Cox, B.

Molson, L.

Craigavon, V.

Newall, L.

Craigmyle, L.

Nugent of Guildford, L.

Cullen of Ashbourne, L.

O'Brien of Lothbury, L.

Davidson, V. [Teller.]

Pender, L.

De Freyne, L.

Penrhyn, L.

Denham, L. [Teller.]

Peyton of Yeovil, L.

Derwent, L.

Porritt, L.

Dilhorne, V.

Portland, D.

Duncan-Sandys, L.

Redesdale, L.

Eccles, V.

Reigate, L.

Ellenborough, L.

Renton, L.

Elliot of Harwood, B.

Rodney, L.

Elliott of Morpeth, L.

St. Davids, V.

Elton, L.

Sanderson of Bowden, L.

Faithfull, B.

Sandford, L.

Fanshawe of Richmond, L.

Savile, L.

Fortescue, E.

Seebohm, L.

Fraser of Kilmorack, L.

Shannon, E.

Gibson-Watt, L.

Skelmersdale, L.

Gisborough, L.

Somers, L.

Glanusk L

Stodart of Leaston, L.

Gormanston, V.

Strathcona and Mount Royal, L.

Gray of Contin, L.

Gridley, L.

Terrington, L.

Grimthorpe, L.

Teynham, L.

Hailsham of Saint Marylebone, L.

Thorneycroft, L.

Torrington, V.

Halsbury, E.

Trenchard, V.

Hankey, L.

Trumpington, B.

Harmar-Nicholls, L.

Vaux of Harrowden, L.

Henderson of Brompton, L.

Vickers, B.

Hesketh, L.

Vivian, L.

Hives, L

Ward of Witley, V.

Hood, V.

Westbury, L.

32

Whitelaw, V.

Wynford, L.

Wise, L.

Yarborough, E.

Wolfson, L.

Resolved in the negative, and amendment disagreed to accordingly.
4.34 p.m.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 157:
Page 39, line 33, at end insert—
(" (3A) An institution with which an account is kept in pursuance of regulations made under this section does not incur any liability as constructive trustee where money is wrongfully paid from the account unless the institution permits the payment with knowledge that it is wrongful or having deliberately failed to make enquiries in circumstances in which a reasonable and honest person would have done so.").
The noble Lord said: My Lords, as I undertook during the Committee stage, I have further considered the points made on Clause 54 by my noble friends Lord Colville of Culross and Lord Boardman, and my officials have discussed the matter with officials of the Committee of London and Scottish Bankers.
In the light of those discussions I believe we have been able to produce an amendment which clarifies the question of liability where client money accounts are concerned in a way which meets all the points raised. It takes the form of a declaratory provision which states that a bank or other financial institution with whom an account is opened in accordance with rules made under this clause is liable as constructive trustee for permitting the wrongful payment of money out of that account only if it knew the payment was wrongful or if it deliberately failed to make inquiries in circumstances in which a reasonable and honest man would have done so.
I hope that my noble friends who raised the point will feel that we have met their proper concern and I commend the amendment to your Lordships. I beg to move.
Viscount Colville of Culross: My Lords, I think that my noble friend Lord Boardman agrees with me in thanking my noble friend for this amendment. The point is not an easy one and the legal implications of it have taken a great deal of paper to encompass. The amendment seems to me to be admirable and I am grateful to my noble friend for it, as I am for other amendments for which, unfortunately, I could not thank him last week.
As a postscript—and I hope I am marginally within order—may I say that the matter on the next clause is not something to which I shall return because there have been conversations on that, too. Although the matter has not been finally concluded, I believe that it would be better to let those conversations continue behind the scenes rather than come back to Parliament. Therefore, I shall say nothing further except to thank my noble friend again for his co-operation.
Lord Tryon: My Lords, as one who was highly critical of Clause 54 during the early stages of the Bill, perhaps I may be allowed to say a quick word on this amendment. On Second Reading I said that I felt Clause 54 as drafted was totally unworkable, and I am

33
therefore absolutely delighted that the noble Lord the Minister has brought forward this amendment.
I was told at that stage that I was over-exaggerating and barking up the wrong tree—though not in those words. However, the tree has produced a marvellous woolly cat, or whatever it is that trees produce that dogs bark at. I only hope that one or two of my other trees which are coming up shortly will produce something similar. I thank the Minister very much.
On Question, amendment agreed to.
Clause 55 [Unsolicited calls]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 158 and 159:
Page 40, line 13, leave out ("interest on any such money") and insert ("compensation for any loss sustained by him as a result of having parted with it').
Page 40, Line 14, leave out ("interest") and insert ("compensation").
The noble Lord said: My Lords, my noble and learned friend the Lord Advocate spoke to Amendments Nos. 158 and 159 when we were discussing Amendment No. 69. On his behalf I beg to move that these two amendments be agreed to.
On Question, amendments agreed to.
Lord McIntosh of Haringey Lord McIntosh of Haringey moved Amendment No. 159A:
Page 40, line 28, after ("period") insert ("being not less than 14 days").
The noble Lord said: My Lords, I hope that the Minister recognises that on Thursday night I listened to his golden words with great care and paid considerable sympathetic attention to them. At that time he pointed out the defects of my amendment, which provided for a cooling-off period of 28 days for all forms of investment. The noble Lord rightly said that there are some forms of investment which are made, so to speak, on the run where the conditions will certainly change within the period of 28 days and where, therefore, a cooling-off period of that length is not appropriate.
However, with Clause 55 we are specifically considering unsolicited calls—cold calling. That phrase is defined in great detail, and the conditions under which cold calling can take place are specified in much detail in the clause. Except to those who believe that there should be no cold calling whatever—which is not the view of the Opposition—many of the provisions in Clause 55 are welcome.
There is, however, still the problem of a cooling-off period which is only available in regulations. The Minister made clear that it is the Government's intention to ensure that there are regulations to have a cooling-off period, and he went so far as to suggest that 14 days might be an appropriate period. But there is also the question of having a cooling-off period which is enshrined in statute and is known to the small investor, because we have at heart the interests of the small, individual investor in our consideration of this part of the Bill. It appears to us that there would be no departure from the Government's intention as to what should ultimately happen if the amendment were to be accepted. Instead, there would be extra security,
34
publicity and protection for the small investor if the Bill were to say that the period should not be less than 14 days.
If that period is generally agreed to be reasonable, and I believe that the Government accept that that is the case, what can be the objection to placing that period on the face of the Bill and to telling all and sundry that that is what is implied by the control of unsolicited calls—cold calling?
It must be in the interests of the investor always to know that he or she can rely on the protection provided by the Bill. It seems to us that by far the most effective way to achieve that is to place the provisions on the face of the Bill. I beg to move.
Lord Graham of Edmonton: My Lords, I hope that the Minister will look favourably upon the amendment and upon the reasonableness that my noble friend on the Front Bench used when introducing the amendment. I am mindful that the Government's general attitude to cold calling is broadly acceptable. As my noble friend Lord McIntosh pointed out, it is not something which we can be dogmatic about. There are organisations, such as the Consumers' Association, which say that there should be no cooling-off period.
We must recognise that we are entering a new ball game. We cannot rely upon the sense of fair play, integrity and propriety of those who have been selling insurance and investment opportunities in the past. With the passing of the Bill and the explosion of the Big Bang in the City next week, it would be a brave man who could say that ambiance in which a great many of the financial services will be handled in 1987 and 1988 will be the same as it was during the preceding two years. We are talking about doing this kind of business at home. Most people are more relaxed and they could be slightly off guard because they are on familiar ground. They listen to the "spiel" and the sales pitch and try to assess the value of what is offered. We say that there should be a period during which they can reflect.
I do not think that the Government object to that. However the Government may be reluctant to put on the face of the Bill something which may be generally understood and accepted and included in some form of code of practice or regulations. We should not have to rely upon such matters.
I am sure that new high pressure selling techniques will be developed and will evolve not just in the insurance industry but in a great many other investment-seeking corporations and the like. They will be driven to do so. They will improve the quality, the effectiveness and profitability of their sales force. I am not talking about "con men", sharks or get-rich-quick people; I am talking about people who will say that time is of the essence. People may be hurried. They should be left with sufficient time to assess such matters properly.
We are not talking about buying a pound of butter or a sack of potatoes. We are talking about people who may commit themselves to modest sums only but over a long period.
The amendment moved by my noble friend Lord McIntosh of Haringey is one upon which the Government should look with favour.
Lord Tryon: My Lords, before the noble Lord decides what to do with the amendment I wonder whether he can help me when he replies. If I understand it correctly, the amendment will apply to such matters as the purchase of unit trusts. I should have great difficulty in supporting it if it does and if it were to apply anywhere where moving markets are involved. Perhaps the noble Lord can help us on that point.
4.45 p.m.
Lord Lucas of Chilworth: My Lords, I am surprised that the amendment should have been tabled at this stage to a provision which has been unaltered since the Bill was first introduced some 10 months ago and which, so far as I am aware, has not attracted any adverse comment. However, perhaps that, on its own, is insufficient to dismiss the point that the noble Lord seeks to make about the cooling-off debate. I should point out that the principle that the court should have discretion to enforce contracts and exercise its judgment on whether an agreement should be enforceable in certain circumstances is one which has been generally and widely welcomed. Unenforceability without such discretion might be a blunt instrument.
The amendment would fetter the court's discretion to take account of the fact that an investment agreement may have originated from a prohibited, unsolicited call but in circumstances where it might be reasonable to set aside the general presumption that such an agreement should be unenforceable.
The noble Lord, Lord Graham of Edmonton, said that his noble friend had put the point with reasonableness. His tone and his words may have been reasonable, but he asked one question: "What can be the objection?" It can be stated simply. Let us take the case of a firm which makes an unsolicited call, in contravention of the rules, and invites the investor to discuss an investment proposition. The investor takes up the invitation and following detailed discussions, in which all the relevant factors have been exposed, the investor makes his investment. The investor has not been pressurised or bamboozled into the investment. He has not been caught by any sharp operator or anything like that. Are we really to say that the agreement must be unenforceable where a court might well conclude that it should be enforceable? Indeed, I suspect that not even the noble Lord would argue that.
The noble Lord suggests that it may be all right if the discussions have gone on for 14 days, but not if they have gone on for 13 days. In other words, a court may be faced with a case where it finds that the agreement was the consequence of the discussions, quite properly conducted, apart from the initial call, and where the investor knew exactly what he was doing, and yet if none of the other conditions in subsection (4) can be satisfied, it will have no choice but to declare the contract unenforceable. I do not believe and I do not think your Lordship will believe that it is helpful to constrain the court in that way. I hope that on reflection the noble Lord will agree with me.
Lord McIntosh of Haringey: My Lords, I am interested in the noble Lord's arguments. I am
36
interested in particular in his argument that there is something wrong with putting forward an amendment to a provision that has not been queried throughout the passage of the Bill so far. If the noble Lord can assure me that the Government have not at this stage in this House put forward amendments to provisions on which amendment has not been sought during earlier stages of the Bill, I shall happily concede his point. There are clearly many amendments—completely new amendments—now being introduced by the Government to clauses of the Bill that have not been the subject of amendment in the past.
In response to the noble Lord, Lord Tryon, I accept, as I did when I spoke earlier, that it would be undesirable for moving markets to be constrained by a cooling-off period. I hope, however, that he accepts, too, that unsolicited calls are not the ideal way of selling investment in moving markets and that if there is to be any sort of self-denying ordinance on behalf of the investment community, they would think carefully before calling upon people on their doorsteps and seeking to sell investments in moving markets. I hope that the noble Lord feels, on reflection, that this is not a significant objection to my amendment.
More fundamentally, we come back to the Government argument that the amendment would constrain the courts. I dispute that. I suggest that the provision of a minimum period of 14 days would support the courts, encourage the courts and strengthen the courts in making a judgement about the agreements that are to be enforceable and those that are not to be enforceable. What is suggested here is a fallback position. It should be possible, with the addition of this provision, to avoid legal dispute about a period. It should be possible to bring legal discussions to a close more quickly and more cheaply than would otherwise be the case. Above all, the provision in the amendment would have the effect of making it known to everyone—every small investor—what the cooling-off period is.
If the small investor knows that there is a period of two weeks in which no agreement can be enforceable, that is something that everyone can understand. I am a great admirer of the Consumers Association. I congratulate that body on having reached a membership of 800,000. But the Consumers Association would be the first to admit that 800,000 members is less than 5 per cent. of the number of households in this country. It is the other 95 per cent. who do not have access to the expert advice available to members of the Consumers Association that we have to be concerned with. That has been the constant concern of the Opposition when considering the conduct of business rules in Chapter V of the Bill. I am not satisfied that the Government have got it right and that they have made adequate provision in respect of a cooling-off period for unsolicited calls. But in case there is any question about the wording of the amendment, I do not think that it would be appropriate for me now to seek to press it. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 56 [Restrictions on advertising]:
The Lord Advocate (Lord Cameron of Lochbroom)The Lord Advocate (Lord Cameron of Lochbroom) moved Amendment No. 160:
Page 41, line 21, at end insert ("unless its contents have been approved by an authorised person.").
The noble and learned Lord said: My Lords, in moving this amendment, I should like to speak to Amendments Nos. 161, 162 to 165, 204. 258. 375 to 377, 379 to 384, 387, 435 to 437, 513 and 516, all standing in my noble friend's name, and also to Amendments Nos. 160A, 165A and 161A, in the names of noble Lords opposite.
The government amendments to Clause 56 and consequential changes here are for clarification. Comments from practitioners have suggested that the present wording might create unnecessary difficulty for investment businesses wishing to advertise and that this difficulty could be removed without putting investors at risk. The objective of Clause 56 is to ensure that all investment advertisements are subject to rules concerning form and content and that an authorised person who could be called to account by an appropriate regulator is responsible for ensuring that those rules are met. It was not intended that this provision should get in the way of the usual processes by which advertisements are published.
It was represented to us that the existing wording of the clause cast doubt on the position of, say, an advertising agency who could be held to cause an advertisement to be issued. The proposed amendment makes it clear that if the contents of an advertisement have been approved in their final form by an authorised person, then that advertisement may lawfully be issued, whoever is involved in the mechanics of publication or commissioning the advertisement.
The second point concerns the defence available to a person such as a publisher or advertising agency who issues an advertisement to the order of someone else. The proposed amendment would provide that if the person concerned can show that he reasonably believed that the advertisement had been issued or approved by an authorised person or a person exempted from the advertising restrictions by virtue of Clause 57, he would not be guilty of any offence. The amendment removes the requirement that such a person must prove that he played no part in the devising of the advertisement and must have made "due enquiry" to establish if the advertisement could properly be issued. The first requirement could cut across the usual process by which an advertising agency advises on presentation of an advertisement. The second places an unnecessary burden of checking on a publisher, especially in the case of advertisements exempt from the restrictions. Its removal does not affect the protection afforded to investors as the publisher will still need to show that he reasonably believed that the advertisement was permitted under the Bill.
Amendments have also been made to clarify the position of advertisements issued abroad and not directed at, but received incidentally in, the United Kingdom, for example, by someone tuning into a foreign radio station. If a person enters into an
38
investment agreement as a result of such an advertisement, he should be in the same position as a person who buys a foreign newspaper, which only incidentally happens to be available in the United Kingdom, and should not be entitled to have his investment agreement declared unenforceable. Restrictions will apply to foreign stations which deliberately aim at a United Kingdom audience.
The amendments also clarify the position of the Independent Broadcasting Authority, which issues on its transmitters advertisements supplied by programme contractors. It should not have to confirm before transmission the position of any investment advertisements—and, indeed, it does not have the opportunity to do so. The programme contractors themselves will have to be satisfied that broadcast advertisements for investments have been properly approved.
Finally, the amendments make it clear that references to "rights" do not apply to voting rights but only to rights to acquire, dispose of, convert or underwrite investments.
With regard to the first set of amendments in the name of noble Lords opposite, Amendments Nos. 160A and 165A would have the effect that an authorised representative of an authorised person would be able to approve the contents of an advertisement, presumably on his behalf. I suggest to your Lordships that such an amendment would defeat the purpose of this provision. If an authorised person breaks the conduct of business rules concerning the form and content of investment advertisements, he can be called to account by his regulator. The regulator would have no such powers over an "authorised representative" who was himself not subject to those rules.
Amendment No. 161 A removes the word "underwrite" from the amendment. I detect a note of déjà vu in the sense that we have debated this point, I believe, earlier in the Report stage. At that time my noble friend deployed all the arguments, and properly so, with regard to this matter. I do not believe that I can add anything. I simply say that I cannot commend this amendment to your Lordships.
Finally, Amendments Nos. 513ZA and 513ZB would delete the word "principally" from the amendment regarding investment advertisements appearing in foreign newspapers or on foreign radio stations. I have dealt with this already. The test of whether such reception in the United Kingdom is incidental is whether the newspaper or broadcast containing them is principally aimed at a non-United Kingdom audience. We see that as an appropriate test. Again, I cannot commend these amendments to your Lordships.
5 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved, as an amendment to Amendment No. 160, Amendment No. 160A:
At end insert ("or his authorised representative").
The noble Lord said: My Lords, I beg to move Amendment No. 160A, standing in my name and that of my noble friend Lord Morton of Shuna. In speaking to this amendment I shall do my very best to follow the noble and learned Lord the Lord Advocate in the

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rather large grouping to which he has spoken. I shall try very hard to follow each step as he went through it.
In general we take the point of the noble and learned Lord that these are technical amendments designed to clarify the situation in respect of restrictions on advertising which were set out generally in Clause 56. Nevertheless, there are one or two points on which we have some doubts. The first is reflected by our Amendment No. 160A. As the noble and learned Lord and I agreed the other evening, it is possible for an appointed representative to be representative of someone other than an insurance broker: he need not necessarily be an insurance salesman. I think the noble and learned Lord accepted that it was possible for people conducting other investment businesses to appoint representatives under an appropriate form of contract. The contract can specify where the responsibility for the conduct of the appointed representative lies, although there is provision in the Bill, as I understand it as at present drafted, partially to make provisions for the placing of responsibility.
The very simple point that I am trying to make with this amendment is that it would seem to be entirely appropriate that an appointed representative—provided the responsibility for what he is doing is carried by his principal—should be entitled to approve an advertisement in the same way as the authorised person. It would seem to me odd if there were a situation where an authorised representative had to go back to the authorised person to get his specific approval for advertisement when in practice it would be appropriate for the representative to do that.
On the second amendment, Amendment No. 161A, which we seek to move, the noble and learned Lord is quite right. There is a sense of deéjà vu about this amendment. I do not wish to speak to it. I listened very carefully to what was said the other evening. I still sense in my own mind, and perhaps in the minds of other noble Lords, a sense of confusion about what is a right and what is an obligation. It always seems to me that underwriting is an obligation rather than a right but I shall not pursue that matter.
Amendment No. 162 seeks to delete subsection (3). As the noble and learned Lord said, it is designed to clarify the position in respect of advertisements issued outside the United Kingdom. I am not entirely certain, if this subsection were deleted, exactly what would happen to an investments advertisement issued outside the United Kingdom. Apparently it shall no longer be treated as issued in the United Kingdom if it is made available. I should be grateful if the noble and learned Lord could enlarge a little in his reply as to exactly what the status of such an advertisement may be.
I am moving on, I hope quite rapidly, in order to help your Lordships get through the business. I was a little disappointed to see that in Amendment No. 164 the Government propose to leave out "after due enquiry" at the top of page 42. It seems to me that there must be some provision. It is not enough to believe simply on reasonable grounds that certain things are appropriate and correct. There must be some obligation on the person who so believes to have made some form of inquiry. I should have thought the
40
words "after due enquiry" would suit that purpose. I am surprised that the Government have sought at this stage to take those words out of the Bill. I should have thought that that weakened the clause. Perhaps the noble and learned Lord could address himself specifically to that point when he replies.
Turning to the group of amendments, Amendments Nos. 375 to 379, to which the noble and learned Lord spoke, I imagine that the point about "issued" as opposed to "published" is to focus the origin of the advertisement rather than the agency by which the advertisement is issued. I think I understood the noble and learned Lord to that effect. In that case this is perfectly satisfactory.
On Amendment No. 381, the Government again seek to delete the expression "after due enquiry". I put the same question to the noble and learned Lord as before. This again seems to weaken the Bill. I do not think that it should be weakened in this respect.
Amendments Nos. 513, 513ZA and 513ZB make it necessary for me to declare a possible conflict of interest. I am a director of a company which has a large interest in the French satellite broadcasting company. It is to the interests of that company, and indeed to the whole question of satellite broadcasting, that I should like to draw the attention of the noble and learned Lord. It is for this reason that we moved our amendment to leave out the word "principally". It is very difficult to determine—particularly in the case I have mentioned of a French satellite which will be broadcasting on one channel in English—whether that broadcast is principally towards the United Kingdom or, as the French would probably argue, principally towards English speakers in France. It seems to me that there is a grey area there at which the noble and learned Lord might wish to look. I am absolutely certain that satellite television will become more and more important over the next few years and will be a vehicle by which advertisements of this nature may be carried. I therefore think that the Government have to look at that rather carefully to see whether the wording of the Bill proposed by the Government in the amendment is adequate to deal with that problem.
I am sorry if I have gone rather quickly through the amendments. Although technical, they are important because the whole question of advertising and advertisements for investments is one which is very deeply connected with the protection of investors—and this is what the Bill is about. By going rather quickly through these amendments I do not in any way mean to minimise the importance of what the Government are proposing in this clause and in the amendments that have been tabled both by them and by us. I beg to move Amendment No. 160A.
Lord Grimond: My Lords, I wonder whether I may ask a question on Amendment No. 162, which leaves out subection (3) of the clause under discussion. How will the matter stand if this subsection is left out? I approve of it being left out because I think it is totally unenforceable. However, it is apparent that advertisements for investment of various kinds are of great importance. It is also apparent that more and more advertisments will reach this country via satellite or by direct broadcasting from abroad. I am not quite clear whether the Government feel that anything in

41
this Bill will control those. Presumably anyone who is not an authorised person who arranges for such advertisments to be beamed into this country will be liable under the Bill. But is that the only sanction, or are there others? What is the position if we delete subsection (3), as I think is quite right?
Lord Cameron of Lochbroom: My Lords, I am grateful to noble Lords who have taken part. Perhaps I may deal first with the last question that the noble Lord, Lord Grimond, put to me. I think the noble Lord, Lord Williams, also asked about this. The deletion of subsection (3) will have to be read in conjunction with what is proposed in Amendment No. 513. The noble Lord, Lord Grimond, will there find a restatement of the provisions with regard to advertisements issued outside the United Kingdom.
The point about these provisions is that we are here concerned with investment protection. As I think I made clear at the outset, if an investor incidentally picks up a foreign newspaper, or happens to tune on to a waveband, which is aimed at home consumption abroad, then that obviously is not an advertisement aimed at him. However, if, as we say in Amendment No. 513, it is essentially the intention that the publication should be transmitted principally for reception within the United Kingdom and hence for investors there, it is right that it should be covered by the Bill.
In response to the first point made by the noble Lord, Lord Williams, with regard to the issue of authorised representatives, I am very grateful to him for his clarification. Perhaps I may say that I now understand that he is really speaking about appointed representatives in terms of Clause 44. Clause 57(1) makes provision for an appointed representative to issue advertisements on his own behalf, when acting as an appointed representative for his principal. He should surely not be able to approve advertisements which his principal himself issues, let alone advertisements issued by somebody else with whom he has no connection. I hope that the noble Lord will understand why I therefore oppose his amendments. They seek to make the authorised person the person responsible fir advertisements going out in his name.
So far as concerns his point about "due enquiry", I think I covered this when I originally opened. We take the view that the removal of those words does not affect the protection afforded to investors, because the publisher will still need to show that he reasonably believed the advertisement was permitted under the Bill.
The noble Lord is absolutely right in his speculation as to the preference for the word "issue" rather than "publish". That makes quite clear what the thrust of this provision is. I hope that with those explanations the noble Lords opposite will not press their amendments.
Lord Williams of Elvel: My Lords, as always, I am very grateful to the noble and learned Lord for his clear reply. I apologise to him for the wording of my amendment which I now see to be wholly mistaken. It should have read "or his appointed representative". I apologise to your Lordships and to the noble and learned Lord opposite for what was, I am afraid, a misinterpretation of my manuscript.
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I understand and accept the reply of the noble and learned Lord to Amendment No. 160A. We have dealt with Amendment No. 161A. I am still a little concerned, as I think the noble Lord, Lord Grimond, is concerned, that when it comes to satellite broadcasting the Government have the wording of this clause absolutely right. I hope the noble and learned Lord might be able to look at it—it is a technical question—to see whether it covers the point on which there is no difference of opinion between myself and the noble and learned Lord.
I accept what he says about "after due enquiry". I can only say that I think that weakens the provision of the Bill, and therefore I am somewhat disappointed. However, I am not going to press that point. In the light of the exchange I beg leave to withdraw Amendment No. 160A.
Amendment No. 160A to Amendment No. 160, by leave, withdrawn.
On Question, Amendment No. 160 agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 161:
Page 41, line 25, after ("investment") insert ("to acquire, dispose of, underwrite or convert an investment").
[Amendment No. 161A, as an amendment to Amendment No. 161, not moved.]
On Question, Amendment No. 161 agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 162 to 165:
Page 41, line 27, leave out subsection (3).
Page 41, line 43, leave out from ("proves") to ("that") in line 2 on page 42.
Page 42, line 3, leave out ("after due enquiry").
Page 42, line 5, after ("person") insert (", that the contents of the advertisement were approved by an authorised person").
The noble and learned Lord said: My Lords, perhaps for convenience, I may move Amendments Nos. 162 to 165 en bloc.
[Amendment No. 165A, as an amendment to Amendment 165, not moved.]
On Question, Amendments Nos. 162 to 165 agreed to.
5.15 p.m.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 166 to 168:
Page 42, line 17, leave out ("interest on any such money") and insert ("compensation for any loss sustained by him as a result of having parted with it.").
Page 42, line 29, leave out ("interest on any such money") and insert ("compensation for any loss sustained by him as a result of having parted with it.").
Page 42, line 31, leave out ("interest") and insert ("compensation").
The noble and learned Lord said: I beg to move Amendments Nos. 166 to 168 en bloc. I spoke to these amendments in connection with Amendment No. 69.
On Question, Amendments Nos. 166 to 168 agreed to.
Clause 57 [Exceptions from restrictions on advertising]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 169:
Page 43, line 32, after ("42") insert ("43").
The noble and learned Lord said: My Lords, perhaps in moving this amendment, I may speak in addition to Amendments Nos. 170 and 174 in the name of my noble friend, and also to Amendments Nos. 170A and 172A in the name of the noble Lords opposite.
This group of amendments revises certain of the exemptions in Clause 57 to the restrictions on advertising contained in Clause 56. They take account of earlier amendments to the exempted persons chapter of the Bill. Advertisements issued by listed money market institutions concerning matters in respect of which they are exempt, will not be subject to the restrictions, in line with the existing provision concerning other exempted persons. Nor will the restrictions apply to persons subsequently exempted by order, under the power contained in Clause 46.
It is also proposed to enable additions to be made to the list of classes of advertisement which may be exempted by order from the advertising restrictions. The clause presently before your Lordships provides for three classes of advertisement where restriction may be inappropriate and provides for the Secretary of State to be able to exempt by order advertisements falling within those classes. So far, no class of advertisement has been found which it would be desirable to exempt and which falls outside the classes given in the clause. But I am conscious that the definition of investment advertisement is wide. So a rigid provision would run the risk of becoming unduly restrictive. Any extension of these eligible classes would require a class to be exempt. An affirmative resolution and a further order would then have to be made specifying what advertisements falling within that class are to be exempted. So the power will be used sparingly and subjected to full Parliamentary scrutiny.
So far as concerns the amendments in the names of the noble Lords opposite, the first of these two amendments would prevent the Secretary of State from exempting by order from the restrictions on advertising, advertisements which appeared to him to have a private character. I would suggest that this amendment should not be pressed.
The definition of investment advertisement is deliberately drawn widely in this Bill. One of the exceptions which it is expected to make under Clause 57(3)(a) is in respect of communications by directors to their shareholders about the company's results and future prospects; or about a rights or bonus issue. Similarly, it could apply to circulars giving employees information about an employee share scheme. Without an exemption of this nature, such advertisements would fall within the definition in Clause 56 and could only be issued with the approval of an authorised person. I give these examples to show how the provision could be used and why it is useful. Orders made under this provision are subject to the procedures in subsection (5) of Clause 57 which mean that orders are seen and can be debated by your Lordships before they come into effect.
Concerning the second amendment, this would have the effect that an order would have to be made to exempt any advertisement, and I underline the words "any advertisement", outside the categories already given in the clause. As I have explained, the amendment which I am moving is intended to allow classes of advertisement to be exempted, although I have not so far identified any class which should properly be the subject of such an order. I can only say it would fill me with horror to suggest using affirmative resolution procedures for every advertisement, in any particular class, before it could be exempted. That surely is otiose and unnecessary. For that reason I cannot commend that amendment to the House and would hope with the explanation I have given, the noble Lords opposite would not press it. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 170:
Page 43, line 33, after ("above") insert (", or by virtue of an order under section 46 above,").
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 170A.
Page 44, line 26, leave out paragraph (a).
The noble Lord said: My Lords, I beg to move Amendment No. 170A, which stands in my name and that of my noble friend Lord Morton of Shuna. In moving this amendment I was going to speak to the same group to which the noble and learned Lord spoke, but I have lost my chance of doing so because I was under the impression that my amendment was an amendment to his amendment, but in fact it is an amendment to the Bill as it was reprinted after the Committee stage.
The noble and learned Lord gave me some comfort in relation to our amendment because it was precisely to find out what the Government understood by,
"advertisements appearing to him [the Secretary of State] have a private character",
that this amendment was moved. I understand that communications between directors and shareholders and other advertisements of this nature should not be caught within the Bill and should not have to be approved by an authorised person. My only question here is: where do we draw the line? The directors can, as I understand it, if the Bill is accepted as drafted, legitimately advertise to their shareholders that there is such and such a rights issue or such and such an issue of shares: they are, after all, offering their shareholders, who may be a wide variety of people, an investment. The Government keep on telling us with repeated enthusiasm about the number of shareholders in British Telecom and the hoped-for number of shareholders in British Gas. Under these circumstances it seems to me that communications from the board of directors of British Telecom and the future board of directors of British Gas to their shareholders could not properly be regarded as advertisements of a "private character".
I believe that there is a distinction and a line to be drawn here which in all these cases tends to be and will

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be somewhat confused. In terms of shareholding, the larger companies become and the wider share ownership is spread in the community, the more the noble and learned Lord's definition of what, in the Government's view, constitutes an advertisement appearing to have a private character will come under criticism. I believe that if I thought for long enough, I could think of other examples where in the future such advertisements would become subject to difficulty if they were exempted through this procedure.
The noble and learned Lord also replied to our amendment, Amendment No. 172A, so perhaps I may speak to that. I fully accept that there was no follow-through amendment, which would not require the affirmative procedure, for advertisements which were to be exempt. I fully accept that we cannot have the affirmative procedure for every advertisement that is to be exempt. I should have thought that this could quite simply be dealt with through a process of delegation to the designated agency.
The problem with classes of investments, as I have tried to show in my remarks on subsection (3)(a), is that it is extremely difficult to define classes of investments. The noble and learned Lord was kind enough to say that he could not think of any advertisement that came under the provisions that might be covered by his new subsection (3)(d). Indeed, I cannot think of any advertisements that might be covered, but I am sure that someone somewhere will think of some—indeed they may not easily fall into a class. As I have argued on many occasions, I believe that there should be some sort of provision which would allow the designated agency a certain flexibility in deciding whether or not any individual advertisement falls within the restrictions imposed under Clauses 56 and 57. I believe that that would be achieved, not by my amendment, because I fully accept what the noble and learned Lord said, but by some other appropriately drafted amendment which could have the power of delegation to the SIB.
As always, I am trying to retain a certain flexibility in the operation of this Bill, because as we go forward I think we are all finding that, by trying to draw the provisions of the Bill very tightly, we may be making it very difficult for practitioners to move at all without authorisation here or there or application to the Secretary of State or to Parliament. Therefore, I am trying to introduce a flexibility here, and I hope that noble Lords opposite will accept that.
I very much hope that the noble and learned Lord will feel able to comment on what I have said. Obviously I shall not press this because they are technical matters, but I should be grateful for any comments which the noble and learned Lord might make.
Lord Cameron of Lochbroom: My Lords, I am very grateful to the noble Lord. I think that we are at one in seeking the maximum flexibility which is compatible with the general policy. Perhaps I may just answer the noble Lord's first point. Obviously it will be for the regulations themselves to draw the line, but I would point out that there is a power for any exemption to be made subject to conditions. So there one has a form of flexibility. The regulations themselves will, as I said, be subject to parliamentary scrutiny, so the kind of point
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which the noble Lord was making about going too far is a matter that could be raised in Parliament.
Dealing with the other matter, I believe that the noble Lord has accepted the difficulty which I perceived in his amendment. I would simply say that we take the view that the reference to "class" is sufficient to cover the type of problem which the noble Lord has indicated. If we foresee a problem, it must be a general problem. The way in which the noble Lord's amendment is drafted would require any advertisement to be the subject of an order. Although I am grateful to the noble Lord for having raised the point, we have considered the matter and are content with our formulation.
Lord Williams of Elvel: My Lords, I am grateful to the noble and learned Lord. I still have doubts about advertisements,
"appearing to him to have a private character".
I must confess to the noble and learned Lord that nothing he has said has satisfied me or removed those doubts. I just do not believe that a directors' circular to over 1 million shareholders, which is made in good faith by the directors of a company, can be considered to be of a private character. However, if the noble and learned Lord says it is, I suppose that I have to accept it. I take the noble and learned Lord's point about my second amendment. I beg leave to withdraw Amendment No. 170A.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 171:
Page 44, line 31, leave out ("or").
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 172:
Page 44 line 33, at end insert (" ; or
("d) such other classes of advertisement as he thinks fit").
[Amendment No. 172A, as an amendment to Amendment No. 172, not moved.]
On Question, Amendment No. 172 agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 173 and 174:
Page 44, line 38, leave out ("under") and insert ("made by virtue of paragraph (a), (b) or (c) of").
Page 44, line 40, at end insert ("; and no order shall be made by virtue of paragraph (d) of that subsection unless a draft of it has been laid before and approved by a resolution of each House of Parliament").
The noble and learned Lord said: My Lords, I beg to move Amendments Nos. 173 and 174 together. I have spoken to both amendments.
On Question, amendments agreed to.
Clause 61 [Actions for damages]:
5.30 p.m.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 175:
Page 48, line 34, leave out from ("actionable") to end of line 36 and insert ("as a breach of statutory duty at the suit of a person who suffers loss as a result of the contravention,").
The noble and learned Lord said: My Lords, in speaking to this amendment for the convenience of the House I shall also speak to Amendments to Nos. 175A, 176, 176A and 176B. At the outset I should express my gratitude to my noble friend Lord Colville of Culross who, in the course of Committee, raised difficulties about the wording of Clause 61 as it presently stands.
This amendment, in the name of my noble friend, is an attempt to indicate more precisely what was intended. The purpose of the amendment is to make clear that the action under the clause is one for breach of statutory duty. The courts apply certain principles in considering actions for breach of statutory duty. For instance, they will consider, first, whether the person bringing the action is a person of a kind the provision was designed to protect and, secondly, whether the harm which the person suffered is harm of the kind from which the provision was designed to protect him.
Because the action is one for breach of statutory duty, the courts will obviously take account of the exact terms of the provision which has allegedly been breached. Therefore if, for example, the provision is one which requires "reasonable steps" to be taken to achieve a particular result, the courts will, naturally, have regard to the steps which were in fact taken in deciding whether an action for breach of the provision should succeed.
It may be worth adding that the courts have power, by virtue of the Law Reform (Contributory Negligence) Act 1945, to apportion responsibility and award reduced damages where it considers that the person bringing the action has contributed to his loss by his own negligence. That person will also be expected to take steps to mitigate any loss he suffers. There are also of course third party proceedings available where a defender considers that the negligence of breach of duty by another has been responsible for, or contributed to, any loss suffered by the third party raising the action.
I have outlined the reasons behind the amendment tabled in the name of my noble friend but I have to tell the House that I do not propose to move it. I believe that Amendment 175A, tabled in the name of the noble Lord, Lord Morton, is to similar effect and arguably makes the intention of the provision clearer. Should he move the amendment I would advise your Lordships to accept it, because I believe that the amendment would serve to ensure that when an action is brought under this provision a court would have regard to all proper considerations.
The purpose of Clause 61 is to provide investors with an effective remedy which will enable them to recover loss which they have suffered as a result of a breach of provision designed to protect them. I believe that if your Lordships agree to Amendment No. 175A—which I think is in fact not printed correctly; it should be "at the suit of a person"—then the clause will fulfil that intention. If your Lordships were to take that view there would be a consequential amendment to Schedule 11, because Amendment No. 316 in my noble friend's name would not then be appropriate. No doubt that can be corrected at a later stage.
I shall, if I may, reserve what I have to say about amendments standing in the name of the noble Lord,
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Lord Hacking, until I have heard what he says. I have made my position clear, and I would not intend at the end of any debate to press Amendment No. 175.
Viscount Colville of Culross: My Lords, I understand that my noble and learned friend has moved the amendment.
Lord Cameron of Lochbroom: My Lords, I think I have indicated what I intend to do.
Viscount Colville of Culross: My Lords, in which case he has moved the amendment. If the noble Lord, Lord Morton, would allow me to say a word at this stage, because my name was mentioned and I think I perhaps generated the origin of this debate, I am glad that my noble and learned friend in fact prefers Amendment No. 175A. When I saw it on the Marshalled List I thought it had advantages, not least in being consistent with the other statutes to which I referred in Committee which emanated from what is now the Department of Trade and Industry.
I have no particular axe to grind on this matter, because amendments which clarify and restrict the extent of Clause 61 must be bad for lawyers, and therefore to that extent those of us who follow that profession will be deprived of activity. But I believe that the possibilities for activity under this statutory duty will be very large indeed and will be explored extensively, and in terms of large sums of money, by litigants.
My noble and learned friend said that the breach of the statutory duty will have to be spelt out by the courts by virtue of a number of rules, and he quoted two of them. Essentially they are seeing what is the mischief that the particular rule is trying to prevent, and then seeing whether the matter that has caused complaint falls within that mischief and whether the person complaining is meant to be protected by the rules.
What he also said was—and this is a point the Government were not able to clarify at Committee stage—that contributory negligence is already covered under the 1945 Act. This surprises me. I should like to look at it again. If he is right, that is a great advantage. I think joint tortfeasors are also covered under another piece of much more recent legislation. But there remain matters such as reasonable foreseeability, which is the other point I raised in Committee, where there is no guidance at all.
It is all very well to say, and it is perfectly correct, that the courts have looked at breaches of statutory duty whether express or implied, and they have had to determine the various component parts (or the incidents) of them. But so far as I know there is no standard set of incidents which apply to all breaches of statutory duty. They always have to be spelt out by the courts from the legislation, and the whole system of interpreting legislation in the particular case.
I do not wish in any way to decry a reference to defences and incidents, but I am not sure that they really go to the complete length of clarifying what some of the matters may be that will have to be argued. I therefore hope that my noble and learned friend has not come to the end of all consideration of the matter. I believe that with the extension of

49
litigation for breach for economic loss, originally in tort but now here in terms of breach of statutory duty as well, there are great developments taking place.
The courts are continually making up new rules, new restrictions, new incidents; and rightly so. But there is no guarantee that what we are doing here is to cut down as far as we can on litigation and the opportunities for litigation. I believe that the House would wish to do that in a contentious and expensive area of this kind. Although I am much obliged to my noble and learned friend for going as far as he has in this matter—and indeed in going further and being prepared to accept the amendment of the noble Lord, Lord Morton—I hope that when he comes to withdraw his amendment he will be able to say that the door is not completely closed to a little further discussion about it.
Lord Morton of Shuna: My Lords, the noble and learned Lord, Lord Cameron of Lochbroom, is right in saying that Amendment No. 175A contains a misprint or a mistake. I am not sure whether I am responsible or whether someone getting it into print somewhere is responsible. The amendment should read:
"at the suit of a person who suffers loss".
On that basis, I, like the noble and learned Lord, have to express thanks to the noble Viscount who has just spoken; for he is really the parent of Amendments Nos. 176 and 175, and No. 175A is really a marriage of those two children, which sounds very incestuous. The House has had a clear exposition of No. 175A from the noble and learned Lord the Lord Advocate, and there is nothing further I can do except, if it is appropriate at this stage, to move it.
Lord Hacking: My Lords, although the noble and learned Lord the Lord Advocate stated that he was only responding to comments made in Committee by his noble friend Lord Colville of Culross, in fact the noble and learned Lord was also kindly responding to comments I made in Committee in support of my Amendment No. 162.
I should also record that I moved that amendment at one o'clock in the morning, and it is possible that those who have not sought to refresh their memory in Hansard have forgotten the moving of that amendment. Nonetheless, I am grateful to the noble and learned Lord and to the noble Lord, Lord Morton, for coming with me on the point I made in Committee. That was that the words, "or is otherwise adversely affected' should be removed from this clause. The phrase has been removed from both amendments that have been proposed—Amendments Nos. 175 and 175A. As a small matter of preference, I should have preferred the amendment of the noble Lord, Lord Morton, to carry the initial phrase (as does the government amendment) "breach of statutory duty" and then run into the words used by the noble Lord, Lord Morton. However, that is a matter of preference in drafting and should not cause issue with your Lordships.
At this stage, I shall address certain comments to my Amendments Nos. 176A and 176B. The noble and learned Lord referred to those amendments in his opening comments but did not develop his argument
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on them, so it may be convenient if I now develop my argument in support of those two amendments. The noble and learned Lord can then comment in reply, as part of this debate.
The noble and learned Lord the Lord Advocate has had the advantage of receiving the briefing note that has been supplied to me by the Company Law Committee of the Law Society. It was for the noble and learned Lord the Lord Advocate that I did not take my comments into a great deal of detail. Suffice it to say that Clause 61 gives a right for actions for damages for breach of any regulations by the SIB, by an SRO or an RPB. Many of those have not been drafted and none has been finalised. As the clause is drafted, there is no limit either on the class of persons who can sue or the type of damage that can be recoverable by any person who sues for damages pursuant to Clause 61. This is contrary to common law, because under common law it has always been held fair and right to allow damages to be recovered only when they are reasonably foreseeable: that is, reasonably foreseeable insofar as they relate to the plaintiff who has brought the action and reasonably foreseeable as they relate to the damages that plaintiff is seeking from the courts.
Unfortunately—I can cite Halsbury's Laws of England—the restraint that is provided under common law for this test of reasonable foreseeability is not or may not be available for breaches of statutory duty. For that reason, I have tabled Amendment No. 176A. I draw attention to the drafting of it. It refers to a person who has committed a contravention and says that when he has not committed that contravention deliberately and when his act or omission does not constitute an act of dishonesty, he should not be liable for damages which he could not reasonably have foreseen as a likely result of the contravention.
There is nothing golden in the words I have used in drafting that amendment. Those words may be subject to deficiency. My intention in tabling this amendment was to draw your Lordships' attention to the problem. It is that to which I hope the noble and learned Lord the Lord Advocate will respond.
The next problem concerns the circumstance where there has been a contravention and whether the person who has been responsible for the contravention has taken all reasonable steps to prevent it. As Clause 61 is now drafted, there would be no defence for a person who, albeit having technically been responsible for the contravention, then took all reasonable steps to prevent it. That is unfair. Many of the rules of the SIB that have already been shown are drafted in absolute terms. I draw attention to one such rule. Rule 5.13, an SIB proposed rule, states that a firm which has an instruction from a client to effect a transaction shall not effect a similar transaction for the same investment on later instructions received from another client until the first instructions are carried out. Let us apply that, for example, to a large clearing bank which receives in one branch certain instructions concerning an investment and carries out those instructions, and in another branch at another place, before that first transaction has been completed, accepts similar instructions concerning the same investment. I cite that as one example. In those circumstances, there

51
should be some defence available to the authorised person.
My Amendment No. 176B directs attention to this problem and tries to find a defence for the authorised person in those circumstances. I do not put forward my amendment in terms of drafting perfection, but I draw your Lordships' attention to it merely as a problem and ask the noble and learned Lord to respond on the basis that I am drawing attention to a problem that needs some attention.
5.45 p.m.
Lord Lloyd of Kilgerran: My Lords, I have been lured into making a few brief observations in reply to observations made by the noble Viscount, Lord Colville of Culross, in his interesting and eloquent speech to your Lordships a few minues ago. He emphasised how important it is to cut down on litigation wherever possible. For my part, I have practised exclusively in the field of intellectual property where we have always done our best to limit litigation, particularly avoiding any cases getting into the Court of Appeal because none of the Lords Justices there ever knew anything about the technicalities of simple science.
The second observation which struck me was that the noble Viscount had some difficulty, as I have had some difficulty, with the last two lines of Amendment No. 175A. There it is said that the contravention is, "subject to the defences",
which is all right:
and damages will result. Then there is the phrase:
"other incidents applying to actions for breach of statutory duty."
I understood that the noble Viscount had some difficulty about those few words. In my limited experience, I also have difficulty understanding what other incidents applying to actions for breach of statutory duty would exist, as pointed out by the noble Viscount.
Lord Morton of Shuna: My Lords, if I require leave of the House, I ask for it. The phrase "other incidents", I would suggest, deals with such things as third party procedure—bringing in third parties and other matters of that nature.
At the same time, I shall deal with Amendments Nos. 176A and 176B. I accept, as any lawyer has to accept, that the courts have had considerable discussion over the years about whether a statute implies or does not imply foreseeability as a defence. I can see that there is a great deal of merit in the amendments proposed by the noble Lord, Lord Hacking. In general, I support the idea behind the amendments.
Lord Cameron of Lochbroom: My Lords, I caution your Lordships against accepting the amendments of the noble Lord, Lord Hacking. Perhaps I should say at the outset that I did' him the discourtesy of failing to mention his helpful comments in the debate in Committee. These were matters to which we also had regard in bringing forward our amendments.
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I draw the attention of your Lordships to the amendment proposed by the noble Lord, Lord Morton, because it starts by requiring that action be,
"at the suit of a person who suffers loss as a result of the contravention".
We are talking here about investor protection. It seems to me that the basic principle that your Lordships should be concerned about is that if an investor who is to be protected by this Bill suffers loss as a result of a contravention of some duty upon an authorised person, then unless there is some good reason why he should be precluded from obtaining restitution he should be able to do so.
With the greatest respect to the noble Lord, Lord Hacking, his second amendment seems to me to dilute that very protection. Indeed, it is really up to those who disagree with him who are dealing with the investor to see that they do not put the investor at risk. Of course, it is necessary to link—and the noble Viscount knows well the necessity to link—injuria and damnum as a basic principle of our law.
Therefore, I would suggest to the House that the second amendment, Amendment No. 176B, goes against the principle of this Bill. Regarding the first amendment, we are here again dealing with the issue which I have raised about contravention. It may well be that he did not commit the contravention deliberately but if he did so carelessly why should he avoid the liability? Equally, where his contravention was not dishonest, it may well be so, for the same token. Again, why should his loss simply be limited to loss which he could reasonably have foreseen as a likely result of his contravention?
I accept that the concept of reasonable forseeability of loss is a concept which the courts have developed in actions of negligence where the loss is economic. But there may be certain instances in which that would not be a reasonable way in which to recompense a person who suffered loss. Indeed, one can think of cases where it might well be that the loss complained of arose from a breach of the rule which was contractual in nature, and there the rules of damages arising from breach of contract are more appropriate. I would suggest that these are questions which are pre-eminently questions left to the good sense of the courts and cannot be dealt with adequately in legislation. If Amendment No. 176A were to be approved, the result would be to freeze in statute a particular concept of the common law. That cannot be right. I cannot help saying that that would be a course which would be fraught with danger.
As I say, the concept of reasonable foreseeability is not one which can readily be applied to all the matters with which rules may be concerned and this Bill surely is not the place to codify the law of tort. I would therefore again suggest that the House should not accept this amendment. Having said that, I would simply indicate that I do not propose to move Amendment No. 175.
Amendment, by leave, withdrawn.
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 175A:
Page 48, line 34 leave out from ("actionable") to end of line 36 and insert ("at the suit of a person who suffers loss as a result of the

53
contravention subject to the defences and other incidents applying to actions for breach of statutory duty").
The noble Lord said: My Lords, this amendment has been spoken to. I beg to move.
On Question, amendment agreed to.
[Amendment No. 176 not moved.]
Lord Hacking Lord Hacking moved Amendment No. 176A:
Page 49, line 8, at end insert—
(" (3A) If a person who has committed a contravention to which subsection ( 1) applies proves to the satisfaction of the Court that he did not commit the contravention deliberately and that his act or ommission constituting the contravention was not dishonest, he shall not be liable for loss which he could not reasonably have foreseen as a likely result of the contravention.").
The noble Lord said: My Lords, I move this amendment formally only in order to have an opportunity briefly to reply to the noble and learned Lord the Lord Advocate. This amendment was directed to one thing only. That was to enable some restraint to be placed on the line of causation and the recovery of damages for a breach of statutory duty when that breach of statutory duty carries such a wide field as regulations that are, for example, drafted by an SRO or an RPB. I heard what the noble and learned Lord said. I would have been happier if he had been able to say that he would like to give it further consideration. I have heard his reply and in the circumstances, unless any noble Lord wishes to say anything further concerning this amendment, I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Lord Hacking Lord Hacking moved Amendment No. 176B:
Page 49, line 8, at end insert—
(" (3B) If a person who has committed a contravention to which subsection (1) applies proves to the satisfaction of the Court that he took all reasonable steps to prevent the contravention, he shall not be liable in damages in respect of the contravention.").
The noble Lord said: My Lords, very quickly and formally I beg to move this amendment and to say that I heard the comments of the noble and learned Lord. I should like to consider them. Unless any noble Lord has anything further to say on this amendment, I beg leave to withdraw it.
Amendment, by leave, withdrawn.
Clause 62 [Gaming contracts]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 177:
Page 49, line 14, leave out from ("contract") to ("shall") in line 15 and insert ("to which this section applies").
The noble and learned Lord said: My Lords, this amendment deals with a point raised in Committee by the noble Viscount, Lord Chandos. It has always been our intention that investment contracts entered into by anyone who was permitted to carry on investment business should not be rendered unenforceable by the Gaming Acts. The original drafting did not extend to exempt persons such as recognised clearing houses; and the revised formulation therefore remedies that omission. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 178:
Page 49, line 21, at end insert—
(" ( ) This section applies to any contract entered into by either or each party by way of business and the making or performance of which by either party constitutes an activity which falls within paragraph 12 of Schedule 1 to this Act or would do so apart from Parts III and IV of that Schedule").
The noble Lord said: My Lords, this amendment is consequential upon Amendment No. 177. I beg to move.
On Question, amendment agreed to.
Clause 63 [Scope of Powers]:
[Amendment No. 179 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 180 to 183:
Page 50, line 17, after ("principal") insert ("or, in the case of such a representative with more than one principal, each of whose principals").
Page 50, line 21, after ("principal") insert ("or each of his principals").
Page 50, line 25, after ("he") insert ("or, in the case of an appointed representative, any of his principals").
Page 50, line 26, after ("he") insert ("or, as the case may be, any of his principals").
The noble and learned Lord said: These amendments were spoken to with Amendment No. 132. I beg to move them en bloc.
On Question, amendments agreed to.
Clause 65 [Restriction on dealing with assets]:
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 184:
Page 51, line 1, leave out ("or, as the case may be, representative").
The noble Lord said: I beg to move Amendment No. 184 standing in my name and in that of my noble friend Lord Williams. If I may, I shall speak to Amendments Nos. 188 and 190 which I think are the remainder of the group. This clause deals with the power to prohibit people from disposing of specified assets. Amendment No. 188 is in relation to winding up, which I shall attempt to deal with separately. But the basic principle is that the appointed representative is somebody who fulfils the conditions imposed by Clause 44; that is, he has a contract with an authorised person, acts for the authorised person and the authorised person accepts the responsibility. Why in that situation should the Secretary of State have a prohibition on the representative (who is in a sense only the employee of the authorised person) from disposing of the representative's own assets? The appointed representative may be an appointed representative for a whole variety of different people for different purposes. In our various discussions on Clause 44, that was made clear.
Then it becomes even more inequitable when one comes to Amendments Nos. 188 and 190. These relate to the winding-up and administration orders. The Secretary of State is empowered by Clause 71 to present a petition to wind up an authorised person or appointed representative where apparently it is the authorised person who is unable to pay his debts. Why

55
should the appointed representative have any responsibility therefor, because his responsibility is taken away, so to speak, by Clause 44 of the Bill?
Therefore, the possibility is that the Secretary of State—because, for example, some insurance company goes bust or breaches the rules—can take an appointed representative or salesman for that insurance company, who may well be acting for a whole variety of other insurance companies, and wind up the salesman as well. It seems a wholly inequitable provision, and for those reasons I beg to move the amendment.
6 p.m.
Lord Cameron of Lochbroom: My Lords, Clause 65 contains powers to prohibit persons from disposing of or otherwise dealing in any assets, and the powers may be used when it appears that their use is desirable for the protection of investors, or if it seems that an authorised person is not fit to carry on investment business of some kind, or that he has contravened rules under the Bill. An obvious example of the use of powers would be to prevent a person who owed investors money or who held money on their behalf from disposing of assets which might otherwise be used to settle his debts or liabilities.
Amendment No. 184 would make the Secretary of State or designated agency unable to prohibit an appointed representative from disposing of or otherwise dealing in his assets in these or other circumstances. Since it is often an intermediary such as an appointed representative who receives the money which is to be invested, it may well be the appointed representative against whom the regulator ought to act. After all, appointed representatives are separate businesses with their own accounts and assets. This point, coupled with the need to act swiftly in the sorts of circumstances in which action of the kind envisaged would be necessary, certainly justifies, in the Government's view, enabling regulators to prohibit and restrict appointed representatives directly.
I also have to say that Amendments Nos. 188 and 190 would likewise result in reducing the protection provided for investors. These amendments would attempt to remove appointed representatives from the persons whom the Secretary of State may petition a court to wind up if they are unable to pay their debts or if the court considers the winding up to be just and equitable. The Secretary of State would still be able to petition for the winding up of an authorised person. As have just explained, appointed representatives are separate businesses and any winding-up order dealing with the business of an appointed representative would have to be made in respect of that representative, not his authorised principal. For that reason, Clause 71 takes the form that it does. Of course, the winding-up order under Clause 71 could be applied for, so far as appointed representatives are concerned, only on the ground that the appointed representative is insolvent, and not on the ground that his principal is insolvent.
I apologise for going at some length into this matter, but it is an important point. As I say, because this clause is intended to secure the protection of investors, I cannot accept the arguments put forward by the
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noble Lord opposite. I suggest that his amendment would indeed reduce the protection and that your Lordships should not support it. I invite the noble Lord to withdraw his amendment, having heard the explanation I have given.
Lord Morton of Shuna: My Lords, having heard that explanation, I ask leave to withdraw Amendment No. 184.
Amendment, by leave, withdrawn.
Clause 70 [Breach of prohibition or requirement]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 185 to 187:
Page 52, line 40, after ("substitution") insert ("(a)").
Page 52, line 41, leave out ("or recognised professional body").
Page 52, line 44, at end insert ("; and
(b) for the reference to the rules of a recognised professional body of a reference to any prohibition or requirement imposed in the exercise of powers for such purposes by that body or by any other body or person having functions in respect of the enforcement of the recognised professional body's rules relating to the carrying on of investment business").
The noble and learned Lord said: My Lords, I beg to move Amendments Nos. 185, 186 and 187, to which I have already spoken with Amendment No. 93.
On Question, amendments agreed to.
Clause 71 [Winding up orders]:
[Amendment No. 188 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 189:
Page 53, line 15, leave out ("(including a person whose authorisation has been suspended) or") and insert (", any person whose authorisation is suspended under section 28 above or who is the subject of a direction under section 33(1)(b) above or any").
The noble and learned Lord said: My Lords, in moving this amendment I wish to speak also to Amendments Nos. 191 to 194. These amendments make technical alterations to the wording of Clause 71 and further provide for the extension of its provisions to Northern Ireland. I beg to move.
On Question, amendment agreed to.
[Amendment No. 190 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 191 to 194:
Page 53, line 27, after ("investment") insert ("agreement").
Page 53, line 29, leave out subsection (4).
Page 53, line 37, after ("above") insert—
("or, in Scotland, on a ground mentioned in paragraph (a) or (b) of that subsection").
After Clause 71, insert the following new clause:
("Winding up orders: Northern Ireland.
.—(1) On a petition presented by the Secretary of State by virtue of this section, the High Court in Northern Ireland may wind up an authorised person or appointed representative to whom this subsection applies if—

(a) the person is unable to pay his debts within the meaning of Article 480 or, as the case may be, Article 616 of the Companies (Northern Ireland) Order 1986; or

(b) the court is of the opinion that it is just and equitable that the person should be wound up.

(2) Subsection (1) above applies to any authorised person, any person whose authorisation is suspended under section 28 above or who is the subject of a direction under section 33(1)(b) above or any appointed representative who is—

(a) a company within the meaning of Article 3 of the Companies (Northern Ireland) Order 1986;

(b) an unregistered company within the meaning of Article 615 of that order; or

(c) a Part XXIII company within the meaning of Article 2 of that Order; or

(d) a partnership.

(3) For the purposes of a petition under subsection (1) above a person who defaults in an obligation to pay any sum due and payable under any investment agreement shall be deemed to be unable to pay his debts.
(4) Where a petition is presented under subsection (1) above for the winding up of a partnership on the ground mentioned in paragraph (b) of subsection (1) above, the High Court in Northern Ireland shall have jurisdiction and the Companies (Northern Ireland) Order 1986 shall have effect as if the partnership were an unregistered company within the meaning of Article 615 of that Order.
(5) The Secretary of State shall not present a petition under subsection (1) above for the winding up of any person who is an authorised person by virtue of membership of a recognised self-regulating organisation or certification by a recognised professional body and is subject to the rules of the organisation or body in the carrying on of all investment business carried on by him, unless that organisation or body has consented to his doing so.").
The noble and learned Lord said: My Lords, I beg to move these amendments en bloc. I have already spoken to them with Amendment No. 189.
On Question, amendments agreed to.
Clause 73 [Interpretation]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 195:
Page 55, line 19, leave out ("particular").
The noble Lord said: My Lords, I should like, in moving Amendment No. 195, to speak also to Amendment No. 199. The first amendment clarifies the criteria which a common management arrangement must meet to be excluded from the definition of a collective investment scheme in Clause 73(5). In some cases it might not be possible to identify exactly which part of the property belonged to a particular participant even though part of it was clearly his. For example, the property may consist of 1,000 shares in a particular company and the participant may be entitled to 10 of those shares, but if the shares are not numbered, it will not be possible to say exactly which 10 shares belong to the participant. Nevertheless, the participant has rights in respect of 10 shares and not partial rights in respect of 1,000 shares. Such an arrangement in practice is indistinguishable from one in which identified investments are held for identified participants. The amendment therefore makes clear that such an arrangement, provided that it satisfies the other conditions in Clause 73(5), is not to be regarded as a collective investment scheme.
The second amendment has been brought forward in response to representations that certain clearing systems are technically collective investment schemes. Therefore, they would be subject to the Clause 74 restrictions on promotion. However, many clearing services are advertised widely and are available to the public generally. Provided that they are adequately supervised it seems undesirable that this should be prohibitied by the general ban on public promotion of
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unauthorised and unrecognised collective investment schemes. Clearing services will benefit from this exclusion only if they are operated by a person authorised under the Bill, or by an investment exchange or a clearing house recognised under Clause 37 or Clause 39 of the Bill. I beg to move.
Lord Williams of Elvel: My Lords, the noble Lord has moved his amendments and, if I may say so, has relied on the notes on amendments that we have already received, no doubt perfectly correctly, and read. I confess that I am still not entirely clear on the purpose of leaving out the word "particular" in this case. The example that is given in the notes on amendments, and that has been given by the noble Lord, seems to be one which is at least unusual in practice (although he may correct me), where a participant can be deemed to be an owner of a part without being a beneficial owner of a particular part. I am not versed in the technicalities of what constitute collective investment schemes and we will be returning to some of the problems involved later. However, it seems curious to me that, in putting in this subsection in Committee, the Government did not pick up this point. This is the sort of thing which I think the Government should have picked up in the course of their deliberations. For the moment, however, I will accept the noble Lord's explanation of what this means, although, having read the notes on amendments and having heard what the noble Lord said, I must admit I am still somewhat puzzled.
The second amendment to which the noble Lord spoke, Amendment No. 199, is even more puzzling in a sense, because we are talking about arrangements which might otherwise be deemed to be a collective investment scheme if they were not for,
"the provision of clearing services and which are operated by an authorised person, a recognised clearing house or a recognised investment exchange".
I have listened very carefully to what the noble Lord said but I cannot see where, in practice, such arrangements will occur. However, if representations were made to him, there are no doubt people who will find difficulty in the clause as it is presently drafted. Nevertheless, we again have an amendment which was brought before your Lordships in Committee and which is now being amended by the Government on Report.
Having said that, I must take the noble Lord at his word that these amendments are necessary for technical reasons and for reasons which bona fide representatives of this section of the financial services industry have made and we shall therefore not oppose them.
Lord Lloyd of Kilgerran: My Lords, it might be helpful to the noble Lord, Lord Williams, and myself if the noble Lord could give some indication as to the scope of the representations that have been made. I do not press this point but it may be helpful to clarify the problems which face us.
Lord Silkin of Dulwich: My Lords, before the Minister replies, can he explain how one can be entitled to withdraw an unspecific and non-particular part of an investment?
Lord Lucas of Chilworth: My Lords, all I can say to the noble Lord, Lord Lloyd of Kilgerran, is that from 30th July until 30th September my officials had consultations with such a wide variety of people across the entire financial services sector that I cannot possibly remember exactly the extent of the representations made. So far as the question of the noble and learned Lord, Lord Silkin, is concerned, I am sorry I cannot tell him. I do not know enough about that particular area of the market.
6.15 p.m.
Lord Williams of Elvel: My Lords, I wonder whether the noble Lord can tell us which Government Minister would be able to tell us?
Lord Lucas of Chilworth: My Lords, this Government Minister will be able to tell noble Lords opposite later.
Lord Silkin of Dulwich: My Lords, perhaps the noble Lord would take advice on the point and write to me. I am genuinely puzzled.
Lord Lucas of Chilworth: My Lords, with the leave of the House, yes, that is what I meant by my previous remarks.
Lord Graham of Edmonton: My Lords, I hope the Minister will accept that I appreciate that he and his officials consulted very widely indeed with many individuals and organisations. Looking at the glossary of organisations involved, there must be a tremendous number. One of the problems which the Government have is that, if discussions of this sort are to be meaningful, there are many people who will wish to tell the Minister what they would like to see happen and to that extent he is almost hoist with his own petard. I take the view (and I hope the Minister will take this kindly) that it is far better to consult widely and perhaps disappoint some people than to be accused, as some Ministers are, of exercising a cavalier attitude to such matters by not consulting anyone at all.
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 196:
Page 55, line 28, at end insert—
("( ) Investment trusts, as defined in section 359 of the Income and Corporation Taxes Act 1970, are collective investment schemes.").
The noble Lord said: My Lords, I beg to move Amendment No. 196, standing in my name and in the name of my noble friend Lord Morton of Shuna. This amendment seeks to introduce a new subsection into Clause 73 which would bring investment trusts within the ambit of the Bill and within the ambit of this particular clause defining collective investment schemes. When we had our discussions in Committee, the noble Lord, Lord Lucas, assured me, somewhat to my surprise, that investment trusts were not at present considered as collective investment schemes and were not within the ambit of this Bill. I must confess now, as I confessed at that time, that when I read this particular clause it seemed to me that investment
60
trusts did fall within that ambit. However, I must accept his word that they do not presently fall within the clause, and the question is whether or not they should be deemed to be collective investment schemes.
Investment trusts have a perfectly clear function. Although they are companies in the proper sense of the word as used in the Companies Act, they are designed to give shareholders beneficial rights over the underlying investments of the trust. The fact that they are called trusts does, I think, represent a particular role that these organisations have to play. In general they are very large organisations; some of them are small but many of the smaller ones have been acquired by companies seeking to raise cash without making rights issues or have been gradually absorbed by larger investment trusts. The investment trust industry is a very significant part of the investment business in the London market.
Investment trusts again are defined quite clearly by their particular tax status and they must prove to the Inland Revenue that they obey certain criteria allowing them not to be considered as investment companies but to be considered under the category of investment trusts. They have certain tax reliefs, particularly on the operation of capital gains tax, provided that they do not have (as I believe the rule is) more than 15 per cent. of their assets in any one investment.
It seems to me that investment trusts, putting it like that, are essentially collective investment schemes. They are vehicles in which investors, whether institutional investors or private individuals, invest in order to get the benefit of the underlying investments. The fact that they are not unit trusts—although in the course of the time many investment trusts have become unitised, in the sense that they have turned themselves into unit trusts—does not, to my mind, mean that they are in any sense different from unit trusts in the function that they perform as a vehicle for allowing a small investor to have a spread of underlying investments by investing in a share of unit trusts, in exactly the same way as he would get a spread of underlying investments if he invested in the units of a unit trust. Therefore, I find it very difficult to see why investment trusts are not collective investment schemes under this Bill.
Furthermore, it is perfectly clear that investment trust shares are themselves traded in the market on the basis of some relationship with their underlying net asset value. Indeed, there is a daily quotation of investment trusts, and many brokers look at the discount to the net asset value at which many investment trusts sell. If one sells at 30 per cent. discount, another at 20 per cent. discount and another at 15 per cent. discount, investment trust X is therefore a better buy in relation to its net asset value than investment trust Z.
I cannot see why, if investment trusts are listed and properly traded in the market—and, therefore, their shares are traded in relation to their underlying net asset value—they should not be considered as collective investment schemes. I do not think I can make the case any more convincing than that, and I very much look forward to hearing what the noble

61
Lord has to say as to why these trusts are excluded from the Bill as at present drafted. I beg to move.
Lord Tryon: My Lords, I have to start by declaring an interest, which I may have done earlier. I am a director of, I think, five quoted investment trusts at the present time and therefore know a little about them. I, too, await with great interest the noble Lord's answer.
The only point I want to make at this stage—and it is one on which the noble Lord, Lord Williams, touched—is that the management of investment trusts is quite different from that of unit trusts, in that they are proper companies governed by the various provisions of the Companies Act. As the noble Lord mentioned, they have a quote and they, importantly, have boards of directors who are quite frequently independent of the managers of the underlying investment. Those directors are there, with their various duties under the Companies Act, to see fair play. I await the Minister's answer with interest.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Williams, for his explanation of the amendment which he has put down. He mentioned this point during our Committee stage. At that time he did not suggest that these investment trusts should be included. I think the noble Lord will recall that when we published the White Paper in January 1985 we stated quite clearly that the Government proposed to retain this position, and until we touched upon it in Committee that decision has provoked no controversy.
I am advised that a shareholder in an investment trust company is a beneficial owner of its shares alone. He has no beneficial interest in the shares forming his portfolio. That is, I believe, the essential point. While the trust label attached to a number of these investments is hallowed by time and usage, an investment trust, as I think the noble Lord, Lord Tryon, has just said, is an ordinary Companies Act company with a fixed capital traded on the stock market; and the point I make about the shareholder is here germane.
This is quite different from an open-ended trust fund and quite separate from any other types of arrangement which are covered in Clause 73. If an investment trust were to start operating in the manner described in Clause 73(8)(b), it would bring itself within Chapter VIII, for it would then, in effect, become open-ended. Otherwise, the shareholder in an investment trust is a member of a company, just as is a shareholder in, say, Hanson Trust, and his protections and rights are those of company law. It is for those reasons, and because of the fact that we made it abundantly clear in the 1985 White Paper that we did not intend that investment trusts, which are not at present authorised, would be authorised that we cannot accept the amendment.
Lord Williams of Elvel: My Lords, I am most grateful to the noble Lord for taking us back to the 1985 White Paper, from which I think the Government have deviated on certain points since it was published. I see no particular magic in that, nor do I regard that as being Holy Writ. The fact that this problem has not been spotted, as it were, in previous
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discussions of the Bill is purely and simply because, as I said when I introduced this amendment, I think everybody believed that investment trusts came within the definition of collective investment schemes. As I said, I was very surprised and quite unprepared in Committee when the noble Lord said to me that they did not.
As for the beneficial ownership of the investment trust shareholder being of the share alone and not of the underlying investment, that does not seem to me to make much difference as to whether it is a collective investment scheme in the true sense of the term. Indeed, as I pointed out, and as the noble Lord confirmed, ordinary Companies Act provisions apply to these trusts.
Nevertheless, I take issue with the noble Lord on the final point he made—that these trusts are in some sense not open-ended. Indeed, they are not open-ended as the definition of "open-ended" goes, but if we look at subsection (8)(b)(ii) of Clause 73, to which the noble Lord quite rightly referred us, we see that it reads:
"the body ensures"—
we are talking about a collective investment scheme—
"can be sold"—
this is the shares in, or the securities of, that body—
"by the participants on an investment exchange at a price related to the value of the property to which they relate".
This is exactly the point that I was making about investment trusts. The body does so ensure. Investment trusts are listed on the exchange. It ensures that they can be sold by the purchasers on the investment exchange at a price related to the value of the property to which they relate. I went to a great deal of trouble to explain why investment trusts are judged in the market by their relationship to the net asset value underlying that share. So it seems to me that they fall fairly and squarely within that definition.
I accept what the noble Lord, Lord Tryon, said about the management arrangements of investment trusts; that, on the whole, investment trusts have their own management companies in house, as it were, which are owned by the trust itself, and that distinguishes them from unit trusts which do not own their own management companies. But that does not seem to me to remove the basic point that these are, by any standards, collective investment schemes and should be covered by the Bill. I am afraid I must insist that the noble Lord pays attention to the arguments that I have put.
Lord Grimond: My Lords, I wonder whether the noble Lord can enlighten me on this point. I find that he has the best of the argument as to whether or not this is a collective investment, but I am wondering what practical difference it would make if they were in the Bill, as it seems to me they should be. As has already been said, there are other Companies Acts. Would any great purpose be served by bringing investment trusts into the Bill?
Lord Williams of Elvel: My Lords, I am most grateful to the noble Lord, Lord Grimond. The purpose of bringing them into the Bill would be to make them subject to all the collective investment

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scheme requirements which are imposed under Chapter VIII of the Bill. There are many restrictions—for example, on the publication of scheme particulars; on the promotion of the scheme; on how they advertise the scheme; and on how they go out and collect new money. All kinds of provisions within Chapter VIII would flow from the mere fact of bringing investment trusts into the Bill.
Lord Grimond: My Lords, this would be a good thing, would it not?
6.30 p.m.
Lord Williams of Elvel: My Lords, I am bound to say that if your Lordships seek to impose these requirements on unit trusts, I cannot for the life of me see why they are not imposed on investment trusts, which seem to be an alternative form of investment. I must ask the noble Lord the Minister to take my comments in detail.
Lord Lucas of Chilworth: My Lords, with the leave of the House, I shall try to answer in detail. An investment trust is not a company which ensures that participants are able to sell their shares on an investment exchange at a price related to the value of the property to which the shares relate. The noble Lord himself indicated at an earlier stage in our proceedings that a person does not ensure that a thing is done merely by doing something which makes it easier to do that thing. If a person ensures that a thing is done only if he makes it certain that it will happen, Clause 73(8)(b)(ii) therefore means that a company will not be regarded as falling within Chapter VIII of the Bill by virtue of its provisions unless it makes certain that shareholders can sell their shares at a price related to the value of the company's property.
The noble Lord pointed out at an earlier stage that merely obtaining a Stock Exchange listing is not sufficient to bring a company within Chapter VIII, because by so doing the company does not ensure that shares can be sold in cases in which there are no buyers. The company can provide that assurance only by itself standing ready to buy the shares or by guaranteeing that some other person will do so. So far as I am aware, no United Kingdom investment trust company does that. It is difficult to see how any such company could, given the restrictions contained in the Companies Act 1985 concerning the circumstances in which a company may purchase or provide financial assistance for the purchase of its own shares. I believe that that is sufficient to exclude companies of the kind the noble Lord has mentioned from the definition of an openended investment company.
I thought that when I spoke in Committee I explained that the provision is not directed at companies formed here but arises from the need to give effect to a Community obligation. Nor will a company be regarded as ensuring that a participant may sell shares at a price related to the value of the property to which they relate. It publishes its net asset value in the knowledge that others will or are likely to fix the share price by reference to the published figures, because the company will be relying on persons over whom it has no control to take the necessary action; nor indeed is there any guarantee that they will.
64
Even if there were some contractual relationship between the company and the person who fixed the price so that a related price could be obtained, it would remain the case that unless the company offered the necessary certainty that the participants would be able to sell their shares on an investment exchange the company would not be covered. We have also to look at Parts IV and V, as they particularly apply to investment trusts.
I hope that I have applied myself to some of the detail for which the noble Lord asked. He made the comment that parts of the White Paper have been altered; and I do not quarrel with his comment there. I was speaking of the White Paper within the narrow context of the investment trusts, to which that part of the White Paper addressed itself.
Lord Williams of Elvel: My Lords, I am sorry that the noble Lord has been unable to accept the arguments I put forward. Perhaps I may return to some of the points he made. Clause 73(8)(b)(ii) seems to be quite clear in its wording and in its English. It states:
"the body ensures [that the shares] can be sold by the participants on an investment exchange".
The way to ensure that—and the noble Lord took me to task in Committee—is to say, "I list my shares. They are on the market". The provision continues:
"at a price related to the value of the property to which they relate".
Any share traded on the market is traded at a price related to the value of the property to which it relates. Clearly it cannot be otherwise. You can always make some kind of relationship between the share price and the underlying value of the property to which the share price relates. This does not seem to me to get the Government off that hook. If they wish to redraft Clause 73(8)(b)(ii) perhaps we can look at it again; but in the meantime I believe that investment trusts should come under collective investment schemes because in a sense it is the thrust of the whole Bill to give investor protection. This is an important sector of the market and its investors require the same protection as those in other collective investment schemes.
Lord Lucas of Chilworth: My Lords, with the leave of the House, perhaps I may put this point to the noble Lord. Investment trusts may well be listed but that does not imply that the company ensures that they can be bought or sold at a price related to the value of the underlying assets. Surely the point is this: the discount at which they are traded reflects market conditions, and they may well vary. It may not be within the control of the company. This is where there is a fundamental difference of thinking between the noble Lord and myself.
6.38 p.m.
On Question, Whether the said amendment (No. 196) shall be agreed to?
Their Lordships divided: Contents, 52; Not-Contents, 99.

DIVISION NO. 3

CONTENTS

Airedale, L.

Brockway, L.

Ardwick, L.

Carmichael of Kelvingrove, L.

Aylestone, L.

Cledwyn of Penrhos, L.

Blyton, L.

David, B. [Teller.]

65

Dean of Beswick, L.

Nicol, B.

Diamond, L.

Northfield, L.

Ennals, L.

Parry, L.

Ewart-Biggs, B.

Phillips, B.

Gallacher, L.

Ponsonby of Shulbrede, L. [Teller.]

Graham of Edmonton, L.

Grey, E.

Russell of Liverpool, L.

Grimond, L.

Seear, B.

Hampton, L.

Shepherd, L.

Harris of Greenwich, L.

Silkin of Dulwich, L.

Jeger, B.

Stedman, B.

Kilmamock, L.

Stewart of Fulham, L.

Kirkhill, L.

Stoddart of Swindon, L.

Listowel, E.

Strabolgi, L.

Llewelyn-Davies of Hastoe, B.

Taylor of Gryfe, L.

Lloyd of Kilgerran, L.

Tordoff, L.

Lockwood, B.

Turner of Camden, B.

Longford, E.

Underhill, L.

McIntosh of Haringey, L.

Walston, L.

McNair. L.

Wells-Pestell, L.

Molloy, L.

Williams of Elvel, L.

Morton of Shuna, L.

Young of Dartington, L.

Mulley, L.

NOT-CONTENTS

Alexander of Tunis, E.

Hood, V.

Ampthill, L.

Hooper, B.

Auckland, L.

Hylton-Foster, B.

Beaverbrook, L.

Kimball, L.

Belhaven and Stenton, L.

Kitchener, E.

Beloff, L.

Lane-Fox, B.

Belstead, L.

Lauderdale, E.

Bessborough, E.

Layton, L.

Bethell, L.

Lindsey and Abingdon, E.

Boardman, L.

Long, V.

Boyd-Carpenter, L.

Lucas of Chilworth, L.

Brabazon of Tara, L.

McAlpine of West Green, L.

Brougham and Vaux, L.

Malmesbury, E.

Bruce-Gardyne, L.

Mancroft, L.

Caithness, E.

Marshall of Leeds, L.

Cameron of Lochbroom, L.

Masham of Ilton, B.

Campbell of Croy, L.

Maude of Stratford-upon-Avon, L.

Carnock, L.

Cathcart, E.

Merrivale, L.

Coleraine, L.

Mersey, V.

Colville of Culross, V.

Molson, L.

Colwyn, L.

Mottistone, L.

Constantine of Stanmore, L.

Mountevans, L.

Craigavon, V.

Munster, E.

Craigmyle, L.

Napier and Ettrick, L.

Cullen of Ashbourne, L.

Orkney, E.

Davidson, V. [Teller.]

Orr-Ewing, L.

Denham, L. [Teller.]

Pender, L.

Derwent, L.

Penrhyn, L.

Dilhorne, V.

Platt of Writtle, B.

Donegall, M.

Portland, D.

Eccles, V.

Reigate, L.

Elliot of Harwood, B.

Renton, L.

Elliott of Morpeth, L.

Rodney, L.

Elton, L.

Saltoun of Abernethy, Ly.

Fairfax of Cameron, L.

Sandford, L.

Fanshawe of Richmond, L.

Savile, L.

Fortescue, E.

Sharpies, B.

Gibson-Watt, L.

Skelmersdale, L.

Gisborough, L.

Stodart of Leaston, L.

Glanusk, L.

Strathcona and Mount Royal, L.

Gray of Contin, L.

Greenway, L.

Terrington, L.

Gridley, L.

Thomeycroft, L.

Halsbury, E.

Trumpington, B.

Harmar-Nicholls, L.

Vaux of Harrowden, L.

Henderson of Brompton, L.

Vickers, B.

Hesketh, L.

Vivian, L.

Hives, L.

Wynford, L.

Holderness, L.

Young, B.

Home of the Hirsel, L.

Resolved in the negative, and amendment disagreed to accordingly.
6.46 p.m.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 197:
Page 55, line 37, at end insert ("or in which the operator has a shareholding and is acting on behalf of the other participants.")
The noble Lord said: My Lords, I beg to move Amendment No. 197, standing in my name and that of my noble friend Lord Morton of Shuna. I believe—and I hope that the noble Lord opposite will be able to give me the appropriate assurance—that this amendment, which was tabled at the end of September, before the government amendments, reflects in large measure the thrust of some of the government amendments. The intention is that where operators are acting on behalf of other participants—and I am thinking particularly of companies who might be in joint enterprises or groups, or even with associated companies in which they have shareholdings—they should be covered by the same sort of arrangements that the Government have now produced in some of their other amendments which we have accepted. If that is the case, I will be happy to accept the noble Lord's explanation. I beg to move.
Lord Lucas of Chilworth: My Lords, I think I can give the noble Lord the assurance that he is looking for because what he proposes to add is already in Clause 73(6)(c). The operator will by definition be acting on behalf of the participants. It is immaterial whether or not he has a shareholding—he may, in fact, be a fellow subsidiary. The key question is whether the participants and the operator are all members of the same group. If they are, the arrangements will not be collective investment schemes.
The amendment as tabled goes too wide because it would exclude from the scope of the definition any scheme where the operator held at least one share in each of the participants. We consulted widely industrial and commercial companies as to the adequacy of the exclusion. They indicated that they were content with what is in the Bill and suggested that there is no need for an extended definition. I hope that answers the noble Lord.
Lord Williams of Elvel: My Lords, I am most grateful to the noble Lord. That is indeed the point I was driving at—that associated companies should also be covered. There was a point at which associated companies were left in a rather indeterminate position, but government amendments tabled subsequent to the time my amendment was tabled make clear exactly the status of associated companies. In the light of the Minister's explanation, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 198:
Page 56, line 2, after ("Act)") insert ("and investments (as defined in paragraph 7 of Schedule 1 to this Act)").
The noble Lord said: My Lords, this is an amendment to an amendment put in by the Government in Committee. The intention is to include investments as defined in paragraph 7 of Schedule 1 in the arrangements which are not collective investment schemes. The position of

67
investments which are listed under paragraph 7 and which are options has given a great deal of concern during the Bill's passage as to how they operate and whether they should be considered as securities for the purposes of collective and other investment schemes.
As noble Lords opposite will be aware, throughout our debates we have sought to include options alongside other investments because we find it difficult to distinguish between options and the underlying securities. This again was an amendment which was tabled well before the Government's amendment. It may have been superseded by some of the measures that the Government have taken. If the noble Lord can give me such an assurance, I shall be happy. I beg to move.
Lord Lucas of Chilworth: My Lords, I think that the amendment is more in the nature of a probing amendment because it is based on something of a misunderstanding. At the time to which the noble Lord referred we were talking about options under an employee share scheme. They are not a part of the property to which the arrangements relate. They will normally of course be shares in the company. They are then a part of the arrangements which enable the employee to acquire shares on more favourable terms than he could in the market place.
The amendment would add options to shares and debentures as property to which employee share schemes relate by virtue of Clause 73(6)(d). Such schemes are not collective investment schemes. The clause to which the amendment relates has not been superseded, but much the same point was made before and our explanation was then accepted. The amendment is perhaps tabled in part without regard to that which we decided at an earlier stage and in part possibly due to a misunderstanding.
Lord Williams of Elvel: My Lords, I am most grateful to the noble Lord. I accept that we have had the discussion about securities at an earlier stage. I understand what the Government were trying to say and I accept that. Nevertheless, when we come to employee share schemes the Government sought in Committee to include debentures as well as shares.
So far as I know—the noble Lord will corrrect me if I am wrong—employee share schemes are confined to the shares of the company in which the employees work. I know of no scheme where there are entitlements to debentures, convertible or otherwise. There may be such schemes, and no doubt someone will enlighten me on that point, but I have never heard of them.
The provisions of the 1978 Act on profit-sharing schemes apply to the ordinary equity of companies. If the Government are going to extend that to debentures, it seems only right that it should be extended to options. There is no earthly reason why, if the 1978 Act is changed, employees should not have an entitlement to options as well as debentures and shares.
It is more logical that employees should have an entitlement to options, which after all grant an option over the underlying equity, than that they should have
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an entitlement to debentures because by their very nature debentures are fixed interest instruments, and unless they are converted from the equity they have no incentive for profit.
I press the noble Lord a little on this matter to ensure that he is fully aware of the point that I am making. I accept his first point, but I should like to ask him to comment further on my second one.
Lord Lucas of Chilworth: My Lords, with the leave of the House, the noble Lord has been talking about employee share schemes. Such schemes involve options. The amendment appears to be prompted by concern that options are not specifically mentioned. We do not think that there is any need for Clause 73(6)(d) to refer expressly to options because in this context options are not part of the property to which the scheme relates. As I sought to explain earlier, they are part of the arrangements whereby the property—shares or whatever—can be acquired.
If we find it necessary to change the 1978 Act, we shall have to change the definition of security to which the noble Lord refers.
Lord Williams of Elvel: My Lords, the Government will also have to allow debentures to form part of an employee share scheme because that is not allowed for in the 1978 Act. If the Act can be changed for debentures, I do not see why it cannot be changed for options. It all seems to be part of the same problem.
However, in the light of the discussions that we have had and because we have a great deal of work to do on the Bill, I do not intend to press the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 199:
Page 56, line 24, at end insert—
("( ) arrangements the purpose of which is the provision of clearing services and which are operated by an authorised person, a recognised clearing house or a recognised investment exchange;").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 195. I beg to move.
On Question, amendment agreed to.
[Amendment No. 200 not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 201:
Page 57, line 12, leave out ("related") and insert ("which bears a fixed relationship").
The noble Lord said: My Lords, we have had, as it were, a preliminary canter around this particular course in an earlier debate this evening. The point that I made to the noble Lord opposite at the time was that any share at any price bears a relationship to its underlying property. What that relationship is may vary from time to time but any share of any industrial company, investment trust or anything else at any price bears that relationship.
We are seeking to narrow the definition of a collective investment scheme to include those schemes where there is a fixed relationship between the underlying value and the price at which the unit or the

69
share, if it is a share, can be redeemed. That gives rise to a series of questions about the possibility of unit trust managers dealing in the units of their own trusts which at this stage I do not wish to touch upon. I am sure that we shall return to it later in our discussions when we come to the role of management companies.
The definition of a collective scheme in Clause 73(8)(b)(ii) seems therefore to be defective. To make it properly sensible and understandable, it is necessary to put in that there is some determined relationship between the underlying value of the property and the price at which the share or unit is quoted or redeemed. Unless one has that, one does not have any specific parameters within which to define a scheme. I hope that I have made myself clear. There is an important point here. I hope that the noble Lord will take account of it. I beg to move.
Lord Lucas of Chilworth: My Lords, I am sorry that the noble Lord, Lord Williams, has not helped me very much. During the Committee proceedings he expressed the view that Clause 73(8)(b)(ii) was meaningless. To that extent the amendment contains nothing upon which anything can be hung. It lacks, if I may say so, any point other than to circumscribe the way in which the regulations under Clause 79 might tackle the matter.
I think that I understand the basic concern. It is that there should not be a large or unpredictable divergence between the stock market price and net asset value or exchange price. Requiring the relationship between the two to be fixed without specifying how this could be done does not really advance matters. I believe that it could present a number of rather practical difficulties.
A significant part of the portfolio may consist of assets where it would be much harder to maintain a fixed relationship than it is with listed securities; for example, shares in unlisted companies, or real estate, or rights exercisable in future circumstances which cannot be foreseen. In such cases, there is no continuous market and no comparisons could be made between like and like as happens where a scheme's shares and most of the securities forming its portfolio are listed. I believe that the matter is within the scope of Clause 79 regulations. As I read the amendment and as I listened to the noble Lord, it seemed that the amendment achieves no more than circumscribing—I am not sure to what purpose—the way that it should be dealt with.
Lord Williams of Elvel: My Lords, when in Committee I described this subsection as being meaningless it was with a view to moving an amendment that would make it meaningful. We have already had a discussion about the relationship between the price of a share or a unit—let us talk about a unit in this case and get away from a share—relative to the property that underlies it. It is clear to me that one can have a price related to the value of the unit that can vary between 20 per cent., 50 per cent., or 150 per cent. net asset value of the price of the unit. That is not the point about a unit trust. The point is that units in a unit trust are redeemed, sold, or bought at the net asset value—indeed, it is the object of the unit trust to do so—underlying the unit. There is therefore
70
a fixed relationship between the net asset value and the price at which the unit is redeemed, bought or sold. I am seeking to make that fixed.
It would also, I accept, consequentially fix the spread at which the unit trust manager could deal at when dealing in his own units. That is why I indicated to the noble Lord that I was not prepared to embark upon that discussion on this amendment. I shall come back to it later when we discuss the management companies of unit trusts. But the fixed relationship between a unit value in the market and the underlying net asset value of the unit would fix once and for all, if one includes the dealing spread, the fact that this is a unit trust and not something else. This makes the whole thing meaningful.
Lord Lucas of Chilworth: My Lords, may I with the leave of the House, come back? I accept what the noble Lord says about a meaningful argument. But, surely, it can scarcely be said of the shares of a fixed capital company that that company ensures that the shares can be bought and sold at a price related to underlying asset value. Surely, the price will reflect what people are prepared to pay. That is surely the position with any share of any kind. The relationship between asset value and redemption price—if that is what concerns the noble Lord—is surely a matter that could be set in the rules. We are now talking not about moving across from ownership to ownership; we are talking about a redemption against an asset valuation. If there has to be a formula, it would surely be far better that the formula was arrived at through the rules.
Lord Williams of Elvel: My Lords, I do not think that I can get very far pressing the point. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Beaverbrook: My Lords, in moving that further consideration on Report be now adjourned, may I suggest that the House does not return until five minutes past eight. I beg to move that further consideration on Report be now adjourned.
Moved accordingly, and, on Question, Motion agreed to.
[The Sitting was suspended from 7.6 to 8.5 p.m.]
Consideration of amendments on Report resumed.
Clause 74 [Restrictions on promotion]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 202:
Page 57, line 31, leave out ("and (3)") and insert (" , (3) and (3A)").
The noble Lord said: My Lords, in moving Amendment No. 202 I should like to speak also to Amendment No. 203. I indicated at an earlier stage in our proceedings that it was the Government's intention to bring forward amendments to facilitate the unitisation of real property as a means of introducing greater liquidity, and investor interest, into the property market. These amendments fulfil that commitment. They will have the effect of providing a mechanism for allowing a general

71
promotion of schemes under which a large single property—such as an office block or a shopping centre—is divided into units which are then traded on a recognised investment exchange.
Such schemes would fall within the definition of a collective investment scheme under Chapter VIII, but could not meet the requirements for authorisation under Clause 75 relating to redemption. Special provision is therefore needed to allow such schemes to be promoted to the public.
In order to be promoted in accordance with the regulations made under the new subsection, units in a scheme would have to be dealt in on a recognised investment exchange or offered on terms that any agreement for their acquisition is conditional on their admission to dealings on such an exchange. This condition is necessary to ensure that unit-holders can sell their units at any time. It is a substitute for the redemption requirements for authorised unit trusts. The scheme would also have to comply with other requirements laid down in the regulations. The regulations could, for instance, provide that such schemes could be promoted only by means of a prospectus of a prescribed form or by one which complied with the requirements of a recognised investment exchange approved by the Secretary of State or the designated agency for this purpose. I beg to move.
Lord Williams of Elvel: My Lords, we believe that this is a perfectly reasonable amendment because it is a growing market which has to be catered for. We would support the amendment. Nevertheless, I should like to ask the noble Lord if he would be kind enough to say whether the type of investment that I raised at Second Reading—I think on the question of stallion shares—would be equally covered by the Government by some kind of exemption for collective investment schemes, either today or on a future occasion?
Lord Lucas of Chilworth: My Lords, I think I can best answer the question of the noble Lord by telling him that in order to be promoted, in accordance with the regulations made under this subsection, units in the scheme would have to be dealt in on a recognised investment exchange or offered on terms that any agreement for their acquisition was conditional on their admission to dealings. This is necessary to ensure that unit-holders can sell their units at any time. It is a substitute for the redemption requirements for authorised unit trusts. The scheme would also have to comply with the other requirements laid down in the regulations.
Lord Williams of Elvel: My Lords, I raise the question of stallion shares at this particular point because they are analogous to the single property schemes that the noble Lord has described. I understand that if they are not dealt in on a recognised investment exchange they pose something of a problem. I should be grateful if the noble Lord could tell me whether, if stallion shares are dealt in a recognised investment scheme, they would qualify for the same exemption.
Lord Lucas of Chilworth: My Lords, with the leave of the House, I am sorry I rather misunderstood the noble Lord opposite. Stallion share schemes, if promoted as investments, would not be promotable to the general public, but regulations could be made permitting a more restricted promotion. I think that is the point that the noble Lord was seeking.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 203.
Page 58, line 13, at end insert—

("(3A) The Secretary of State may by regulations make provision for exempting single property schemes from subsection (1) above.

(3B) For the purposes of subsection (3A) above a single property scheme is a scheme which has the characteristics mentioned in subsection (3C) below and satisfies such other requirements as are specified in the regulations conferring the exemption.

(3C) The characteristics referred to above are—

(a) that the property subject to the scheme (apart from cash or other assets held for management purposes) consists of—

(i) a single building (or a single building with ancillary buildings) managed by or on behalf of the operator of the scheme; or

(ii) a group of adjacent or contiguous buildings managed by him or on his behalf as a single enterprise, with or without ancillary land and with or without furniture, fittings or other contents of the building or buildings in question; and

(b) that the units of the participants in the scheme are either dealt in on a recognised investment exchange or offered on terms such that any agreement for their acquisition is conditional on their admission to dealings on such an exchange.

(3D) Regulations under subsection (3A) above may contain such supplementary and transitional provisions as the Secretary of State thinks necessary and may also contain provisions imposing obligations or liabilities on the operator and trustee (if any) of an exempted scheme, including, to such extent as he thinks appropriate, provisions for purposes corresponding to those for which provision can be made under section 83 below in relation to authorised unit trust schemes.").

The noble Lord said: My Lords, I spoke to Amendment No. 203 with Amendment No. 202. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 204:
Page 58, line 14, leave out subsection (4).
The noble Lord said: My Lords, my noble and learned friend the Lord Advocate spoke to this amendment with Amendment No. 160. I beg to move.
On Question, amendment agreed to.
Clause 75 [Applications for authorisation]:
[Amendment No. 205 not moved.]
Clause 77 [Revocation of authorization]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 206:
Page 60, line 10, after ("has") insert ("knowlingly").
The noble Lord said: My Lords, this is an important amendment to Clause 77 which deals with the revocation of authorisation. As it refers to later amendments, I should like to speak also to Amendments Nos. 207, 217 and 220.
The problem that we see here in the text of the Bill as drafted is that there is a presumption that there is false, inaccurate or misleading information or there may be a contravention of a prohibition or requirement of this Act when it is enacted, which has been made unknowingly. The intention of the amendment is simply to make quite certain that ignorance is a proper defence for somebody who, in ignorance of the provisions of this Act, has committed such an offence, and, the provisions of the Act being as complicated as they are, that the perpetrator of such an offence may well be given proper consideration. If the noble and learned Lord who may be answering this amendment can give us that assurance, we shall be perfectly happy. I beg to move.
Lord Cameron of Lochbroom: My Lords, as the noble Lord opposite has indicated, this appears in the regulatory part of the Bill. I should say at the outset that it is difficult to see any point in making regulatory provisions and rules if they can be ignored without attracting any sanction. As noble Lords opposite know, I would point out that knowingly furnishing false information is normally not just a regulatory breach hut, of course, a criminal offence. In our opinion these amendments would seriously weaken the effectiveness of the regulatory structure, because, after all, ignorance of regulatory rules and requirements can cause as much damage as knowing contraventions. Perhaps I may give an example: a firm which ignorantly fails to maintain proper books and records or to segregate client money can harm it clients as much as one which deliberately cooks the books or defrauds them. Ignorance is thus dangerous.
Therefore, it follows that ignorance is culpable, the more so because the authorised person is not a layman. He is pursuing an activitity which he is well aware is a regulated activitity and it is his duty to know and comply with the rules and regulations. Therefore, contravention through ignorance should not necessarily be absolved.
However, I do point out that the sanctions are not mandatory. The clause starts with the words:
"The Secretary of State may evoke".
That is to say that the provision is discretionary. The agency and the SROs will have discretion not to impose any sanction if they come to the conclusion in all the circumstances that the contravention was venial. I hope that with that assurance the noble Lord will understand the purpose of this clause and the reason why I would oppose these amendments.
8.15 p.m.
Lord Williams of Elvel: My Lords, I am most grateful to the noble and learned Lord. That is exactly the sort of assurance that we were looking for in the form of a statement in your Lordships' House that such offences might be considered venial. Given the complexities of the Bill that we are dealing with I am sure there will be many occasions when such discretion may have to be exercised. In the light of the noble and learned Lord's comments, I beg leave to withdraw the amendments.
Amendment, by leave, withdrawn.
[Amendment No. 207 not moved.]
Clause 79 [Constitution and management]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 208:
Page 61, line 11, after ("constitution") insert ("including the ownership of the manager").
The noble Lord said: My Lords, this is a particularly important point. I am afraid that it raises again the point that we on this side of the House have stressed on a number of occasions—the difficulty of legislating for the conflicts of interest that will inevitably arise when operators or managers can be members of different groups in different investment businesses. The problem is highlighted by the articles in the press that have appeared in the last day or two about the Chinese wall—I am afraid we have come back to this rather ugly expression. The Bill as drafted states:
"The Secretary of State may make regulations as to the constitution and management of authorised unit trust schemes".
In our view this is not adequate. The Secretary of State ought to be able to say that in his view the ownership of the management company of a unit trust scheme is a proper subject for his regulations. I do not have to remind your Lorships that in recent weeks one of the major merchant banks in the City of London has declared its intention of disposing of its holding in one of the major management companies of unit trust groups. I am sorry to see that the noble Earl, Lord Limerick, is not in his place because I refer, of course, to the action taken by Kleinwort Benson. It does seem to us to be important that the Secretary of State has power to declare that the ownership of a management company of a unit trust is inconsistent with its proper operation as a collective investment scheme as defined under the Bill.
I do not want to repeat the arguments we had in Committee about the status of management companies, or the status of-owners of management companies who might in certain circumstances bring pressure to bear on those management companies to accept underwritings, to accept offers which they otherwise would not accept. We are not asking for a mandatory divorce, if I may use that expression. We are asking for the Secretary of State to have clear powers that, if he finds that the management of unit trusts is in some way affected by their ownership in a sense which is deleterious to the interest of investors, he should have powers to be able to make the owner divest himself of his holding in the management company. That is the purport of the amendment. It may be badly drafted, but I hope that the noble Lord understands and takes the point. I beg to move.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Williams, for so easily putting the purport of his amendment. I am reminded that the noble Lord withdrew an amendment to delete what is now Clause 81(2)(b) during our Committee stage. This amendment which he has tabled goes to much the same concerns as he suggested—concerns about conflicting interests. I do not think that the noble Lord will expect me to comment on articles published in the press any more than he would expect me to comment upon Messrs. Kleinwort Benson's commercial activities. These are matters which that company quite properly manages for itself without help from anything that I might say.

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I recognise the concerns which the noble Lord has just voiced—concerns about which he previously spoke to us—and they are legitimate. However, the amendment which he proposes tonight to deal with them goes a great deal further than we believe is necessary or desirable. It would appear to extend the power to transfer or acquire ownership of the manager, whereas the matters which understandably cause concern go to relationships and behaviour. This I think is a much wider point than that of collective investments which the noble Lord, Lord Williams, is effectively asking for in the Bill, or at least statutory controls over conflicts of interest.
I think that the noble Lord is suggesting that the designated agency, SIB, is not enough. In our view it is. In our view SIB, aside from the conduct of business rules, could also refuse to authorise a trust where it is considered unacceptable and where conflicts of interest arose. We believe that there are limitations laid down in Clause 81. As I have suggested, further limitations may be laid down in the conduct-of-business rules. We believe that these provide ample and the proper means of dealing with the problem which the noble Lord has quite properly expressed.
Lord Williams of Elvel: My Lords, I understand that the noble Lord thinks that my amendment is not to the Government's taste. I understand that he believes that the process of "deauthorisation"—if I can invent that terrible word—is the proper process rather than some order changing the ownership of the management company. Nevertheless, I believe that this whole question of conflicts of interest is a matter which your Lordships may well wish to debate at the later stage of this Bill. I leave the noble Lord with that thought, and in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 209:
Page 61, line 26, after ("scheme") insert ("and for the inspection of those records").
The noble Lord said: My Lords, in moving Amendment No. 209, I should also like to speak to Amendments Nos. 210 and 224. If we turn to Clause 79 we shall see that it empowers the Secretary of State or the designated agency to make regulations about the constitution and the management of authorised unit trust schemes.
The clause specifies that the regulation may require records to be kept of the transactions and financial position of the scheme. For instance, it may be desired to require that the records are available for inspection by participants at certain times, and to impose other requirements relating to inspection. This amendment makes clear that the regulation-making power may be used for this purpose.
The second and third amendments to which I address myself are consequential on an amendment made at an earlier stage which made it clear that the Clause 79 regulations can impose obligations on participants in an authorised unit trust scheme, for example, as to the procedure to be followed at meetings, as well as giving the participants rights.
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However, it would be inappropriate if a breach by participants of any such obligation were to lead to the consequences evisaged under Clause 93 for contravention of regulations made under Chapter VIII.
The amendments therefore provide that the provisions of Clause 93 in the case of a breach of regulations under Clause 79 apply only to the manager or trustee of an authorised unit trust scheme. The Clause 79 regulations will therefore bind participants in the same way as if they were provisions of the trust deed. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 210:
Page 61, line 36, at end insert ("and, in the case of the participants, shall have effect as if contained in it.").
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 211:
Page 61, line 37, leave out subsection (4).
The noble Lord said: My Lords, I beg to move Amendment No. 211 standing in my name and that of my noble friend Lord Morton of Shuna. This is the one major oddity in Clause 79 of the Bill. It reads as follows:
"Regulations under this section shall not impose limits on the remuneration payable to the manager of a scheme".
I do not wish to engage the noble Lord in a debate about how managers of collective investment schemes, particularly unit trust schemes, actually make their money.
I am very glad that the noble Lord, Lord Boyd-Carpenter, is not in his place because I know that his blood pressure rises whenever I mention the Price Commission. I see that the noble Lord, Lord BruceGardyne, is in his place and I am glad to see that his blood pressure is rising! I am somewhat fortunate in that when I was with the Price Commission we carried out a study into unit trusts and we came to the conclusion that unit trust managers made far more money out of dealing in their own units than they did from the management charges. Since that time there have been certain developments and that has become a matter of deregulation.
Nevertheless, if there is to be regulation on the management of schemes, it seems to be an oddity that that regulation, or any regulation that might be put forward, should specifically and on the face of the Bill exclude management charges. I can conceive of times when the Secretary of State or, by delegation, the SIB, may wish to make regulations to that effect. I believe that this is something which the Government should look at quite seriously again to see whether it is right that there should be this specific exclusion from the powers of regulation which in themselves cover a very wide range. I hope that the noble Lord will think very carefully about this when he replies. I beg to move.
8.30 p.m.
Lord Lucas of Chilworth: My Lords, let me assure the noble Lord, Lord Williams, that I always have to think carefully when I come to any point that he

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makes. I agree with him that it may be an oddity, but nevertheless I have to say to him—and I recognise straight away the noble Lord's interest in this matter as it has some bearing on the valuable work that he did when he was a member of the Price Commission—that the Government do not believe in administered—
Baroness Seear: My Lords, may I correct the Minister as the noble Lord, Lord Williams, is too modest to do it for himself? He was chairman, not a member.
Lord Lucas of Chilworth: My Lords, I am most grateful to the noble Baroness for reminding me of that; it had escaped my mind. Therefore, his consideration of matters of this kind is even more valuable. Nevertheless, I think he misjudges our feeling on this matter.
Apart from this amendment conflicting with Clause 48(3), which prevents the designated agency making any price control rules, this Government do not believe in administered prices, whether they be for unit trusts or anything else. It really is a core issue as to the way this Government feel about matters of this kind and what the noble Lord, with his experience in these matters, feels. We shall have to beg to differ on this issue. I invite your Lordships to reject this amendment.
Lord Williams of Elvel: My Lords, I believe that we have to differ on the issue. I find it curious that a clause in a statute can contain a subsection such as this, allowing the Secretary of State to make regulations on a wide variety of matters. Let me read some of them. Subsection (2) says that regulations may make provision

"(a) as to the issue and redemption of the units under the scheme;

(b) as to the expenses of the scheme and the means of meeting them;

(c) for the appointment, removal, powers and duties of an auditor for the scheme;

(d) for restricting or regulating the investment and borrowing powers exercisable in relation to the scheme;

(e) requiring the keeping of records with respect to the transactions and financial position of the scheme;

(f) requiring the preparation of periodical reports …".

The noble Lord's case is a curious one. The Secretary of State has powers to make provision under these regulations,
"as to the expenses of the scheme and the means of meeting them".
And yet subsection (4) says:
"Regulations under this section shall not impose limits on the remuneration payable to the manager of a scheme".
Those two points seem to be wholly inconsistent. If you regulate the expenses that can be charged, in effect you are regulating the remuneration of the manager.
I hope that the noble Lord will think again. I do not think that this is a matter of deep political difference. If it is, I suggest that he removes Clause 79(2)(b). If he wishes to do that, I am sure he will be politically consistent.
Lord Ezra: My Lords, the noble Lord, Lord Williams, has a point here. I am not clear why subsection (4) should have been put in. It seems rather to be an invitation to have an open-ended arrangement
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for remuneration. If the Secretary of State will not be determining these matters, there is no need to say it. There is a contradiction between subsection (2)(b) and subsection (4). I think there is some point in eliminating subsection (4) and not saying anything about it.
Lord Shepherd: My Lords, I have looked at subsection (4) and I wonder what would be the consequence if my noble friend's amendment was accepted. Would it make any difference in terms of the powers of the Secretary of State? The Secretary of State could do what he wished but he could not impose regulations on the remuneration of the manager. If the noble Lord were to accept this amendment it would not make any difference at all in terms of the powers of the Secretary of State in relation to this clause. Why therefore is the Minister being so awkward and difficult in regard to my noble friend's amendment?
Lord Lucas of Chilworth: My Lords, if I may address myself to the accusation that the noble Lord, Lord Shepherd, made about my being awkward, perhaps I may say that he knows me better than to suggest that I am being awkward. If subsection (4) were removed we would have a position where the Secretary of State may in fact be obliged—
Lord Shepherd: No, my Lords.
Lord Lucas of Chilworth:—to impose limits. We seek, as a principle, to ensure that he shall not impose any limits on the remuneration of managers of any scheme, as I have earlier described.
The noble Lord, Lord Ezra, asked: why? I say to him simply, as I did earlier, that it echoes Clause 48(3). The noble Lord, Lord Williams, talked about some of the matters that the Secretary of State can now control—expenses and so on. He will recognise much more readily than I that expenses are a different matter. Surely the point here is not the level but what can be properly charged to the fund, and what the manager has to absorb in the management of the fund, and not the manager's remuneration. That is a negotiable matter, and we do not believe that it should fall to the Secretary of State to impose limits on that remuneration.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord. I can again see that we are not going to get any further on this matter. I think the definition of expenses that he has just outlined is one that does not bear any relationship to real life. However, if he wishes to persist in his point I am not prepared to push this amendment to a Division. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 81 [Restrictions on activities of manager]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 212:
Page 62, line 40, at end insert ("provided that such activities are not engaged in with persons connected by shareholding with the manager.").
The noble Lord said: My Lords, in moving Amendment No. 212, in my name and that of my

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noble friend Lord Morton of Shuna, I come back again to the issue of the Chinese wall, which has been a rather constant (and perhaps some noble Lords think a rather boring) theme of mine during debates in your Lordships' House, in Committee and on the Report stage.
We are here talking about the restrictions on the activities of the manager of a collective investment scheme. The point I try to make with this amendment, which is in the form of a probing amendment and is not in its final form, is that there should be some protection for investors in these schemes against activities which may be related in some form or another to the manager's outside interests. By "outside" I mean those interests which are not specifically concerned with the management of the scheme.
I am sure that all of us with experience can draw attention in detail to situations where managers of unit trusts, and managers of other collective investment schemes, have been influenced in what they are doing as managers by their shareholders. Again, I apologise for hammering on at this theme but this is something about which, over the years, the Government will feel rather sad that they did not pay more attention when the Bill was going through your Lordships' House. I think this will be a major problem.
The specific amendment is designed to ensure that managers of collective investment schemes obey the restrictions which provide that they should not engage in activities with people who are connected by shareholding. I drafted that in the general spirit of trying to make the general point which I hope the noble Lord will attend to. I am sorry that this is part of a series of amendments on the Chinese wall, and I hope the noble Lord will bear with me since there may be more in the course of our discussions which I shall seek to press. I beg to move.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Williams, for telling us that this amendment is in the nature of a probing amendment. He then went on to say that he recognised that it may not be in its final form, so he may want to come back to it later. I think the best that I could do for your Lordships would be to give the reasons why we invite the noble Lord to withdraw his amendment, and we shall see how we get on from there.
The clause gives effect to a provision of the UCITS directive which places limits on the activities which a manager of a unit trust may undertake. The aim of the directive's provision is to try to ensure that all the activities of the manager are regulated in some way. Noble Lords will agree that this is a common provision in directives of this kind.
The precise effect of the noble Lord's amendment is, if I may say so, a little difficult to determine. It seems to envisage that the manager of an authorised unit trust would be debarred from entering into any transaction with any person linked to him by virtue of a shareholding. This might cover not only cases where one of the parties had a substantial shareholding in the other, but also cases where a third party held even a small number of shares in both parties. But even were it not for this uncertainty I would not be able to accept
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the noble Lord's amendment as it stands. In certain circumstances it may be positively in the interests of unitholders if the manager entered into a transaction with a related company. It would be wrong to exclude this possibility out of hand. Restrictions on trading with related companies may be necessary to deal with conflicts of interest. If that is so, then we feel that they are best dealt with in the conduct of business rules which would be operated by the designated agencies together with the SROs. I hope that the noble Lord will feel able to withdraw his amendment. I accept that he may wish to give it further consideration.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord. I think he understands the point I am making, and probably in future will continue to make, but in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 84 [Schemes constituted in other member States]:
[Amendment No. 213 not moved.]
Clause 85 [Schemes authorised in designated countries or territories]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 214:
Page 65, line 19, leave out ("subsection (3) and (4)") and insert ("subsection (3)").
The noble Lord said: My Lords, this is purely a drafting amendment. I beg to move.
On Question, amendment agreed to.
Clause 86 [Other overseas schemes]:
[Amendments Nos. 215 and 216 not moved.]
Clause 87 [Refusal and revocation of recognition]: [Amendment No. 217 not moved.]
8.45 p.m.
Lord Hacking Lord Hacking moved Amendment No. 217A:
Page 68, line 17, at end insert—
("( ) The Secretary of State may at any time direct that a scheme shall cease to be recognised by virtue of section 84 above on the ground mentioned in paragraph (b) of the preceding subsection (and a direction given by virtue of this subsection shall be treated as a direction such as is mentioned in that subsection) but the Secretary of State shall consult the authorities of the State in question before giving a direction by virtue of this subsection unless he considers it essential in the interest of investors that the direction should be given forthwith and in that case he shall consult those authorities immediately after giving the direction and may vary or revoke it if he considers it appropriate to do so.").
The noble Lord said: My Lords, in the absence of the noble Earl, Lord Limerick, who has unfortunately to be in New York today, I am moving this amendment. In fact, the noble Earl has said to me that if your Lordships are still working at 6 a.m., he will come straight from London Airport to give further assistance.
As your Lordships will know, Chapter VIII (that is, Clauses 73 to 93 of the Bill) deals with collective investment schemes. A collective investment scheme is a scheme under which assets are managed

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collectively for the benefit of participants. The best known collective investment scheme within these shores is the unit trust.
The matter is somewhat complicated, but I hope to take your Lordships through it as simply as I can. Under the provisions in the Bill there is no control on the formation of collective investment schemes. But under Clause 74 there is a prohibition on the marketing of such schemes when such a scheme is not an authorised trust scheme or when it does not fall under a recognised investment scheme under the provisions of the Bill.
The overlay is that there is an EC directive which carries the name of the UCITS directive, and this covers collective investment schemes within the EC. Broadly speaking, the directive sets up minimum standards for collective investment schemes, and these come under Clauses 75 to 83. It enables schemes, where the minimum standards are satisfied, to be marketed throughout the EC. It works in this way. A member state can regulate the marketing of such a scheme but it cannot require its own authorisation when a scheme is a recognised scheme in another member country.
Under Clause 84 there is automatic recognition of all collective investment schemes which are authorised in a member state where those schemes have satisfied the minimum standards under the EC directive. In short, where there is a collective investment scheme in another state in the EC and that scheme satisfies the minimum standards, then under a combination of Clause 84 and Clause 24 that scheme is automatically recognised.
There is also recognition for other overseas schemes under Clause 85. That is when the Secretary of State has given an order that such a scheme is in a designated territory. There are also special provisions and procedures under Clause 86, when the scheme does not fall under either Clause 84 or Clause 85, under which those schemes can be recognised. Thus overseas schemes are recognised under Clause 84, which refers to EC schemes, or under Clause 85, which refers to schemes in designated countries, or under the special procedure under Clause 86.
To take the matter further forward, under Clause 87 there is power to refuse or revoke schemes that are recognised under Clauses 85 and 86, but there is no such power to revoke or refuse schemes which have been recognised under the automatic procedure under Clause 84. Incidentally, there are the same powers for refusal and revocation of domestic schemes under Clause 77. The need, therefore, for this amendment, which is an amendment of concern to the SIB, is to give powers to refuse or revoke schemes when there are good grounds for so doing, when they have come under the automatic recognition which falls under Clause 84. Thus the purpose of this amendment (as indeed is the purpose of Amendment No. 220A of the noble Earl, Lord Limerick) is to protect the investor. This is the importance of including the power to refuse or revoke the recognition of such schemes which will come in under this automatic recognition procedure of Clause 84.
Referring to my other amendment, Amendment No. 220A, I should like to address a few comments
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concerning that. Under Clause 89—and a combination of subsections (1) and (2)—there is the power to order a domestic scheme to cease operating, and under Clause 89(5) there is power to suspend the marketing of all overseas recognised schemes; but, once again, there is an exception for schemes that have come under the automatic recognition procedure of the EC.
It is for the reason of bringing within the compass of these powers that the Secretary of State is suggesting that he should have under the clauses of the Bill for domestic schemes and for other overseas recognised schemes that Amendment No. 220A has been tabled but not for EC schemes.
I shall add that I hope that I have been able to explain (despite the fact that I do not have enough hands to hold all the papers which I need to address your Lordships) that both of these amendments are consistent with Article 52.2 of the directive which says:
"Nevertheless, [in reference to these schemes] the authorities of the member state in which the units of UCITS [referring to the title of the directive] are marketed may take action against it if it infringes the provisions referred to in Section VIII".
If one refers back to Section VIII, without going into any further detail it can be seen that both my amendments are consistent with the terms of the directive. In the interests of the protection of the investor, I strongly suggest your Lordships should agree with this amendment; and I strongly urge upon the Government that they should give it favourable consideration.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Hacking, for so ably explaining the purport of the amendments which were down originally in the name of my noble friend Lord Limerick. I have some reluctance, given the origins of this amendment, in advising the House to reject it. I recognise, as the noble Lord, Lord Hacking, suggested, that this matter is of some concern to the SIB. But from the purely practical point of view it is misconceived. The proper target of disciplinary action is the person committing the contravention and not its subject. Where collective investments are concerned, this means the operator or intermediaries rather than the scheme itself. Chapters V and VI already provide ample means of dealing with them, in regard to all forms of investment business. For example, if the operator of a scheme authorised under Clause 84 acts in contravention of marketing rules, the powers in Chapter VI may be exercised in such a way as to prevent him from marketing direct to the public. He could be required to market only through other authorised persons. There is therefore no need to take the power proposed in order to meet the desired objective. Because of that, it would also be inconsistent with our Community obligations.
There is certainly no Community obligation to allow the promoters of collective investment schemes to play fast and loose with the marketing rules applied in the United Kingdom. But Community law would permit us to exercise a sanction of the kind proposed only if the end cannot be achieved by some other, more limited, means. In this case the end can be achieved by such means. We cannot therefore take the power that the noble Lord is proposing.

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Since the noble Lord embraced Amendment No. 220A in his remarks, I turn to that amendment. That gives rise to the same objections as Amendment No. 217A to which I have objected—possibly at great length, but I thought it necessary so to do. I do not want to trespass on your Lordships' patience and go through that argument again.
The essential point is that Chapters V and VI provide disciplinary measures no less effective than those proposed, and, we believe, far more consonant with our Community obligations. I hope that the noble Lord, Lord Hacking, will accept what I say in the spirit in which I have said it and will withdraw Amendments Nos. 217A and No. 220A.
Lord Hacking: My Lords, I have the difficulty in the argument presented by the Minister that these powers are sought for all domestic schemes and for all other overseas schemes. It is a little difficult to understand why it is thought unnecessary not to seek the same powers for schemes that are coming in under the automatic recognition of Clause 84. I am not going to press this amendment upon the House if the House is not willing to agree it on acclamation. Unless any noble Lord wishes to address the House further on this, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 218:
Page 69, line 8, leave out ("give the direction") and insert ("notify the operator, give the direction or refuse to make").
The noble Lord said: My Lords, the clause already provides that where the Secretary of State intends to withdraw the recognition of a scheme recognised under Clause 85 or Clause 86, he must give notice of his intention and have regard to any representations made by the operator. Similarly, when the Secretary of State or the designated agency intends to refuse to recognise a scheme which has applied under Clause 85, he or (if it is the designated agency) it must give the operator of the scheme notice under Clause 85(3). This amendment provides that if the operator makes representations after receiving this notice, the Secretary of State or the agency must take these representations into account in making his final decision on whether to notify the operator that the scheme is not to be recognised. The amendment thus brings the procedures for refusing and withdrawing recognition into line. I should add that where the Secretary of State has to give notice, it has to be given in writing; and, where the operator has the opportunity to make representations after receiving this notice, he has 21 days under Clause 87(6) in which to make those representations. So I believe that this amendment contains all the considerations that should properly be given in the event of a notice being given. I beg to move.
On Question, amendment agreed to.
Clause 88 [Facilities and information in the United Kingdom]:
9 p.m.
Lord Morton of Shuna Lord Morton of Shuna had given notice of his intention to move Amendment No. 219:
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Page 69, line 14, at end insert ("with particular regard for the protection of investors in such schemes").
The noble Lord said: I should like to explain in regard to this amendment to Clause 88(1) that I understand the Government accept this in principle but do not like the wording. On that basis, I shall not move this amendment, hoping for better things to come.
[Amendment No. 219 not moved.]
Clause 89 [Directions]:
[Amendment No. 220 not moved.]
Lord Hacking Lord Hacking moved Amendment No. 220A:
Page 70, line 33, at end insert—
(" ( ) The Secretary of State may give a direction in relation to a scheme recognised under section 84 above in any case in which he could have given a direction by virtue of paragraph (b) of the preceding subsection if the operator or trustee of the scheme had been the operator of such a scheme as is mentioned in that subsection (and a direction given by virtue of this subsection may be a direction that the scheme shall not be a recognised scheme for a specified period or until the occurrence of a specified event or until specified conditions are complied with) but the Secretary of State shall consult the authorities of the State in question before giving a direction by virtue of this subsection unless he considers it essential in the interests of investors that the direction should be given forthwith and in that case he shall consult those authorities immediately after giving the direction and may vary or revoke it if he considers it appropriate to do so.")
The noble Lord said: My Lords, in place of the noble Earl, Lord Limerick, I beg to move this amendment. If I did not make it plain when I was addressing your Lordships on Amendment No. 217A that that referred to the powers of termination resting with the Secretary of State concerning these collective investment schemes, Amendment No. 220A refers to the powers of the Secretary of State for suspending such schemes. Exactly the same arguments apply here as those which I presented on Amendment No. 217A, and indeed, as I explained to your Lordships then, I made my comments in relation to Amendment No. 220A and made clear the reasons why I was urging the Government to accept that amendment.
This amendment has been presented to the noble Earl, Lord Limerick, who tabled it because there is concern in the SIB for the protection of the investor. For that reason, I hope the door is not closed. I beg to move.
The Deputy Speaker (Lord Ampthill): Amendment proposed: Page 70, line 33, at end insert the words as printed.
Lord Hacking: My Lords, unless any of your Lordships wishes to address the House, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 221:
Page 70, line 34, leave out subsection (6).
The noble Lord said: My Lords, this is an amendment to one of the many clauses the Government added during the Committee stage, and it is in the nature of a probing amendment. Clause 89(6) could hardly be bettered for the width of its

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ambit. It allows the Secretary of State to take into account:
"any matter relating to the scheme, the manager, operator or trustee, a director or controller of the manager, operator or trustee or any person employed by or associated with the manager, operator, or trustee in connection with the scheme".
It is so wide that, in my submission, it is practically meaningless. It could cover, for example, whether any of these individuals, who may only be associated with the manager, take marmalade or jam for breakfast or how many mistresses or children they have. It is extraordinarily wide: anything at all can be taken into account. I should like to hear what justification the Government have for this subsection. I beg to move.
Lord Lucas of Chilworth: My Lords, I do not think it would be right or proper of me to answer some of the points which the noble Lord, Lord Morton of Shuna, has raised. Let me confine myself to what is really the major point. The noble Lord will know that subsection (6) is concerned with the case where the Secretary of State decides, first, to halt the issue and/or the redemption of units or to order the winding up of an authorised unit trust scheme or perhaps to suspend the recognition of a scheme which is recognised under Clauses 85 or 86 on the grounds that the exercise of the relevant power is in the interests of participants or potential participants in the scheme.
The subsection provides that in making this decision the Secretary of State may take into account:
"any matter relating to the scheme, the manager, operator or trustee, a director or controller of the manager, operator or trustee or any person employed or associated with the manager, operator or trustee in connection with the scheme".
The noble Lord, Lord Morton, said that this was a probing amendment and of course he knows that the amendment, if carried, would delete the provision.
The Secretary of State must exercise the discretion properly. Marmalade would not be an appropriate consideration nor would some of the other things mentioned by the noble Lord. In considering the participants or potential participants in any scheme, it would be natural to take into account as appropriate a very wide range of matters relating to the manager, the operator or the trustee, as I have already described. Subsection (6) merely puts that proposition beyond doubt. That is the purpose of it, and I hope that the probe by the noble Lord, Lord Morton of Shuna, has elicited the answer that he was looking for.
Lord Morton of Shuna: Yes, my Lords: in some senses. I should have thought subsection (6) might have been happier if the word "appropriate" or something similar had been inserted into its second line so as to read "any appropriate matter". With perhaps the threat that I may return at a later stage with a similar amendment, I would beg leave to withdraw this one.
Amendment, by leave, withdrawn.
Clause 90 [Notice of directions]:
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 222:
Page 71, line 12, at end insert ("provided that such date is not less than six days after the date of the notice").
The noble Lord said: My Lords, this is another new clause. It appears to require a period of notice in connection with Clause 90. There is no such requirement; so far as one can see, the notice can be effective at the moment it is served. It would appear appropriate for there to be some period within which the operator can act. That is the basis of the amendment and I beg to move.
Lord Lucas of Chilworth: My Lords, I hope that the noble Lord will withdraw his amendment. If he will not, I shall feel obliged to invite your Lordships to reject it. The powers contained in Clause 89 are designed for use where the continued marketing of a scheme might put investors at risk. I anticipate that the Secretary of State, or indeed the designated agency, would give advance notice of the exercise of these powers where that is possible without putting investors at risk. I think it would be inconsistent with this general objective to require advance notice of the exercise of these powers in every case. To do so could, in some circumstances, expose investors to even greater risk before the direction came into force.
To assist the noble Lord perhaps I may give this example. It may be necessary in the interests of investors to stop an operator issuing new units in a particular scheme. If so, it could well be undesirable if the operator carried on selling units for several days before these powers could be exercised. I hope the noble Lord will find that explanation acceptable and sufficient for him to withdraw his amendment.
Lord Morton of Shuna: On this occasion (and I hope not only on this occasion) the noble Lord's explanation seems to be entirely satisfactory and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 91 [Applications to the court]:
Lord Morton of Shuna Lord Morton of Shuna moved amendment No. 223:
Page 71, line 36, leave out ("appearing to him to satisfy") and insert ("satisfying").
The noble Lord said: My Lords, I hope that the noble Lord, Lord Lucas, will be as accommodating in this case as he has just been. Part of Clause 91(1)(a) says,
"for an order removing the manager or trustee, or both the manager and trustee, of the scheme and replacing either or both of them with a person or persons nominated by him and appearing to him to satisfy the requirements of section 76".
The words, "appearing to him to satisfy" are totally unnecessary. If your Lordships look at Clause 76(4), you will see that the manager and trustee must each be authorised persons. The Secretary of State must know those people who are authorised persons, and there is no question of "appearing" to the Secretary of State to satisfy the requirements; it must be that the person does, in fact, satisfy the requirements. He must be an authorised person before he can possibly satisfy the requirements, and therefore the words "appearing to him to satisfy" are unnecessary. "Satisfying" is the appropriate word. I beg to move.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Morton of Shuna, for describing the purport of his amendment. He will of course recall that Clause 91 was a new government clause at Committee stage and I recognise that perhaps all the opportunities to deploy arguments were not available to him at that time. However, let me invite him to withdraw the amendment by putting these points before your Lordships. The Secretary of State or designated agency would only be able to authorise a unit trust scheme if he or it was satisfied that the manager and trustee fulfilled certain conditions. There are other conditions. There are other conditions contained in Clause 76—for example, that they must be independent of each other—but if the Secretary of State or designated agency were subsequently to apply to a court for one or both to be replaced on the grounds set out in Clause 89(1), it is only sensible that the nominated replacement should pass the same test to satisfy the Secretary of State or the designated agency that they meet those conditions.
If the amendment were to be accepted, doubt might be cast upon the appointment of replacements if it subsequently transpired that they did not meet the conditions. For instance, it might be that a manager and a trustee, appearing to be independent of each other at the time, turn out ultimately to be controlled by the same person. In such circumstances it might be appropriate for the powers in Clause 91 to be exercised for a second time. It would be unfortunate if doubts were cast on the validity of actions taken in the interim. It is for that reason that the Government very much prefer the words that are in the Bill:
"appearing to him to satisfy"
I hope the noble Lord will find that explanation satisfactory.
Lord Morton of Shuna: My Lords, I was aware that this was one of the many new clauses that were introduced during the Committee stage. I shall study what the noble Lord has said. I beg leave to withdraw the amendment at this stage, but I may return to it later.
Amendment, by leave, withdrawn.
Clause 93 [Contraventions]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 224:
Page 73, line 38, leave out ("or any regulations made under it") and insert (", a manager or trustee of an authorised unit trust scheme who contravenes any regulations made under section 79 above and a person who contravenes any other regulations made under this Chapter").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 209. I beg to move.
On Question, amendment agreed to.
Clause 94 [The Financial Services Tribunal]:
[Amendments Nos. 225 and 225ZA had been withdrawn from the Marshalled List.]
9.15 p.m.
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 225ZB:
Page 74, line 11, at end insert ("including at least one person qualified in Scots law.").
The noble Lord said: My Lords, I spoke to this point on Second Reading and in Committee. My words dropped slightly like water on stone, but I am pleased to see that at last, no doubt due to the noble and learned Lord, Lord Cameron, having a more powerful jet than I could apply, this amendment is to be accepted by the Government. Therefore I beg to move.
Lord Graham of Edmonton: My Lords, before the Minister replies, I wonder whether he would take on board the natural anxiety of a number of groups of people who are affected by the constitution, the membership and the functions of the tribunal. I refer to the people who are likely to be most affected; that is, the employees who will be brought before the tribunal to face charges of dereliction or misdemeanour, the outcome of which, at the end of the day, will in all probability be very serious for them.
The Government and the Minister have, quite rightly, not merely left this to 10 good men or women and true. What they have said is, "We think we ought to begin to refine the generality of the 10 persons." What they are saying is that some of them should have legal qualifications and, if this amendment is accepted, one of those with legal qualifications should have a Scottish qualification.
I am simply asking the Minister to take on board the fact that employees in trade unions, such as ASTMS and the Union of Shop, Distributive and Allied Workers, are very concerned to learn as quickly as possible whether there will be a lot more details given than there are at the moment. For instance, is it in the mind of the Minister that someone representing trade unions will be on the tribunal; and when anyone is brought before the tribunal will he be represented by his trade union? Have any consultations taken place with trade unions on this part of the Bill, which affects many thousands of people? I think that the Minister could be helpful. I do not raise the matter in any spirit of aggression, but this information is certainly requested. I should be grateful if the Minister could say something helpful at this stage.
Lord Cameron of Lochbroom: My Lords, I rise merely to show that we on this side of the House are not stony-hearted and that an occasional drip may strike home. Therefore I am happy to accept the amendment. As regards what the noble Lord, Lord Graham, has said, obviously I have taken note of it. I do not think I can properly respond at this time, but I shall draw the attention of my right honourable friend to his remarks tonight.
Lord Graham of Edmonton: My Lords, I thank the noble and learned Lord.
On Question, amendment agreed to.
Clause 95 [References to the Tribunal]:
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 225A:
Page 74, line 36, leave out first ("or").
The noble Lord said: My Lords, perhaps I may be permitted, with this amendment, to speak to Amendments Nos. 225B, 225C and 225D, all of which have the same intention; but it takes four amendments to achieve it. Clause 89(2), with which we have recently dealt, provides that the Secretary of State may give a direction requiring the manager of a scheme to cease the issue or the redemption of units on a specified date, and there is no power given in the Bill for anyone to appeal against that.
These amendments are designed to allow an aggrieved party to go to the tribunal and my understanding is that, as with other applications to the tribunal, the direction would remain in force until the tribunal overturned—if it did overturn—the Secretary of State's direction. It appears appropriate that there should be some way by which the recipient of a notice under Clause 89(2) has a right of appeal. The tribunal appears to be the appropriate body to receive the appeal and to deal with it. I beg to move.
Lord Cameron of Lochbroom: My Lords, we do not think it necessary to provide for access to the tribunal where a direction is given under Clause 89 to a unit trust manager or trustee. The role of the tribunal is essentially to safeguard against the possibility of a person being unfairly deprived of the opportunity to carry on investment business, or to be employed on investment business. The tribunal will also cover the use of the extensive powers under Chapter VI of Part I, which can, for example, be used to restrict business or to vest assets in a trustee.
The power to give directions under Clause 89 is rather less sweeping, in that a direction can relate only to a particular unit trust or trusts. It does not deprive the manager or trustee of the right to carry on investment business in general. The powers are directed at preventing members of the public from being sold further units in a scheme which is being operated in breach of rules or no longer meets the requirements for authorisation or which it is otherwise undesirable should continue to be promoted. They serve a different purpose from that served by the other provisions which the noble Lord may have had in mind and we do not consider that their exercise is an appropriate matter for the tribunal to investigate.
I should add that the person who receives the direction may under Clause 89(8) ask the Secretary of State or agency to vary or withdraw a direction. The Secretary of State or agency would, of course, have to give proper consideration to such a request and would be liable to be reviewed by the courts if he did not. For those reasons, we cannot accept this amendment and I invite the noble Lord to withdraw it.
Lord Morton of Shuna: My Lords, it seems strange to me that the process of judicial review should be regarded by the Government as preferable to an appeal to the tribunal, which I should have hoped would be quicker than the judicial review process
90
necessarily is. But I shall study what the noble and learned Lord has said, and in the meantime I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 225B to 225D not moved.]
Clause 106 [Power to require second audit]:
[Amendments Nos. 226 and 227 not moved.]
Clause 107 [Communication by auditor with supervisory authorities]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 228:
Page 85, line 33, leave out from ("State,") to ("in") in line 34.
The noble Lord said: My Lords, we seek in this amendment to establish parity between this Bill and the Building Societies Act. Noble Lords who were present at the discussions on the Building Societies Bill as it went through the House will recollect that the question of auditors' relationships with clients and auditors' relationships with the Secretary of State was an object of considerable discussion. I do not want again to go over that whole discussion to which your Lordships listened and paid great attention. The Government conceded on that occasion that there should be an affirmative procedure when rules and regulations were laid down by the Secretary of State, an appropriate code of conduct or arrangements in the professional body having failed. I believe that this is a proper amendment to bring the Bill into line with the Building Societies Act. I beg to move.
Lord Cameron of Lochbroom: My Lords, in response to the noble Lord, perhaps I may set out in a little detail the reasons for this part of the Bill and why I would suggest that your Lordships should not accept the amendment.
The Government have long made it clear that they attach considerable importance to the development of a constructive relationship between auditor and supervisor. The provisions on auditors in this Bill are intended to facilitate that relationship without at the same time undermining the close relationship which must exist between client and auditor.
A key factor in the provisions is the creation of suitable arrangements for communication between auditor and supervisor. The provision to which this amendment relates forms an important part in the setting up of those arrangements. Subsection (1) of Clause 107 provides that no duty to which an auditor of an authorised person may be subject shall be contravened by his reporting to a supervisor in good faith any matter concerning that person which is relevant to the supervisor's functions under the Act. The consequence of the provision is that the auditor cannot be held liable for any loss which results from a report. The provision contemplates that there will be circumstances in which an auditor ought to take the initiative in reporting certain events to the relevant supervisor and provides that no duty will be contravened in such cases. The amendment seeks to remove that protection. In so far as this will discourage auditors from reporting on their own initiative, it will impair the development of the effective relationship

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between auditor and supervisor to which I have referred.
I do not believe that the clause as it stands will damage the relationship between a business and its auditor. The system which this clause sets out to establish is carefully constructed to avoid any damage to that relationship. The circumstances in which an auditor is to report are to be carefully defined, peferably in professional guidance. The profession is already drafting such guidance. All parties—management, auditor and supervisor—will know where they stand. Further, an auditor's report will normally be made with the knowledge of the business concerned. Only in the most exceptional circumstances—say, involving fraud on the part of senior management—will a business not be aware when reports are being made. Only the fraudulent need fear, and surely that is right.
The sensitivity of the relationship between business and auditor is fully understood by the Government. An auditor cannot in practice do his job without the co-operation of management. That is one of the reasons the Government concluded that a general statutory duty on an auditor to report to supervisors was undesirable.
It is widely recognised within the profession that under common law there are circumstances in which an auditor may disclose information of his own initiative. The effect of the amendment proposed by the noble Lord opposite could be held by implication to remove the existing freedom which an auditor has under common law to report in any circumstances, however defined. I am sure that this is not what the noble Lord desires.
I suggest therefore that the provisions as they stand afford proper protection to investors. As I said, in substance they restate the present law. If the amendment were carried, that protection would be diluted. I urge the noble Lord opposite to withdraw the amendment.
Lord Williams of Elvel: My Lords, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 229 had been withdrawn from the Marshalled List.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 229A:
Page 86, line 7, at end insert—
("( ) No such rules as are mentioned in subsection (2) above shall be made by the Secretary of State unless a draft of them has been laid before and approved by a resolution of each House of Parliament").
The noble Lord said: My Lords, this amendment stands in my name and that of my noble friend Lord Morton of Shuna. I hope that the Government will accept this amendment because it is a last resort amendment to bring the Bill into line with the Building Societies Act. I beg to move.
Lord Cameron of Lochbroom: My Lords, I am happy to recommend that the House accept this amendment.
On Question, amendment agreed to.
Clause 108 [Overseas business]:
[Amendment No. 230 not moved.]
Clause 109 [Offences and enforcement]:
[Amendments Nos. 231 and 232 not moved.]
Clause 112 [Power to transfer functions to designated agency]:
[Amendment No. 233 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 234:
Page 90, line 1, leave out ("paragraph") and insert ("paragraphs 21A and").
The noble and learned Lord said: My Lords, on behalf of my noble friend I move Amendment No. 234, which was spoken to with Amendment No. 57. I beg to move.
On Question, amendment agreed to.
Lord Ezra Lord Ezra moved Amendment No. 234A:
Page 90. line 2, leave out ("and 5") and insert (" , 5 and 9D").
The noble Lord said: My Lords, this amendment was debated earlier. I beg to move.
On Question, amendment negatived.
Schedule 7 [Qualifications of designated agency]:
Lord Taylor of Gryfe Lord Taylor of Gryfe moved Amendment No. 235:
Page 196, line 34, at end insert—
("At least one third of the members of the governing body must not be persons as defined in head (a) ").
The noble Lord said: My Lords, the issue raised in this amendment concerns the composition of the SIB and not the criteria of the appointment of members to the SIB, which is the subject of a Question I have on the Order Paper for tomorrow.
This matter has been discussed at some length in relation to the SROs. The Minister will recall that on Report in this House on 16th October an amendment was carried which tried to provide a more satisfactory definition of a "sufficient number of people" who are interested in this matter. An amendment in the name of the noble Lord, Lord Morton of Shuna, was carried to the effect that in the composition of the SROs there should be a proper balance between the interests of the organisation or its members and the interests of the public. I understand that the Minister has agreed, if not the terminology of that amendment, the sense of it and will bring back an appropriate amendment which is satisfactory to him.
This amendment goes further. It says that there should be a maximum of one-third practitioners. At present the Bill merely provides that two categories will be represented on the SIB. The first category is practitioners and the second is a general category; that can be consumers, investors and so forth. That category can represent the public. There is nothing in the Bill which says that the proportions should be one-third or two-thirds or so on. It merely provides that those two categories will make up the SIB.
The amendment suggests that a proper balance of interests should provide that only one-third of the members be practitioners. It is a consumer or investor protection measure. I do not think that the board's standing or reputation would be enhanced if it were felt that a preponderance of practitioners was carrying out the duties. Your Lordships may help the Minister bring back an appropriate amendment to the composition of SROs by accepting an amendment which suggests that only one-third of the members should be practitioners. I beg to move.
9.30 p.m.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Taylor of Gryfe, for his exposition of the amendment. We are concerned about the need for effective lay representation on the governing body of any designated agency. The provisions in the schedule which oblige such a body to have non-practitioner members and to have arrangements which give them an opportunity to express their opinions indicate that.
The noble Lord will agree that about one-quarter of the present SIB are not practitioner members. That fulfils an undertaking given by the Government that a significant proportion of the board would be non-practitioner. Members of the board are appointed in a personal capacity and not as representatives of any particular interest or lobby. They are not on the board to promote particular interests.
The difficulty that I have with the noble Lord's amendment is its rigidity. The prime objective is to have on the governing body people of the highest integrity and competence. capable of undertaking the considerable task which is placed on a designated agency. A second objective must be to keep the size of the board such that it can operate effectively. A further, but no less important, objective must be that it can call on a wide range of practitioner expertise.
Any additional constraints on how the board is to be composed could lead to those prime objectives being compromised. It will be recalled that at an earlier stage in our proceedings the House indicated in a debate on an amendment moved by noble Lords opposite that it wished SRO governing bodies to have sufficient independent persons to secure a proper balance between the interests of the organisation or its members and the interests of the public. I should say here that the Government accept the decision of your Lordships' House.
So far as concerns this amendment, I am prepared to tell the noble Lord, Lord Taylor of Gryfe, that if he withdraws it, I shall bring forward at Third Reading an amendment concerning the membership of a designated agency. This would require its membership overall to be such as to secure a proper balance between the interests of authorised persons and the interests of the general public; in other words, it would go alongside the amendment that noble Lords opposite moved earlier and secured. I cannot, however, say that we would be prepared to put forward or accept suggestions that we should enter into the numbers game. We do not think that this would secure the right balance in any event.
I have been at some pains—I apologise for having taken rather a long time about it—to explain the
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earlier position, how the Government view this, and the direction in which we are prepared to move in order to help the noble Lord, Lord Taylor and, I suspect, other noble Lords opposite.
Lord Morton of Shuna: My Lords, I welcome very much the Government's attitude. There is a difficulty about set numbers. I hope that the noble Lord, Lord Taylor of Gryfe, will withdraw his amendment on the basis that a similar amendment to Amendments Nos. 79 and 80 will be acceptable to the Government.
Lord Taylor of Gryfe: My Lords, it would be churlish of me not to accept the Minister's offer. The noble Lord will recall that the thinking behind the Bill originally was to include the words "a sufficient number". The House felt that those words were not satisfactory and rejected them in favour of "a proper balance". A proper balance in a body of this kind, so far as I am concerned, does not mean a preponderance of practitioners, despite the expertise that will be necessary in discharging their duty. We are talking about an investor protection body. It would be unwise to have a preponderance of practitioners despite their obvious knowledge and expertise in a very complex subject. If the SIB is to have standing, if it is to be regarded as independent and to be outside special interests, it is essential that there should not be a preponderance of practitioners. In view of the assurances given to secure a proper balance, I beg leave to withdraw my amendment and I look forward to the wording that is to be introduced.
Amendment, by leave, withdrawn.
[Amendment No. 235A not moved.]
Lord Morton of Shuna Lord Morton of Shuna had given notice of his intention to move Amendment No. 236:
Page 197, line 21, at end insert ("The arrangements must include arrangements for complaints to be investigated by persons independent of the agency and the person or body which is the subject of the complaint").
The noble Lord said: My Lords, this amendment is similar to one that I moved on Thursday. I do not wish to repeat the arguments that I then advanced, especially as I understand that the principle is agreed by the Government but the wording is not. On the basis of that assurance I shall not move the amendment.
[Amendment No. 236 not moved.]
Schedule 8 [Principles applicable to designated agency's rules and regulations]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 237:
Page 198, line 29, at end insert—
("7A. Rules made under section 48(2)(i) of this Act must make proper provision for ensuring that where action is or is to be taken in conformity with the rules adequate arrangements exist for making known that the price of the investments in respect of which the action is or is to be taken (and, where relevant, of any other investments) may be affected by that action and the period during which it may be affected; and where a transaction is or is to be entered into during a period when it is known that the price of the investment to which it relates may be affected by any such action the information referred to in paragraph 7 above includes information to that effect").
The noble Lord said: My Lords, I have already spoken to this amendment with an earlier amendment. I beg to move.
[Amendment No. 237A to Amendment No. 237 not moved].
On Question, Amendment No. 237 agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 238 and 239:
Page 198, line 35, leave out ("section 53") and insert ("sections 53 and (Compensation fund)").
Page 198, line 36, leave out ("that section") and insert ("those sections").
The noble Lord said: My Lords, I beg to move Amendments Nos. 238 and 239, to which I spoke with Amendment No. 78.
On Question, amendments agreed to.
Clause 113 [Resumption of transferred functions]: [Amendment No. 240 not moved.]
Schedule 9 [Designated agencies: status and exercise of transferred functions]:
[Amendments Nos. 241 and 242 not moved.]
Clause 117 [Recognised self-regulating organisations, investment exchanges and clearing houses]:
[Amendment No. 243 not moved]:
Clause 119 [Designated agencies]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 244:
Page 96, line 13, after ("effect") insert ("to any significant extent").
The noble and learned Lord said: My Lords, in moving this amendment I speak also to amendments in the name of my noble friend, Amendments Nos. 250, 252, 253, 255 and 333; and to amendments in
96
the names of noble Lords opposite, Amendments Nos. 244A, 252A, and 253A.
These are all technical amendments. The amendments to Clause 119, Clause 125 and Schedule 11 simply bring the wording of the competition test into line with the wording used elsewhere in Chapter XIV. With regard to the amendments in the names of noble Lords opposite, I have some uncertainty about their intentions. However, I make clear that their effects are absolutely plain. They would make nonsense of the competition test in those clauses. The Secretary of State would be obliged to consider and weigh against the criterion of investor protection every single rule or piece of guidance issued by an applicant designated agency and every restriction in an agreement covered by Clause 125 if it had any anticompetiton agreement agreed on a recognised body which had an anti-competitive effect, however trivial or insignificant.
That has two undesirable consequences. First, resources would have to be devoted to looking further at rules and so on which it was patently obvious were trivial or insignificant. Secondly, in the case of Clause 119 designation could not take place if any rule existed with a remotely or theoretical anti-competitive effect, however insignificant, if the rule could not be shown to be necessary for investor protection. I am sure that that is not what noble Lords opposite wish to see.
Both the government amendments to Clauses 123 and 126 concern the boundary between the Bill's competition regime and the Restrictive Trade Practices Act. It had originally been thought that there might be rules of a designated agency, recognised self-regulatory organisation, recognised investment exchange or recognised clearing house which did not concern the carrying on of investment business and that specific provision was needed to deal with this possibility. This no longer appears to be the case. We have therefore decided to drop these provisions. In these circumstances, I beg to move.
[Amendment No. 244A, as an amendment to Amendment No. 244, not moved.]
On Question, Amendment No. 244 agreed to.
9.45 p.m.
Lord Ezra Lord Ezra moved Amendment No. 245:
Page 96, line 35, at end insert—
("Rules or regulations made by a designated agency shall be deemed to have the effect of restricting or distorting competition as aforesaid if they prevent an authorised person who is qualified to do so from giving investment advice on transactions other than those to which he (or companies within his own group) is a party").
The noble Lord said: My Lords, in moving this amendment, I should like to point out that it raises an important issue. The principal purpose of the Bill which we are debating is to increase investor protection. One of the ways of doing that is that there should be a need for an authorised person to make an investor aware of the capacity in which he acts. The SIB—whose task it will be to see that this is done—originally interpreted this requirement so that authorised persons would fall into three categories for life products and unit trusts: the independent intermediary, who would provide best advice from the market as a whole because of his independence; the company representative, who would have to declare himself as such and deal in in-house products only; and there was the third category, the middle ground. That was seen to be applicable to bank branches where from time to time they would act in a dual capacity, as this is the way in which they have traditionally operated.
However, following further consideration, the SIB removed the middle ground and determined that there should be just two capacities. This means that so far as concerns the banks, if they sell in-house products—which many of them do—then they must act as company representatives and would no longer be able to sell, advise, or discuss products from external companies.
In seeking to protect investors, we have also to make sure that they continue to be provided with a good service by the financial institutions. Traditionally, many investors have regarded their local bank, and the local bank manager and his staff, as well as the building society and its staff, as people to whom to turn for general financial advice. It would seem to be negating the principle standing behind this important Bill if that vital service were now to be discontinued. There are banks, for example the TSB, who have traditionally had the sort of customer who relies on them very extensively. I think all clearing banks come into that category, and certainly all building societies.
I readily admit that the amendment which I am moving is widely drawn. It could well be that some alternative wording could be devised to safeguard this position. I am encouraged to some degree by a press release issued by the Securities and Investment Board on 16th October which states:
"The Board must now consider whether the banks are to be treated as a special case, or whether the policy of polarisation is to be fundamentally reviewed. The Board will need to take into account the fact that on the one hand many people look to bank branches for what they take to be disinterested advice, and on the other hand, that banks are major sellers through their branches of their own unit trust and life assurance products".
Therefore, it seems to me that the SIB might be looking at this problem again. I very much hope they
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will do. If they were to continue with the strict interpretation of polarisation, then I think a very large number of investors, particularly small investors, in this country will be disadvantaged. I beg to move.
Lord Bruce-Gardyne: My Lords, I strongly support the amendment moved by the noble Lord, Lord Ezra. Perhaps I may begin by declaring an interest as a director of the TSB Group to which the noble Lord referred. I think there is no secret about the fact that the TSB is perhaps the most concerned of all the clearing banks because of the nature of the relationship between the TSB branch manager and the customer. I must say that there is no doubt that if the SIB were to maintain the interpretation which it has given, or proposed to give hitherto, to the proposition of polarisation, I believe that serious damage would inevitably be done to the relationship between the branch bank manager of the high street bank, and in particular a bank such as the TSB and its customers.
I agree with everything that the noble Lord had to say in support of this amendment. I should briefly like to draw to your Lordships' attention a specific example of the impact caused by the way in which the SIB is proposing to interpret its rules at present. I take it from the case of the TSB England and Wales, and the TSB Scotland. The TSB England and Wales, and the TSB Scotland sell a wide range of TSB trust company products. In addition, they offer a panel of three leading life office products to support endowment mortgage business. These three leading life office products were introduced to fill a gap in the TSB trust company's product range, and they are of course currently sold through the branch network.
Under the SIB proposals as they stand, or as the SIB is interpreting its intentions, those three leading life office products could not be sold by the branch and would have to be offered by a separate independent intermediary company. The consequence is that the customer who went to the bank manager for financial advice, as he would expect to do, would be referred by the bank manager to a group independent intermediary who could advise him about alternative products. Having received that advice, he could not come back to the bank manager to discuss it with him. That again would be debarred by the SIB's interpretation of its rules.
I must submit to my noble and learned friend that this is the reverse of best customer interest and service, and must be so. Indeed, there seems to me to be a fundamental logical contradiction between the notion that it is the obligation expressed in this Bill upon those supplying financial services to give best advice and the way in which the SIB is at present saying "If you are offering inhouse products, then you cannot offer other products". It seems to me that that cannot fit with the concept of giving best advice.
I submit to my noble and learned friend that what is at stake here is not the essential material interest of the purveyors of these services, but essentially the protection of the customer and the assurance that the customer will be able to have access to the best range of products which are available in the marketplace.

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For those reasons, I very much hope that when my noble and learned friend replies to this debate he will he able to assure us that the SIB has indeed to think again about the concept of polarisation, certainly as it applies to the high street banks, and ideally reinstate what the noble Lord, Lord Ezra, referred to in his opening remarks on this amendment as the middle ground as originally conceived. That, or something along those lines, will be essential if we are to ensure that this legislation does not interfere deleteriously in the relationship between bank branch managers and their customers, such as has prevailed hitherto.
Lord Boardman: My Lords, I very strongly support what my noble friend Lord Bruce-Gardyne has said, and indeed what the noble Lord, Lord Ezra, has said on this subject. It is a pity that it is necessary to introduce an amendment into the Bill because I had hoped and believed that this was a matter which could satisfactorily be settled within the SIB itself. There is nothing in the Bill on polarisation, but it is the way in which the SIB is clearly interpreting its function and its rules which gives cause for so much concern, which I share with the noble Lord, Lord Ezra, and indeed my noble friend.
At an earlier stage, way back in January, a Minister in another place said that there should not be barriers which prevent conglomerates from operating efficiently and competitively. Yet this is what the SIB in its draft proposals certainly wishes to do. There is nothing in the Bill itself which requires any change from the existing system, which has worked extremely well for a very long time. There is nothing in the Big Bang or anything like it which requires this change to be made. So far as I am aware, no complaints have been made as to the way in which the banks and the branches operate, both as independent intermediaries and in selling their own company's products.
They are, and will increasingly be, required to be governed by the rules of good trading, of full disclosure, providing the best advice and all that sort of thing. Therefore a branch manager, or someone in a branch or in the bank—and I should declare an interest here as chairman of one of the clearing banks—when giving advice to a customer on what sort of product he should take (whether it be a unit trust investment, or whether it be life assurance) will make that customer well aware of the interest that that bank has. I believe that it is wrong that we should, under the proposals now envisaged by the SIB, destroy that relationship between a bank and a customer which covers a whole range of his financial circumstances, whether it be in the Trustee Savings Bank, the clearing banks or the like.
A salesman in a branch of a bank does not get a commission for effecting a sale. The chap who knocks on the door and sells an insurance policy probably gets a commission for doing so. The chap in the bank, the branch manager, or the assistant, or whoever it is, does not. Branches have a long-term banking relationship with their customers which they are not going to put at risk through some one-off transaction.
I cannot help referring to the strange contrast in the attitudes that appear in the SIB regarding some of their
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operations. For example, they see nothing wrong in the continuation of door-to-door insurance salesmen—the foot-in-the door salesman who is able to try to persuade the householder to buy insurance. Indeed, they do not require in most cases that the commission earned should even be disclosed.
The cold calling and so on is permitted. Yet if a branch manager with a long-established financial relationship with his customer, going back over a long period and covering the whole range of the financial operations of the particular client, offers to sell his own group's unit trusts, having made the fullest disclosure of the interest of the bank and given the best advice and so on, he will be prevented by the SIB from offering services as a broker, independent intermediary, or whatever the term might be, when it comes to suggesting life insurance.
I do not believe that that can be right. There is nothing in the Bill on this point. It would be helpful if we could have a clear assurance from my noble and learned friend that the Government will look upon this as a nonsense and will agree that it should be possible (and that the SIB should be persuaded that it should be possible) for the branch manager of a bank to continue to give overall financial advice with full disclosure to his customers, and that he should not be inhibited in the way now proposed.
Lord Marshall of Leeds: My Lords, in so far as this amendment requires further support, which I doubt, I beg leave to say that it commends itself to me—and I declare an interest as vice-president of the Building Societies Association and as a director of a building society for the past 23 years—because it would help building societies to provide a broader and better service for their customers in accordance with the provisions of the Building Societies Act 1986.
It would do this by resolving a dilemma which underlies much of the recent thinking on investor protection. The SIB have adopted, as a key plank of their proposed conduct of business rules, the idea that all intermediaries should give their customers best advice. This means advice based on what is in the client's best interests rather than what is to the intermediary's best advantage in terms of commission, or whatever.
Building societies, together with the major clearing banks and many other financial institutions, welcome this. Of course the successful implementation of best advice depends on how precisely it is to be interpreted in practical situations. For many investors one of the most important practical situations arises when they discuss life insurance, and, in the future so far as concerns building societies, other investments covered by the Financial Services Bill with their building society branch manager. To give best advice the branch manager must be able to advise on a range of policies and life insurance policies, which is fair enough. But does it also mean that he is debarred from offering, for example, the society's own personal pension or personal equity plan, assuming that these are suitable for the customer? The conundrum for the SIB is that an intermediary cannot by definition be a principal. From the point of view of strict logic the

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society should either refrain from exercising the new powers conferred by Parliament in the Building Societies Act 1986 in relation to personal pensions and personal equity plans, or abandon its existing service in relation to life insurance.
From the point of view of common sense this is plainly absurd. The millions of people who enter building society branches every working day know exactly who they are dealing with. They also understand that the advice a society gives in relation to a product with its own name on it cannot a fortiori be as impartial as advice it gives in relation to products with other people's names on them, although it may still he perfectly good advice. Moreover if investors are precluded from obtaining advice from their building society or bank manager in the interests of logical purity, if I may call it that, the door will be open to the less reputable intermediaries who have caused so much trouble in the past. This cannot be in the interests of investor protection in any real sense.
Not only is there potential conflict between strict logic and practical reality, there is also the danger of a conflict between the role which the SIB is to play under the Bill and that of the Director General of Fair Trading, who is required to report on the competition policy implications of any rules made by the SIB. Would not a rule which precludes an important group of institutions from an important sector of the market be anti-competitive? In the case of the Stock Exchange the Director General took the view that rules against dual capacity—that is, those which prevent the jobbers from being brokers and vice versa—were anti-competitive.
Again it would be absurd, would it not, if the Big Bang introduced dual capacity to the Stock Exchange while the Financial Services Bill prohibited it elsewhere in the financial services market? This is not an issue which Parliament should delegate to the SIB and the Director General to sort out as best they can without the assistance of any indication of what Parliament intends.
This amendment would provide such an indication to the benefit not only of building societies and the many millions of people who look to them for advice, but also to the SIB and the Director General of Fair Trading. For all those reasons I support this amendment.
Viscount Colville of Culross: My Lords, may I add a word? If I am allowed to do that I shall not say another thing all evening. I hope that my noble and learned friend will ensure that this amendment does not have to go into the Bill. The difficulty about it is that there is, as your Lordships will have heard from those speeches, a dispute going on about the drafting of the SIB rules. The only other chance that will occur for this House to express itself upon them is when the rules as a whole come forward as a statutory instrument for approval as they stand or not at all. They will not be able to be amended and therefore what we need is some kind of flexibility between this evening and the time when the rules are finalised so that a good deal of further thought may go into this.
I hope it is not simplistic to think about the person living in a comparatively small community. I do not know where the inhabitants of Lochbroom go for their
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financial advice, but I doubt whether they have the luxury of more than a few banks or building societies and perhaps they have an independent broker. I wonder about the latter. Certainly in the small town near which I live in East Anglia I do not think there is an independent broker.
What I should have thought was that the policy which ought to underlie this is that, if a person is familiar with the financial institutions he normally deals with, the bank or the building society, and always goes there for all his financial transactions, he ought to be able to get as broad a range of advice as is available to the people in that institution who are there to advise him. The proviso to that is that they must be required to tell that investor what is in it for them, if there is anything in it, and generally to be subject to safeguards to make sure that he is not subject to some sort of pressure to buy a thing which is not to his advantage but is to the advantage of those who are advising him.
If that sort of balance could be achieved—and I should have thought, incidentally, that it was much better achieved in rules than by means of an amendment to this Bill—then, surely we have the freedom, the flexibility and at the same time the safeguards and the responsibility that are required for the rest of the financial market which would make it possible for people to take the best advantage, particularly in small communities, of the openings that are now being made.
I hope that this can be discussed without an amendment to the Bill because, even if this amendment is passed, with due respect to noble Lords who supported it, it does not seem to me to take the matter very much further. What we really want now is a reopening of negotiations between the various people concerned and the SIB—the latter presumably being very much interested in the protection of the investor.
Lord Tryon: My Lords, I have been listening carefully and I hope with almost a totally open mind—and for once I do not think that I have to declare any special interest on this particular amendment—to what noble Lords on all sides have said. The whole debate on this has seemed something like Hamlet without the Prince because the whole time we have been trying to guess what the SIB might do, what their rules might be. We do not know yet. There are still enormous parts of the SIB rules to be promulgated in one form or another. They are still in draft form. I have a note here about matters on which they have yet to produce any draft rules at all.
I must say that I had not thought of this until one moment ago. I have very considerable sympathy for the view put forward by the noble Viscount, Lord Colville of Culross. We really are working in the dark on a lot of these things. We have taken a whole lot of enormously serious points tonight and have spent a great deal of time talking about all sorts of matters which were really SIB matters. Personally, I still have considerable reservations about the amount of power we are giving to the SIB at this stage. I do not want to go into a "That the Bill do now pass" type of speech and I am certainly not going to.
I still have reservations and I am one of those who would not burst into tears if this Bill did not get through its stages this evening—which I think it

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probably will. I should not do so and the reason why I should not is that I still think that a greater flavour of what the SIB has in store for the world would be of great help to us all. The suggestion of the noble Viscount, Lord Colville, I think is a very good one. That is all I have to say at this stage.
Lord Cameron of Lochbroom: My Lords, several of your Lordships have made it clear that we are still in an early stage of discussion involving SIB and interested bodies. It is perfectly true that the SIB has suggested—they are not decided—that in the area of insurance and unit trusts there should be a clear polarisation of insurance intermediaries so that an investor will know if he is dealing either with a fully independent adviser or with a company representative selling the policies of a single company or group.
The SIB has issued a discussion document setting out how polarisation might be applied to financial conglomerates. It is for those financial conglomerates to explain their concern about any particular aspects of the SIB's document. As I say, it is a discussion document and not a final statement of the views of the board. Perhaps I may add this. If concern remains about the anti-competitive effect of any rules that do emerge, I assure the House that there is a rigorous competition regime in the Bill. Indeed, a major objection to the amendment is that it would, for one area of rule-making, dispense with a carefully constructed system of assessing anti-competitive effects.
The Bill provides that the Director General of Fair Trading should keep under review the rules, regulations and so on of SROs and a designated agency and that he must report to the Secretary of State if he thinks they are anti-competitive. The amendment prejudges the issue in one area and makes the director general's role nugatory as a result.
The Bill provides that the Secretary of State shall not recognise the SRO or designate an agency unless he is satisfied that the anti-competitive effect is not greater than is necessary for the protection of investors. The amendment prejudges the issue and denies the Secretary of State any role in judging the balance of these considerations.
As the Bill also provides that a delegation order should be made subject to affirmative resolution of both Houses, the amendment seeks to prejudge the issue and take the matter out of the hands of your Lordships and of another place. I suggest that is not a sensible thing to do, and I hope the movers of this amendment will recognise that fact.
However, I accept that there has been concern put forward about the approach which has been suggested in regard to financial conglomerates, and particularly banking groups, in the discussion document. I accept that they may have within their wings both independent intermediaries such as insurance brokers and product companies promoting and selling their own investments, such as life assurance companies and unit trusts. The regulation of financial conglomerates is generally a difficult problem in this and indeed other areas, and I can understand the banks' concern to be as free as possible to market their products and to
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exploit the advantages of having in-house a wide range of services; but that is not to say that they should be able to do so regardless of the need to protect investors.
The problem which exists is therefore how to reconcile the operations of financial conglomerates with the new provisions for investor protection in the Bill. It has been suggested that the SIB should simply lay down broad principles to deal with the problem. It is surely better for businesses to have rather more tangible guidance than this as to what they may or may not do, for they are risking the serious consequences of breaking rules under the Bill. Furthermore, the proposals that the SIB has made on polarisation and on the regulation of insurance intermediaries do not run against those broad principles. Rather, they set out the consequences of applying those principles in certain circumstances. If a banking conglomerate were to have regard to those principles it would have to have rules dealing with the promotion of group products by an independent intermediary within the group.
Faced with the problem which the existence of financial conglomerates poses for a policy of seeking to ensure that supposedly independent intermediaries are genuinely impartial and objective, the discussion document does not suggest that financial conglomerates be required to divest themselves of, say, insurance broking subsidiaries; nor does it suggest that such subsidiaries should not be allowed to recommend the products of companies within the same group. What it suggests is that there ought to be some safeguards so that the investor can be sure he is getting genuinely independent advice; and, with respect, that seems to me to be a wholly sensible approach.
The discussion document suggests that independent intermediaries within a group should only recommend the products of an associate company when they believe the investor's interests would be less well served by another company's products. Naturally, in those circumstances the intermediary would have to disclose the connection to the investor. I think this was a point that my noble friend Lord Colville of Culross made.
The document also proposes that those companies within a group which were concerned with selling group products should not use their association with an independent intermediary to give a false impression of their status. In the case of branches of a bank, SIB suggest that there is an ambiguity in that they are often perceived as having a special relationship of trust with the customer and as being a source of objective general financial advice; yet they may primarily be selling group products. There is of course nothing wrong in selling one's own products, but SIB suggest that if this is how a bank wishes its branches to operate, it should make this clear in its promotional literature and all its branches should operate in this fashion. It would of course be open for all branches to operate as independent intermediaries, but where they do not, SIB suggest that those seeking independent advice should be directed towards the group's independent intermediary company, without the bank seeking to imply by the connection with the independent intermediary that it is itself independent.
Although the details remain to be worked out, rules broadly like these should not be beyond the capability

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of large conglomerates, which are in any case presumably committed to providing a high standard of service. And they should help to ensure fair competition between these independent intermediaries within a group and those on their own. We are, after all, seeking level playing fields, and the rules should therefore be reasonably consistently applied.
I have not attempted in what I have said to deal with the specific points made by noble Lords, and I make no apology for that because I am trying to set out in a broad way the thinking behind the Government's proposals and to make obvious the fact that this is still an area in which there is far to go in the way of discussion between interested parties and the SIB. I hope that this has been of assistance to noble Lords, and I reiterate that this amendment is objectionable on a far more general ground, which is set out at the beginning. For that reason, I ask the noble Lord to withdraw the amendment.
10.15 p.m.
Lord Ezra: My Lords, before the noble and learned Lord sits down, would he not accept that there is very strong concern as expressed by many noble Lords tonight about the way in which this arrangement could interfere with the long-standing relationship between branches of banks and building societies and their customers? I think one of the most telling points was made by the noble Lord, Lord Coleraine, who referred to small communities where the diversification of financial interest would be non-existent and where the only source of knowledge on the subject would be the local branch of one or two banks and possibly a building society. To try to impose the whole paraphernalia of this Bill and its very careful distinctions upon a small community would, I suggest, make an absolute nonsense of normal community relationships. This is the issue we are really talking about; it goes beyond the question of financial structures and is a social matter. I hope that the noble and learned Lord will accept that this is a serious issue and will use his best endeavours to make sure that the SIB take the matter into account.
Lord Cameron of Lochbroom: My Lords, perhaps with leave I may respond. I did not suggest that I did not recognise the concerns expressed by noble Lords this evening. A debate of this kind is extremely helpful in formulating the discussions that ought to take place. I do not think I can go further than that.
Lord Ezra: My Lords, in the light of the response of the noble and learned Lord, and bearing in mind that we have debated this question at great length and that the points have been very well made, and in the hope that the SIB will take full account of what has been said, I seek leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 120 [Reports by Director General of Fair Trading]:
[Amendments Nos. 246 to 249 not moved.]
Clause 123 [The Restrictive Trade Practices Act 1976]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 250:
Page 100, line 17, leave out from ("house") to end of line 21 and insert (", including any term deemed to be contained in it by virtue of section 8(2) or 16(3) of that Act").
The noble Lord said: My Lords, my noble and learned friend discussed this amendment with Amendment No. 244. I beg to move.
On Question, amendment agreed to.
Clause 125 [Modification of Restrictive Trade Practices Act 1976 in relation to recognised professional bodies]:
[Amendment No. 251 not moved.]
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 252:
Page 102, line 12, after ("effect") insert ("to any significant extent").
The noble Lord said: My Lords, this amendment was discussed with Amendment No. 244. I beg to move.
[Amendment No. 252A, as an amendment to Amendment No. 252, not moved.]
On Question, Amendment No. 252 agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 253:
Page 102, line 24, after first ("effect") insert ("to any significant extent").
The noble Lord said: My Lords, my noble and learned friend discussed this amendment with Amendment No. 244. I beg to move.
[Amendment No. 253A, as an amendment to Amendment No. 253, not moved.]
On Question, Amendment No. 253 agreed to.
[Amendment No. 254 not moved.]
Clause 126 [Supplementary provisions]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 255:
Page 104, line 25, leave out subsection (6).
The noble Lord said: My Lords, again, this amendment was discussed with Amendment No. 244. I beg to move.
On Question, amendment agreed to.
Schedule 10 [Regulated insurance companies]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 256:
Page 203, line 25, at end insert—
("(4) In the case of such a self-regulating organisation as is mentioned in sub-paragraph (1) above the requirements of Schedule 2 to this Act referred to in section 182(2)(a) of this Act shall include the requirement mentioned in that subparagraph.").
The noble Lord said: My Lords, I beg to move Amendment No. 256, and I shall speak also to Amendments Nos. 320, 459 to 463 inclusive, and 512. These amendments, despite their number and indeed their length, are all relatively minor. The first

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amendment arises from the fact that a recognised SRO with potential or actual insurance company members has an additional requirement to take account in its rules of the regulations of insurance companies under Part II of the Insurance Companies Act, or the corresponding provisions in the law of another EC member state. Since in making rules taking account of this requirement such an SRO would be exercising functions under the Bill, the amendment would grant it immunity for actions for damages in the discharge of these functions, as for its other functions.
The second amendment is consequential on the new procedure for winding up investment businesses introduced for Great Britain in our proceedings during the Committee stage. The second, third and fourth amendments are consequential on an earlier amendment which moved the provisions conferring immunity on the designated agency from what is now Schedule 9 to what is now in Clause 182. The fifth amendment reflects the fact that arrangements made by a recognised clearing house under Clause 39(4)(b) are entirely analogous to the arrangements made under corresponding provisions in the relevant schedules by RSROs RPBs and RIEs and the designated agency. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 257:
Page 203, line 44, leave out ("section 53") and insert ("sections 53 and (Compensation fund)").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 78. I beg to move.
On Question, amendment agreed to.
Clause 128 [Restriction on promotion of contracts of insurance]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 258:
Page 106, line 19, leave out subsection (6).
The noble and learned Lord said: My Lords, I spoke to this amendment with Amendment No. 160. I beg to move.
On Question, amendment agreed to.
Clause 129 [Contracts made after contravention of s. 128]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 259 and 260:
Page 107, line 9, leave out ("interest on any such money") and insert ("compensation for any loss sustained by him as a result of having parted with it.").
Page 107, line 10, leave out ("interest") and insert ("compensation").
The noble and learned Lord said: My Lords, I beg to move Amendments Nos. 259 and 260, which were spoken to with Amendment No. 69.
On Question, amendments agreed to.
Clause 130 [Insurance contracts effected in contravention of s. 2 of Insurance Companies Act 1982]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 261:
Page 108, line 9, leave out (an investment agreement") and insert ("an agreement to which section 5(1) above applies").
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 262 to 264:
Page 108, line 14, leave out ("interest on any such money") and insert ("compensation for any loss sustained by him as a result of having parted with it.").
Page 108, line 16, leave out ("interest") and insert ("compensation").
Page 108, line 25, leave out from ("1982") to end of line 39 and insert (" ; and
(b) that it is just and equitable for the contract to be enforced or, as the case may be, for the money or property paid or transferred under it to be retained.").
The noble and learned Lord said: My Lords, for convenience I beg to move Amendments Nos. 262 to 264 en bloc. They are consequential.
On Question, amendments agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 265:
After Clause 132, insert the following new clause:
("Communication by auditor with Secretary of State.
.—(1) After section 21 of the Insurance Companies Act 1982 there shall be inserted—
21A.—(1) No duty to which an auditor of an insurance company to which this Part of this Act applies may be subject shall be regarded as contravened by reason of his communicating in good faith to the Secretary of State, whether or not in response to a request from him, any information or opinion on a matter of which the auditor has become aware in his capacity as auditor of that company and which is relevant to any functions of the Secretary of State under this Act.

(2) If it appears to the Secretary of State that any auditor or class of auditor to whom subsection (1) above applies is not subject to satisfactory rules made or guidance issued by a professional body specifying circumstances in which matters are to be communicated to the Secretary of State as mentioned in that subsection the Secretary of State may make regulations applying to that auditor or class of auditor and specifying such circumstances; and it shall be the duty of an auditor to whom the regulations made by the Secretary of State apply to communicate a matter to the Secretary of State in the circumstances specified by the regulations.

(3) The matters to be communicated to the Secretary of State in accordance with any such rules or guidance or regulations may include matters relating to persons other than the company.

(4) If it appears to the Secretary of State that an auditor has failed to comply with the duty mentioned in subsection (2) above, the Secretary of State may disqualify him from being the auditor of an insurance company or any class of insurance company to which Part II of this Act applies; but the Secretary of State may remove any disqualification imposed under this subsection if satisfied that the person in question will in future comply with that duty.

(5) An insurance company to which this Part of this Act applies shall not appoint as auditor a person disqualified under subection (4) above.".

(2) In section 71(7) of that Act (which lists the provisions of that Act default in complying with which is not an offence) after the words "section 16" there shall be inserted the word "21A".").
The noble and learned Lord said: My Lords, with this amendment, I should like to speak to Amendment

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No. 267, and to Amendment No. 265A, which is in the name of noble Lords opposite. These amendments concern the role of auditors of insurance companies and the duty they have to the supervisors of insurance companies. They make analagous provisions to those which are incorporated in Clauses 107 and 109.
I am sympathetic to the aims of Amendment No. 265A, and we have already accepted a similar amendment, Amendment No. 229A. However, this amendment is not quite right. The Government would be willing to bring forward the appropriate amendment on Third Reading if it were not to be moved at this stage. I beg to move Amendment No. 265.
Lord Williams of Elvel Lord Williams of Elvel had given notice of his intention to move, as an amendment to Amendment No. 265, Amendment No. 265A:
At end of subsection 21 A(2) insert—
("( ) No order making such regulations as are mentioned in subsection (2) above shall be made unless a draft of them has been laid before and approved by a resolution of each House of Parliament.").
The noble Lord said: My Lords, in the light of the noble and learned Lord's remarks, the amendment is not moved.
[Amendment No. 265A not moved.]
Lord Marshall of Leeds: My Lords, perhaps I may speak briefly to Amendment No. 265. I must declare an interest as chairman of an insurance company. I rise to express the reservations of the insurance industry in regard to this amendment.
Insurance companies are already subject to detailed supervisory requirements contained in the Insurance Companies Act 1982 and regulations made thereunder. No case has been made and no evidence has been cited to demonstrate that the existing requirements are insufficient. Secondly, policyholders of insurance companies in financial difficulties are given considerable protection already by the Policyholders Protection Act 1975. Thirdly, the proposed amendments are not even-handed between different sectors of the insurance industry as they would apply to insurance companies but not to friendly societies or Lloyd's. I therefore wonder whether my noble friend the Minister will confirm that the different sectors of the insurance industry and other types of company within the financial services sector whose principal activity is not investment business as defined, such as the banks, should be subject to similar requirements.
Lord Cameron of Lochbroom: My Lords, this provision is evidence of the Government's belief that there ought to be a broadly similar approach to this question across the field of the financial sector. There is already a similar provision in the Building Societies Act. The Government intend, if Parliament agrees, that there will be such in forthcoming banking legislation and there is similar provision for investment business in the Bill. There is in principle no reason why insurance companies should be treated differently.
Friendly society auditors will be covered by Clause 107 so far as the business they carry on relates to the Secretary of State's functions under the Bill, and the
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question of friendly society auditors in relation to other registry functions will be a matter for the Treasury and the Registrar of Friendly Societies. I hope that that comforts my noble friend.
On Question, Amendment No. 265 agreed to.
Clause 133 [Arrangements to avoid unfairness between separate insurance funds etc.]:
[Amendment No. 266 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 267:
Page 110, line 29, leave out ("after the words "section 16" ") and insert ("before the word "or" ").
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
Clause 135 [Insurance brokers]:
[Amendment No. 268 not moved.]
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 268A:
Page 111, line 26, leave out from ("is") to end of line 30 and insert ("or was subject at the time of the contravention or failure; or").
The noble Lord said: My Lords, in moving this amendment, perhaps I may take Amendment No. 268B at the same time. The intention behind Clause 135 generally is to reduce to a minimum the supervision by the Insurance Brokers Registration Council of a person who is subject to the financial services legislation and the insurance brokers legislation. In that context subsection (4) addresses itself to the question of discipline. The amendments are intended to further remove the need of the disciplinary committee of the council to make detailed inquiries into the circumstances of a contravention or failure which has already been the subject of an investigation under the financial services legislation. I beg to move.
Lord Beaverbrook: My Lords, these amendments to Clause 135 make a small improvement to the Insurance Brokers Registration Act by extending the power of the disciplinary committee. We are happy to accept them.
Lord Graham of Edmonton: My Lords, I am most grateful.
On Question, amendment agreed to.
10.30 p.m.
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 268B:
Page 111, line 33, leave out from ("he") to end of line 34 and insert ("or it is or was subject at that time.").
On Question, amendment agreed to.
Clause 136 [Industrial assurance]:
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 269:
Page 112, line 39, leave out subsection (3) and insert—

("(3) Where it appears to the Industrial Assurance Commissioner that rules made by virtue of section 48(2)(j) (or corresponding rules made by a recognised self-regulating organisation) make arrangements for the settlement of a dispute referred to him under section 32 of the said Act of 1923, or that such rules relate to some of the matters in dispute he may, if he

111
thinks fit, delegate his functions in respect of the dispute so as to enable it to be settled in accordance with the rules.

(3A) If such rules provide that any dispute may be referred to the Industrial Assurance Commissioner he may deal with any dispute referred to him in pursuance of those rules as if it were a dispute referred under section 77 of the Friendly Societies Act 1974 and may delegate his functions in respect of any such dispute to any other person.").

The noble Lord said: My Lords, in moving this amdendment, I speak also to Amendments Nos. 270, 271, 299, 337 and 337A. These amendments make some small and technical improvements to the existing provisions in the Bill for integrating disputes procedures under the Bill and in the industrial assurance legislation. We are grateful to the friendly societies for spotting the omission of the Industrial Assurance Commissioner in our original amendment. I beg to move.
Lord Graham of Edmonton: My Lords, in speaking to Amendment No. 337A, which is in my name, I also indicate how pleased and grateful is the friendly societies liaison committee, which represents all friendly societies, at the manner in which the Government have looked upon their concerns. As the Minister is aware, the difference in the friendly societies between collecting societies and branch societies, and their need to re-align their affairs in the light of the Bill with other legislation, is all taken care of in the various amendments that have been tabled. Therefore, I am grateful to the Government for agreeing to bring forward their own amendments and also accepting the amendment in my name.
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 270:
Page 113, line 10, after ("1923") insert ("and section 77 of the said Act of 1974").
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 271:
Page 113, line 12, after ("1979") insert ("and section 65 of the Friendly Societies Act (Northern Ireland) 1970").
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 272:
After Clause 137, insert the following new clause:
("Indemnity schemes.

(1) Any two or more registered friendly societies may, notwithstanding any provision to the contrary in their rules, enter into arrangements for the purpose of making funds available to meet losses incurred by any society which is a party to the arrangements or by the members of any such society by virtue of their membership of it.

(2) No such arrangements shall come into force unless they have been approved by the Chief Registrar of Friendly Societies or, as the case may be, the Registrar of Friendly Societies for Northern Ireland.")

The noble Lord said: My Lords, this amendment is consequential upon Amendment No. 78. I beg to move.
On Question, amendment agreed to.
Schedule 11 [Friendly societies]:
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 273:
Page 209, line 36, at end insert—
("(3A) Subsections (1) and (2) of section 126 of this Act shall apply for the purposes of this paragraph as if the powers there mentioned included the power of refusing consent to the making of a recognition order under this paragraph and subsection (5) of that section shall apply for that purpose as if the reference to Chapter XIV of Part I included a reference to this paragraph").
The noble Lord said: My Lords, in moving this amendment I should like also to speak to Amendments Nos. 274 to 297, 302 to 315, 317 to 318, and 322 to 332. These are all technical amendments and there is nothing that I can usefully add at this stage.
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 274 to 297:
Page 210, line 5, leave out ("(3) and") and insert ("(2A) to").
Page 210, line 8, at end insert
("(2A) References in paragraphs 2, 3, 4 and 6 of Schedule 2 to members are to members who are regulated friendly societies").
Page 210, line 9, leave out ("Schedule 2") and insert ("that Schedule").
Page 210, line 12, after ("below") insert—
("(aa) in sub-paragraph (1A) the reference to section 49 of this Act shall be omitted and for the reference to sections 53 and [Compensation Fund] there shall be substituted a reference to paragraphs 17 and 17A below;").
Page 210, line 17, after ("4") insert ("of that Schedule")
Page 210, line 35, after ("substitution") insert ("(a")
Page 210, line 37 at end insert—

("(b) for the reference in subsection (3) to members of a reference to members of the organisation which are member societies in relation to it; and

(c) for the reference in subsection (6) to investors of a reference to members of the societies which are member societies in relation to the organisation.").

Page 210, line 41, leave out ("organisation") and insert ("self-regulating organisation for friendly societies")
Page 210, line 42, leave out ("a recognised") and insert ("such an")
Page 211, line 11, leave out ("organisation") and insert ("self-regulating organisation for friendly societies")
Page 211, line 23, leave out ("organisation") and insert ("self-regulating organisation for friendly societies")
Page 211, line 36, at end insert—
("(5A) Subsections (2) to (7) and (9) of section 11 of this Act shall, with the modifications mentioned in paragraph 5(2) above and any other necessary modifications, have effect in relation to any direction given or alteration made by the Registrar under sub-paragraph (1) above as they have effect in relation to an order revoking a recognition order.").
Page 211, line 37, leave out ("a recognised") and insert ("an")
Page 211, line 43, leave out ("organisation") and insert ("self-regulating organisation for friendly societies")
Page 212, line 2, leave out ("organisation") and insert ("self-regulating organisation for friendly societies")
Page 212, line 17, leave out ("organisation") and insert ("self-regulating organisation for friendly societies")
Page 212, line 26, after ("of') insert ("or of regulations under")
Page 213, leave out lines 34 to 38.
Page 213, line 39, leave out ("(6)") and insert ("(8)").
Page 213, leave out lines 43 and 44 and insert—
("(b) the references to rules and guidance in subsection (4) included such rules and guidance as are mentioned in subparagraph (1) above;")

113
Page 213, line 46, at end insert ("; and
(d) the reference to the Secretary of State's powers in subsection (7) included his powers under sub-paragraph (2) above.
(6) Section 126 of this Act shall apply for the purposes of this paragraph as if—

(a) the powers referred to in subsection (1) of that section included the powers conferred by sub-paragraph (2)(b) and (c) above;

(b) the references to Chapter XIV of Part I included references to this paragraph; and

(c) the reference to a recognised self-regulating organisation included a reference to a recognised self-regulating organisation for friendly societies.").

Page 214, line 12, leave out ("sub-paragraph (2) below") and insert ("the following provisions of this paragraph")
Page 214, line 13. leave out ("126(4)")
Page 214, line 23, after ("Schedule") insert ("(as they apply by virtue of paragraph 4 above) and to sub-paragraph (2) of paragraph 4 above")
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 298:
Page 215, line 32, leave out ("agreement to acquire or dispose of an investment"). and insert ("investment agreement").
The noble Lord said: My Lords, this amendment is consequential upon Amendment No. 277. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 299 to 301:
Page 216, line 11, leave out ("other than a member society") Page 216. line 12, at end insert—
("( ) Such rules shall not apply to a member society of a recognised self-regulating organisation for friendly societies unless that organisation has requested that such rules should apply to it; and any such request shall not be capable of being withdrawn after rules giving effect to it have been made but without prejudice to the power of the Registrar to revoke the rules if he and the Secretary of State think fit.")
Page 216, line 16, at end insert—

("17A.—(1) No scheme established by rules under section (Compensation fund) shall apply in cases where persons who are or have been regulated friendly societies are unable, or likely to be unable to satisfy claims in respect of any description of civil liability incurred by them in connection with any regulated business but the Registrar may, with the consent of the Secretary of State, by rules establish a scheme for compensating investors in such cases.

(2) Subject to sub-paragraph (3) below, subsections (2) to (4) and (6) of that section shall apply in relation to such rules as they apply to rules under that section but with the substitution for the references to the Secretary of State, authorised persons, members and a recognised self-regulating organisation of references respectively to the Registrar, regulated friendly societies, member societies and a recognised self-regulating organisation for friendly societies.

(3) Subsection (3) of that section shall have effect with the substitution for the words "the Secretary of State is satisfied" of the words "the Registrar and the Secretary of State are satisfied").

(4) The references in section 174(3)(b) and 175(1)(e) of this Act to the body administering a scheme established under section (Compensation fund) of this Act shall include the body administering a scheme established under this paragraph").

The noble Lord said: My Lords, I beg to move Amendments Nos. 299, 300 and 301, to which I spoke with Amendment No. 78.
On Question, amendments agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 302 to 315:
Page 216, line 20, leave out ("other than a member society")
Page 216, line 26, after ("subsection") insert ("and subsections (3) and (3A) of that section").
Page 216, line 28, leave out ("paragraph (e)") and insert ("paragraphs (b) and (e) of subsection (2) to a member of a recognised self-regulating organisation of a reference to a member society of a recognised self-regulating organisation for friendly societies and for the reference in paragraph (e) of that subsection").
Page 216, line 42, leave out from ("contravened") to end of line 44 and insert—

"(a) any provision of rules or regulations made under this Schedule or of section 55 or 58 of this Act;

(aa) any condition imposed under section 50 of this Act as it applies by virtue of paragraph 14(3) above;

(aaa) any prohibition or requirement imposed under Chapter VI of Part I of this Act as it applies by virtue of paragraph 22 below; or").

Page 216, line 45, leave out from ("below") to end of line 1 on page 217.
Page 217, line 12, at end insert—
(ia) any prohibition or requirement imposed under Chapter VI of Part I of this Act as it applies by virtue of paragraph 22 below;")
Page 217, line 18, at end insert—
("or any condition imposed under section 50 of this Act as it applies by virtue of paragraph 14(3) above;")
Page 217, line 20, after ("provision") insert ("or condition").
Page 217, line 22, after ("provision") insert ("or condition").
Page 217, line 25, after ("contravention") insert ("or, in Scotland, an interdict prohibiting the contravention").
Page 217, line 28, at end insert—
("(1A) No application shall be made by the Registrar under sub-paragraph (1) above in respect of any such rules as are mentioned in paragraph (a)(iv) of that sub-paragraph unless it appears to him that the organisation is unable or unwilling to take appropriate steps to restrain the contravention or to require the society concerned to take such steps as are mentioned in sub-paragraph (1) above.")
Page 217, line 29, leave out ("a contravention of the provisions") and insert ("such a contravention as is").
Page 217, line 37, at end insert—
("(aa) a contravention of any prohibition or requirement imposed under Chapter VI of Part I of this Act as it applies by virtue of paragraph 22 below;")
Page 217, line 44, leave out from ("or") to end of line 45 and insert ("of any requirement or prohibition imposed by the organisation in the exercise of powers for purposes corresponding to those of the said Chapter VI or paragraph 23").
The noble Lord said: I spoke to these amendments with Amendment No. 273. I beg to move.
On Question, amendments agreed to.
[Amendment No. 316 not moved.]
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 317 and 318:
Page 218, line 3, at end insert—
("(4) This paragraph is without prejudice to any equitable remedy available in respect of property which by virtue of a requirement under section 66 of this Act as it applies by virtue of paragraph 22 below is subject to a trust.")
Page 218, line 24, at end insert—
("or has contravened any prohibition or requirement imposed under this Act").
The noble Lord said: I beg to move.
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 319:
Page 218, line 30, leave out from ("relation") to ("except") in line 34 and insert—

("(a) to a member society which is subject to the rules of a recognised self-regulating organisation for friendly societies in carrying on all the investment business carried on by it; or

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(b) to an appointed representative of a member society if that member society, and each other member society which is his principal, is subject to the rules of such an organisation in carrying on the investment business in respect of which it has accepted responsibility for his activities;").

The noble Lord said: My Lords, this amendment is consequential upon Amendment No. 132. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 320:
Page 221, line 15, leave out ("Schedule") and insert ("Act").
The noble Lord said: My Lords, this amendment is consequential upon Amendment No. 256. I beg to move.
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 321 to 332:
Page 221, line 21, after ("Act") insert ("and paragraph 36A below").
Page 222, line 9, leave out ("such rules and regulations as are") and insert ("rules and regulations corresponding to those").
Page 222, line 15, leave out sub-paragraph (2).
Page 222, line 23, at end insert ("and they may take such guidance into account in determining whether they are satisfied as mentioned in paragraph 28(1)(b) above").
Page 222, line 26, after ("societies") insert ("or self-regulating organisations for friendly societies").
Page 222, line 27, at end insert ("or self-regulating organisations for friendly societies, being societies which are or may be subject to rules or regulations made by it or organisations which are or may be recognised by it in the exercise of its functions under a transfer order")
Page 222, line 32, leave out ("sub-paragraph") and insert ("subparagraphs (4A) and")
Page 222, line 39, leave out ("subsection (5) of section 113") and insert ("subsection (3) of section 113 for the reference to Schedule 7 to this Act there shall be substituted a reference to that Schedule as it has effect by virtue of paragraph 27(3) above and in subsection (5) of that section")
Page 222, line 41, at end insert—
("(4A) Section 116(3)(b) shall have effect as if the reference to any provision applying to the Secretary of State were a reference to any provision applying to the Secretary of State or the Registrar.")
Page 223, line 4, at end insert—
("(6) The power mentioned in paragraph 2(3) of Schedule 9 to this Act shall not be exercisable on the ground that the company has ceased to be a designated agency or, as the case may be, a transferee body if the company remains a transferee body or, as the case may be, a designated agency.")
Page 223, line 25, at end insert ("and such a direction shall, on the application of the Registrar, be enforceable by mandamus or, in Scotland, by an order for specific performance under section 91 of the Court of Session Act 1868").
Page 223, line 29, leave out ("under section 64 or requirement under section") and insert ("or requirement under section 64 or")
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 333:
Page 224, line 13, after ("effect") insert ("to any significant extent".)
The noble Lord said: My Lords, this amendment is consequential upon Amendment No. 224. I beg to move.
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 334 and 335:
Page 224, leave out lines 36 to 41 and insert—
("(6) Section 126 shall apply as if—

(a) the powers referred to in subsection (1) of that section included the power conferred by sub-paragraph (3)(b) above; and

(b) the references to Chapter XIV of Part I included references to this paragraph").

Page 225, line 14, at end insert—
("36A.—(1) The Registrar may publish information or give advice, or arrange for the publication of information or the giving of advice, in such form and manner as he considers appropriate with respect to—

(a) the operation of this Schedule and the rules and regulations made under it in relation to registered friendly societies, including in particular the rights of their members, the duties of such societies and the steps to be taken for enforcing those rights or complying with those duties;

(b) any matters relating to the functions of the Registrar under this Schedule or any such rules or regulations;

(c) any other matters about which it appears to him to be desirable to publish information or give advice for the protection of those members or any class of them.

(2) The Registrar may offer for sale copies of information under this paragraph and may, if he thinks fit, make reasonable charges for advice given under this paragraph at any person's request.
(3) This paragraph shall not be construed as authorising the disclosure of restricted information within the meaning of section 174 of this Act in any case in which it could not be disclosed apart from the provisions of this paragraph.")
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 336:
Page 225, line 39, leave out ("and 17") and insert ("17 and 17A")
The noble Lord said: My Lords, this amendment is consequential upon Amendment No. 78. I beg to move.
On Question, amendment agreed to.
[Amendment No. 337 not moved.]
Lord Graham of Edmonton Lord Graham of Edmonton moved Amendment No. 337A:
Page 225, line 43, leave out paragraph 41 and insert—
(" 41.—(1) Where it appears to the Registrar, the Assistant Registrar for Scotland, the industrial Assurance Commissioner or the Industrial Assurance Commissioner for Northern Ireland that any such rules as are mentioned in section 48(2)(j) of this Act which are made by virtue of paragraph 14 above (or any corresponding rules made by a self-regulating organisation for friendly societies) make arrangements for the settlement of a dispute referred to him under section 77 of the Friendly Societies Act 1974, section 65 of the Friendly Societies Act (Northern Ireland) 1970, section 32 of the Industrial Assurance Act 1923 or Article 36 of the Industrial Assurance (Northern Ireland) Order 1979 or that such rules relate to some of the matters in dispute he may, if he thinks fit, delegate his functions in respect of the dispute so as to enable it to be settled in accordance with the rules.
(2) If such rules provide that any dispute may be referred to such a person, that person may deal with any dispute referred to him in pursuance of those rules as if it were a dispute referred to him as aforesaid and may delegate his functions in respect of any such dispute to any other person. ")
The noble Lord said: My Lords, I spoke to this amendment earlier in the debate. I beg to move.
On Question, amendment agreed to.
Clause 138 [Official listing]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 338:
Page 114, leave out lines 12 and 13.
The noble and learned Lord said: My Lords, I wish to speak also to Amendments Nos. 339, 340, 374 and 386. This group of amendments is to standardise the references to issuers of certificates representing securities so that they all refer to the issuer of the underlying security, not the issuer of the certificate.
I take the opportunity to thank the noble Lord, Lord Hacking, for a number of most helpful and constructive suggestions in Committee which are reflected in the amendments that I shall shortly be moving, and also the Stock Exchange and the Law Society which have also put in a great deal of work in that regard. I beg to move.
On Question. amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 339:
Page 114, line 15, at end insert ("except that in relation to a certificate or other instrument falling within paragraph 5 of Schedule 1 to this Act it means the person who issued or is to issue the securities to which the certificate or instrument relates").
On Question, amendment agreed to.
Clause 139 [Applications for listing]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 340:
Page 115, line 1, leave out subsection (3).
On Question, amendment agreed to.
Clause 142 [General duty of disclosure in listing particulars]:
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 341:
Page 116, line 29, leave out ("and prospects").
The noble Lord said: My Lords, if the House permits, I shall also speak to Amendment No. 403. I shall speak briefly because this is a matter to which we may return on another occasion. The whole question of profit forecasts is one which is fraught with danger and interest. Indeed, it would be my contention, had we more time at this stage in your Lordships' House, that what the Bill proposes cuts straight across what the takeover code actually lays down. With that thought left in the Minister's mind for a later date, I beg to move.
Lord Cameron of Lochbroom: My Lords, there are a number of points that I could make. I shall mention one: namely, that Article 4.1 of the listing particulars directive explicitly imposes a requirement to provide investors and their advisers with the information necessary to make an informed assessment of the prospects of the issuer. We therefore have no alternative. I suggest that the noble Lord opposite might withdraw his amendment.
Lord Williams of Elvel: My Lords, I am grateful to the noble and learned Lord. I understand exactly what he says. But he must recognise that the takeover code is also explicit on the point. We shall come back to it at a later stage. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 342:
Page 116, line 36, leave out ("is required to be included in listing particulars by virtue of this section") and insert ("investors and their professional advisers would reasonably require and reasonably expect to find in any Listing Particulars for the purpose mentioned in subsection (1) above".)
The noble Lord said: My Lords, in moving this amendment, I should like to speak also to Amendment No. 404, which deals with the same point in relation to prospectuses. Clause 142 uses the word "required" in the second line in the sense that it is something that has to be, then uses it in a slightly different sense about five lines further down where the Bill states,
"shall contain all such information as investors and their professional advisers would reasonably require".
The phrase, at line 36, in subsection (3),
"in determining what information is required to be included in listing particulars by virtue of this section",
could be a reference to the second line of Clause 142(1) when it should obviously be a reference back to the seventh or eighth line as to what the advisers would reasonably require. The amendment puts the matter in English, making the intention clear. I beg to move.
Lord Cameron of Lochbroom: My Lords, we have obviously looked at this amendment and I have listened carefully to the noble Lord's explanation I have to say that I see no risk of confusion. I think the different senses in which "require" is used in each of the separate subsections are quite clear from the context. The distinction drawn between the requirements of the clause and the requirements and expectations of investors and advisers is a false one, as subsection (1) equates the two. The amendment would add to the length of the clause without aiding comprehension. I recommend your Lordships to reject it, although the noble Lord will, I am sure, on reflection, withdraw it.
Lord Morton of Shuna: My Lords, on the understanding that this is a matter to which I may return, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 343:
Page 117, line 7, after ("below") insert ("or by or under any other enactment").
The noble and learned Lord said: My Lords, in moving this amendment, I wish to speak also to Amendment No. 405.These amendments modify the general duty so that it does not require issuers to reiterate information which is already available to investors and their advisers under any enactment as a matter of course. This will be for the convenience of issuers without detracting from the information avaiable to investors.
On Question, amendment agreed to.
Clause 143 [Supplementary listing particulars]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 344:
Page 117, line 31, leave out ("that subsection") and insert ("subsection (1) above").
The noble and learned Lord said: My Lords, in moving this amendment, I wish to speak also to Amendments Nos. 348 to 354, 356, 358, 406, 409 to 415, 417 and 419 and also to Amendments Nos. 353A and 414A standing in the name of the noble Lord, Lord Hacking.
This raft of amendments is in response to concerns that have been expressed to the department by the Law Society and others, and also by the noble Lord, Lord Hacking, in Committee. They clarify and refine rather than change radically the clauses on exemptions which were added in Committee. With regard to the amendments of the noble Lord, Lord Hacking, I regret that I would not be able to commend them to your Lordships if they were moved. The amendments of the noble Lord would mean that a director could be liable for losses resulting from failure of his co-directors to publish a correction even if the failure was not his fault.
I appreciate that in the case dealt with by subsection (3) the director will have shared in the initial fault of publishing a faulty prospectus without due care and attention. Once he has recognised the error and taken all reasonable steps to secure the publication of correction, and believes that it will take place, he should not be liable for the failure of others to act, if he reasonably believed that they had. For these reasons, I hope that the noble Lord will not press his amendments. In the meantime, I beg to move.
On Question, amendment agreed to.
[Amendment No. 345 not moved.]
Clause 145 [Registration of listing particulars]:
[Amendments Nos. 346 and 347 not moved.]
10.45 p.m.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 348:
Page 120, line 8, leave out ("for steps to be taken").
On Question, amendment agreed to.
Lord Hacking Lord Hacking moved Amendment No. 348A:
Page 120, line 10. at end insert—
(" (bb) that before the securities were acquired he had taken all such steps as it was reasonable for him to have taken to secure that a correction was brought to the attention of those persons; or").
The noble Lord said: My Lords, I beg to move this amendment which stands in my name on the Marshalled List. I should like also, with the leave of the House, to address noble Lords on my Amendments Nos. 352A, 409A and 413A.
The first two of these amendments, Amendments Nos. 348A and 352A, deal with listed securities. The other two amendments deal with unlisted securities. With regard to both listed and unlisted securities there are defences to actions when listing particulars contain details which are either false or misleading. Those defences with regard to listed securities are set out in Clause 147. My amendments concerning the listed securities—Amendments Nos. 348A and 352A—therefore seek to make an additional defence available under Clause 147.
That is exactly the same exercise to which I have referred your Lordships for the unlisted securities. The
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relevant clause of the Bill is Clause 162. My amendment seeks to provide this further defence concerning unlisted securities, in Clause 162. It appears on two occasions because it is directed to two different activities—under Clause 147 in the first instance and under Clause 162 in the second instance. That completes the words I wish to address to the House on all four amendments. I beg to move.
Lord Cameron of Lochbroom: My Lords, I am happy to commend these amendments to your Lordships.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 349 to 352:
Page 120, line 22, leave out ("had reasonable grounds for believing the other person to be") and insert ("believed on reasonable grounds that the other person was").
Page 120, line 24, leave out ("to have") and insert ("had").
Page 120, line 26, leave out ("to have such grounds") and insert ("in that belief").
Page 120. line 31. at end insert (": or
(c) that he continued in that belief until after the commencement of dealings in the securities following their admission to the Official List and that the securities were acquired after such a lapse of time that he ought in the circumstances to be reasonably excused.").
The noble and learned Lord said: My Lords, with the leave of the House, I beg to move Amendments Nos. 349 to 352 en bloc. These amendments are consequential.
On Question, amendments agreed to.
Lord Hacking Lord Hacking moved Amendment No. 352A:
Page 120, line 31, at end insert (";or
( ) that before the securities were acquired he had taken all such steps as it was reasonable for him to have taken to secure that that fact was brought to the attention of those persons;").
The noble Lord said: My Lords, this is a consequential amendment. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 353:
Page 120, line 36, leave out from ("court") to end of line 41 and insert—

("(a) that before the securities were acquired a correction, or where the statement was such as is mentioned in subsection (2), the fact that the expert was not competent or had not consented had been published in a manner calculated to bring it to the attention of persons likely to acquire the securities in question; or

(b) that he took all such steps as it was reasonable for him to take to secure such publication and reasonably believed that it had taken place before the securities were acquired.")

The noble and learned Lord said: My Lords, I spoke to this Amendment when speaking to Amendment No. 344, and also in relation to Amendment No. 353A. I beg to move.
Lord Hacking Lord Hacking had given notice of his intention to move, as an amendment to Amendment No. 353, Amendment No. 353A:
Line 8, leave out from ("question") to end of line 12.
The noble Lord said: My Lords, the noble and learned Lord the Lord Advocate has already addressed your Lordships concerning this amendment, and my

121
other amendment which deals with the same matter under listed securities. I cannot let this Bill gallop away from us at Report stage on these complicated parts, Parts IV and V, without drawing attention to this amendment, which seeks to give more investor protection than the government amendment does. It seeks to remove one of the defences. Having drawn the matter to your Lordships' attention, I shall not move the amendment.
[Amendment No. 353A to Amendment No. 353, not moved.]
On Question, Amendment No. 353 agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 354:
Page 121, line 3, at end insert ("or (3)").
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 355 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 356:
Page 121, line 6, leave out from ("misleading") to end of line 7 and insert (", of the omitted matter or of the change or new matter, as the case may be.")
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 357 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 358:
Page 121, line 8, leave out subsection (6).
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 359 not moved.]
Clause 148 [Persons responsible for particulars]:
Lord Hacking Lord Hacking moved Amendment No. 359A:
Page 121, line 40, leave out from ("person") to end of line 42 and insert ("who has authorised the contents of, or any part of, the particulars (not being a person falling within any of the foregoing paragraphs or a person to whom authority in that behalf has been delegated by any person falling within any paragraph of this subsection).")
The noble Lord said: I beg to move this amendment, which stands in my name in the Marshalled List. At the same time, with the leave of your Lordships, I should like to address your Lordships upon Amendment No. 420A, which covers unlisted securities and relates to Clause 163. This amendment is directed to listed securities and deals with Clause 148. Perhaps I may briefly present the argument.
Clause 148(1) sets out the persons responsible for listing particulars or supplementary listing particulars. It identifies the following as persons responsible: One, the issuer; two, each director of the issuer; three, each person named as having agreed to become a director of the issuer; four, each person who is stated in the particulars to have accepted responsibility for them; and five, each person, not falling within any of the above categories, who authorised the contents of, or any part of, the particulars. The latter category would
122
include experts, such as accountants whose reports are included in the particulars, and the issuing house under whose name the particulars are issued.
As drafted, however, it is my submission that the sweep-up category includes individuals to whom the task of preparing the listing particulars was delegated by one of the "persons responsible". This could include an executive of the issuer who is not a director of the issuer but was a member of an executive committee dealing with the listing particulars. It could also include an executive of the issuing house, which would be a "person responsible". This amendment. and indeed Amendment No. 428A, have been tabled to ensure that none of such persons could be regarded as a person "who had authorised the contents of the listing particulars".
Lord Cameron of Lochbroom: My Lords, I recognise the concern which the noble Lord has voiced. I should say that I do not consider that this subsection goes wider than the Companies Act. Indeed, the advice I have received is that in this context it is clear that the Companies Act covers authorisation of part of a document only.
In any case, I am not persuaded that executives who have been delegated to authorise the contents of listing particulars or of a prospectus should not be among the persons responsible. They occupy relatively senior positions in their organisations, albeit below board level, and I do not think that it is unreasonable that they should bear responsibility for the exercise of their authority.
The clause is based on the proposition that all those who have the requisite degree of involvement in authorising the document should be liable for its contents, and I suggest that your Lordships should take this view. The amendments would dilute this concept unduly, and I therefore urge your Lordships not to accept them if the noble Lord were to press this matter.
Lord Hacking: My Lords, I have no intention of pressing this matter; but I should like to give careful consideration before Third Reading to what the noble and learned Lord the Lord Advocate has said. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 360:
Page 121, line 42, at end insert—
("( ) A person is not responsible for any particulars by virtue of subsection (1)(b) above if they are published without his knowledge or consent and on becoming aware of their publication he forthwith gives reasonable public notice that they were published without his knowledge or consent.")
The noble and learned Lord said: My Lords, in moving this amendment, I should also like to speak to Amendments Nos. 361, 364 to 372 and 421 to 430. These amendments are in response to representations received about the definition of persons responsible in Clauses 148 and 163—that is, those who are liable to pay compensation if listing particulars or a prospectus are misleading or incomplete. The details are explained in the notes which have been provided. Unless noble Lords wish me to, I shall not expand upon that matter at present. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 361:
Page 122, line 4, at end insert ("and only if it is included in (or substantially in) the form and context to which he has agreed.")
On Question, amendment agreed to.
[Amendments Nos. 362 and 362A not moved.]
The Deputy Speaker (Earl Cathcart): My Lords, in calling Amendment No. 363, I shoud advise your Lordships that, if it is agreed to, I cannot call Amendments Nos. 364 to 366.
[Amendment No. 363 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 364 to 372:
Page 122, line 6, leave out ("the issuer for securities issued by another person") and insert (", or by a wholly-owned subsidiary of, the issuer for, or an agreement for the acquisition by, or by a wholly-owned subsidiary of, the issuer of, securities issued by another person or in connection with any arrangement whereby the whole of the undertaking of another person is to become the undertaking of the issuer, of a wholly-owned subsidiary of the issuer or of a body corporate which will become such a subsidiary by virtue of the arrangement").
Page 122, line 17, leave out ("the securities to which the offer") and insert ("to the securities or undertaking to which the offer, agreement or arrangement").
Page 122, line 20, leave out ("or (e)").
Page 122, line 21, leave out ("Paragraph (b) of subsection (1) above does not apply") and insert ("Neither paragraph (b) nor paragraph (c) of subsection (1) above applies").
Page 122, line 23, leave out ("that paragraph and paragraph (b) of subsection (3) above do not apply") and insert ("neither of those paragraphs nor paragraph (b) of subsection (3) above applied").
Page 122, line 30, transfer subsection (5) to end of clause.
Page 122, line 37, leave out subsection (6).
Page 123, line 3, leave out subsection (8) and insert—
("(8) In this section "wholly-owned subsidiary", in relation to a person other than a body corporate, means any body corporate that would be his wholly-owned subsidiary if he were a body corporate.")
Page 123, line 5, leave out ("Except as provided by subsection (6) above").
The noble and learned Lord said: My Lords, with the leave of the House, I beg to move Amendments Nos. 364 to 372 en bloc. They are consequential. I beg to move.
On Question, amendments agreed to.
[Amendment No. 373 not moved.]
Clause 149 [Obligations of issuers of listed securities]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 374:
Page 123, line 18, leave out subsection (2).
The noble and learned Lord said: My Lords, I beg to move Amendment No. 374. This amendment is consequential to Amendment No. 338.
On Question, amendment agreed to.
Clause 150 [Advertisements etc. in connection with listing applications]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 375 to 377:
Page 123, line 29, leave out ("published") and insert ("issued").
Page 123, line 34, leave out ("publication") and insert ("the issue of the advertisement or information").
Page 123, line 35, leave out subsection (2).
The noble and learned Lord said: My Lords, with the leave of the House, I beg to move Amendments Nos. 375 to 377 en bloc. They are consequential upon Amendment No. 160.
On Question, amendments agreed to.
[Amendment No. 378 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 379 to 384:
Page 124, line 11, leave out ("publishes") and insert ("issues").
Page 124, line 13, leave out from ("proves") to ("that") in line 16.
Page 124, line 17, leave out ("after due enquiry").
Page 124, line 18, leave out ("publication") and insert ("issue").
Page 124, line 20, leave out ("the publication of it") and insert ("its issue").
Page 124, line 22, leave out ("publishing") and insert ("issuing").
The noble and learned Lord said: My Lords, with the leave of the House, I beg to move Amendments Nos. 379 to 384 en bloc. These amendments were spoken to with Amendment No. 160.
On Question, amendments agreed to.
Clause 153 [Alteration of competent authority]:
[Amendment No. 385 not moved.]
Clause 154 [Preliminary]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 386:
Page 126, line 39, leave out subsection (3) and insert—
(" (3) In this Part of this Act—
"issuer", in relation to any securities, means the person by whom they have been or are to be issued except that in relation to a certificate or other instrument falling within paragraph 5 of Schedule 1 to this Act it means the person who issued or is to issue the securities to which the certificate or instrument relates;
"securities" means investments to which this section applies.")
The noble and learned Lord said: My Lords, this amendment is consequential upon Amendment No. 338. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 387:
Page 127, line 8, leave out subsection (5).
The noble and learned Lord said: My Lords, this amendment is consequential upon Amendment No. 160. I beg to move.
On Question, amendment agreed to.
Clause 155 [Offers of securities on admission to approved exchange]:
[Amendments Nos. 388 and 389 not moved.]
Clause 156 [Other offers of securities]:
11 p.m.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 390:
Page 128, line 34, leave out ("directly or indirectly").
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
Lord Williams of Elvel: My Lords, if I may halt the rush for a moment, I am not sure that the noble and learned Lord has spoken to this amendment.
Lord Cameron of Lochbroom: My Lords, I beg the noble Lord's pardon. I have in fact gone too quickly. In moving this amendment, I should speak to Amendments Nos. 392 to 398, 400, 401, 432 and 434 in the name of my noble friend; and also to Amendment No. 395A in the name of noble Lords opposite.
These amendments concern the requirement to produce a prospectus when advertising securities. The amendments to Clause 156(3) clarify that a prospectus will not be required if the securities have at any stage been admitted to dealings on an approved exchange or acquired by a person who intended to hold them as an investment as opposed to on-selling them himself. Either of these two occurrences breaks the connection between the issuer and the subsequent advertising of the securities. It is more appropriate in those circumstances for the conduct of business rules to apply as the advertising ceases to be an offer by or on behalf of the issuer. The provisions in subsection (4) whereby a person is assumed to have acquired the securities with a view to advertising them (in which case a prospectus would be required) are sufficient to prevent avoidance by issuers of the need for a prospectus.
The new paragraph (d) in Clause 156(6) will enable the Secretary of State to add to the circumstances in which a prospectus is not required, but this needs an affirmative resolution in each House. The new subsection (6A) is to permit an exemption for offers of securities normally dealt in by experts who can understand the risks without the need for a prospectus. An example would be sterling commercial paper, short-dated debentures traded in denominations of at least half a million pounds. Clearly, Aunt Agatha is unlikely to be able to afford such stakes, even if the advertisement were put out on a screen to which she had access.
The amendments to Clause 157 stop a loophole which would have allowed delisted securities to be offered without a prospectus on the basis of inadequate information. They also allow approved exchanges to take into account information available to investors by virtue of any enactment in deciding whether sufficient information is available without a prospectus.
I should say in response to the amendment in the names of noble Lords opposite that this seeks to place a further "normally" in the same line. This is an adverb. The Government consider that it is in the proper place, and I hope that noble Lords will not press the matter. I beg to move.
On Question, amendment agreed to.
[Amendment No. 391 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 392 to 394:
Page 128, line 36, after ("them") insert—
("(aa) a person who, with a view to issuing such an advertisement in respect of them, has acquired the securities otherwise than from the issuer but without their having been admitted to dealings on an approved exchange or held by a
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person who acquired them as an investment and without any intention that such an advertisement should be issued in respect of them;").
Page 129, line 18, leave out ("or").
Page 129, line 20, at end insert (";or
(d) such other classes of advertisement as he thinks fit.").
The noble and learned Lord said: My Lords, I have spoken already to Amendments Nos. 392 to 394. I beg to move.
On Question, amendments agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 395:
Page 129, line 20, at end insert—
("(6A) Without prejudice to subsection (6)(c) above an order made by the Secretary of State may exempt from subsection (1) above an advertisement issued in whatever circumstances if it relates to securities appearing to him to be of a kind that can be expected normally to be bought or dealt in only by persons sufficiently expert to understand any risks involved").
[Amendment No. 395A, as an amendment to Amendment No. 395, not moved.]
On Question, Amendment No. 395 agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 396 to 398:
Page 129, line 21, after ("(6)") insert ("or (6A").
Page 129, line 25, leave out subsection (8) and insert—
("(8) An order made by virtue of subsection (6)(a), (b) or (c) or by virtue of subsection (6A) above shall be subject to annulment in pursuance of a resolution of either House of Parliament; and no order shall be made by virtue of subsection (6)(d) above unless a draft of it has been laid before and approved by a resolution of each House of Parliament.").
Clause 157 [Exceptions]:
Page 129, leave out lines 31 and 32 and insert ("and section 155 above does not apply to any advertisement offering securities if they have been listed in accordance with that Part in the previous twelve months and the approved exchange in question certifies that persons likely to consider acquiring them will have sufficient information to enable them to decide whether to do so").
The noble and learned Lord said: My Lords, with the leave of the House, I beg to move Amendments Nos. 396 to 398 en bloc. I have spoken to them already.
On Question, amendments agreed to.
[Amendment No. 399 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 400 and 401:
Page 129, line 32, at end insert—
("( ) Neither of those sections applies to any such advertisement as is mentioned in section 57(2) above").
Page 129, line 43, leave out ("and to the circumstances of their issue") and insert (", to the circumstances of their issue and to the information about the issuer which is available to investors by virtue of any enactment").
The noble and learned Lord said: My Lords, I have spoken to these amendments. I beg to move.
On Question, amendments agreed to.
Clause 158 [Form and content of prospectus]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 402:
Page 130, line 22, leave out from ("exchange") to ("by") in line 23 and insert (", and practices in exercising any powers conferred by the rules, which provide investors with protection at least equivalent to that provided").
The noble and learned Lord said: My Lords, I am speaking also to Amendment No. 408. These amendments concern approved recognised investment exchanges. Clause 158(3) states that an exchange may be approved if its prospectus rules,
"provide investors with information at least equivalent to that required by",
the Secretary of State. However, this makes no allowance for exchanges to derogate from their rules to allow irrelevant or trivial information to be omitted. The amendment provides for an exchange to be recognised if its practices, to include the granting of derogations from its rules, give at least equivalent investor protection. This will give flexibility without detracting from investment protection.
The new clause after Clause 160 is the Part V analogue of Clause 144. I beg to move.
On Question, amendment agreed to.
Clause 159 [General duty of disclosure in prospectus]:
[Amendments Nos. 403 and 404 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 405:
Page 131. line 8. after ("advisers") insert ("by virtue of any enactment or").
The noble and learned Lord said: My Lords, this is consequential. I beg to move.
On Question, amendment agreed to. Clause 160 [Supplementary prospectus]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 406:
Page 131, line 31, leave out ("that subsection") and insert ("subsection (1) above").
The noble and learned Lord said: My Lords, this is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 407 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 408:
After Clause 160, insert the following new clause:
("Exemptions from disclosure.
.—(1) If in the case of any approved exchange the Secretary of State so directs, the exchange shall have power to authorise the omission from a prospectus or supplementary prospectus of any information the inclusion of which would otherwise be required by section 159 above—

(a) on the ground that its disclosure would be contrary to the public interest;

(b) subject to subsection (2) below, on the ground that its disclosure would be seriously detrimental to the issuer of the securities; or

(c) in the case of securities which fall within paragraph 2 of Schedule 1 to this Act and are of any class specified by the rules of the exchange, on the ground that its disclosure is unnecessary for persons of the kind who may be expected normally to buy or deal in the securities.

(2) No authority shall be granted under subsection (1)(b)above in respect of, and no such authority shall be regarded as extending to, information the non-disclosure of which would be likely to mislead a person considering the acquisition of the securities as to any facts the knowledge of which it is essential for him to have in order to make an informed assessment.
(3) The Secretary of State or the Treasury may issue a certificate to the effect that the disclosure of any information (includng information that would otherwise have to be included in a prospectus or supplementary prospectus for which they are themselves responsible) would be contrary to the public interest and the exchange shall be entitled to act on any such certificate in exercising its powers under subsection (1)(a) above.")
The noble and learned Lord said: My Lords, this is a consequential amendment. I beg to move.
On Question, amendment agreed to.
Clause 162 [Exemption from liability to pay compensation]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 409:
Page 132, line 30, leave out ("for steps to be taken")
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
Lord Hacking Lord Hacking moved Amendment No. 409A:
Page 132, line 32, at end insert—
("(bb) that before the securities were acquired he had taken all such steps as it was reasonable for him to have taken to secure that a correction was brought to the attention of those persons; or").
The noble Lord said: My Lords, this amendment is consequential to Amendment No. 348A. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 410 to 413:
Page 133, line 3, leave out ("had reasonable grounds for believing that other person to be") and insert ("believed on reasonable grounds that the other person was")
Page 133. line 4, leave out ("to have") and insert ("had")
Page 133. line 7, leave out ("to have such grounds") and insert ("in that belief")
Page 133. line 12, at end insert ("; or
(c) that the securities were acquired after such a lapse of time that he ought in the circumstances to be reasonably excused; but paragraph (c) above does not apply where the securities are dealt in on an approved exchange unless he satisfies the court that he continued in that belief until after the commencement of dealings in the securities on that exchange.")
The noble and learned Lord said: My Lords, with the leave of the House, these amendments are consequential upon Amendment No. 344.
On Question, amendments agreed to.
Lord Hacking Lord Hacking moved Amendment No. 413A:
Page 133, line 12, at end insert (" or
( ) that before the securities were acquired he had taken all such steps as it was reasonable for him to have taken to secure that that fact was brought to the attention of those persons;").
The noble Lord said: My Lords, this amendment is also consequential to Amendment No. 348A. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 414:
Page 133, line 17, leave out from ("court") to end of line 22 and insert—

(" (a) that before the securities were acquired a correction or, where the statement was such as is mentioned in subsection (2) above, the fact that the expert was not competent or had not consented had been published in a manner calculated to bring it to the attention of persons likely to acquire the securities in question; or

(b) that he took all such steps as it was reasonable for him to take to secure such publication and reasonably believed that it had taken place before the securities were acquired.")

The noble and learned Lord said: My Lords, I have spoken to this amendment already, but there is an amendment to it.
Lord Hacking Lord Hacking had given notice of his intention to move, as an amendment to Amendment No. 414, Amendment No. 414A:
Line 8, leave out from ("question") to end of line 12.
The noble Lord said: My Lords, I have already addressed your Lordships under Amendment No. 353A, and I do not intend to move this amendment.
[Amendment No. 414A not moved.]
On Question, Amendment No. 414 agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 415:
Page 133, line 29, at end insert ("or (3)").
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 416 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 417:
Page 133, line 32, leave out from ("misleading") to end of line 33 and insert (", of the omitted matter or of the change or new matter, as the case may be").
The noble and learned Lord said: My Lords, this amendment is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 418 not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 419:
Page 133, line 34, leave out subsection (6).
The noble and learned Lord said: My Lords, this is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 420 not moved.]
Clause 163 [Persons responsible for prospectus]:
[Amendment No. 420A not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment Nos. 421 to 423:
Page 134, line 28, leave out ("he") and insert ("the issuer")
Page 134, line 30, at end insert ("; and a person is not responsible for a prospectus or supplementary prospectus by virtue of subsection (1)(b) above if it is delivered for registration without his knowledge or consent and on becoming aware of its delivery he forthwith gives reasonable public notice that it was delivered without his knowledge or consent.")
130
Page 134, line 34, at end insert ("and only if it is included in (or substantially in) the form and context to which he has agreed.")
The noble and learned Lord said: My Lords, I beg to move Amendments Nos. 421 to 423. They are consequential.
On Question, amendments agreed to.
[Amendment No. 423A not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 424 to 430:
Page 134, line 37, leave out ("the issuer for securities issued by another person") and insert (", or by a wholly-owned subsidiary of, the issuer for, or an agreement for the acquisition by, or by a wholly-owned subsidiary of, the issuer of, securities issued by another person or in connection with any arrangement whereby the whole of the undertaking of another person is to become the undertaking of the issuer, of a wholly-owned subsidiary of the issuer or of a body corporate which will become such a subsidiary by virtue of the arrangement").
Page 135, line 3, leave out ("the securities to which the offer") and insert ("to the securities or undertaking to which the offer, agreement or arrangement").
Page 135, line 6, leave out ("or (e)").
Page 135, line 7, leave out ("Paragraph (b) of subsection (1) above and paragraph (b) of subsection (4) above do not apply") and insert ("Neither paragraph (b) nor paragraph (c) of subsection (1) above nor paragraph (b) of subsection (4) above applies").
Page 135, line 15, leave out subsection (6).
Page 135, line 20, leave out subsection (7) and insert—
("(7) In this section "wholly-owned subsidiary", in relation to a person other than a body corporate, means any body corporate that would be his wholly-owned subsidiary if he were a body corporate.")
Page 135, line 22, leave out ("Except as provided in subsection (6) above").
The noble and learned Lord said: My Lords, I beg to move Amendments Nos. 424 to 430. They were spoken to with Amendment No. 360.
On Question, amendments agreed to.
[Amendment No. 431 not moved.]
Clause 165 [Advertisements by private companies and old public companies]:
Lord Hacking Lord Hacking moved Amendment No. 431A:
Page 136, line 10, leave out ("(a) (b) or (c)") and insert ("or (6A)").
The noble Lord said: My Lords, this is an amendment which is consequential to government Amendments Nos. 394 and 395, which add further exemptions from the prohibition on advertising. This amendment grants power to the Secretary of State to allow similar exemption in relation to private companies. If the Government at this late hour are not prepared to accept this amendment, perhaps I may reserve my position on it and consider it again before Third Reading. I beg to move.
Lord Cameron of Lochbroom: My Lords, very briefly, this amendment represents a significant widening of private companies' ability to advertise their securities. It could allow them to advertise certain securities to the public at large. Subsection 165(2) already goes some way towards easing the restrictions on offers of securities by private companies. This is to give them more scope to raise capital. To reduce further the fundamental distinction between public

131
and private companies—that is, the ability to offer their securities to the public—could only weaken our argument that we were justified under EC law in treating private and public companies differently and reduce our ability to resist pressures at Community level to apply EC company law directives to our private companies. I am reluctant to venture too far down that road, which could lead to major disadvantages to our private companies. For that reason, I would suggest that the noble Lord should withdraw his amendment.
Lord Hacking: My Lords, having heard the Minister's reply, I should like to reflect on it, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 166 [Contraventions]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 432:
Page 136, line 26, after ("(6)") insert ("or (6A)").
The noble and learned Lord said: My Lords, this is consequential. I beg to move.
On Question, amendment agreed to.
[Amendment No. 433 not moved.]
The Deputy Speaker (Earl Cathcart): My Lords, if Amendment No. 437 is agreed to I cannot call Amendment No. 438.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos 434 to 437:
Page 136, line 41, after ("(6)") insert ("or (6A)").
Page 137, line 5, leave out ("publishes") and insert ("issues"). Page 137, line 8, leave out from ("proves") to ("that") in line 10. Page 137, line 11, leave out from ("grounds") to ("applied") in line 12 and insert ("that neither section 155 nor section 156 above").
The noble and learned Lord said: My Lords, I beg to move Amendments Nos. 434 to 437. They are consequential.
On Question, amendments agreed to.
Schedule 12 [Takeover offers: provisions substituted for sections 428, 429 and 430 of Companies Act 1985]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 439:
Page 227, line 28, at end insert—
("( ) In the application of subsection (5) to Scotland, the words "and under seal" shall be omitted.")
The noble and learned Lord said: My Lords, this is a technical amendment to bring the Bill into line with the law of Scotland. I beg to move.
On Question, amendment agreed to.
[Amendments Nos. 440, 440A and 440B not moved.]
11.15 p.m.
Lord Williams of Elvel Lord Williams of Elvel had given notice of his intention to move Amendment No. 441:
After Clause 168, insert the following new clause:
("Regulation of takeovers.—
.—The Securities and Investments Board shall appoint a panel to regulate the conduct of takeovers").
The noble Lord said: My Lords, in view of the late hour and the importance of the subject to which this amendment addresses itself, I do not propose to move the amendment.
[Amendment No. 441 not moved.]
Clause 170 [International bonds]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 442:
Page 139, leave out lines 23 to 32 and insert—
("Price stabilisation.
6. No provision of section 1, 2, 4 or 5 prohibits an individual from doing anything for the purpose of stabilising the price of securities in respect of which rules are in force under section 48(2)(i) of the Financial Services Act 1986 if the dealing referred to in that provision is in conformity with those rules.").
The noble Lord said: My Lords, this amendment is consequential on Amendment No. 147B. I beg to move.
On Question, amendment agreed to.
Clause 174 [Restrictions on disclosure of information]:
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 443:
Page 143, line 37, after ("disclosed") insert ("by the primary recipient or any person obtaining the information directly or indirectly from him").
The noble Lord said: My Lords, in moving Amendment No. 443, I am speaking also to Amendments Nos. 444, 445, 448, 452 and 458. These are all technical amendments to the clauses dealing with the restrictions on disclosure of information. They simplify and clarify those provisions, and adapt them for Northern Ireland legislation. I beg to move Amendment No. 443.
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 444 and 445:
Page 144, line 2, after ("below") insert ("("the primary recipient")").
Page 144, leave out lines 6 to 11.
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 446:
Page 144, line 14, leave out ("or transferee body") and insert (", transferee body or body administering a scheme under section (Compensation fund) above").
The noble Lord said: My Lords, I beg to move this amendment, which is consequential on Amendment No. 78.
On Question, amendment agreed to.
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 446A:
Page 144, line 17, at end insert—
("(ee) the Bank of England;");.
The noble Lord said: My Lords, I beg to move this amendment, which seeks to add the Bank of England to the list of persons under subsection (3) of Clause 174, I understand that it is acceptable to the Government. beg to move.
On Question, amendment agreed to.
[Amendment No. 447 had been withdrawn from the Marshalled List.]
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 448:
Page 144, line 24, leave out from ("public") to end of line 28 and insert ("by virtue of being disclosed in any circumstances in which or for any purpose for which disclosure is not precluded by this section").
The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 443.1 beg to move.
On Question, amendment agreed to.
Clause 175 [Exceptions from restrictions on disclosure]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 449:
Page 145, line 24, at end insert ("or of enabling or assisting the body administering a scheme under section (Compensation fund) above to discharge its functions under the scheme").
The noble Lord said: My Lords, this amendment is consequential on Amendment No. 78. I beg to move.
On Question, amendment agreed to.
[Amendment No. 450 had been withdrawn from the Marshalled List.]
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 451:
Page 146, line 2, leave out ("3 of the Insolvency Act 1985") and insert ("391 of the Insolvency Act 1986").
The noble Lord said: My Lords, this amendment is consequential on Amendment No. 140. I beg to move.
On Question, amendment agreed to.
Lord Morton of Shuna Lord Morton of Shuna moved Amendment No. 451A:
Page 146, line 4, at end insert—
("(kk) for the purpose of enabling or assisting the Building Societies Commission to discharge its functions under the Building Societies Act 1986;").
The noble Lord said: My Lords, this is an amendment to add the Building Societies Commission to the list of bodies in Clause 175(1). As I understand it is acceptable to the Government, I shall say no more about it. I beg to move.
On Question, amendment agreed to.
Clause 176 [Directions restricting disclosure of information overseas]:
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 452:
Page 149, line 1, after ("a") insert ("recognised").
The noble Lord said: My Lords, this amendment is consequential on Amendment No. 443. I beg to move.
On Question, amendment agreed to.
[Amendment No. 453 not moved.]
Schedule 13 [Disclosure of information]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 454:
Page 236, line 29, al end insert—
("Functions under the scheme.).
The body administering a scheme under section (Compensation fiend) of or paragraph 17A of Schedule 11 to the Financial Services Act 1986.
The noble Lord said: My Lords, this amendment is consequential on Amendment No. 78. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 455 and 456:
Page 238, line 10, leave out ("1985") and insert ("1986, the Company Directors Disqualification Act 1986").
Page 238, line 41, leave out ("3 of the Insolvency Act 1985") and insert ("391 of the Insolvency Act 1986").
The noble Lord said: My Lords, I beg to move Amendments Nos. 455 and 456 together. They are consequential upon Amendment No. 140.
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 457:
Page 239, line 50, at end insert—
("( ) the body administering a scheme under section (Compensation fund) of or paragraph 17A of Schedule 11 to that Act and any officer or servant of such a body,").
The noble Lord said: My Lords, I beg to move Amendment No. 457, which is consequential upon Amendment No. 78.
On Question, amendment agreed to.
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 457A:
Page 240, line 8, at end insert—
("(n) the Building Societies Commission".
The noble Lord said: My Lords, I beg to move Amendment No. 457A standing in my name and that of my noble friend Lord Morton of Shuna. This should have been grouped with Amendment No. 451A, to which my noble friend spoke; but I understand that Amendments Nos. 457A and 458A are not as acceptable to the Government as is Amendment No. 451A. Perhaps the noble Lord can enlighten me as to why that is the case.
Lord Lucas of Chilworth: My Lords, I think we are in a difficulty. We seem to have overtaken ourselves on this particular series of amendments. I am advised that Section 54 of the Building Societies Act 1986 already provides specifically for certain information obtained under the Companies Act 1985 or the Companies (Northern Ireland) Order 1986 to be disclosed to the Building Societies Commission. Other information may be dealt with as provided for in Schedule 13 and in the Government's Amendment No. 458. Amendments Nos. 457A and 458A would cut across the other provisions, as a result of which I invite the noble Lord to withdraw the amendments in favour of government Amendment No. 458.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 458:
Page 240, line 21, at end insert—
(" 11. After Article 430(1) of the Companies (Northern Ireland) Order 1986 there shall be inserted—
"(1A) Any persons who have been appointed under Article 424 or 425 may at any time and, if the Department directs them to do so shall, inform it of any matters coming to their knowledge as a result of their investigation.";
and Article 426(2) of that Order shall be omitted.
12. In Article 439 of that Order—
(a) in paragraph (3) for the words "to 429" there shall be substituted the words "to 430"; and
(b) paragraph (5) shall be omitted.
13.—(1) In paragraph (1) of Article 442 of that Order—
(a) for sub-paragraphs (a) and (b) there shall be substituted—"(a) with a view to the institution of or otherwise for the purposes of criminal proceedings;";
(b) for sub-paragraph (d) there shall be substituted—
"(d) for the purpose of enabling or assisting the Department to exercise any of its functions under this Order, the Insider Dealing Order or the Prevention of Fraud (Investments) Act (Northern Ireland) 1940;
(dd) for the purpose of enabling or assisting the Secretary of State to exercise any functions conferred on him by the enactments relating to companies or insolvency, the Prevention of Fraud (Investments) Act 1958, the Insurance Companies Act 1982, or the Financial Services Act 1986, or for the purpose of enabling or assisting any inspector appointed by him under the enactments relating to companies to discharge his functions":
(c) after sub-paragraph (e) there shall be inserted—

"(f) for the purposes of enabling or assisting the Bank of England to discharge its functions under the Banking Act 1979 or any other functions;

(g) for the purposes of enabling or assisting the Deposit Protection Board to discharge its functions under that Act;

(h) for any purpose mentioned in section 175(1)(b), (e), (h), (m) or (o) of the Financial Services Act 1986;

(i) for the purpose of enabling or assisting the Industrial Assurance Commissioner for Northern Ireland or the Industrial Assurance Commissioner in Great Britain to discharge his functions under the enactments relating to industrial assurance;

(j) for the purpose of enabling or assisting the Insurance Brokers Registration Council to discharge its functions under the Insurance Brokers (Registration) Act 1977:

(k) for the purpose of enabling or assisting the official assignee to discharge his functions under the enactments relating to companies or bankruptcy:

(l) with a view to the institution of, or otherwise for the purposes of, any disciplinary proceedings relating to the exercise by a solicitor, auditor, accountant, valuer or actuary of his professional duties;

(m) for the purpose of enabling or assisting an authority in a country or territory outside the United Kingdom to exercise corresponding supervisory functions.".

(2) After paragraph (1) of that Article there shall be inserted—
"(1A) In paragraph (1) "corresponding supervisory functions" means functions corresponding to those of the Secretary of State or the competent authority under the Financial Services Act 1986 or to those of the Secretary of State under the Insurance Companies Act 1982 or to those of the Bank of England under the Banking Act 1979 or any other functions in connection with rules of law corresponding to the provisions of the Insider Dealing Order or Part VII of the Financial Services Act 1986.
(1B) Subject to paragraph (1C), paragraph (1) shall not preclude publication or disclosure for the purpose of enabling or assisting any public or other authority for the time being designated for the purposes of this Article by an order made by the Department to discharge any functions which are specified in the order.
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(1C) An order under paragraph (1B) designating an authority for the purpose of that paragraph may—

(a) impose conditions subject to which the publication or disclosure of any information or document is permitted by that paragraph; and

(b) otherwise restrict the circumstances in which that paragraph permits publicaton or disclosure.

(1D) Paragraph (1) shall not preclude the publication or disclosure of any such information as is mentioned in section 175(5) of the Financial Services Act 1986 by any person who by virtue of that section is not precluded by section 174 of that Act from disclosing it."
(3) For paragraph (3) of that Article (competent authorities) there shall be substituted—
"(3) For the purposes of this Article each of the following is a competent authority—

(a) the Department and any officer of the Department,

(b) the Secretary of State,

(c) an inspector appointed under this Part by the Department,

(d) the Department of Finance and Personnel and any officer of that Department,

(e) the Treasury and any officer of the Treasury,

(f) the Bank of England and any officer or servant of the Bank,

(g) the Lord Advocate,

(h) the Director of Public Prosecutions for Northern Ireland and the Director of Public Prosecutions in England and Wales,

(i) any designated agency or transferee body within the meaning of the Financial Services Act 1986 and any officer or servant of such an agency or body,

(j) any person appointed or authorised to exercise any powers under section 92, 104 or 172 of the Financial Services Act 1986 and any officer or servant of such a person.

(k) the body administering a scheme under section (Compensation fund) of that Act and any officer or servant of such a body,

(l) the Registrar of Friendly Societies and the Chief Registrar of friendly societies in Great Britain and any officer or servant of either of them,

(m) the Industrial Assurance Commissioner for Northern Ireland and the Industrial Assurance Commissioner in Great Britain and any officer of either of them,

(n) any constable,

(o) any procurator fiscal,

(4) An order under paragraph (1B) is subject to negative resolution.".
14. After Article 444 of that Order there shall be inserted—
"Disclosure of information by Department
444A. The Department may, if it thinks fit, disclose any information obtained under this Part—

(a) to any person who is a competent authority for the purposes of Article 442, or

(b) in any circumstances in which or for any purpose for which that Article does not preclude the disclosure of the information to which it applies." ").

The noble Lord said: My Lords, I spoke to this amendment in moving Amendment No. 443. I beg to move.
[Amendment No. 458A as an amendment to Amendment No. 458, not moved.]
On Question, Amendment No. 458 agreed to.
Clause 182 [Exemption from liability for damages]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 459:
Page 155, line 2, after ("63(4)") insert (" , 71(6), (Winding up orders: Northern Ireland) (5)").
The noble Lord said: This amendment is consequential upon Amendment No. 256. I beg to move.
On Question, amendment agreed to.
Lord Hacking Lord Hacking moved Amendment No. 459A:
Page 155, line 4, at end insert—

("(2A) Neither a recognised professional body nor any of its officers or servants or members of its governing body or its committees shall be liable in damages at the suit of any member of that professional body or of any person, whether certified or not, over whom that professional body has authority for the purposes of Part I of this Act for anything done or omitted in the discharge or purported discharge of any functions to which this sub-section applies unless the act or omission is shown to have been in bad faith.

(2B) the functions to which subsection (2A) above applies are the functions of the body in respect of this Act so far as relating to. or to matters arising out of—

(a) the rules, practices, powers and arrangements of the body to which the requirements in section 18(3) and paragraphs 1 to 5 of Schedule 3 apply,

(b) the obligations with which paragraph 6 of that Schedule requires the body to comply;

(c) any guidance issued by the body;

(d) the powers of the body under section 53(2), 63(4) or 103(2)(a) above; or

(e) the obligations to which the body is subject by virtue of this Act").

The noble Lord said: My Lords, in the absence of the noble Lord, Lord Benson, who is detained in Hong Kong and could not be with your Lordships this evening, I beg to move this amendment. This is an amendment over which there is keen concern outside your Lordships' House by prospective RPBs. The hour is extremely late. If the Government were not prepared to accept this amendment, it would be impossible to get a proper testing of opinion if the House divided this evening. On that basis, it is not my intention to press the amendment, but I also say that on the understanding that the Government are prepared to give further consideration to this amendment. It differs from the amendment that was moved in Committee and which had the support of the noble Lord, Lord Ezra. It is a more limited immunity that the RPBs are seeking under this amendment. I therefore hope that the time can be well used between now and Third Reading, that agreement can be reached on it and that that will have the most desirable result of cutting down the time taken at Third Reading. Otherwise your Lordships may be discussing this matter at some length at Third Reading. I beg to move.
Lord Williams of Elvel: My Lords, we on these Benches are happy to support the amendment moved by the noble Lord. But in the circumstances, and because it is rather late, I do not wish to prolong the discussion.
Lord Lucas of Chilworth: My Lords, I am grateful to the noble Lord, Lord Williams, as I am to the noble Lord, Lord Hacking. We indicated at an earlier stage our grave reservations about the approach underlying this amendment. We also indicated that, in our view, the concerns of the potential RPBs could substantially be met if they were to make it a condition that a person seeking to be certified, or who is certified, by the body should agree not to sue the body for damages for actions taken in the exercise of its functions.
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It is clear that some professional bodies continue to be concerned about their position and I am prepared, in the period between now and Third Reading, to undertake consultations with all interested parties, and with my honourable friend the Minister for Corporate Affairs, with a view, if it is at all possible, to reaching some agreement as to whether or not an amendment is needed. I hope on that basis the noble Lord will be prepared to withdraw his amendment.
Lord Hacking: My Lords, the Minister has brought forward an argument that he put in Committee. It is not an argument that I find a winning or acceptable one. But in the circumstances that I have outlined to your Lordships, and in view of the lateness of the hour, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 460 and 461:
Page 155, line 5, leave out from ("(3)") to ("shall") in line 6 and insert—
("No designated agency or transferee body nor any member, officer or servant of a designated agency or transferee body").
Page 155, line 9, after ("order") insert ("or, as the case may be, the functions exercisable by the body by virtue of a transfer order").
The noble Lord said: My Lords, I beg to move Amendments Nos. 460 and 461. They are consequential upon Amendment No. 256.
On Question, amendments agreed to.
[Amendments Nos. 461A, 461B, 462 and 463 not moved.]
Lord Williams of Elvel Lord Williams of Elvel moved Amendment No. 464:
Page 155, line 21, at end insert—
("(6) The exemption from liability for damages in subsections (1), (3) and (4) is an exemption only from liability to pay damages to the following persons—

(a) any member of that organisation or body;

(b) any person whether authorised or not whom that organisation or body is authorised by this Act to investigate or supervise.").

The noble Lord said: My Lords, this is part and parcel, in our view, of Amendment No. 459A, moved by the noble Lord, Lord Hacking, which was subsequently withdrawn, and we hope that this can be put on the agenda of the discussions that take place. I am not expecting any particular reply from the Minister. If he does not feel like replying, then in the circumstances I shall withdraw my amendment. I beg to move.
Lord Cameron of Lochbroom: My Lords, I think that we have made our position clear as regards the last amendment to which my noble friend responded. As I understand it, that is the extent of what has been agreed. I do not think I can suggest that noble Lords should accept this amendment. It runs further than the amendment in the name of the noble Lord, Lord Benson. I ask the noble Lord to withdraw this amendment.
Lord Williams of Elvel: My Lords, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 465:
After Clause 184, insert the following new clause:
("Data protection.
. An order under section 30 of the Data Protection Act 1984 (exemption from subject access provisions of data held for the purpose of discharging designated functions conferred by or under enactments relating to the regulation of financial services etc.) may designate for the purposes of that section as if they were functions conferred by or under such an enactment as is there mentioned—

(a) any functions of a recognised self-regulating organisation in connection with the admission or expulsion of members, the suspension of a person's membership or the supervision or regulation of persons carrying on investment business by virtue of membership of the organisation;

(b) any functions of a recognised professional body in connection with the issue of certificates for the purposes of Part I of this Act, the withdrawal or suspension of such certificates or the supervision or regulation of persons carrying on investment business by virtue of certification by that body;

(c) any functions of a recognised self-regulating organisation for friendly societies in connection with the supervision or regulation of its member societies.").

The noble Lord said: My Lords, it has been represented by, among others, the Stock Exchange that the wording of Section 30 of the Data Protection Act cannot be held to cover data held by SROs or RPBs. As it would be stretching the wording of the Data Protection Act to say that these functions were conferred under any statute, this new clause puts the matter beyond doubt. Data held by SROs and RPBs for the purpose of their regulatory functions as recognised bodies may be exempted by order from the subject access provisions of the Data Protection Act. I beg to move.
Lord Terrington: My Lords, as I raised this matter with an amendment during the Committee stage I should just like to express my thanks to the Government for bringing forward their own amendment at this stage.
On Question, amendment agreed to.
11.30 p.m.
Schedule 14 [Restriction of Rehabilitation of Offenders Act 1974]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 466 to 470:
Page 240, line 41, leave out ("or recognised professional body").
Page 240, line 44, leave out ("or body").
Page 241, line 1, leave out ("or body").
Page 241, line 2, leave out ("or body").
Page 241, line 4, leave out paragraph 3 and insert—

("3.—(1) Any proceedings with respect to a decision or proposed decision of a recognised professional body—

(a) refusing or suspending a person's membership of the body;

(b) expelling a member of the body.

(2) Any proceedings with respect to a decision or proposed decision of a recognised professional body or of any other body or person having functions in respect of the enforcement of the recognised professional body's rules relating to the carrying on of investment business—

140

(a) exercising a power for purposes corresponding to those of Chapter VI of Part 1 of this Act;

(b) refusing, suspending or withdrawing a certificate issued for the purposes of Part 1 of this Act.").

The noble Lord said: My Lords, these amendments are consequential on Amendment No. 93. I beg to move.
On Question, amendments agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 471:
Page 243, line 15, column 1, at end insert—
(", any other body or person mentioned in paragraph 3(2) of Part 1 of this Schedule").
The noble Lord said: My Lords, this is a consequential amendment. I beg to move.
On Question, amendment agreed to.
Clause 185 [Occupational pension schemes]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 472:
Page 157, line 13, leave out from beginning to ("he") in line 14 and insert ("who apart from this section would not be regarded as carrying on investment business shall be treated as doing so if").
The noble Lord said: My Lords, in moving Amendment No. 472 I should like also to address remarks to Amendments Nos. 473, 474, 475, 476, 476A, 477, 478 and 479. These amendments are all relatively minor and their purpose is mainly clarification.
Amendment No. 472 is consequential on amendments we made to Clause 1. Those amendments will have the effect that the test whether a person is carrying on investment business is no longer whether he engages in the relevant activities by way of business, but whether his activities are such that they amount to the carrying on of a business. Amendments Nos. 477 and 479 are consequential on Amendment No. 472.
Amendment No. 474 makes clear that a person is not to be regarded as carrying on investment business merely because he manages assets held for the purposes of an occupational pension scheme which do not consist of or include investments, or if he arranges for someone other than an authorised, exempted or overseas person to manage such assets.
Amendments Nos. 475 and 476 add overseas persons who, by virtue of Part IV of Schedule 1, do not require authorisation, to the class of persons who may carry out the management of a scheme's investment on behalf of the trustees or other overall managers and so relieve them of the requirement to be authorised. Amendment No. 478 is technical.
I turn to Amendment No. 473, in the name of the noble Lord, Lord Williams of Elvel. I have to confess that at first reading it does not appear to have any effect; but if the noble Lord has in mind a particular effect he will no doubt tell us about it. I recognise the concern to which Amendment No. 476A is addressed, but I am advised that an employee of a person who in that capacity took the decisions about the management of a scheme's assets would not be regarded as requiring authorisation under Clause 185.

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Consequently, that amendment is not necessary. I beg to move.
On Question, amendment agreed to.
[Amendment No. 473 not moved.]
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 474 to 476:
Page 157, line 20, at end insert ("so far as relating to assets which are investments").
Page 157, line 22, leave out ("or")
Page 157, line 24, at end insert ("; or
(c) a person who does not require authorisation to manage the assets by virtue of Part IV of Schedule 1 to this Act.")
The noble Lord said: My Lords, I have just spoken to these amendments. I beg to move.
On Question, amendments agreed to.
[Amendment No. 476A not moved.]
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 477 to 479:
Page 157, line 27, leave out from ("of") to ("as") in line 29 and insert ("this section be treated").
Page 157, line 35, leave out ("beneficiaries") and insert ("members")
Page 157, line 39, leave out ("above") to ("paragraph") in line 41.
The noble Lord said: My Lords, these amendments are consequential upon Amendment No. 472. I beg to move.
On Question, amendments agreed to.
[Amendment No. 480 not moved.]
Clause 188 [Transfers to or from recognised clearing houses]:
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 481:
Page 160, line 35, leave out from ("In") to ("(duty") in line 36 and insert ("paragraph (4) of Article 195 of the Companies (Northern Ireland) Order 1986")
The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendments Nos. 482 to 493 inclusive, and Amendments Nos. 497 to 500. These technical amendments adapt the Bill to take account of the different company law provisions in Northern Ireland. I beg to move.
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 482 to 493:
Page 160, line 40, leave out ("paragraph") and insert ("place where they occur").
Page 160, line 43, at end insert—
("(b) for those words in the second place where they occur there shall be substituted the words "such a clearing house or nominee" ").
Page 160, line 44, leave out ("paragraph") and insert ("subparagraph").
Page 160, line 44, leave out ("subsection") and insert ("paragraph").
Page 161, line 1, leave out ("section") and insert ("Article").
Page 161, line 2, leave out ("section") and insert ("Article").
Page 161, line 5, leave out first ("in") and insert ("for").
Page 161, line 5, leave out ("paragraph") and insert ("subparagraph").
Page 161, line 5, leave out from ("that") to ("recognised") in line 7 and insert ("paragraph there shall be substituted").
Clause 189 [Offers of short-dated debentures]:
Page 162, line 21, leave out ("section 371(2)") and insert ("Article 89(2)").
Page 161, line 21, leave out ("Act (Northern Ireland) 1960") and insert ("(Northern Ireland) Order 1986").
Page 161, line 23, leave out from first ("of") to the end of line 24 and insert ("Chapter I of Part IV of that Order as well as for those of Chapter II of that Part").
On Question, amendments agreed to.
Clause 190 [Financial assistance for employees' share schemes]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 494:
Page 161, line 34, leave out ("or for the benefit of") and insert (", and involving the acquisition of beneficial ownership of those shares by,").
The noble and learned Lord said: My Lords, in speaking to this amendment I speak also to Amendments Nos. 495 and 496. They are technical amendments. The first amendment discharges an undertaking that my noble friend gave to the noble Lord, Lord Hacking, in Committee and in looking at the point we have adopted the noble Lord's proposal as our own.
The second amendment is to make the drafting much clearer and the third amendment takes account of provisions covering the matter in Northern Ireland. I beg to move.
Lord Hacking: My Lords, I rise only to express my gratitude.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendments Nos. 495 and 496:
Page 162, line 8, leave out ("ordinary") and insert ("the").
Page 162, line 15, at end insert—
("(4) Article 163 of the Companies (Northern Ireland) Order 1986 (transactions not prohibited by Article 161) shall be amended as follows.
(5) After paragraph (4)(b) there shall be inserted—
"(bb) without prejudice to sub-paragraph (b), the provision of financial assistance by a company or any of its subsidiaries for the purposes of or in connection with anything done by the company (or a company connected with it) for the purpose of enabling or facilitating transactions in shares in the first-mentioned company between, and involving the acquisition of beneficial ownership of those shares by, any of the following persons—

(i) the bona fide employees or former employees of that company or of another company in the same group; or

(ii) the wives, husbands, widows, widowers, children, step-children or adopted children under the age of eighteen of such employees or former employees,

being transactions either between such persons or between any of them and a body exercising functions for the purpose of enabling or facilitating such transactions between such persons."
(6) After paragraph (4) there shall be inserted—
"(5) For the purposes of paragraph (4)(66) a company is connected with another company if—

(a) they are in the same group; or

(b) one is entitled, either alone or with any other company in the same group, to exercise or control the exercise of a majority of the voting rights attributable to the share capital which are exercisable in all circumstances at any general meeting of the other company or of its holding company;

143
and in this Article "group", in relation to a company, means that company, any other company which is its holding company or subsidiary and any other company which is a subsidiary of that holding company.".")
The noble and learned Lord said: My Lords, these amendments are consequential upon Amendment No. 494. I beg to move.
On Question, amendments agreed to.
Clause 191 [Disclosure of interests in shares: interest held by market maker]:
Lord Beaverbrook Lord Beaverbrook moved Amendments Nos. 497 to 500:
Page 162, line 37, leave out ("72") and insert ("217").
Page 162, line 38, leave out ("1982") and insert ("1986").
Page 162, line 38, leave out ("64 to 66") and insert ("206 to 210").
Clause 192 [Power to petition for winding up or administration order on information obtained under Act]:
Page 163, line 31, at end insert—
("(3) In Article 433 of the Companies (Northern Ireland) Order 1986—

(a) after the words "Article 430" there shall be inserted the words "or section 92 of the Financial Services Act 1986"; and

(c) after the word "441" there shall be inserted the words "or section 103 of that Act".").

The noble Lord said: My Lords, I spoke to these amendments with Amendment No. 481. I beg to move.
On Question, amendments agreed to.
Clause 194 [False and misleading statements]:
[Amendments Nos. 501, 502 and 503 not moved.]
Clause 195 [Prosecutions]:
[Amendment No. 504 not moved.]
Clause 196 [Offences by bodies corporate, partnerships and unincorporated associations]:
[Amendments Nos. 505 to 508 not moved.]
Clause 198 [Service of notices]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 509:
Page 169, line 4, at end insert (", the Chief Registrar of Friendly Societies or the Registrar of Friendly Societies for Northern Ireland").
The noble Lord said: My Lords, my noble friend spoke to this amendment with Amendment No. 373. I beg to move.
On Question, amendment agreed to.
Lord Beaverbrook Lord Beaverbrook moved Amendment No. 510:
After Clause 199, insert the following new clause:—
("Publication of information and advice.
.—(1) The Secretary of State may publish information or give advice, or arrange for the publication of information or the giving of advice, in such form and manner as he considers appropriate with respect to—
144

(a) the operation of this Act and the rules and regulations made under it, including in particular the rights of investors, the duties of authorised persons and the steps to be taken for enforcing those rights or complying with those duties;

(b) any matters relating to the functions of the Secretary of State under this Act or any such rules or regulations;

(c) any other matters about which it appears to him to be desirable to publish information or give advice for the protection of investors or any class of investors.

(2) The Secretary of State may offer for sale copies of information published under this section and may, if he thinks fit, make a reasonable charge for advice given under this section at any person's request.
(3) This section shall not be construed as authorising the disclosure of restricted information within the meaning of section 174 above in any case in which it could not be disclosed apart from the provisions of this section.
(4) The functions to which section 112 above applies shall include the functions of the Secretary of State under this section.").
The noble Lord said: My Lords, for the convenience of the House I shall speak also to Amendment No. 510A, in the names of the noble Lords, Lord Williams and Lord Morton. Amendment No. 510 is a new clause and has been drafted in accordance with an undertaking given in Committee to the noble Lord, Lord Graham. It confers on the Secretary of State the function of publishing information and giving advice about the way the Bill operates and other specified matters. The functions will be transferable to the agency in the normal way.
The Opposition amendment to the new clause is more narrow in its scope than is perhaps intended. It would not, for example, cover information about the operations of recognised self-regulating organisations and professional bodies conducted in conformity with the requirements of the Bill. Such information is, however, covered by the Government's new clause. I beg to move Amendment No. 510.
[Amendment No. 510A, as an amendment to Amendment No. 510, not moved.]
Amendment No. 510 agreed to.
Clause 200 [Interpretation]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 511
Page 171, line 17. leave out ("(7)") and insert ("44(8)").
The noble and learned Lord said: My Lords, This amendment is consequential. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 512:
Page 173, leave out line 3 and insert—
(" "transfer order" and "transferee body" have the meanings given in paragraph 27(4)").
The noble and learned Lord said: My Lords, this amendment is consequential upon Amendment No. 256. I beg to move.
On Question, amendment agreed to.
[Amendment No. 512A not moved.]
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 513:
Page 173, line 17, at end insert—
("( ) For the purposes of this Act an advertisement or other information issued outside the United Kingdom shall be treated as issued in the United Kingdom if it is directed to persons in the United Kingdom or is made available to them otherwise than in a newspaper. journal, magazine or other periodical publication published and circulating principally outside the United Kingdom or in a sound or television broadcast transmitted principally for reception outside the United Kingdom.
( ) The Independent Broadcasting Authority shall not be regarded as contravening any provision of this Act by reason of broadcasting an advertisement in accordance with the provisions of the Broadcasting Act 1981.").
The noble and learned Lord said: My Lords, this amendment is consequential upon Amendment No. 160. I beg to move.
[Amendments Nos. 513ZA and 513ZB as amendments to Amendment No. 513 not moved.]
On Question, Amendment No. 513 agreed to.
[Amendment No. 513A not moved.]
Schedule 15 [Transitional provisions]:
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 514:
Page 248, line 12, at end insert—
("( by virtue of this paragraph a partnership is treated as certified by a recognised professional body section 15(3) of this Act shall apply as it applies where a certificate has in fact been issued to a partnership.")
The noble and learned Lord said: My Lords, this amendment is consequential upon Amendment No. 85. I beg to move.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 515:
Page 248, line 19, at end insert—
("Power of recognised professional body to make rules required by this Act.

5A.—(1) Where a recognised professional body regulates the practice of a profession in the exercise of statutory powers the matters in respect of which rules can be made in the exercise of those powers shall, if they would not otherwise do so, include any matter in respect of which rules are required to be made—

(a) so that the recognition order in respect of that body can cease to be an interim recognition order; or

(b) where the recognition order was not, or has ceased to be, an interim recognition order, so that the body can continue to be a recognised professional body.

(2) Rules made by virtue of this paragraph may in particular make provision for the issue, withdrawal and suspension of certificates for the purposes of this Act and the making of charges in respect of their issue and may accordingly apply to persons who are, or are to be, certified or treated as certified by the body in question whether or not they are persons in relation to whom rules could be made apart from this paragraph.

(3) Rules made by virtue of this paragraph may make different provision for different cases.

(4) The Secretary of State may at the request of a recognised professional body by order extend, modify or exclude any statutory provision relating to the regulation of the conduct, practice, or discipline of members of that body to such extent as he thinks necessary or expedient in consequence of the provisions of this paragraph; and any order made by virtue of this subparagraph shall be subject to annulment in pursuance of a resolution of either House of Parliament.")

The noble and learned Lord said: My Lords, this amendment is to assist where a professional body regulates the practice of a profession in the exercise of
146
statutory powers. Since these powers were directed towards the regulation of the profession and not of incidental investment business they may well be insufficient to enable the body to become recognised. This clause seeks to put that right, to allow the body to gain or retain recognition.
The powers of some professional bodies are established by Royal Charter rather than by statute. There is a similar problem but our amendment does not apply in the case of such bodies. Therefore if a similar extension of powers is necessary the appropriate course is for the body itself to recommend an amendment to the charter in the normal way. I beg to move.
Lord Morton of Shuna: My Lords, this amendment covers some of the difficulties of proposed recognised professional bodies. I hope that the Government realise that there are certain bodies such as the Law Societies whose statutes may require primary legislation to bring them into line with the Bill.
On Question, amendment agreed to.
Lord Cameron of Lochbroom Lord Cameron of Lochbroom moved Amendment No. 516:
Page 248, line 24, at end insert—
("Advertisements.
6A.—(1) So long as Part III of the Companies Act 1985 remains in force section 56 of this Act shall not apply—
(a) in relation to any distribution of a prospectus to which section 56 of that Act applies or would apply if not excluded by subection (5)(b) of that section or to which section 72 of that Act applies or would apply if not excluded by subsection (6)(b) of that section or by section 76 of that Act, or in relation to any distribution of a document relating to securities of a corporation incorporated in Great Britain which is not a registered company, being a document which—

(i) would, if the corporation were a registered company, be a prospectus to which section 56 of that Act applies or would apply if not excluded as aforesaid, and

(ii) contains all the matters and is issued with the consents which, by virtue of section 72 to 75 of that Act it would have to contain and be issued with if the corporation were a company incorporated outside Great Britain and the document were a prospectus issued by that company

(b) in relation to any issue of a form of application for shares in, or debentures of, a corporation, together with—

(i) a prospectus which complies with the requirements of section 56 of that Act or is not required to comply with them because excluded by subsection (5)(b) of that section, or complies with the requirements of Chapter II of Part III of that Act relating to prospectuses and is not issued in contravention of sections 74 and 75 of that Act, or

(ii) in the case of a corporation incorporated in Great Britain which is not a registered company, a document containing all the matters and issued with the consents mentioned in sub-paragraph (a)(ii) of this paragraph, or in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the shares or debentures.

(2) The provisions of this paragraph shall apply to Northern Ireland with the substitution for the references to Part III and Chapter II of Part III of the Companies Act 1985 of references to Part IV and Chapter II of Part IV of the Companies (Northern Ireland) Order 1986, for the references to sections 56, 56(5)(b), 72, 72(6)(b), 74, 76 and 72 to 75 of the Companies Act 1985 of references to Articles 66, 66(5)(b), 82, 82(6)(b), 84, 86 and 82 to 85 of the Companies (Northern Ireland) Order 1986, for the references to a corporation incorporated in Great Britain of references to a corporation incorporated in Northern Ireland and for the reference to a company incorporated outside Great Britain of a reference to a company incorporated outside the United Kingdom.")
The noble and learned Lord said: My Lords, this amendment is consequential upon Amendment No. 160. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 517:
Page 249, line 48, at end insert—
("Delegation orders.
9A.—(1) A delegation order may transfer a function notwithstanding that the provision conferring it has not yet come into force but no such function shall be exercisable by virtue of the order until the coming into force of that provision.
(2) Sub-paragraph (1) above applies also to a transfer order under paragraph 27(1) of Schedule 11 to this Act.
Disclosure of information.
9B. In determining for the purposes of section 175(6) of this Act and the enactments amended by paragraphs 3(2), 9(2) and 13(2) of Schedule 13 to this Act whether the functions of an authority in a country or territory outside the United Kingdom correspond to functions conferred by any of the provisions of this Act regard shall be had to those provisions whether or not they have already come into force.
Temporary exemptions for friendly societies.
9C.—(1) A registered friendly society which transacts no investment business after the date on which section 3 of this Act comes into force except for the purpose of making or carrying out relevant existing members' contracts shall be treated for the purposes of that section as if it were an exempted person under Chapter IV of Part I of this Act.
(2) Subject to sub-paragraph (3) below, for the purposes of this paragraph "relevant existing members' contracts", in relation to any society, means—
(a) contracts made by the society before that date; and
(b) in the case of a small income society—
(i) during the period of three years beginning with that date, tax exempt investment agreements made by it with persons who were members of the society before that date; and
(ii) after the expiry of that period, tax exempt investment agreements made by it with such persons before the expiry of that period.
(3) Paragraph (b) of sub-paragraph (2) above shall not apply to a society after the expiry of the period of two years beginning with that date unless before the expiry of that period it has by special resolution (within the meaning of the Friendly Societies Act 1974 or, as the case may be, the Friendly Societies Act (Northern Ireland) 1970) determined—
(a) to transact no further investment business except for the purpose of carrying out contracts entered into before the expiry of the said period of three years; or
(b) to take such action as is necessary to procure the transfer of its engagements to another such society or a company or the amalgamation of the society with another such society under section 82 of the said Act of 1974 or, as the case may be, section 70 of the said Act of 1970,
and a copy of that resolution has been registered in accordance with section 86 of the said Act of 1974 or, as the case may be, section 76 of the said Act of 1970.
(4) for the purpose of sub-paragraph (2) above a society is a small income society if its income in 1985 from members' contributions did not exceed £50,000.
(5) For the purposes of sub-paragraph (2) above an investment agreement is a tax exempt investment agreement if the society by which it is made may obtain exemption from income and corporation tax on the profits from it under section 332 of the Income and Corporation Taxes Act 1970.
(6) A society to which sub-paragraph (1) or (2) above applies shall not be an authorised person for the purposes of this Act nor a regulated friendly society for the purposes of the provisions of Schedule 11 to this Act.").
The noble Lord said: My Lords, I shall speak also to Amendment No. 517ZA. The two new paragraphs, paragraphs 9A and 9B, are technical and help to ensure the Bill's effectiveness. Paragraph 9C provides temporary exemptions for friendly societies. Those exemptions, of which there are two sorts, are intended to provide for the special circumstances of very small friendly societies.
The amendment tabled by the noble Lord, Lord Graham, clarifies a point which he addressed to us. If he moves it I shall be happy to accept it.
I should like to confirm in recommending to the House that it accept this amendment that it is related to Amendment No. 234A, which was in the name of the noble Lord, Lord Ezra. I have to apologise to the noble Lord for having accidentally opposed that amendment. He was quite right, as I think he knew at the time. We need that earlier amendment. I shall, of course, see that a fresh amendment is brought forward to the same effect on Third Reading. I beg to move.
Lord Graham of Edmonton Lord Graham of Edmonton moved, as an amendment to Amendment No. 517, Amendment No. 517ZA.
Paragraph 9C(3), line 2, after ("a") insert ("registered friendly").
The noble Lord said: My Lords, as the Minister points out, these amendments all hang together with a useful consultation that took place between representatives of the friendly societies' movement, the department and the Minister. I move my amendment because the clause, as at present drafted, would restrict transfers of engagements to another small income society not recruiting new members which would probably not be a suitable body to ensure a long term future for the merged societies.
The amendment would allow transfers to any registered society. Transfers are monitored by the registry which can in practice prevent unsuitable ones. But the door needs to be open for transfers between any registered societies if desirable ones are to be permitted. Once more I express the appreciation of the Friendly Societies Liaison Committee to the Minister and his advisers for being so helpful. I beg to move.
Amendment No. 517ZA to Amendment No. 517 agreed to.
Amendment No. 517, as amended, agreed to.
Lord Ezra Lord Ezra moved Amendment No. 517A:
Page 249, line 48, at end insert—
9D. If before the day on which section 3 of this Act comes into force a person has applied for permission under paragraph 21 A of Schedule 1 to this Act and the application has not been determined before that day, that person shall, until the determination of the application and subject to his complying with such requirements as the Secretary of State may impose, be treated as if he had been granted a permission under that paragraph.")
The noble Lord said: My Lords, this was discussed and agreed at an earlier stage. I beg to move.
On Question, amendment agreed to.
Schedule 16 [Consequential amendments]:
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 518:
Page 250, line 8, at end insert—
1. In section 22 of the Charities Act 1960—
(a) subsection (10) shall be omitted; and
(b) in subsection (11) for the words "Subsections (9) and (10)" there shall be substituted the words "Subsection (9)".
2. In the Trustee Investments Act 1961—
(a) in section 11(3) for the words "the Prevention of Fraud (Investments) Act 1958 or the Prevention of Fraud (Investments) Act (Northern Ireland) 1940" there shall be substituted the words "the Financial Services Act 1986";
(b) for paragraph 3 of Part III of Schedule 1 there shall be substituted—
"3. In any units of an authorised unit trust scheme within the meaning of the Financial Services Act 1986";
(c) in paragraph 2(a) of Part IV of Schedule 1 for the words from "a recognised stock exchange" onwards there shall be substituted the words "a recognised investment exchange within the meaning of the Financial Services Act 1986";
(d) in the definition of "securities" in paragraph 4 of Part IV of that Schedule after the word "debentures" there shall be inserted the words "units within paragraph 3 of Part III of this Schedule".
3. In section 32 of the Clergy Pensions Measure 1961 No. 3—
(a) for paragraph (t) of subsection (1) there shall be substituted
"(t) in any units in any authorised unit trust scheme or a recognised scheme within the meaning of the Financial Services Act 1986"; and
(b) in subsection (5)(a) for the words from "a recognised stock exchange" onwards there shall be substituted the words "a recognised investment exchange within the meaning of the Financial Services Act 1986.".
4. In the Stock Transfer Act 1963—
(a) for paragraph (e) of section 1(4) there shall be substituted—
"(e) units of an authorised unit trust scheme or a recognised scheme within the meaning of the Financial Services Act 1986"; and
(b) in the definition of "securities" in section 4(1) for the words from "unit trust scheme" to "scheme" there shall be substituted the words "collective investment scheme within the meaning of the Financial Services Act 1986".
5. In the Stock Transfer Act (Northern Ireland) 1963—
(a) for paragraph (e) of section 1(4) there shall be substituted—
"(e) units of an authorised unit trust scheme or a recognised scheme within the meaning of the Financial Services Act 1986"; and
(b) in the definition of "securities" in section 4(1) for the words from "unit trust scheme" to "scheme" there shall be substituted the words "collective investment scheme within the meaning of the Financial Services Act 1986".
6. In section 25 of the Charities Act (Northern Ireland) 1964—
(a) subsection (16) shall be omitted; and
(b) in subsection (17) for the words "Subsections (15) and (16)" there shall be substituted the words "Subsection (15)".
7. In the Local Authorities' Mutual Investment Trust Act 1968—
(a) in section 1(2) for the words "recognised stock exchange within the meaning of the Prevention of Fraud (Investments) Act 1958" there shall be substituted the words "recognised investment exchange within the meaning of the Financial Services Act 1986"; and
(b) in the definition of "unit trust scheme" in section 2 for the words "Prevention of Fraud (Investments) Act 1958" there shall be substituted the words "Financial Services Act 1986".
8. In the Local Government Act 1972—
(a) in section 98(1) for the words from "and" onwards there shall be substituted the words "means—
(a) investments falling within any of paragraphs 1 to 6 of Schedule 1 to the Financial Services Act 1986 or, so far as relevant to any of those paragraphs, paragraph 11 of that Schedule; or
150
(b) rights (whether actual or contingent) in respect of money lent to, or deposited with, any society registered under the Industrial and Provident Societies Act 1965 or any building society within the meaning of the Building Societies Act 1986."; and
(b) for the definition of "securities" in section 146(2) there shall be substituted—
" "securities" has the meaning given in section 98(1) above".
9. For subsection (1) of section 42 of the Local Government (Scotland) Act 1973 there shall be substituted—
"(1) In sections 39 and 41 of this Act "securities" means—
(a) investments falling within any of paragraphs 1 to 6 of Schedule 1 to the Financial Services Act 1986 or, so far as relevant to any of those paragraphs, paragraph 11 of that Schedule; or
(b) rights (whether actual or contingent) in respect of money lent to, or deposited with, any society registered under the Industrial and Provident Societies Act 1965 or any building society within the meaning of the Building Societies Act 1986."
10. For paragraph 20 of Schedule 1 to the Industry Act 1975 there shall be substituted—
"20. Section 56 of the Financial Services Act 1986 (restrictions on advertising) shall not apply to any investment advertisement within the meaning of that section which the Board issue or cause to be issued in the discharge of their functions."
11. For paragraph 20 of Schedule 1 to the Scottish Development Agency Act 1975 there shall be substituted—
"20 Section 56 of the Financial Services Act 1986 (restrictions on advertising) shall not apply to any investment advertisment within the meaning of that section which the Agency issue or cause to be issued in the discharge of their functions."
12. For paragraph 21 of Schedule 1 to the Welsh Development Agency Act 1975 there shall be substituted—
"21. Section 56 of the Financial Services Act 1986 (restrictions on advertising) shall not apply to any investment advertisement within the meaning of that section which the Agency issue or cause to be issued in the discharge of their functions.".")
The noble Lord said: My Lords, in moving this amendment, I should like to speak also to Amendments Nos. 518A, 519 and all the way down to 540. Your Lordships will be glad to know that this is the last block of amendments that I shall be moving on Report. I can assure you that all these amendments are necessary consequentials to the Bill, either amending or repealing provisions in existing legislation. I beg to move.
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendment No. 518A:
Page 250, line 15, at end insert—
("15. For the definition of "securities" in section 3(6) of the Licensing (Alcohol Education and Research) Act 198 I there shall be substituted—
" "securities" means any investments falling within any of paragraphs 1 to 6 of Schedule 1 to the Financial Services Act 1986 or, so far as relevant to any of those paragraphs, paragraph 11 of that Schedule".
16. In section 97 of the Companies Act 1985—
(a) in subsection (1) after the word "conditions" there shall be inserted the words "and any conditions which apply in respect of any such payment by virtue of rules made under section 164(2) of the Financial Services Act 1986"; and
(b) in subsection (2)(a) for the words from "10 per cent." onwards there shall be substituted the words—
"(i) any limit imposed on it by those rules or, if none is so imposed, 10 per cent. of the price at which the shares are issued; or

151
(ii) the amount or rate authorised by the articles, whichever is the less".
17. In section 163 of the Companies Act 1985—
(a) for the words "a recognised stock exchange" in each place where they occur there shall be substituted the words "a recognised investment exchange";
(b) for the words "that stock exchange" in subsection (1) there shall be substituted the words "that investment exchange";
(c) in subsection (2) in paragraph (a) for the words "on that stock exchange" there shall be substituted the words "under Part IV of the Financial Services Act 1986" and in paragraph (b) for the words "that stock exchange" in both places where they occur there shall be substituted the words "that investment exchange";
(d) after subsection (3) of that section there shall be inserted—
"(4) In this section "recognised investment exchange"means a recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986.".
18. In section 209(1)(c) of the Companies Act 1985 for the words "the Prevention of Fraud (Investments) Act 1958" there shall be substituted the words "the Financial Services Act 1986".
19. In section 265(4)(a) of the Companies Act 1985 for the words "recognised stock exchange" there shall be substituted the words "recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986".
20. In section 329(1) of the Companies Act 1985 for the words "recognised stock exchange", "that stock exchange" and "the stock exchange" there shall be substituted respectively the words "recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986". "that investment exchange" and "the investment exchange".
21. For paragraphs (a) to (c) of section 446(4) of the Companies Act 1985 there shall be substituted—
"(a) to any individual who is an authorised person within the meaning of the Financial Services Act 1986;
(b) to any individual who holds a permission granted under paragraph 21 A of Schedule 1 to that Act;
(c) to any officer (whether past or present) of a body corporate which is such an authorised person or holds such a permission;
(d) to any partner (whether past or present) in a partnership which is such an authorised person or holds such a permission;
(e) to any member of the governing body or officer (in either case whether past or present) of an unincorporated association which is such an authorised person or holds such a permission.".
22. At the end of sections 716(2) and 717(1) of the Companies Act 1985 there shall be inserted the words—
"and in this subsection 'recognised stock exchange' means The Stock Exchange and any other stock exchange which is declared to be a recognised stock exchange for the purposes of this section by an order in a statutory instrument made by the Secretary of State which is for the time being in force;".
23. In Schedule 4 to the Companies Act 1985—
(a) in paragraph 45 for the words "recognised stock exchange" there shall be substituted the words "recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986"; and
(b) in paragraph 84 for the words from "on a recognised stock exchange" onwards there shall be substituted the words "on a recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986 or on any stock exchange of repute outside Great Britain".
24. In Schedule 9 to the Companies Act 1985 in paragraphs 10(3) and 33 for the words "recognised stock exchange" there shall be substituted the words "recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986".
152
25. In paragraph 11 of Schedule 13 to the Companies Act 1985 for paragraph (a) there shall be substituted—
(a) any unit trust scheme which is an authorised unit trust scheme within the meaning of the Financial Services Act 1986.".
26. In Schedule 22 to the Companies Act 1985, in the second column of the entry relating to section 185(4) for the words "stock exchange" there shall be substituted the words "clearing house or" ").
On Question, amendment agreed to.
Lord Lucas of Chilworth Lord Lucas of Chilworth moved Amendments Nos. 519 to 540:
Page 250, line 16, after ("1985") insert—
(a) in the second column of the entry relating to section 329(3) for the words "stock exchange" there shall be substituted the words "investment exchange"; and
(b)").
Page 250, leave out lines 26 to 44.
Page 251, leave out lines 7 to 9.
Page 251, line 11, at end insert—
("29. For paragraph (c) of section 10(1) of the Bankruptcy (Scotland) Act 1985 there shall be substituted—
"(c) a petition is before a court for the winding up of the debtor under Part IV or V of the Insolvency Act 1986 or section 71 of the Financial Services Act 1986;".
30. In Article 107 of the Companies (Northern Ireland) Order 1986—
(a) in paragraph (1) after the word "conditions" there shall be inserted the words "and any conditions which apply in respect of any such payment by virtue of rules made under section 164(2) of the Financial Services Act 1986";
(b) in sub-paragraph (2)(a) for the words from "10 per cent." onwards there shall be substituted the words—
"(i) any limit imposed on it by those rules or, if none is so imposed, 10 per cent. of the price at which the shares are issued; or
(ii) the amount or rate authorised by the articles, whichever is the less".
31. In Article 173 of the Companies (Northern Ireland) Order 1986—
(a) for the words "a recognised stock exchange", in each place where they occur, there shall be substituted the words "a recognised investment exchange";
(b) for the words "that stock exchange" in paragraph (1) there shall be substituted the words "that investment exchange";
(c) in paragraph (2), in sub-paragraph (a) for the words "on that stock exchange" there shall be substituted the words "under Part IV of the Financial Services Act 1986" and in sub-paragraph (b) for the words "that stock exchange" in both places where they occur there shall be substituted the words "that investment exchange";
(d) after paragraph (3) there shall be inserted—
"(4) In this Article "recognised investment exchange" means a recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986."
32. In Article 217(1)(b) of the Companies (Northern Ireland) Order 1986 for the words "the Prevention of Fraud (Investments) Act (Northern Ireland) 1940 or of the Prevention of Fraud (Investments) Act 1958" there shall be substituted the words "the Financial Services Act 1986".
33. In Article 273(4)(a) of the Companies (Northern Ireland) Order 1986 for the words "recognised stock exchange" there shall be substituted the words "recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986".
34. In Article 337(1) of the Companies (Northern Ireland) Order 1986 for the words "recognised stock exchange", "that stock exchange" and "the stock exchange" there shall be

153
substituted respectively the words "recognised investment exchange", "that investment exchange" and "the investment exchange".
35. For paragraph (a) to (c) of Article 439(4) of the Companies (Northern Ireland) Order 1986 there shall be substituted—
"(a) to any individual who is an authorised person within the meaning of the Financial Services Act 1986;
(b) to any individual who holds a permission granted under paragraph 21A of Schedule 1 to that Act;
(c) to an officer (whether past or present) of a body corporate which is such an authorised person or holds such a permission;
(d) to any partner (whether past or present) in a partnership which is such an authorised person or holds such a permission;
(e) to any member of the governing body or officer (in either case whether past or present) of an unincorporated association which is such an authorised person or holds such a permission".
36. At the end of Articles 665(2) and 666(1) of the Companies (Northern Ireland) Order 1986 there shall be inserted the words—
"and in this paragraph 'recognised stock exchange' means The Stock Exchange and any other stock exchange which is declared by an order of the Department for the time being in force to be a recognised stock exchange for the purposes of this Article;".
37. In Schedule 4 to the Companies (Northern Ireland) Order 1986—
(a) in paragraph 45 for the words "recognised stock exchange" there shall be substituted the words "recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986"
(b) in paragraph 83 for the words from "on a recognised stock exchange" onwards there shall be substituted the words "on a recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986 or on any stock exchange of repute outside Northern Ireland".
38. In Schedule 9 to the Companies (Northern Ireland) Order 1986, in paragraph 10(3) and 33 for the words "recognised stock exchange" there shall be substituted the words "recognised investment exchange other than an overseas investment exchange within the meaning of the Financial Services Act 1986."
39. In paragraph 11 of Schedule 13 to the Companies (Northern Ireland) Order 1986 for paragraph (a) there shall be substituted—
(a) any unit trust scheme which is an authorised unit trust scheme within the meaning of the Financial Services Act 1986".
40. In Schedule 21 to the Companies (Northern Ireland) Order 1986 in the second column of the entry relating to Article 195(4) for the words "stock exchange" there shall be substituted the words "clearing house or".
41. In Schedule 23 to the Companies (Northern Ireland) Order 1986 in the second column of the entry relating to Article 337(3) for the words "stock exchange" there shall be substituted the words "investment exchange".")
Page 251, leave out lines 12 to 14 and insert—
("In Article 2(1) of the Company Securities (Insider Dealing) (Northern Ireland) Order 1986, for the definition of "recognised stock exchange" there shall be substituted—")
Page 251, line 17, leave out ("which shall be subject to negative resultion").
Page 251, line 19, leave out ("Part") and insert ("Order").
Page 251, leave out lines 20 to 36.
Schedule 17, page 252, leave out lines 11 to 14.
Page 252, line 14, at end insert—

("1960 c.58.

The Charities Act 1960.

Section 22(10).").

Page 252, line 17 at end insert—

("1964 c.33 (N.I.).

The Charities Act (Northern Ireland) 1964.

Section 25(16).")

Page 252, line 18, column 3, at beginning insert—

("Section 14(1)(e) and (5)(e).").

154
Page 252, line 20, at end insert—

("1971 c.62.

The Tribunals and Inquiries Act 1971

In Part I of Schedule 1 the entry relating to the tribunal constituted under section 6 of the Prevention of Fraud (Investments) Act 1958.").

Page 252, line 23, at end insert—

("1975 c.24.

The House of Commons Disqualification Act 1975

In Part II of Schedule 1 the words "The Tribunal established under the Prevention of Fraud (Investments) Act 1958.").

Page 252, line 34, at end insert—

("1978 c.23.

The Judicature (Northern Ireland) Act 1978.

Section 84(3)(c).")

Page 252, column 3, leave out lines 35 to 42 and insert ("Section 20(1) to (3)").
Page 252, line 47, at end insert—

("1982 c.53.

The Administration of Justice Act 1982.

Section 42(8).")

Page 253, leave out line 4 and insert—

("In section 84(1) the words from "This" onwards.

In section 85(1) the words "83 or". Sections 86 and 87.")

Page 253, line 10, column 3, at end insert—

("and (6).

In section 449(1)(d), the words "the Prevention of Fraud (Investments) Act 1958".")

Page 253, line 16, at end insert—

("In section 744, the definitions of "recognised stock exchange" and "prospectus issued generally".")

Page 253, line 17, at end insert—

("In Schedule 22, the entries reating to Parts III and IV. In Schedule 24, the entries relating to sections 56(4), 61, 64(5), 70(1), 78(1), 81(2), 82(5), 86(6), 87(4) and 97(4).")

Page 254, leave out lines 8 to 15, and insert—

("S.I. 1986/1032 (N.1.6).

The Companies (Northern Ireland Order 1986.

In Article 2(1), the definitions of "prospectus issued generally" and "recognised stock exchange".

Part IV.

Articles 91 to 93.

In Article 94(1) the words from "This" onwards.

In Article 95(1) the words "93 or".

Articles 96 and 97 In Article 107, paragraph (2)(b) together with the word "and" immediately preceding it and paragraphs (3) and (4).

Article 426(2).

Article 439(5) and (6).

In Article 442(1)(d), the words "the Prevention of Fraud (Investments) Act (Northern Ireland) 1940"

In Article 643(1), sub-paragraph (a) and in sub-paragraph (d) the words "in every such prospectus as is mentioned in sub-paragraph (a) and ".

Article 658(2) and (3).

Schedule 3.

On Question, amendments agreed to.
House adjourned at twelve minutes before midnight.