HL Deb 11 May 1987 vol 487 cc488-99

7.37 p.m.

The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Lucas of Chilworth) rose to move, That the draft order laid before the House on 27th April be approved. [19th Report from the Joint Committee.]

The noble Lord said: My Lords, the draft order before the House tonight represents the single most important step towards implementation of the Financial Services Act, upon which we spent so many hours last year. Your Lordships will recognise that the same draft order was debated only a few days ago in another place: I hope therefore that I may be forgiven if some of my remarks have a familiar and possibly repetitive ring.

The Financial Services Act embodies our belief that in order to achieve effective regulation of the financial services sector it is necessary to combine two elements. The first is strong statutory backing for the regulatory system. The Act will make it a criminal offence to carry on investment business without authorisation. It will also impose strict rules on the way in which authorised persons carry on investment business and will provide legal sanctions—including civil suits, injunctions, restitution orders and withdrawal of authorisation—if those rules are broken.

The second element is practitioner-based administration of these statutory powers. I recognise that the noble Lord, Lord Williams of Elvel, may have something to say about this matter. As always, I shall listen with interest if he so decides. However, the Government believe that, if they are given the right powers, practitioner-based bodies have the best prospects of effectively regulating investment businesses and protecting the interests of investors.

Accordingly, the Act has, from its introduction, provided for the majority of powers it confers on the Secretary of State to be transferred to a designated agency whose governing body would include both practitioners in the financial services sector and non-practitioners who have the knowledge and expertise to ensure that investors' interests are being properly looked after.

The Act lays down a number of criteria which must appear to the Secretary of State to be satisfied before powers can be transferred to a designated agency. The agency must be able and willing to exercise the powers which are to be transferred. It must have a balanced governing body whose members are appointed by the Secretary of State and the Governor of the Bank of England. It must have satisfactory monitoring, enforcement and decision-makng arrangements. It must have effective arrangements for the investigation of complaints, which must provide in appropriate cases for the investigation to be carried out independently. It must be able and willing to promote high standards in the conduct of investment business and to co-operate with other financial regulators.

The Act also recognises the special position of the Securities and Investments Board. This was established for the purpose of applying to have functions under the Act transferred to it. So long as the board satisfies the conditions in the Act, it must be the first body to which powers are transferred.

Turning specifically to the draft order, Articles 1 and 2 are concerned with citation, commencement and interpretation. Articles 3 to 8 transfer to SIB nearly all of the powers which are capable of being transferred. Schedule 2 specifies the powers which will be exercisable by the Secretary of State concurrently with the designated agency, while Schedule 3 specifies the offences with respect to which the power to prosecute is transferred to the agency. I shall return in a moment to the limited range of powers which are not transferred. But those which are transferred represent a considerable range of powers which will establish SIB as the keystone in the new regulatory framework. SIB will have the ultimate responsibility for establishing the standards which firms will have to meet in order to be regarded as fit and proper to carry on investment business. This will result both from SIB's power to grant direct authorisation to businesses and from its function of recognising self-regulating organisations and professional bodies, membership of which will confer authorisation.

SIB will also draw up the rules and regulations which will set the standards of behaviour for investment businesses. In some cases this will be because SIB's own rules are directly applicable. In other cases, the rules of recognised self-regulating organisations and professional bodies will apply: but those rules will have to afford protection to investors at least equivalent to that afforded by SIB's rule book. Finally, SIB will be responsible for enforcement, having at its disposal a wide range of investigation powers and sanctions, including the power to initiate prosecutions for some offences.

Article 3 of the draft order, in conjuction with Schedule 1, provides that there are a certain number of transferable powers not covered by this order. The most significant are the powers in Chapter VIII of the Act relating to collective investment schemes. These represent a largely self-contained area which can be dealt with independently of the recognition of SROs and RPBs and the authorisation of businesses which must begin as soon as possible if the basic framework of the Act is to be introduced at an early date.

Schedule 1 also reserves to the Secretary of State miscellaneous other powers. These are: various powers related to international questions; the power to make indeminity rules where SIB have decided to rely instead on a widely drawn compensation scheme; certain powers relating to persons who are not authorised; and the function of revoking recognition of an SRO on certain grounds related to insurance, since my Department remains primarily responsible for the regulation of insurance companies.

The preamble to the draft order concerns the requirements which must be satisfied before powers are transferred. My right honourable friend the Secretary of State has satisfied himself, as required by the Act, that SIB meets the criteria to which I have already referred. He has also satisfied himself that the rules and regulations which he proposes to make afford an adequate level of protection for investors and, where appropriate, comply with the principles set out in Schedule 8 to the Act.

My right honourable friend is also required to satisfy himself as to the acceptability of the rules in competition terms. On 10th February we received the SIB's formal request for transfer of powers, together with its proposed rules and regulations entitled Regulation of Investment Business and a document entitled SIB's Approach to its Regulatory Responsibilities. Copies of both have been made available in the Printed Paper Office. We subsequently received reports on these documents from the Director General of Fair Trading and further amendments proposed by the SIB, on which the director general has also reported. Copies of all these documents have been placed in the Library. We have also received a large number of comments both from representative bodies and individual practitioners.

Having considered all the material submitted, we have concluded that the SIB and the rules it proposes to make fulfil the conditions and requirements laid down in the Act for a transfer of the powers referred to in the draft orders.

Your Lordships will recognise that the SIB's rule book covers a large range of topics. I propose to refer specifically to the two issues which provoked considerably more comments than any others both in the director general's report and in the comments made by interested parties. These were essentially related to the costs to small independent insurance intermediaries of complying with the new requirements and the issue which came to be known as "polarisation".

It would be pointless to pretend that improvements in investor protection can be achieved without cost and without placing some new requirements on firms. To mention just two of the characteristics of the new system, regular monitoring arrangements and an adequate compensation scheme are bound to cost money. Having said that, I should also say that we think some of the estimates of compliance costs which have been canvassed have been considerably overestimated. Some estimates, for example, have assumed elaborate new compliance procedures whereas, in fact, many of the SIB requirements reflect current "best practice" and will require little, if any, change in practice in reputable businesses.

Furthermore, the SIB has made considerable efforts to keep costs at an acceptable level. Indeed, in March amendments to the rule book were proposed which were designed to reduce the costs of compliance for small investment businesses which do not handle clients' money. Having considered all the evidence, my right honourable friend the Secretary of State is satisfied, as required under the Act, that the SIB's proposals will not significantly restrict, distort or prevent competition on this account.

The polarisation debate has in some ways been the other side of the coin, in the sense that many of those most worried about the costs which they believed the SIB's rules implied were equally strong in their support of the polarisation rules. Most noble Lords will be aware that polarisation is the requirement that all those who sell life assurance and unit trusts should act either as fully independent intermediaries or as company representatives, selling only the product of a single company or group. The SIB has argued, and we accept the argument, that this is an important safeguard for investors. Some have argued that it will have an anti-competitive effect. We take the contrary view. Summarising, I would say that polarisation will clarify the status of investment advisers and will therefore promote transparency in the market. It will therefore enhance rather than restrict competition.

The Director General of Fair Trading did not find the polarisation rules, on their own, anti-competitive: indeed, he, like us, considered them in isolation to be pro-competitive. But he was concerned about the implications of polarisation when combined with the costs of compliance for small intermediaries. This concern arose from the director general's assessment that the number of independent intermediaries would be significantly reduced; that the rules would lead to a reduction in independent advice from banks and building societies; and that the overall result was therefore likely to be an increase in the influence of company representatives.

We have considered the director general's arguments most carefully but we cannot accept his conclusions. First, as I have said, we do not believe that the costs of compliance will be as high as some have suggested. Moreover, polarisation will ensure that the independence of genuinely independent advisers is perceived as a real advantage. So we believe that there will continue to be a very substantial body of independent intermediaries, and that the polarisation rules will work to their advantage. Secondly, we believe that the banks and building societies will be able to adjust to the new regime without radical change, and that the availability of independent advice from these sources will not be significantly reduced. For these reasons, we have come to the conclusion that the rules will not have a significantly anti-competitive effect. Before I leave the order, I should say that Articles 9–11 make various necessary and supplementary provisions as provided for in Section 118(2) of the Act.

In seeking approval for this draft order, we are therefore recommending transfer of powers to the SIB on the basis of the rules it has submitted, as modified by amendments it has proposed during the course of our consideration. That is the outline of the major of the three orders that I wish to put before your Lordships this evening. I would be quite happy to respond to any point or question noble Lords may wish to put. Meanwhile, I beg to move approval of the draft order before the House.

Moved, That the draft order laid before the House on 27th April be approved. [19th Report from the Joint Committee.]—(Lord Lucas of Chilworth)

7.48 p.m.

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Lord, Lord Lucas, for presenting the delegation order in the way that he has, and with his customary clarity. The House will also wish to congratulate the Securities and Investments Board for producing a set of rules of extreme complexity and great detail in the time that has been available to it.

We, on this side of the House, welcome the order in general. We believe in the principle of statutory control of financial services. We believe also that the Financial Services Act, although defective in a number of respects, goes quite a long way towards achieving this type of control.

Having said that, there are some comments I should like to make and some questions I wish to ask the noble Lord in respect of the order, the accompanying SIB rules and the document which the SIB has produced, entitled The SIB's Approach to its Regulatory Responsibilities. which will be regarded, I think, as a plain man's guide.

The point about the order which I wish to make first is that we are doubtful whether the Secretary of State has the powers under the Act to make an order along the lines of Article 9 of the order. Article 9 refers to the keeping of a register and, as I am sure the Minister will recognise, it is of extreme importance because on this register there will be not only bodies of a corporate nature but persons who for one reason or another may have been disqualified from engaging in investment business. The Act is quite clear on the subject. It says quite simply that the Secretary of State is required to keep a register under Section 102(1) (e) of those for whom a disqualification notice is in force. On the other hand, the order states that: Section 102 of the Act shall have effect as if it did not require the designated agency to keep a register containing an entry in respect of … in respect of whom a direction … is in force, but required it instead to keep a register … in respect of each body or person who appears to it to be a body or person of the kind described above". In other words, in our view the function of keeping a register will be changed by the order from the function of keeping a register of a matter of fact to keeping a register of what is a matter of belief.

The Minister and I have had correspondence on this subject. As he said, he has indicated that the Government believe that Section 118 of the Act justifies Article 9 of the order. For my part I have consulted not only noble friends who have greater legal experience than I but also noble and learned Lords both on these Benches and on the Cross-Benches who believe that this is a change of function. In the view of my noble friends and that of my noble and learned friends and other noble and learned Lords, Section 118(2) does not allow the Secretary of State to change function.

It is of extreme importance of course because if it becomes a matter of belief that the Securities and Investments Board keeps a register of those for whom it appears to it to be such that a notice might be or has been or appears to have been issued, given that Lloyds is an exempted person under the Act—a decision against which we on this side fought and which we still regret—and given that paragraph 6 Schedule 1 of the order excludes Lloyds, there could easily be a situation in which the Secretary of State decides to issue such a disqualification notice against somebody employed in Lloyds or who might have been employed in Lloyds or might have been able to do investment business in Lloyds, without informing the SIB. The SIB has to guess whether such a notice has been given or whether it appears to it to have been given. The same is true of other exempted persons under the Act such as the banks, which are listed institutions under the Act. It is therefore not a minor matter.

I have to put on record that it seems to us that the Secretary of State does not have the vires to promulgate Article 9 of the order. Incidentally, we also believe that the Secretary of State has limited vires to promulgate Article 10 of the order, but that is a relatively unimportant question and we do not challenge that.

I am doing no more than putting the Minister and the Government on notice that we have certain considered views and opinions on this matter. We shall not challenge the order and divide the House against it because we wish this order to go forward, but we believe that this is a subject that has received the intense legal advice, if I may put it that way, that Article 9 of the order contravenes the vires of the Secretary of State under the Act.

Turning to the order itself, we welcome it. Clearly it is the follow-up to the passage of the Act and it would he absurd, having supported the general thrust of the Bill as it went through your Lordships' House, if we now said that we did not support the order. Clearly we want this order to go through. Nevertheless a number of questions arise other than on the point about vires that I have just made which I should like to put to the Minister.

The first question refers to the recognition of self-regulating organisations which will be transferred, if this Motion is approved, to the Securities and Investments Board, which will have the job of deciding whether or not an SRO is capable of fulfilling its functions. I ask the Minister: what happens if the SIB decides that, having made an application, a particular SRO does not fulfil the statutory regulations, rules or position under the Act and that people who would otherwise normally conduct investment buisinesses recognised by that SRO are left somewhat hanging in the air? What is the position then? Does the Securities and Investments Board form its own organisation? Does it intervene? What are the actual and practical steps that need to be taken?

Secondly, as regards self-regulating organisations, when we discussed the Bill in your Lordships' House and after it became an Act, it was my understanding that it was obligatory for SROs to have effective arrangements for the investigation of complaints from members of the public against itself or its members. At page 39 of the SIB's Approach To Its Regulatory Responsibilities I read: SIB will need to be satisfied that an SRO has effective arrangements for the investigation of complaints". Does that mean that there is an element of judgment involved for the SIB or that the SIB is simply saying that the SROs must have it and that is the end of the story? The way in which that paragraph reads, mentioning the need for satisfaction, implies a certain judgment.

My last question about self-regulatory organisations is: am I right in my understanding that the rules for application for authorisation under an SRO are as stringent as the rules set out in the very heavy tome produced by the SIB for direct authorisation from the SIB? I believe I am right in my understanding but I very much hope that the Minister will be able to satisfy me on that point.

I turn now to the rules themselves. I confess to the Minister that I am unclear about the status of practice notes in the SIB rules. I understand practice notes in the context of the takeover code. It has been quite an established mechanism for interpreting a non-statutory code to issue practice notes stating: "This is a non-statutory code and we interpret it in this way but of course if you interpret it in some different manner you are not offending against any statute". Nevertheless, in this case the SIB rules are statute—the law of the land—so when practice notes come in the SIB rules they take on a slightly different characteristic. For example, the practice note on page 2.7 of the rule book says: No form is prescribed for the accounting records of a firm which a firm is required to keep under rule 5. The Board offers in the Appendices to these rules guidance as to how a firm's records might be maintained. This is guidance only and a firm should not follow this guidance if to do so would prevent the firm from complying with the requirements of rule 5.". So the practice note is saying, "Don't bother about what we are putting in the appendix if by bothering about what we put in the appendix you don't have to follow rule 5". It seems a rather curious sort of practice note.

Turning now to the conduct of business rules, because I do not wish to detain your Lordships for very long, are we really satisfied that they are comprehensible? Are they understandable to the man in the street or the person who has to operate them in whatever professional capacity he may find himself? At page 3.25 there is a paragraph in the rules on "Excessive charging, 'churning' and 'twisting'." The paragraph goes on: (1) A firm shall not charge unfairly or unreasonably for the services it provides. (2) a firm shall not effect transactions with or for a customer for whom the firm exercises discretion as to how the customer's funds are invested with unnecessary frequency or in excessive size and a firm shall not make recommendations to any customer which are likely to lead to transactions being effected by the firm or an associate of the firm with or for him with unnecessary frequency or in excessive size". Are these concepts really comprehensible to the man in the street?

The worry becomes slightly more intense if we turn to the unsolicited calls section of the SIB rules. Having read through these rules, I hope in some detail, I find it very difficult to see how anybody can understand whether they are in receipt of an unsolicited call or not. Do these rules cover direct mail approach? Is that an unsolicited call? We do not know. Section 56 of the Financial Services Act specifies what an unsolicited call is in the primary legislation, but it is a slightly confused expression. Section 56(8) reads: In this section 'unsolicited call' means a personal visit or oral communication made without express invitation". Does this cover people who may come back and want to change the subject? An insurance salesman who wishes to sell a life insurance policy may come back and say, "Well, now I have decided you would be better off doing something else, engaging in some other form of investment business". Is that covered by the SIB rules, other than persons who actually visit the office, which I understood was covered by the SIB rules? How are we to persuade the public at large that they understand what their rights are?

There is a practice not on clients' money at page 6.17 of the SIB rules. I am very doubtful whether this practice note means anything: The Board offers in the Appendix to these regulations guidance as to how a firm's accounting records might be maintained in order to achieve the necessary segregation of clients' settlement money. This is guidance only and does not form part of the regulations". If it does not form part of the regulations, how is the client's settlement money to be properly segregated unless the SIB gives proper guidance on the subject?

I have picked on a few elements of detail in the rules. I hope the noble Lord will forgive me if I have gone into some detail because I think they are important rules, and the order itself is important. I would simply conclude by saying that it is perfectly clear that these rules can change. According to the Act the rules can be changed quite simply by the Securities and Investments Board informing the Secretary of State that it has decided to change the rules. As far as I can see, under the Act the Secretary of State has to do no more than say, "There is no reason for me to intervene unless the Securities and Investments Board or other designated agency contravenes its own rules under the Act". We have to see how these initial rules—because that is what I take them to be—work out in practice, and Parliament will not be advised, as we have been advised at the moment, what rules the SIB are actually implementing. The Secretary of State will be informed.

It would have been much easier and we should have avoided all these complications—we should have avoided the complications of the exemption of Lloyd's members and all this process of trying to find out the status of rules issued by a board which, after all, is still a company limited by guarantee—if the Government had quite simply accepted our point that this should be a statutory body, a statutory commission under the law.

Having said that, I repeat that we welcome this order. We very much hope that it will fulfil the function that it sets out to fulfil. We believe it is extremely complicated in detail, and we very much hope that as we go forward we shall have amendments. We would very much like Parliament, who after all set the legislation and set the order in place, to be consulted from time to time.

8.9 p.m.

Lord Tryon

My Lords, I start by apologising to the Minister for not having been in my place when he stood up. I think I was not more than 30 seconds behind him, and I hope that I did not miss anything vital. I see the Minister shaking his head.

I shall not particularly surprise the Minister or other noble Lords who have followed the rather tortuous progress of the Financial Services Bill if I do not give a warm welcome to this order or to the draft rules proposed by the SIB. I have never been against the principle of regulation in this area, although at various stages I think the Minister accused me of being slightly grudging in my approval. However, at the beginning I sensed an element of overkill, although during the course of the Bill some of the doubts which I had were removed. Throughout the process I was very anxious to see a relatively simple system of regulation with certain principles clearly laid down, followed by thorough supervision and fierce enforcement.

I have been worried throughout the process that, in an attempt to weed out the few bad apples and practices, we should make whole parts of the City unworkable with over-complicated rules—unworkable, that is, for the vast majority in the City who are decent, honest people. Those of us who urged caution were not greatly helped by various events last year. There were one or two disgraceful incidents. I must stress, however, that, in my view, these were isolated cases and I believe that already, in the City, there is a strong, deep determination that there should not be any repetition of some of these events. One senses this in conversations with people all the time.

That said, we now have the great rule book from the SIB but, as I anticipated in my remarks during the later stages of the Bill, it is highly legalistic and very cumbersome. No doubt the Minister will tell me that these are very complex matters that require complex rules, and that the SIB—as I quite appreciate—has to set a standard and an example to the SROs who are still going about their rule-making activities. But it seems to me to go into such minutiae as to be confusing. I had various examples that I was going to produce, but the noble Lord, Lord Williams of Elvel, has done that for me. He produced three or four examples of extremely tortuous parts of the rule book.

One important point I should like to make—the Minister touched on it in his opening remarks—is that of timing. The noble Lord gave the impression that this process must be completed with all haste. Those were not his words, and I paraphrase. But I had the impression that he felt that this should now be pushed on with very quickly. I would urge the Government, having got this far, not to press too tight a timetable upon the SIB or anybody else. With the passing of this order, everyone can claim that Parliament has done its stuff on the Financial Services Act, but I cannot see the whole scheme up and running before some time like next January.

A lot of work remains to be done. There are still some rules to come from the SIB, including, for example, important ones on collective investment schemes which appear to be missing from the order as I read it. I believe there are also significant discussions going on, and in some cases disagreements, involving the DTI, the Bank of England, the SIB, the various SROs and potential members of SROs on quite a number of important matters.

These are such matters as the segregation of capital, the scope of SROs, where their various activities overlap, the rules of the SROs themselves and a whole mass of matters dealing with complaints and compensation. There is still quite a lot of work to be done and if the whole machinery has to be got right—and clearly it has—no one should be made to rush this final fence. Having got this far, there must still be some remaining points to be got right. Perhaps the Minister can give me some reassurance on the final timing and his thoughts on the matter.

I wish to make one last detailed point as a marker for the future. It is a point which did not, I think, arise during the various stages of the Bill but which is now becoming clearer from the rules. It concerns the independent intermediaries. It is a title which suggests expertise covering the full range of financial products, but this is something that most of them will not be competent to provide. I should have liked to see investors warned of the limitation of the scope of intermediaries' individual skills in this field. The commercial reality is that the advice of many of these financial intermediaries will be heavily commission-driven.

To give an example, unit trusts will tend to be recommended instead of investment trusts, due to the far larger commissions paid. Without going into commercial and investment trusts, which I have done once or twice before, declaring my interest as a director of several of them, I have run unit trusts and I believe investment trusts to be superior. But will investors be given the choice? I very much doubt that they will, and I think that at some stage we ought to think about some form of wealth warning on literature put out by the so-called independent intermediaries stating that they are capable of advising only on certain forms of investment, not on all forms, and that investors will not have certain forms of investment brought to their attention.

Finally, despite being critical of these rules, it would be churlish of me not to pay tribute to the tremendously hard work that has gone into them at the DTI and at the SIB. I can only conclude by lamenting the necessity of it all.

8.17 p.m.

Lord Bruce-Gardyne

My Lords, I should like to join other noble Lords in thanking my noble friend for the clarity of his explanation of the order, although I am bound to admit that to some extent I share the anxieties which the noble Lord, Lord Tryon, has expressed about the dangers of overkill, and the anxieties which both the noble Lord and the noble Lord, Lord Williams, expressed about the complexity of a number of aspects of the order.

I am afraid that I want to return to the weary old subject of polarisation. As before, I must start by declaring my interest as a director of the TSB which is very much a material party to this argument. My noble friend explained very fairly and summarised the reasons why the Director General of Fair Trading had concluded that the polarisation provisions amounted to a substantial derogation from the principles of competition policy and the reasons which led the Government to reject his criticisms of this aspect of the rule book.

I am bound to say I do not know that my noble friend had all that much choice in the matter, since Sir Kenneth Berrill in his wisdom, had made it absolutely clear that unless the rule book in this particular, perhaps more than any other particular, was carried through as he recommended, he would feel that his position and that of his board was no longer tenable. Particularly in view of the limitations of the Government's ability to amend the terms of the rule hook in advance of the passage of this order, I can quite understand that their freedom of manoeuvre was very restricted.

However, I have to say that there has been a substantial further complication since the Director General of Fair Trading expressed his opinion, to which my noble friend referred. I say in parenthesis that the refutation by my noble friend of Sir Gordon Borrie's criticisms rested essentially on the rebuttal of Sir Gordon Borrie's warning that the complexities and the costs of regulation would lead rapidly to a vast diminution in the number of independent intermediaries applying for business. My noble friend argued that that would not be the case. However, I must ask him: should Sir Gordon Borrie's anxieties on this score be borne out, what remedial action could the Government envisage?

If indeed Sir Gordon Borrie's anxieties on that count turned out to be borne out in the event, would it be possible for the Government to reconsider the polarisation rules in the light of that experience? However, the more substantial point I am concerned about is the fact that, as my noble friend will be aware, the Committee of London and Scottish Bankers has taken counsel's opinion and has been advised by counsel that in the light of the report by the Director General of Fair Trading there must be a considerable possibility, if not probability, that the rules regarding polarisation could be deemed to be in conflict with the rules of Article 85 of the Treaty of Rome.

That is a serious proposition because it means that those who are affected by the polarisation rules—here I refer to branches of the clearing banks and to building societies' branches—face or could face a Catch 22 situation after we have approved the order. If they make their practices conform to the SIB's rulebook in respect of polarisation—in other words, if they decide, as some will (the TSB, for example) that they wish to go down what I call the in-house route, and others, perhaps the bank of which my noble friend Lord Boardman is chairman, decide that they wish to follow the alternative route of acting as independent intermediaries no longer selling in-house products—they will find themselves, according to counsel's opinion, liable to be arraigned before the European Court.

If, on the other hand, they desist from observing the polarisation rule, they may be safe before the European Commission and the European Court but they would presumably be liable to be arraigned by the SIB. That is an impossible situation and one which leaves the clearing banks and the building societies in a complete quandary.

Of course the matter has been raised with the Department of Trade and Industry. The department wrote to the Committee of London and Scottish Bankers on 16th April to assure it that the SIB had ensured, that the Commission is aware of its proposals and timetable. However, awareness is one thing: agreement is something quite different. The department concluded its letter by stating: When the Secretary of State is considering the implementation date of Section 3 of the Act, we recognise that he will need to pay careful attention to the position under EEC competition law, including any uncertainty which might then remain. Unfortunately that does not carry us very far. The position remains that the clearing banks have received counsel's opinion that if they conform to the require ments of the rulebook in the area of polarisation it is very likely that they could be challenged before the court. That is counsel's opinion. Counsel may be wrong, but that is the opinion they have received. Obviously if they hold their hands and refuse to go along with the polarisation requirements of the rulebook they could presumably be in trouble with the SIB. They must know where they stand. As I see it, this is the last opportunity that we have to learn from the Government where that is.

I hope that my noble friend will be able to give us a clearer explanation of precisely where the clearing banks and building societies in particular stand in relation to polarisation in the light of the obligations which they face under Article 85 of the Treaty of Rome.

Suggestions have been offered to the Department of Trade and Industry. It has been suggested that the full activation of the obligations should be delayed until it is ascertained whether or not the Commission is prepared to make a derogation or to say that Article 5 will not apply in those circumstances.

However, we need to know how the Government will handle that. I must appeal to my noble friend tonight to give us a clear answer on that because otherwise the position of those affected by the polarisation regulations is wellnigh impossible and will remain so.