Lords Sitting of 13 November 1989

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.

NHS Hospitals: Data
Lord Ennals Lord Ennals asked Her Majesty's Government:
Whether they will publish the numbers of patients treated in National Health Service hospitals in March 1988 and 1989 and the number of available beds on the same dates.
The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley): My Lords, data for the financial year ending 31st March 1989 are not yet available. In the financial year ending 31st March 1988 8·2 million in-patient cases were treated in NHS hospitals in the United Kingdom. The average daily number of available beds was 388,000.
The Government hope to publish the data for England in a statistical bulletin within the next two months.
Lord Ennals: My Lords, I am grateful to the Minister for that Answer. The figures were certainly published in some form and were quoted by his honourable friend Mr. Mellor in another place. Will the Minister confirm that the total number of patients awaiting treatment in March 1989 was 922,000—that is the worst figure for six years—and that there was a fall in the number of patients treated and the number of beds available on that date? Why does the performance in those respects appear to be getting worse within the National Health Service?
Lord Henley: My Lords, I shall not confirm the figures because I believe that they are provisional. I ask the noble Lord to wait for two or three months until we have better figures. However, waiting times are more important than waiting lists. Half of all patients are admitted to hospital immediately. Of those admitted from waiting lists half are admitted within five weeks or less. We accept that in some areas patients have to wait too long for treatment. It is on that small but worrying proportion that we wish to concentrate our effort.
Lord Ennals: My Lords, can the Minister explain why his honourable friend Mr. Mellor made comments and referred to certain statistics? He said that the latest statistics are impressive by anyone's standards. Can the Minister explain why he does not have the same figures?
Lord Henley: My Lords, I do not know from what my honourable friend was quoting but I understand that the figures are provisional. It would be safer to wait until the actual figures for England are published in about two months' time.
Lord Mellish: My Lords, is the Minister aware that during the past 15 to 20 years there has been a dramatic change in the demand for hospital beds? For example, 20 years ago the replacement of hips was unknown, as were heart transplants and so forth. There has been a tremendous advance in medical science. Does that change of demand which is now prevalent in the National Health Service have anything to do with the figures which he has been talking about —or not been talking about?
Lord Henley: My Lords, it is relevant and I accept the fact that the number of beds has fallen over the past 10 years. However, the usage of the beds has increased dramatically. In 1987–88 there were 21 in-patient cases per bed whereas 10 years ago the figure was approximately 14. Similarly, the average length of stay in the acute sector fell from 9·4 days in 1978 to seven days in 1987–88. That is due to changes in medical technology and in the forms of treatment offered.
Viscount Hanworth: My Lords, I believe that my question comes within the scope of that on the Order Paper. Does the Minister agree that the time now spent waiting to see a specialist has risen to six or more weeks and that it is appalling to have to wait so long for a diagnosis?
Lord Henley: My Lords, I have no figures showing the length of time that people must wait in order to see a specialist. We do not believe that the numbers on the waiting lists are relevant but rather the speed with which they are admitted. The mean waiting time is now approximately five weeks.
Lord Wallace of Coslany: My Lords, is the Minister aware that the serious situation which is developing throughout the country, particularly in the South-East, is due to the fact that many authorities are trying to balance their budgets? Therefore, in order to make ends meet they are cutting down the number of wards and thereby reducing the number of beds. I am particularly concerned about Queen Mary's Hospital, Sidcup, where the situation is almost beyond belief.
Lord Henley: My Lords, I do not see that the question is relevant to that on the Order Paper. As I have stated, the usage of beds is increasing because changes in medical technology mean that consultants are able to discharge patients sooner.
Lord Gridley: My Lords, does the Minister agree that the demand for beds may depend on the state of health of the nation or on an epidemic at any one time? Does he also agree that it is extremely difficult to make a comparison concerning the demand for beds or for treatment?
Lord Henley: My Lords, I accept that. The number of in-patient cases treated has risen over the past 10 years from about 6,706,000 to about 8,200,000 in 1987–88.
Lord John-Mackie: My Lords, the Minister is speaking of weeks and months. My head taxi driver

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had to wait two and a half years for a hip operation and he had that done last year. Is that not quite ridiculous?
Lord Henley: My Lords, I accepted that there were problems. I cannot comment on individual cases, but if the noble Lord will write to me no doubt I shall look into the matter. We have accepted that on some occasions there are problems and we are doing what we can to reduce those times.
Lord Nugent of Guildford: My Lords, can my noble friend tell us what is the increase in the use of day beds? Is that one factor which is increasing the curing of patients with less use of beds?
Lord Henley: My Lords, I have no figures for increased use of day beds. Of course, the facility is available for doctors to make greater use of day beds rather than keeping people in hospital. That would be a matter for an individual consultant if he felt that that facility was right for a particular patient.
Lord Ennals: My Lords, is the Minister aware that the number of out-patients treated fell for the first time in years and the number treated as day cases is more than 16 per cent. lower than in the previous annual figures? I know that the Minister said that he does not have the figures but they are published in the Health and Personal Social Services Statistics for England, 1989 edition. For £10.25, at the expense of Her Majesty's Government, he could have the same figures as I have.
Lord Henley: My Lords, according to my figures the number of out-patients has increased. As I said, I do not have the figures for 1988–89. They are provisional.
Lord Orr-Ewing: My Lords, when there are cuts in the availability of hospital beds is that not done in order to preserve the very large expansion of non-medical staff; that is, ancillary staff? Is it not a shame that that is a priority rather than the reverse?
Lord Henley: My Lords, as I explained earlier, my noble friend is right in saying that the number of beds has fallen, but the number of people we have treated has increased because there is a greater throughput of people using the beds.
Lord Ennals: My Lords, until this year.

Refugees: UN Commission
2.45 p.m.
Baroness Ewart-Biggs Baroness Ewart-Biggs asked Her Majesty's Government:
What proposals they have to ensure that the work of the United Nations Commission for Refugees to protect and support refugees will not be cut back by the present financial pressures.
The Minister of State, Foreign and Commonwealth Office (Lord Brabazon of Tara): My Lords, we fully
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support the package of financial measures agreed at the October meeting of the executive committee of the United Nations High Commissioner for Refugees, including provision for a guaranteed level of income next year. We are playing our full part in the temporary working group of executive committee members established to make further recommendations on the UNHCR's financial situation. We hope these measures will establish a sound basis for the UNHCR's future activities, so as to avoid cutbacks in the vital tasks of protection and support of refugees.
Baroness Ewart-Biggs: My Lords, I am grateful for the Minister's Answer but I felt that it in no way reflected the true gravity of the situation. Is the Minister aware that there is a real danger of the UNHCR not being able to cope with the enormous rate of refugees —at present 14 million —on its reduced budget for next year? Is he aware that the vast majority of those refugees are in third world asylum countries which are little able to deal with an increased cost if the UNHCR programmes are cut?
Will the Minister give a commitment that Her Majesty's Government will give a lead in the pledging conference in New York next month substantially to increase their contribution to the UNHCR so that it can carry out its important work for these unfortunate people, most of whom are women and children?
Lord Brabazon of Tara: My Lords, I certainly do not deny the concern expressed by the noble Baroness. Her Majesty's Government will play a role in the financial package discussions and the working group towards the resolution of this problem. That is absolutely certain. This country's contribution this year has been the highest ever and certainly we are third in the world in terms of contributions after the commitments of the United States and Japan.
Lord Cledwyn of Penrhos: My Lords, I apologise for rising immediately after my noble friend on the Front Bench. I ask the noble Lord a question which is of considerable importance and interest to this House; namely, what representations have Her Majesty's Government made to the commission about the Vietnamese refugees in Hong Kong and what response has come from the commission?
Lord Brabazon of Tara: My Lords, that is a slightly different question from the commission's financial situation, to which the Question on the Order Paper refers. However, the noble Lord will be aware that we are in touch with the UNHCR as regards the Vietnamese boat people. While it is looking at the problem of the refugees involved there, we would obviously like it to be more concerned about the non-refugees —the so-called economic refugees.
Lord Jenkins of Putney: My Lords, will the noble Lord be so kind as to look at an article in this morning's Guardian by Mr. Edward Heath, the last Conservative Prime Minister —and I prefer to say "the last"? Is he aware that were he to do so he

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would see in the article —I shall not weary the House by trying to describe it —the bearing on the point raised by my noble friend on the Front Bench?
Lord Brabazon of Tara: My Lords, I have not yet read the article to which the noble Lord refers but I shall obviously try to find time to extend my reading to that newspaper and in particular to the article by that author.
Baroness Ewart-Biggs: My Lords, perhaps I may press the Minister on the point brought up by my noble friend Lord Cledwyn. Is he aware that UNHCR is totally opposed to the forced repatriation of the Vietnamese refugees from Hong Kong? Can the Minister say how, in order to encourage a voluntary repatriation, Her Majesty's Government can give some form of economic and structural aid to Vietnam as has already been proposed to them by the British Refugee Council?
Lord Brabazon of Tara: My Lords, aid to Vietnam is a very different question from the one on the Order Paper. I am well aware of the views of the British Refugee Council, having heard them at first hand from the noble Lord sitting next to the noble Baroness on the Front Bench opposite. We shall have an opportunity at Question Time tomorrow to discuss the situation in Hong Kong.

Education: Assessment and Testing
2.50 p.m.
Baroness Blackstone Baroness Blackstone asked Her Majesty's Government:
Whether the Task Group on Assessment and Testing report's recommendations on teacher involvement in assessment are to be implemented.
Viscount Davidson: My Lords, my right honourable friend the then Secretary of State for Education and Science announced on 7th June 1988 that in the light of the TGAT report the Government had decided to adopt the main principles set out in that statement. Full details of how these should be translated into practice are under consideration by the Schools Examinations and Assessment Council. These and related matters will be set out in statutory orders to be made under Section 4 of the Education Reform Act, the first of which will be issued next year.
Baroness Blackstone: My Lords, I thank the Minister for his reply. However, is he aware that the DES guide for parents on the national curriculum states quite clearly that children's progress will be measured partly by teachers' assessment and partly by national tests known as standard assessment tests? Is he aware that in spite of this commitment on the part of the DES, the Schools Examinations and Assessment Council has done very little to support teachers' assessment, whereas it has already spent nearly £20 million on the development of standard assessment tasks? In the light of that, can the noble Viscount say how the system of moderation will take
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into account the need for more formative assessment by teachers?
Viscount Davidson: My Lords, the Schools Examinations and Assessment Council has offered interim advice on the assessment system, which was welcomed by the Secretary of State. Further advice is expected shortly which will form the basis for assessment orders to be made next year under Section 4 of the Education Reform Act. I understand the anxieties expressed by the noble Baroness, and I assure her that for the moment I am explaining the council's interim advice; but its comprehensive advice will be received by the end of the year.
Lord Ritchie of Dundee: My Lords, does the Minister agree that the present situation For teachers is confused and confusing? They are faced with assessing on a day by day basis their pupils from the age of five in 10 different subjects against 17 attainment targets at 10 levels. At the ages of seven, 11, 14 and 16 the children are faced with standard attainment targets as well as further assessments —of which, incidentally, the teachers know nothing —not to mention the records of achievement that are to be brought in at the age of 16-plus and the GCSE. Does the Minister not agree that this is a formidable situation for teachers? One wonders whether there will be any time left for teaching. What can be done to clarify and ease the position for those teachers who are faced with this situation?
Viscount Davidson: My Lords, as I said, I am fully aware of the anxiety which has been expressed. I assure the noble Lord that these matters will be taken into account by my right honourable friend.
Lord Dormand of Easington: My Lords, will the Government give special attention to the recommendation in the report that assessment tasks be reviewed regularly for evidence of bias, particularly in respect of gender and race? Is the Minister aware that this is not as straightforward as it sounds? For example, girls will tend to score higher than boys at certain ages and in certain areas of study, and vice versa. In those circumstances, does the Minister accept that these are difficulties which require a great deal of work, and perhaps more importantly very considerable resources, if the whole edifice on which the Government's testing is based is not to fail?
Viscount Davidson: My Lords, I accept entirely what the noble Lord says. I am sure that at certain ages girls score better than boys.
Lord Peston: My Lords, I had better not follow that remark! The Government are surely fully committed to teacher assessment. There have been statements made on that topic by the noble Baroness, Lady Hooper, in this House, and by the former Secretary of State. Am I right in understanding that, whatever else the Minister was saying, the Government remain fully committed to teacher assessment as part of the assessment procedure? It is impossible to see how anything can take place without the teachers. Will he not then draw to the

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attention of the Schools Examinations and Assessment Council the Government's commitment to teacher assessment? That appears to be the one group which does not understand the commitment to teachers in this matter.
Viscount Davidson: My Lords, I affirm that the Government are committed to teacher assessment. As I said earlier, the council's advice at the moment is only interim. Its comprehensive advice will be received by the end of the year, when I believe the noble Lord will be satisfied.
Lord Orr-Ewing: My Lords, can my noble friend say whether or not he has studied the American practice, which appears to be effective, whereby not only teachers assess pupils, but pupils assess teachers at the end of each term? This throws up in respect of the staff the really effective teachers in the classroom, which is as important as pupil assessment by teachers.
Viscount Davidson: My Lords, I can only tell my noble friend that when I was at school I should never have dared to do that.
Baroness Blackstone: My Lords, I am most grateful that the noble Lord has reaffirmed the Government's commitment to teacher assessment. In the light of that, is he prepared to ask the Schools Examinations and Assessment Council if it can prepare much more in the way of in-service training for those teachers who will be involved in assessment? That is 100 per cent. of them.
Viscount Davidson: My Lords, I shall certainly pass the comments of the noble Baroness to the board.
Viscount St. Davids: My Lords, I wonder whether there are any teachers here who have done what I used to do in class, which was to allow the young to get up, put their hands up and say, "Sir, you are being boring".
Viscount Davidson: My Lords, I have just had an idea!

NHS Hospitals: Casualty Departments
2.57 p.m.
Lord Auckland Lord Auckland asked Her Majesty's Government:
What measures they are currently taking to upgrade casualty departments in National Health Service hospitals, and whether they are satisfied with staffing ratios.
Lord Henley: My Lords, in general our accident and emergency departments provide excellent care. A recent Royal College of Surgeons' report identified a need for improvements in the care of the most seriously injured. Following consultations, the Department of Health is giving urgent consideration to these aspects of care.
Lord Auckland: My Lords, I thank my noble friend and kinsman for that Answer, which is partly satisfactory. Will he accept that there is general agreement that there has been improvement in the upgrading of casualty departments? Further, is he aware that at weekends there are real problems both of accommodation for the staff and for patients waiting for treatment, particularly in regard to road accidents, altercations and other such serious problems? Can he also say, where additional staff, particularly doctors, have to be brought in on a short-term or long-term basis, that regional health authorities will not be penalised and that extra funds will be available? Does not the Minister accept that, by doing that, a more efficient service will be given?
Lord Henley: My Lords, we are not aware of any specific problems with regard to weekend facilities in accident and emergency departments. If my noble kinsman knows of any specific instances, I shall be most grateful if he will bring them to my attention. It is for the health authority management locally to decide what level of staffing is necessary and to ensure that that is provided.
Regarding additional staff in an accident and emergency department, again it is a matter for the local health authority to make its own decisions as to what additional staff to take on and to fund that from its existing budget. However, from time to time central funding is provided for specific initiatives. An example of that would be the 100 extra consultant posts made available under Achieving a Balance. It will, however, be a matter for the health authority to make a bid if it considers that central funding is appropriate for its needs.
Lord Mellish: My Lords, the Question refers to upgrading casualty departments. What yardstick is used for that, bearing in mind that some casualty departments are terribly busy? I think of Guy's Hospital in my own locality where the casualty department is out of this world. How do you grade them?
Lord Henley: My Lords, some casualty departments are better than others. We recognised the fact that some needed improvement and that is what both the department and the Royal College of Surgeons have been looking at.
Lord Dean of Beswick: My Lords, is the Minister aware that there has been severe criticism of the Government's policy as regards more centralisation of casualty departments? Centralisation has resulted in the closure of some of the outlying hospitals which historically had casualty departments that worked very well. Is the Minister aware that this situation is causing great concern among people who have to go longer distances for emergency treatment?
Lord Henley: My Lords, I recognise the concern. However, it is very difficult to get the balance exactly right between having a great number of accident and emergency departments that it might not be possible to fund adequately or having fewer and better departments with more time to provide care. I

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believe that is another problem which the Royal College of Surgeons addressed. As I said originally, we are considering its report.
Lord John-Mackie: My Lords, is there any connection between ambulances and hospitals so as to prevent people being taken to a hospital which is too busy to cope and taken to another hospital which can cope? I particularly have in mind London where there are plenty of hospitals available.
Lord Henley: My Lords, we have always stated that we recognise the importance of the ambulance service in terms of getting patients to hospitals.
Lord Ennals: My Lords, since the Minister has raised the question of the ambulance service, has he a statement to make concerning any action that may be taken by the Secretary of State in the light of the initiative taken by the ambulancemen over the weekend? It would be very encouraging for all those who are extremely concerned at the present basis of cover.
Lord Henley: My Lords, the noble Lord will understand that we are not going to be drawn on to the subject of the ambulance dispute.

Business
3.2 p.m.
Lord Denham: My Lords, it may be for the convenience of the House if I announce that consideration of the Commons amendments to the Companies Bill will be adjourned at about 7 p.m. for about an hour and that during this adjournment the Third Reading of the Trade Union Act 1984 (Amendment) Bill will be taken.
Lord Cledwyn of Penrhos: My Lords, I hope that the House will bear with me if I say a brief word about the arrangements for next week's debate on the Address. My noble friends on this side of the House take the view that this House should have more time for this important debate. After all, this is the debate which sets the scene for the Session. It gives noble Lords on all sides the chance to comment on the Gracious Speech and its varied contents; namely, foreign affairs, defence and the whole range of domestic policies.
We on this side of the House believe that the three days allocated in the past are totally inadequate at this time; inadequate to enable noble Lords on all sides of the House to cover all the relevant subjects. We find that we have to telescope a number of departmental subjects into one day's debate. That is not an efficient or satisfactory way to do business. It also makes for an untidy discussion. We have of course made representations to the noble Lord and the Government Chief Whip in previous years, but so far without success.
The other place debates the same document and allows itself six days, which is double what is proposed for this House. I do not argue that we should go to that length. I suggest that we should
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extend the debate by one day; namely, Monday week, to enable us to cover the ground more thoroughly. I hope that this suggestion will not be regarded as unreasonable, because it is the Government themselves who have made the request inevitable by increasing the legislative workload year by year. I hope that the noble Lord the Leader of the House will concede the justice of this case.
Lord Tordoff: My Lords, I wish to add the voice of noble Lords on these Benches to the plea made by the noble Lord the Leader of the Opposition. It seems to us that the middle day is very crowded. Also, now that the subject of the environment has been added to the debate on the economy on the third day, that day too has become seriously overcrowded. Surely a full day should be available for discussion of the economy and related subjects. All the departmental briefs apart from foreign affairs and defence have been crowded on to the middle day, which seems an excessive amount of work to get through in one day.
The Lord Privy Seal (Lord Belstead): My Lords, I hear what the noble Lord the Leader of the Opposition says. As always, the noble Lord has made the reasons for his intervention absolutely clear. The House has also heard what the noble Lord, Lord Tordoff, has said from the Liberal Front Bench. My first reaction is that this is a matter affecting the whole House and therefore we should consider it through the usual channels. I give an undertaking to the House that I shall convene a quick meeting, using what we call the Leaders' and Whips' machinery, in order to look at the question.
I wish to make one point only. I know that administrative convenience is never a good argument, but the present arrangements have been agreed through the usual channels. Quite a number of your Lordships have the dates in their diaries. I shall not conceal from your Lordships that noble Lords have been telephoning and asking on what day they should speak as they wish to speak on a particular subject. I believe that the question and other matters should be considered by an all-party meeting. As I have said, I undertake to convene such a meeting quickly with a view to making a Business Statement to the House the day after tomorrow.
Lord Boyd-Carpenter: My Lords, when my noble friend comes to that meeting, will he bear in mind the good point made by the noble Lord, Lord Tordoff; namely, that if there are four days, the subjects can be divided far more logically and clearly than if they are compressed into three days?
Lord Belstead: My Lords, I shall certainly bear that point in mind. I shall not conceal from your Lordships that that was the one point on which I was not wholly clear. The noble Lord, Lord Tordoff, is normally clarity itself. He said that the middle day was unduly congested, which does not include, as the plans stand, the environment. He then implied that the subject of the environment merited a day on its own. Perhaps that is a matter that we can discuss in the meeting that I intend to convene.
Lord Houghton of Sowerby: My Lords, I admit to being one of the principal grumblers about this matter. It is quite humiliating that the Opposition should have to make an application to have use of the time of the House. I believe that sometimes we have a stronger claim than appears to be conceded. When I speak to more experienced Members about this kind of situation, they say, "Oh, but we never do". That is the trouble with this House —we never do. I am suggesting that for a change we do.
I ask noble Lords to consider that, while the other place is continuing the debate on the Address on the Friday and the Monday, we shall be away. Our debate is interrupted and the rhythm, the momentum and the spirit of it all disappear between Thursday evening and Tuesday. That is a long time to be absent from a topic which is really a continuous whole.
We shall be considering the trend of the Government's policies. This Queen's Speech may be the last of this Parliament but it is more likely to be the next to last. In the present political situation we can be excused for wanting to know a little more closely where the Government believe they are going. This is the time to do that. If what we read in the newspapers is true, there are some troublesome matters coming forward. We are not in for a very pleasant new Session —at least, not at the beginning. It is quite obvious that a number of us are going to have a spoilt Christmas because some people wish to intrude an unpleasant subject upon the House before then. It is not going to be good going.
As regards this side of the House, we want to hear the noise of a foot being put down occasionally concerning our wants. We are part of the House and of the institution. I suggest that, when an earnest plea is made by the Leader of the Opposition, supported for once by vocal observations from the Back Benches, then more favourable consideration should be given to the matter.
Lord Belstead: My Lords, perhaps this should be my last response as I have offered a meeting with all parties. It is a matter which affects the House. The noble Lord, Lord Houghton, made the point that we intend not to sit on the Friday following the State Opening and not, as things stand at the moment, on the following Monday, when another place will be sitting. While I am agog to hear what the noble Lord will say on the debate on the humble Address, I am not sure that other noble Lords would necessarily, even for the noble Lord, want to come to the House on the Friday of that week.
A serious point should be made. One characteristic distinguishes your Lordships' House from another place. Whereas we work just as hard throughout the year as another place, there is a period between the time of the State Opening and Christmas when we have just a little more time to be able to find moments to debate matters of general interest. That is one of the reasons, although it is only one, why in the past there has not been pressure for an extra day on the debate on the humble Address. Nonetheless, the point has been put to me from all sides of the House. I am ready to convene an all-party meeting
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and I have offered to come back to make a Business Statement on Wednesday.
The Earl of Lauderdale: My Lords, perhaps I may make one point from this side of the House. The longer the debate, the better the opportunity for those of us who are usually critical to declare our unwavering support for the Government.

Companies Bill [H.L.]
3.10 p.m.
The Minister of State, Department of Trade and Industry (Lord Trefgarne): My Lords, I beg to move that the Commons amendments be now further considered.
Moved, That the Commons amendments be now further considered —(Lord Trefgarne.)
On Question, Motion agreed to.

MOTIONS AND AMENDMENTS MOVED ON CONSIDERATION OF COMMONS AMENDMENTS
[References are to Bill 130 as first printed for the Commons.]

COMMONS AMENDMENT
272 After Clause 152, insert the following new Clause —
'Power to make further provision by regulations
(1) The Secretary of State may by regulations make such further provision as appears to him necessary or expedient for the purposes of this Part.
(2) Provision may, in particular, be made —

(a) for integrating the provisions of this Part with the general law of insolvency, and

(b) for adapting the provisions of this Part in their application to overseas investment exchanges and clearing houses.

(3) Regulations under this section may add to, amend or repeal any of the provisions of this Part or provide that those provisions have effect subject to such additions, exceptions or adaptations as are specified in the regulations.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 272.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
272A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 272.
Lord Williams of Elvel: My Lords, we continue the debate on Amendment No. 272A, which I move yet again. Last Thursday evening there was some debate of an inconclusive nature. I note that a number of noble Lords opposite display varying degrees of interest in the legislation. On the first day 223 noble Lords went through the Division Lobby to vote against my amendment. On Thursday evening there were only 18. I hope that the important arguments which I shall deploy today will ensure that noble Lords opposite turn up in sufficient numbers to make sure that the House can continue its business on Commons amendments to the Companies Bill.

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The essence of the Commons amendment with which I seek to disagree is that the Secretary of State,
"may by regulations make such further provision as appears to him necessary or expedient for the purposes of this Part". This Part of the Bill —Part VII —deals with insolvency and amendments to the Insolvency Act 1986. The purpose of this Part is to ensure that the insolvency provisions do not impede the operations of financial markets. It is exceptional in almost all respects, in that it cuts across the central feature of the Insolvency Act 1986, which is pari passu treatment for bankruptcy creditors. It opens up that principle yet again.
We thought that we had dealt with the matter in the 1986 Act. But we find here, in a Commons amendment, provision for the Secretary of State to make regulations amending the primary legislation if he decides that there is a better way to do it. As I said on Thursday evening, we are opposed to the general principle that the Secretary of State can amend primary legislation by secondary legislation. We wish it to be amended by primary legislation. It is worse in this case because, if the Secretary of State, or any future Secretary of State, decides that there is a better way of doing it, he can amend the whole of Part VII. We oppose this clause. I very much hope that the House will agree with my Motion. I beg to move.
Moved, That the House do disagree with the Commons in their Amendment No. 272. —(Lord Williams of Elvel.)
Lord Trefgarne: My Lords, I explained at some length, when speaking to this matter earlier, the reasons why we have found it necessary to take powers of this kind for the purposes of this Part of the Bill. I hope it will not be necessary to take up the time of the House by repeating that explanation now.
I would make three brief points. First, I do not believe that there is any fundamental difference of view, in this House or elsewhere, on the importance of safeguarding the effective operation of the financial markets. Part VII provides the means for doing that. While we have quite rightly debated several points of detail, nobody has been able to propose a better way of dealing with the uncertainties which have been identified.
Secondly, if it is accepted that something must be done, then it is vital that the solution is, and remains, fully effective. The problems are complex and so, inevitably, is Part VII. We have consulted extensively and have proposed a number of changes since the Part was introduced. It is consultation as much as anything that has persuaded us that we need to be more flexible than we earlier thought, to be sure that the Part is capable of working effectively for all the different markets to which it may apply, not just now, but in the light of future changes in the markets and the way they operate.
Finally, I should like to respond to one specific point made earlier by the noble Lord, Lord Williams, in relation to the provision to make regulations,
"for integrating the provisions of this Part with the general law of insolvency".
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This is not a matter of "junking" the existing provisions and "deciding on something rather different", as the noble Lord put it. On the contrary, it is a matter of being able to make any further detailed technical provision which may prove necessary to ensure that the special procedures provided for in the Part will mesh smoothly with the procedures for conducting insolvencies generally. This can only be in the interests of practitioners and creditors generally, and I would have hoped that the noble Lord would welcome that.
These provisions are the result of widespread consultation with the practitioners, consultation in which the noble Lord himself has been involved in a distinguished way. I hope therefore that, on reflection, he will think it right not to press his Motion.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord, as always, for his response. It is certainly true that there has been extensive consultation. There has been extensive consultation subsequent to the original introduction of Part VII at First Reading in this House. There was no consultation on Part VII other than on the generalities. This was for the obvious reason, which I fully understand and insolvency practitioners understand, that it is difficult to consult until one has something specific on which one wants to consult. Since then there has been extensive consultation.
This Bill has been with Parliament for a year. It is just about one year since the Second Reading debate in this House. If in the course of one year the Government cannot get their ideas together, co-ordinated and properly thought through in full consultation with all the bodies which are properly involved, it is a sad state of affairs. The noble Lord says that the provisions are technical. That is not what the Commons amendment indicates. It refers to,
"integrating the provisions of this Part with the general law of insolvency".
The general law of insolvency is set out in the Insolvency Act 1986. If there has been widespread consultation, that should have been done by now. I am afraid that I cannot accept the noble Lord's arguments. We are all agreed that the financial markets have to be protected. But if the Government have not been able in the past year to come forward with the right solution, I am sorry but they have not been doing their duty properly. That is my object in pressing the amendment.
3.19 p.m.
On Question, Whether this House do disagree with the Commons in their Amendment No. 272?
Their Lordships divided: Contents, 62; Not-Contents, 104.

DIVISION NO. 1

CONTENTS

Amherst, E.

Blackstone, B.

Ardwick, E.

Blease, L.

Aylestone, L.

Bonham-Carter, L.

1091

Broadbridge, L.

Llewelyn-Davies of Hastoe, B.

Bruce of Donington, L.

Buckmaster, V.

Longford, E.

Callaghan of Cardiff, L.

Mason of Barnsley, L.

Carmichael of Kelvingrove, L.

Mishcon, L.

Mulley, L.

Cledwyn of Penrhos, L.

Nicol, B.

Cocks of Hartcliffe, L.

Ogmore, L.

Dean of Beswick, L.

Oram, L.

Donaldson of Kingsbridge, L.

Peston, L.

Dormand of Easington, L.

Ponsonby of Shulbrede, L. [Teller.]

Ennals, L.

Ewart-Biggs, B.

Reilly, L.

Ezra, L.

Ritchie of Dundee, L.

Fisher of Rednal, B.

Rugby, L.

Fitt, L.

Sainsbury, L.

Gallacher, L. [Teller.]

Serota, B.

Gladwyn, L.

Soper, L.

Grantchester, L.

Stallard, L.

Grey, E.

Stedman, B.

Hanworth, V.

Stoddart of Swindon, L.

Harris of Greenwich, L.

Taylor of Blackburn, L.

Hooson, L.

Taylor of Gryfe, L.

Houghton of Sowerby, L.

Tordoff, L.

Irvine of Lairg, L.

Turner of Camden, B.

Jenkins of Putney, L.

Underhill, L.

John-Mackie, L.

Wallace of Coslany, L.

Kennet, L.

White, B.

Leatherland, L.

Williams of Elvel, L.

Listowel, E.

NOT-CONTENTS

Ailesbury, M.

Ironside, L.

Alexander of Tunis, E.

Jenkin of Roding, L.

Allerton, L.

Johnston of Rockport, L.

Alport, L.

Killearn, L.

Ampthill, L.

Kinloss, Ly.

Annaly, L.

Lawrence, L.

Auckland, L.

Layton, L.

Belhaven and Stenton, L.

Long, V.

Belstead, L.

Lovat, L.

Bessborough, E.

Lucas of Chilworth, L.

Blanch, L.

Mackay of Clashfern, L.

Blatch, B.

Macleod of Borve, B.

Boyd-Carpenter, L.

Marley, L.

Brabazon of Tara, L.

Merrivale, L.

Brightman, L.

Mersey, V.

Butterworth, L.

Monk Bretton, L.

Clanwilliam, E.

Montgomery of Alamein, V.

Cockfield, L.

Morris, L.

Constantine of Stanmore, L.

Mountgarret, V.

Craigavon, V.

Mowbray and Stourton, L.

Dacre of Glanton, L.

Murton of Lindisfarne, L.

Davidson, V. [Teller.]

Nelson, E.

De Freyne, L.

Newall, L.

Denham, L. [Teller.]

Nugent of Guildford, L.

Eden of Winton, L.

Orkney, E.

Effingham, E.

Orr-Ewing, L.

Elibank, L.

Oxfuird, V.

Ellenborough, L.

Penrhyn, L.

Elles, B.

Peyton of Yeovil, L.

Elliot of Harwood, B.

Porritt, L.

Elton, L.

Pym, L.

Erroll of Hale, L.

Rankeillour, L.

Faithfull, B.

Reay, L.

Ferrers, E.

Rodney, L.

Foley, L.

St. Davids, V.

Fraser of Kilmorack, L.

Saltoun of Abernethy, Ly.

Gainford, L.

Shannon, E.

Gridley, L.

Sharples, B.

Hailsham of Saint Marylebone, L.

Slim, V.

Strathcarron, L.

Halsbury, E.

Strathclyde, L.

Harvington, L.

Strathspey, L.

Havers, L.

Sudeley, L.

Henley, L.

Terrington, L.

Hesketh, L.

Teviot, L.

Hives, L.

Thomas of Gwydir, L.

Holderness, L.

Thorneycroft, L.

Hood, V.

Tranmire, L.

Hylton-Foster, B.

Trefgarne, L.

1092

Trumpington, B.

Wedgwood, L.

Ullswater, V.

Wise, L.

Vaux of Harrowden, L.

Wynford, L.

Walton of Detchant, L.

Resolved in the negative, and Motion disagreed to accordingly.
On Question, Amendment No. 272 agreed to.
3.27 p.m.

COMMONS AMENDMENT
273 After Clause 153, insert the following new Clause—
Construction of references to parties to market contracts
'.—(1) Where a person enters into market contracts in more than one capacity, the provisions of this Part apply (subject as follows) as if the contracts entered into in each different capacity were entered into by different persons.
(2) References in this Part to a market contract to which a person is a party include (subject as follows, and unless the context otherwise requires) contracts to which he is party as agent.
(3) The Secretary of State may by regulations —

(a) modify or exclude the operation of subsections (1) and (2), and

(b) make provision as to the circumstances in which a person is to be regarded for the purposes of those provisions as acting in different capacities.'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 273.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
274 Clause 154, page 150, line 10, leave out from beginning to 'unable' and insert 'for the taking of action in the event of a person appearing to be'.
The Parliamentary Under-Secretary of State, Department of Employment (Lord Strathclyde): My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 274. In moving this amendment I should like to speak also to Amendments Nos. 486 to 492.
Amendment No. 274 makes a consequential amendment to the definition of default rules under Clause 154. The remaining amendments in this group concern Schedule 16 which deals with additional requirements for recognition of a recognised investment exchange or recognised clearing house.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
275 Clause 154, page 150, line 20, at end insert —
'(4) If an exchange or clearing house takes action under its default rules in respect of a person, all subsequent proceedings under its rules for the purposes of or in connection with the settlement of market contracts to which the defaulter is a party shall be treated as done under its default rules.'.
276 Page 150, line 32, leave out '(or, in Scotland, as jucicial factor)'.
277 Page 150, line 35, leave out subsection (2) and insert —
'(2) In subsection (1)(b) "company" means any company, society, association, partnership or other body which may be wound up under the Insolvency Act 1986.'.
278 Clause 156, page 150, line 44, at end insert —
'"administrative receiver" has the meaning given by section 251 of the Insolvency Act 1986;'.
279 Page 150, line 48, at end insert —
'"interim trustee" and "permanent trustee" have the same meaning as in the Bankruptcy (Scotland) Act 1985;'.
280 Page 151, line 6, at end insert —
'"set off", in relation to Scotland, includes compensation;'.
281 Page 151, line 10, at end insert —
'(1A) References in this Part to settlement in relation to a market contract are to the discharge of the rights and liabilities of the parties to the contract, whether by performance, compromise or otherwise.
(1B) In this Part the expressions "margin" and "cover for margin" have the same meaning.'.
282 Page 151, line 12, at end insert —
'(2A) For the purposes of this Part a person shall be taken to have notice of a matter if he deliberately failed to make enquiries as to that matter in circumstances in which a reasonable and honest person would have done so.
This does not apply for the purposes of a provision requiring "actual notice".'.
283 Page 151, line 13, leave out subsection (3).
284 Page 151, line 18, at end insert '; and in relation to a building society references to insolvency law or to any provision of the Insolvency Act 1986 are to that law or provision as modified by the Building Societies Act 1986.'.
285 Page 151, line 18, at end insert —
'(5) In relation to Scotland, references in this Part —

(a) to sequestration include references to the administration by a judicial factor of the insolvent estate of a deceased person, and

(b) to an interim or permanent trustee include references to a judicial factor on the insolvent estate of a deceased person,

unless the context otherwise requires.'.
286 Clause 157, page 151, line 21, at end insert —

'administrative receiver

section 156(1)'.

287 Page 151, line 23, at end insert —

'cover for margin

section 156(1B)'.

288 Page 151, line 27, at end insert —

'interim trustee

section 156(1) and (5)(b)'.

289 Page 151, line 29, at end insert —

'margin

section 156(1)B'.

290 Page 151, line 31, at end insert —

'notice

section 156(2A)'.

291 Page 151, line 34, column 2, leave out '156(3)' and insert
'(construction of references to parties to market contract)'.
292 Page 151, line 34, at end insert —

'permanent trustee

section 156(1) and (5)(b)'.

293 Page 151, line 36, at end insert —

'sequestration

section 156(a)

settlement and related expressions

section 156(1A)

(in relation to a market contract) set off (in relation to Scotland)

section 156(1)'.

294 Page 151, line 37, at end insert —

'trustee, interim or permanent (in relation to Scotland)

section 156(5)(b)'.

Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 275 to 294.
Moved, That the House do agree with the Commons in the said amendments. — (Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
295 After Clause 157, under the heading 'Amendments of the Financial Services Act 1986', insert the following new Clause —
'Statements of principle
'. In Chapter V of Part I of the Financial Services Act 1986 (conduct of investment business), after section 47 insert —
47A. — (1) The Secretary of State may issue statements of principle with respect to the conduct and financial standing expected of persons authorised to carry on investment business.
(2) The conduct expected may include compliance with a code or standard issued by another person, as for the time being in force, and may allow for the exercise of discretion by any person pursuant to any such code or standard.
(3) Failure to comply with a statement of principle under this section is a ground for the taking of disciplinary action or the exercise of powers of intervention, but it does not of itself give rise to any right of action by investors or other persons affected or affect the validity of any transaction.
(4) The discipinary action which may be taken by virtue of subsection (3) is—

(a) the withdrawal or suspension of authorisation under section 28 or the termination or suspension of authorisation under section 33,

(b) the giving of a disqualification direction under section 59,

(c) the making of a public statement under section 60, or

(d) the application by the Secretary of State for an injunction, interdict or other order under section 61(1).

and the reference in that subsection to powers of intervention is to the powers conferred by Chapter VI of this Part.
(5) Where a statement of principle relates to compliance with a code or standard issued by another person, the statement of principle may provide —

(a) that failure to comply with the code or standard shall be a ground for the taking of disciplinary action, or the exercise of powers of intervention, only in such cases and to such extent as may be specified; and

(b) that no such action shall be take., or any such power exercised, except at the request of the person by whom the code or standard in question was issued.

(6) The Secretary of State shall exercise his powers in such manner as appears to him appropriate to secure compliance with statements of principle under this section.
Modification or waiver of statements of principle in particular cases.
47B. — (1) The relevant regulatory authority may on the application of any person —

(a) modify a statement of principle issued under section 47A so as to adapt it to his circumstances or to any particular kind of business carried on by him, or

(b) dispense him from compliance with any such statement of principle, generally or in relation to any particular kind of business carried on by him.

(2) The powers conferred by this section shall not be exercised unless it appears to the relevant regulatory authority —

(a) that compliance with the statement of principle in question would be unduly burdensome for the

1095
applicant having regard to the benefit which compliance would confer on investors, and

(b) that the exercise of those powers will not result in any undue risk to investors.

(3) The powers conferred by this section may be exercised unconditionally or subject to conditions; and section 47A(3) applies in the case of failure to comply with a condition as in the case of failure to comply with a statement of principle.
(4) The relevant regulatory authority for the purposes of this section is —

(a) in the case of a member of a recognised self-regulating organisation or professional body, in relation to investment business in the carrying on of which he is subject to the rules of the organisation or body, that organisation or body;

(b) in any case, or in relation to other investment business, the Secretary of State.

(5) The references in paragraph 4(1) of Schedule 2 and paragraph 4(2) of Schedule 3 (requirements for recognition of self-regulating organisations and professional bodies) to monitoring and enforcement of compliance with statements of principle include monitoring and enforcement of compliance with conditions imposed by the organisation or body under this section.".'.
Lord Tregarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 295. In moving this amendment I hope that it will be convenient to the House if I speak also to Amendments Nos. 297 to 299, 306, 313 and 494.
The Financial Services Act 1986 represented a major step forward in investor protection, but experience since its enactment has shown that some modification is necessary to achieve the flexibility of operation which was intended. I am certain that your Lordships will recall the debate we had on the subject on Second Reading when we heard distinguised contributions from many noble Lords. I should especially like to recall the speech made by my noble friend Lord Jenking of Roding, who I am happy to see is in his place this afternoon, and that made by my noble friend Lord Elton. Both noble Lords brought to bear on the subject their valuable experience: one as a practitioner and the other as the chairman of FIMBRA. In the consultative process which followed, the Government were grateful for the helpful contributions from the recognised self-regulating organisations, not least FIMBRA chaired by my noble friend.
I do not propose to detain your Lordships with a detailed analysis of the effect of the amendment, although I shall be entirely happy to answer any questions that are raised. Taken together, the amendments provide for more flexibility in the operation of the Financial Services Act. First, the SIB will be able to issue a statement of principles. That statement of priciples will be the guiding light of firms engaged in investment business, and the breach of such a statement will form grounds for the exercise of its disciplinary functions. It will not, however, give use to a right of civil action for investors. I should perhaps mention that in the light of the way the SIB proposes to exercise that power, it is not the Government's present intention to commence new Section 47B.
Firms will also continue to be subject to rules which give rise to civil rights. The change that we
1096
propose in that area is to give the SIB the power to designate certain core rules as applying to all SRO members, subject to whatever modification may be necessary to adapt them to the circumstances of a particular SRO.
The SIB will also have the power to issue codes of practice which will have evidential value in relation to the principles or the rules. In addition —this is a matter covered by Amendment No. 305 to which we shall come later —the recognition test for SROs and professional bodies will be amended so that they will have to satisfy the SIB that their rules, in the context of the principles, and so forth, will afford investors an adequate level of investor protection. That test replaces the equivalent test in the Act, which has given rise to some difficulty in interpretation. The new test is one of adequacy. It will be applied in each case by the SIB, and the SIB has made it clear that it will apply it equally to all SROs and RPBs.
While the rules may differ between SROs and RPBs, the SIB has confirmed its intention to ensure that the effectiveness of investor protection will not. Any idea that one will provide an easier regime for practitioners or a greater risk for investors than the other is therefore entirely without foundation.
I should also mention Amendment No. 306, which will require the regulatory bodies to take compliance costs into account when making their rules. Experience suggests that that provision is desirable to back up the understandable desire of practitioners to achieve the desired level of investor protection at least cost. The other main effect of the amendment is to clarify the extent to which the SIB can rely upon other regulators, both domestic and foreign, and to give it the ability to use its own powers in support of action by a foreign regulator.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
3.30 p.m.
Lord Jenkin of Roding: My Lords, it will be within the recollection of the House —my noble friend has already adverted to it —that in Committee on 6th March, which seems a long time ago, I moved an amendment to suggest that the regulatory system under the Financial Services Act should take a form different from that which was originally enacted and for which, I have to say, I voted in another place. I argued at the time that we needed some statements of principle coupled with what I described as a kind of Highway Code—rules of guidance.
However, my noble friend Lord Young of Graffham, who replied to the debate, went a long way towards convincing me that that by itself would not be enough. With others, I gave a good deal more thought to the matter. Some of those thoughts I expressed in a speech when I opened the Yorkshire Money Show in Bradford, because what seemed to me to lie at the heart of what was wrong with the original form was that the rules were trying to do two things: they were trying to regulate the professions, the brokers and other bodies, and trying to confer rights of compensation on individual investors. It seemed to me and to others—the Law

1097
Society among them —that any system which tried to do both those things with the same set of rules was bound to become cumbersome and detailed, which is what happened.
Therefore, I do not need to emphasise how warmly I welcome the amendments, because we have now a sensible three-tier system. We have a statement of principles by which the professions will be regulated, and there will be guidance, as I suggested. The code will not of itself give rise to disciplinary procedures but will have evidential value only. We shall have rules, themselves two-tier, which is the only point I wish to put to my noble friend. There will be rules, which are sometimes called the core rules (the SIB can designate some of its rules as core rules) which apply through the SROs to the individual members of the profession being regulated. However, it is open to the SROs to modify or amplify the rules which are not designated as core rules and it is on that point that I wish to sound a note of caution.
Perhaps I may pay tribute to the chairman of the SIB, Mr. David Walker, who has devoted an enormous amount of successful effort to the changes. It is the intention of the SIB that the rules which are promulgated by the individual SROs or RPBs should be only the minimum necessary to ensure adequacy of protection, relative to the particular professions and trades which are being regulated. There is already some evidence that at least two of the SROs, IMRO and LAUTRO —I apologise for the acronyms but they have become so usual that one is justified in using them —are proving extraordinarily reluctant to abandon any of their original rule book. That will go some way towards defeating the purpose of the new legislation.
There is a safeguard in the Bill because it requires the assent of the SIB before an SRO's rule book can so modify the SIB's own rules. I urge the Government and, through the Government, the SIB to use that power strenuously because it will defeat the purpose of these extremely beneficial amendments if the existing bureaucracies in those SROs stand guard on their existing rule book, with all its details, merely because it is there and they think that it is necessary to enable them to perform their regulatory functions.
The main core of the scheme must be the principles, the codes of guidance and the central rules (the core rules) made by the SIB. I hope that what is added at the third tier —at the level of the SROs or RPBs —will be the minimum necessary to provide an appropriate level of protection. It does not look as though that is happening at the moment.
While my noble friend and his colleagues rightly bask in the approval of the House for this string of amendments—the noble Lord, Lord Williams, shakes his head —or at least the approval of this side of the House, will he also take note of the fears that I have expressed? When I moved the amendment on 6th March, it occupied 20 lines. As I calculate it, this group of amendments occupies 26½ pages of the Bill. I am sure that the amendments are much better than my amendment, but they are much longer.
Lord Elton: My Lords, perhaps I may preface my welcome for the amendments by taking up the point
1098
made by my noble friend. We were assured outside the House that the complexity in all our regulations —I declare my interest as chairman of FIMBRA, one of the SROs —arose from the use of four words in Schedule 2 to the Financial Services Act. Those words were "at least equivalent to". My simple hope on Second Reading was that four other words might be found which had the meaning in law attributed to them in normal conversation by normal people so that we could get round that difficulty.
I should have liked to see four rows rather than about 20 lines. However, I believe that we have a means of simplification which is very welcome indeed to the industry. Exactly how simple the simplicity will be remains to be seen. As my noble friend will remember, at the appropriate stage of the Bill I said that the criteria should be simplicity and certainty: simplicity for clarity of application; and certainty for the avoidance of litigation.
My noble friend has pointed out that two of the SROs have embarked swiftly on the process of reviewing activities in the light of what is proposed here. The outcome of that appears to him to be minimal in terms of simplification. I make no comment on that because I am not familiar with their procedures. However, I regard it as supportive of my own association's approach which is to ascertain the maximum that can be done and the greatest security that it will work, before embarking on a change in the rule book. Thus what comes later may be more welcome than what comes earlier.
I also wish to say how glad I was to hear the Government's declaration of their intention not to implement the new Section 47B which has the odd effect of waiving statements of principle. It seems to me that a statement of principle ceases to be a statement of principle when it is waived. I am glad that the Government do not intend to introduce that paradox into our daily life earlier than necessary.
The other remarks which my noble friend made are more relevant to my own Amendments Nos. 305A and 305B. I shall not speak further except to say that any attempt at simplification is welcome. I hope that the Government and other authorities will give us all the assistance that they cart in making sure that the result is indeed simplification and not a change in complexity.
3.45 p.m.
Lord Bridges: My Lords, in speaking to Amendment No. 295, I too wish to declare an interest in that I am an independent board member of the Securities Association, one of the five statutory self-regulatory organisations recognised under the Act. I should tell the House that I have consulted the association about the amendment. My remarks will reflect what I have been told.
This is a complex matter. It is important to distinguish between the wood and the trees. I suggest that in considering these amendments we must bear in mind the broad objectives of the regulatory regime which was set out in the Government's original White Paper in 1985. Very briefly, those objectives were as follows: the efficiency of the markets; their competitiveness; their flexibility in changing

1099
circumstances; and, most important, confidence of the investors in the regulation of the markets.
The stated intention of the original Act was to provide a statutory framework within which the SROs could operate flexibly. One of the main vehicles for achieving the Act's objective was the group of SROs such as the TSA. I suggest to the House that events since the Act was passed have justified the decision to rely on the SROs. They have experienced practitioners at their disposal who have been heavily involved in the formation of these organisations and their continued operation. They are best equipped to spot and to stop malpractice. They can react quickly to changing circumstances I can, I think, understand some of the reasons underlying the need for Amendment No. 295. The density of the rules introduced by the Securities and Investments Board may perhaps have come as something of a surprise to the authors of the Bill. The need to reinvent the principles can therefore be welcomed. As the noble Lord, Lord Jenkin, has just suggested, it might have been wiser if that had been done at the outset.
However, my worry with the amendments as they stand is that they can be read as a move away from the concept of responsive practitioner-based regulation. For the new statements of principle and the core rules will be issued by the centre —that is, by the SIB. They will bind all investment businesses, whether they are members of the SRO or not.
I should emphasise that I can readily accept the basic notion of principles and core rules. Clear statements of principles to be followed by every investment business are highly desirable. That is a good way of setting standards. Uniformity of rules between the various SROs is also helpful to client and practitioner alike. However, I express a certain regret that the method chosen will mean direct application of these principles in core rules issued by the SIB. Many people involved in the SROs would have preferred a different route; namely, the introduction of these core rules into the rule books of each SRO. The individual investment business would then continue to see its own SRO as the single source of its regulation.
It may be pointed out from the Government Benches that the legal effect of either route is the same. I do not for a moment deny that. What I say is that it would have been better to follow a method which confirmed and strengthened the role of the SRO rather than running the risk of weakening it. As matters will stand under the present amendments, there seem to me to be certain dangers that the complexity of the system of regulation will be increased and that the authority and role of the SROs will be weakened. I feel bound to call attention to these disadvantages.
There are some other amendments which could be taken as having a further centralising effect. I refer in particular to the power of the SIB to designate certain core rules which will not be capable of waiver. The TSA was pleased to note the statement in another place that the power was intended as a
1100
reserve power, although that is not I think specifically stated in the amendment.
I hope that the Minister will be able to give us a clear message today and that he will be able to reaffirm that the Government's intentions towards the SROs will not be changed; that it is not intended to dilute the role of the SROs in the clauses proposed to the House; and that the SROs are seen as continuing to have a key role in the system of regulation, especially in writing and enforcing their own rule books for their members.
Effective functioning of the SRO system requires a committed contribution by the practitioners themselves. If the amendments are to be taken as shifting responsibilities away from the SROs to the SIB, then that commitment may be reduced. That would be bad for effective regulation and bad for achieving the Government's objective. I invite the Minister to confirm that that is not the Government's intention.
Lord Hooson: My Lords, perhaps I may apologise to your Lordships for the absence from these Benches today of my noble friend Lord Lloyd of Kilgerran who has made a very considerable contribution to your Lordships' debates. He is indisposed and in bed and I have stepped into the breach at very short notice. I do not pretend to have any detailed knowledge of company law.
With regard to these amendments, I understand that the securities associations welcome them as a way in which to overcome difficulties arising from the Financial Services Act. The amendments simplify the procedures. They will help to ensure that the regulatory structure does not become over-complex and unclear for both businesses and investors alike.
We on these Benches welcome the clarification now introduced by the amendments. It appears that investors should have increasing confidence in regulatory systems to enable them to operate flexibly in a very competitive financial market. I should add that I am putting forward the view of my noble friend on this matter. However, I must say that I agree with him.
Lord Williams of Elvel: My Lords, at the risk of appearing rather as Banquo's ghost in this feast of celebration, perhaps I may take issue with the Government, noble Lords opposite, and indeed those to my left and right politically and geographically, on some points in these amendments. In general, we welcomed the financial services legislation when it came in. I remember spending long hours in your Lordships' House debating the minutiae of that legislation. The points that I made almost ad infinitum, if not ad nauseam, were that if financial services legislation is to work properly —I speak as a practitioner of more than 20 years in this business —it has to ensure that there are clear rules for the protection of investors at the same time as ensuring that the markets can operate satisfactorily underneath those rules.
The problem I had with the legislation when it was a Bill in 1986 was that it went into far too much

1101
detail as regards the system of legislation and the system of control, with the results that we all know. The operation of the legislation has generated an enormous amount of paper and rule books inches thick. That has been a major problem.
The Government embarked on a consultative process which the noble Lord, Lord Young of Graffham, described to your Lordships when we debated the amendment of the noble Lord, Lord Jenkin, in Committee. He said at the time that he was unable to bring forward the amendments which we had hoped to see in this House but that they would be produced in another place, as indeed they were. To a certain extent the amendments mark a move forward, but to a great degree they confuse the issue. The issue should be quite simple. I preferred the speech made by the noble Lord, Lord Jenkin of Roding, in Committee to the speech he made today.
As I said, the issue should be quite simple. One has general statements of principle which people authorised to carry on investment business should pay attention to. One then has rules, the violation of which can give rise to disciplinary procedures and indeed civil action. One then has a code of guidance which states that, in general, the rules mean such and such. That code of guidance can be altered as circumstances require. That seems to me to be a perfectly clear tripartite system of operating financial services control.
However, when one starts, as the Government have started, to say that failure to comply with a general statement of principle is a ground for the taking of disciplinary action —in other words, operators can have their authorisation removed for failure to abide by a principle —one is then giving the principle the status of a rule. There will no doubt be a lot of litigation and the courts will argue about what the principle means. The whole point of a principle is that that kind of litigation on detail should not arise.
When the principle is then allowed to state, as it is in Amendment No. 295, that,
"the conduct … expected of persons authorised to carry on investment business … may include compliance with a code",
so that the principle states that one must comply with a code, the operation of the legislation becomes rather circular. I find this measure a curious half-way house. I would prefer to go the whole way with the noble Lord, Lord Jenkin, as he stated in Committee, and say that we should have principles, clearly enforced rules and guidance which illustrates how the rules should operate.
Lord Jenkin of Roding: My Lords —
Lord Williams of Elvel: My Lords, as we are on Commons amendments, I hope I may continue. On the question of new Section 47B, the Government have said they do not intend to commence this new section. The noble Lord, Lord Elton, has welcomed it. However, if the Government do not want new Section 47B —I agree wholeheartedly with the noble Lord, Lord Elton, in his view —why have it there in the first place? Why has new Section 47B been included in the legislation if the Government are not going to commence it now? Why have a reserve
1102
power? It is quite contrary to the statement of principle that it should be waived in any particular case. That does not make any sense to me.
I understand that the SROs will have great difficulty in rewriting their rule books. That is a matter on which they have spent a great deal of time, and one on which they will have to spend a great deal more time. I should like the noble Lord to address himself to my next question, which to a certain extent picks up the question of the noble Lord, Lord Bridges. Will the SROs in practice survive? I do not wish to refer to these differences of opinion which have taken place in some SROs in the very recent past, but some SROs seem to be rather weaker than others. Indeed, there is a question as to whether one SRO may dissolve itself or possibly merge with another. I wonder whether the Government are firmly committed to the continuing central position of SROs in the whole structure of legislation.
We have spent a certain amount of time on these amendments. I have made the points I wish to make, but I should say a few words about the cost of compliance. I am afraid that investor protection does not come cheap. I very much hope that in accepting that SROs must take account of the cost of compliance with the rules, corners will not be cut so that we do not obtain proper invest or protection. The complaint about the financial services legislation in its present form is not only from operators who find it too complicated and expensive to operate but also from small investors who find that it does not give them the protection they want. That is a widespread complaint.
I hope that these amendments the Government have put forward will go some way to remove those two complaints. I think they are rather more biased towards the operators than towards the investors. As such, we do not oppose them, but we do not give them a particularly warm welcome. We believe they represent a half-way house and that the Government will have to move the whole way in the course of time.
Lord Trefgarne: My Lords, I think it is right that I should again stress that the changes being made to the Financial Services Act in no way represent any reduction in the Government's commitment to the effective protection of investors. Rather, they represent experience accumulated over the first year of the Act's operation. This experience points to the benefits to be gained, by practitioners and investors alike, from a number of modifications to the way in which the very high standard of investor protection already achieved should be maintained.
I note what the noble Lord, Lord Bridges, had to say about the role of the self-regulatory organisations. I hope I can reassure him by taking this opportunity to re-affirm what has been said in another place. Nothing in these changes should in any way be seen as a weakening of the Government's commitment to practitioner-based regulation and their recognition of the vital role of the SROs in that system. I hope that responds also to a point made by the noble Lord, Lord Williams.

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I wish to refer to some of the remarks of my noble friend Lord Jenkin. I hope that he will take some comfort from the provisions of Amendment No. 306, which will require the costs of compliance to be taken into account. That point was also raised by the noble Lord, Lord Williams. I can assure my noble friend that the Government wish those costs to be the minimum necessary to protect investors adequately. I can only add that it is up to members of SROs, as well as the SIB, to ensure that this objective is achieved.
The noble Lord, Lord Williams, was concerned about breaches of principle and the possible disciplinary action that may follow. I am bound to say that I am a little curious as to how the noble Lord thinks principles should be enforced. Is he proposing that a firm that breaches the principle on, for example, due care and diligence should be immune from discipline? I am sure that that is not the case.
The noble Lord, Lord Williams, and, I believe, my noble friend Lord Elton were concerned about the position of new Section 47B. As I explained earlier, we do not propose to commence this new section in the first instance. I think it is important to realise that the power to issue statements of principle is not in any way limited in the number or type of principles selected. While I believe it is right that there should be no question of a waiver from the kinds of principles which the SIB is now proposing, the legislation provides sufficient flexibility that the SIB could choose to use this power more widely at some point in the future. At that time it might become appropriate for certain principles to be the subject of waivers and the Government could take action accordingly.
My noble friend Lord Elton referred to the question of adequacy representing possibly lower protection than equivalent. As my noble friend recognised at the Second Reading of the Bill, the presence of the word "equivalent" in the Financial Services Act has been widely interpreted as requiring a close textual comparison of different sets of rules rather than a comparison of their effects. The amendment now being made breaks that textual link, so ensuring that the recognised bodies are free to draw up detailed rules as appropriate for their membership. There is no reason to suppose that the overall standard of investor protection will decline as a result of the change.
Throughout the course of the Bill the noble Lord, Lord Williams, has had to decide whether he was speaking from his great experience in these matters or as a member of the Labour Party speaking from the Opposition Front Bench in your Lordships' House. It seems to me that the noble Lord has had difficulty on occasions in reconciling those two different responsibilities. On this occasion he has attempted to sit on the fence between the two —with some difficulty, if he will forgive me for saying so. The fact of the matter is that the proposals now before your Lordships have the widespread approval of the practitioners, at least; and I hope that now they will have the approval of the Labour Party as well.
Lord Williams of Elvel: My Lords, before the noble Lord sits down, will he recognise that the points that I made were made by my honourable friend Mr. John Garrett in another place?
On Question, Motion agreed to.
4 p.m.

COMMONS AMENDMENT
296 Clause 158, page 152, line 41, leave out from 'body),' to end of line 42 and insert after "paragraphs 2 to 25" insert "(except paragraph 22A)".'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 296. It is purely technical and deals with a drafting problem.
Moved, That the House do agree with the Commons in the said amendment, —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
297 After Clause 158, insert the following new Clauses —
'Application of designated rules and regulations to members of self-regulating organisations.
. In Chapter V of Part I of the Financial Services Act 1986 (conduct of investment business), after section 63 insert —
"Application of designated rules and regulations to members of self-regulating organisations.
63A. —(1) The Secretary of State may in rules and regulations under —

(a) section 48 (conduct of business rules),

(b) section 49 (financial resources rules),

(c) section 55 (clients' money regulations), or

(d) section 56 (regulations as to unsolicited calls),

designate provisions which apply, to such extent as may be specified, to a member of a recognised self-regulating organisation in respect of investment business in the carrying on of which he is subject to the rules of the organisation.
(2) It may be provided that the designated rules or regulations have effect, generally or to such extent as may be specified, subject to the rules of the organisation.
(3) A member of a recognised self-regulating organisation who contravenes a rule or regulation applying to him by virtue of this section shall be treated as having contravened the rules of the organisation.
(4) It may be provided that, to such extent as may be specified, the designated rules or regulations may not be modified or waived (under section 63B below or section 50) in relation to a member of a recognised self-regulating organisation.
Where such provision is made any modification or waiver previously granted shall cease to have effect, subject to any transitional provision or saving contained in the rules or regulations.
(5) Except as mentioned in subsection (1), the rules and regulations referred to in that subsection do not apply to a member of a recognised self-regulating organisation in respect of investment business in the carrying on of which he is subject to the rules of the organisation.
Modification or waiver of designated rules and regulations
63B. —(1) A recognised self-regulating organisation may on the application of a member of the organisation —

(a) modify a rule or regulation designated under section 63A so as to adapt it to his circumstances or to any particular kind of business carried on by him, or

1105

(b) dispense him from compliance with any such rule or regulation, generally or in relation to any particular kind of business carried on by him.

(2) The powers conferred by this section shall not be exercised unless it appears to the organisation —

(a) that compliance with the rule or regulation in question would be unduly burdensome for the applicant having regard to the benefit which compliance would confer on investors, and

(b) that the exercise of those powers will not result in any undue risk to investors.

(3) The powers conferred by this section may be exercised unconditionally or subject to conditions; and section 63A(3) applies in the case of a contravention of a condition as in the case of contravention of a designated rule or regulation.
(4) The reference in paragraph 4(1) of Schedule 2 (requirements for recognition of self-regulating organisations) to monitoring and enforcement of compliance with rules and regulations includes monitoring and enforcement of compliance with conditions imposed by the organisation under this section.".
298 Insert the following new Clause—
Codes of practice
. In Chapter V of Part I of the Financial Services Act 1986 (conduct of investment business), after the sections inserted by section (Application of designated rules and regulations to members of self-regulating organisations) above, insert —
"Codes of practice
63C. —(1) The Secretary of State may issue codes of practice with respect to any matters dealt with by statements of principle issued under section 47A or by rules or regulations made under any provision of this Chapter.
(2) In determining whether a person has failed to comply with a statement of principle —

(a) a failure by him to comply with any relevant provision of a code of practice may be relied on as tending to establish failure to comply with the statement of a principle, and

(b) compliance by him with the relevant provisions of a code of practice may be relied on as tending to negative any such failure.

(3) A contravention of a code of practice with respect to a matter dealt with by rules or regulations shall not of itself give rise to any liability or invalidate any transaction; but in determining whether a person's conduct amounts to contravention of a rule or regulation —

(a) contravention by him of any relevant provision of a code of practice may be relied on as tending to establish liability, and

(b) compliance by him with the relevant provisions of a code of practice may be relied on as tending to negative liability.

(4) Where by virtue of section 63A (application of designated rules and regulations to members of self-regulating organisations) rules or regulations —

(a) do not apply, to any extent, to a member of a recognised self-regulating organisation, or

(b) apply to any extent, subject to the rules of the organisation,

a code of practice with respect to a matter dealt with by the rules or regulations may contain provision limiting its application to a corresponding extent.".
299 Insert the following new Clause—
Relations with other regulatory authorities.
. In Part I of the Financial Services Act 1986 (regulation of investment business), after section 128 insert —

RELATIONS WITH OTHER REGULATORY AUTHORITIES
Relevance of other controls
128A. In determining —

(a) in relation to a self-regulating organisation, whether the requirements of Schedule 2 are met, or

(b) in relation to a professional body, whether the requirements of Schedule 3 are met,

the Secretary of State shall take into account the effect of any other controls to which members of the organisation or body are subject.
Relevance of information given and action taken by other regulatory authorities.
128B. —(1) The following provisions apply in the case of —

(a) a person whose principal place of business is in a country or territory outside the United Kingdom, or

(b) a person whose principal business is other than investment business;

and in relation to such person "the relevant regulatory authority" means the appropriate regulatory authority in that country or territory or, as the case may be, in relation to his principal business.
(2) The Secretary of State may regard himself as satisfied with respect to any matter relevant for the purposes of this Part if —

(a) the relevant regulatory authority informs him that it is satisfied with respect to that matter, and

(b) he is satisfied as to the nature and scope of the supervision exercised by that authority.

(3) In making any decision with respect to the exercise of his powers under this Part in relation to any such person, the Secretary of State may take in to account whether the relevant regulatory authority has exercised, or proposes to exercise, its powers in relation to that person.
(4) The Secretary of State may enter into such arrangements with other regulatory authorities as he thinks fit for the purposes of this section.
(5) Where any functions under this Part have been transferred to a designated agency, nothing in this section shall be construed as affecting the responsibility of the Secretary of State for the discharge of Community obligations or other international obligations of the United Kingdom.
Enforcement in support of overseas regulatory authority.
128C.—(1) The Secretary of State may exercise his disciplinary powers or powers of intervention at the request of, or for the purpose of assisting, an overseas regulatory authority.
(2) The disciplinary powers of the Secretary of State means his powers —

(a) to withdraw or suspend authorisation under section 28 or to terminate or suspend authorisation under section 33,

(b) to give a disqualification direction under section 59,

(c) to make a public statement under section 60, or

(d) to apply for an injunction, interdict or other order under section 61(1);

and the reference to his powers of intervention is to the powers conferred by Chapter VI of this Part.
(3) An "overseas regulatory authority" means an authority in a country or territory outside the United Kingdom which exercises —

(a) any function corresponding to —

(i) a function of the Secretary of State under this Act, the Insurance Companies. Act 1982 or the Companies Act 1985,

(ii) a function under this Act of a designated agency, transferee body or competent authority, or

(iii) a function of the Bank of England under the Banking Act 1987, or

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(b) any functions in connection with the investigation of, or the enforcement of rules (whether or not having the force of law) relating to, conduct of the kind prohibited by the Company Securities (Insider Dealing) Act 1985, or

(c) any function prescribed for the purposes of this subsection, being a function which in the opinion of the Secretary of State relates to companies or financial services.

(4) In deciding whether to exercise those powers the Secretary of State may take into account, in particular —

(a) whether corresponding assistance would be given in that country or territory to an authority exercising regulatory functions in the United Kingdom;

(b) whether the case concerns the breach of a law, or other requirement, which has no close parallel in the United Kingdom or involves the assertion of a jurisdiction not recognised by the United Kingdom;

(c) the seriousness of the case and its importance to persons in the United Kingdom;

(d) whether it is otherwise appropriate in the public interest to give the assistance sought.

(5) The Secretary of State may decline to exercise those powers unless the overseas regulatory authority undertakes to make such contribution towards the cost of their exercise as the Secretary of State considers appropriate.
(6) The reference in subsection (3)(c) to financial services includes, in particular, investment business, insurance and banking.".
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 297 to 299 en bloc.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
300 After Clause 158, insert the following new Clause—
Construction of references to incurring civil liability
(1) In section 150(6) of the Financial Services Act 1986 (exclusion of liability in repect of false or misleading listing particulars), at the end insert —
"The reference above to a person incurring liability includes a reference to any other person being entitled as against that person to be granted any civil remedy or to rescind or repudiate any agreement.".
(2) In section 154(5) of the Financial Services Act 1986 (exclusion of civil liability in respect of advertisements or other information in connection with listing application), at the end insert —
"The reference above to a person incurring civil liability includes a reference to any other person being entitled as against that person to be granted any civil remedy or to rescind or repudiate any agreement.".
301 Insert the following new Clause —
'Offers of unlisted securities
(1) In Part V of the Financial Services Act 1986 (offers of unlisted securities), after section 160 insert —
"Exemptions
160A. —(1) The Secretary of State may by order exempt from sections 159 and 160 when issued in such circumstances as may be specified in the order —

(a) advertisements appearing to him to have a private character, whether by reason of a connection between the person issuing them and those to whom they are addressed or otherwise;

(b) advertisements appearing to him to deal with investments only incidentally;

1108

(c) advertisements issued to persons appearing to him to be sufficiently expert to understand any risks involved;

(d) such other classes of advertisements as he thinks fit.

(2) The Secretary of State may be order exempt from sections 159 and 160 an advertisement issued in whatever circumstances which 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.
(3) An order under subsection (1) or (2) may require a person who by virtue of the order is authorised to issue an advertisement to comply with such requirements as are specified in the order.
(4) An order made by virtue of subsection (1)(a), (b) or (c) or subsection (2) 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 (1)(d) unless a draft of it has been laid before and approved by a resolution of each House of Parliament.".
(2) The following amendments of the Financial Services Act 1986 are consequential on that above.
(3) In section 159, in subsection (1) omit the words from the beginning to "section 161 below," and after subsection (2) insert —
"(3) Subsection (1) above has effect subject to section 160A (exemptions) and section 161 (exceptions).".
(4) In section 160, in subsection (1) omit the words from the beginning to "section 161 below," and for subsections (6) to (9) substitute —
"(6) Subsection (1) above has effect subject to section 160A (exemptions) and section 161 (exceptions).".
(5) In section 171, in subsection (1)(b) and subsection (3) for "section-160(6) or (7)" substitute "section 160A".'
302 Insert the following new Clause —
'Offers of securities by private companies and old public companies
In Part V of the Financial Services Act 1986 (offers of unlisted securities), in section 170 (advertisements by private companies and old public companies), for subsections (2) to (4) substitute —
"(2) The Secretary of State may by order exempt from subsection (1) when issued in such circumstances as may be specified in the order —

(a) advertisements appearing to him to have a private character, whether by reason of a connection between the person issuing them and those to whom they are addressed or otherwise;

(b) advertisements appearing to him to deal with investments only incidentally;

(c) advertisements issued to persons appearing to him to be sufficiently expert to understand any risks involved;

(d) such other classes of advertisements as he thinks fit.

(3) The Secretary of State may by order exempt from subsection (I) an advertisement issued in whatever circumstances which 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.
(4) An order under subsection (2) or (3) may require a person who by virtue of the order is authorised to issue an advertisement to comply with such requirements as are specified in the order.
(4A) An order made by virtue of subsection (2)(a), (b) or (c) or subsection (3) 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 (2Xd) unless a draft of it has been laid before and approved by a resolution of each House of Parliament.".'
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 300 and 302 en bloc. With permission, I should also like to speak to Amendment No. 304.
The amendments bring together four clauses which deal with certain changes to the Financial Services Act relating to listing particulars and prospectuses.
Amendment No. 300 amends Section 150 of the Financial Services Act. That section provides inter alia that those responsible for listing particulars are liable to pay compensation to anyone suffering a loss as a result of the omission from the particulars of information which should have been included or of the failure to disclose significant changes occurring from publication of the listing particulars and the commencement of dealings.
Section 150(6) makes it clear that no liability arises if the person responsible for the particulars was either not required to disclose the information in question or was entitled to omit it by virtue of Section 148.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
Lord Peston: My Lords, I am a little taken aback. Is the noble Lord going to say something about Amemdment No. 304?
Lord Strathclyde: My Lords, I am sorry if I did not mention Amendment No. 304. The amendment gives effect to a decision announced in the Budget to unify the separate regulatory regimes for sterling commercial paper—currently less than one year maturity — and short-term corporate bonds — one to five years' maturity— as part of a package of measures further to deregulate the sterling capital market. The securities concerned have a minimum denomination of £100,000 and are aimed at professional investors. I hope that that clears the matter up. I apologise for not having said that in my opening remarks.
Lord Peston: My Lords, I thank the noble Lord for that explanation. I raised the question because while the other amendments which he moved seem unexceptionable, Amendment No. 304 requires a moment's reflection, particularly as it was not debated in Committee in the other place.
I am aware that the Minister's right honourable friend the Chancellor of the Exchequer warned in his Budget Speech that he would move in that direction. Since it is rather drastic to substitute five years for one year in order to unify what the Chancellor called the short-term corporate bond and sterling commercial paper markets, I should like to ask the Minister two questions. First, since the Budget have there been any further studies of the subject, either by the Treasury, the Bank of England or his Lordship's own department? Secondly, and more importantly, since it is a significant move —although not necessarily an erroneous move —will the relevant government departments be keeping a close eye on
1110
what happens with a view to seeing that nothing goes wrong?
For myself, I should go a long way to avoid being involved in a five-year debenture. If the market has any sense, I assume that it will take the same view. However, setting that point on one side, it is not a trivial matter and is one which we cannot allow to go by. I therefore should like an assurance from the noble Lord that the Government will look at this as carefully as possible as the market evolves to ensure appropriate protection.
Lord Strathclyde: My Lords, of course it is not a trivial matter. Although no studies are currently being carried out, the Government do not legislate on such matters without keeping an eye on developments. We shall make sure that the market develops in the way that we should like.
On Question, Motion agreed to.

COMMONS AMENDMENT
303 After Clause 158, insert the following new Clause —
'Jurisdiction of High Court and Court of Session.
. —(1) In the Financial Services Act 1986, for section 188 (jurisdiction as respects actions concerning designated agency, amp;c.), substitute —
"Jurisdiction of High Court and Court of Session.
188. —(1) Proceedings arising out of any act or omission (or proposed act or omission) of —

(a) a recognised self-regulating organisation,

(b) a designated agency,

(c) a transferee body, or

(d) the competent authority,

in the discharge or purported discharge of any of its functions under this Act may be brought in the High Court or the Court of Session.
(2) The jurisdiction conferred by subsection (1) is in addition to any other jurisdiction exercisable by those courts.".
(2) In Schedule 5 to the Civil Jurisdiction and Judgments Act 1982 (proceedings excluded from general provisions as to allocation of jurisdiction within the United Kingdom), for paragraph 10 substitute —
"Financial Services Act 1986
10. Proceedings such as are mentioned in section 188 of the Financial Services Act 1986.".'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 303.
The amendment makes it clear that proceedings can be taken against a recognised self-regulating organisation in any part of the United Kingdom, regardless of whether it has a presence there. Section 188 of the Financial Services Act already makes this clear as regards the position of SIB or of the International Stock Exchange in its capacity as the competent authority under Part IV of the Act.
Unlike those bodies, the SRO's powers depend on contract with their members, not statute. Nevertheless, it seems clear that they can to a certain extent be regarded as performing a function analogous to that of a public authority. Having considered representations on this point, we have therefore decided that it is more appropriate to apply Section 188 to SROs than to regard them simply as commercial organisations for jurisdictional

1111
purposes. That is the effect of the revised Section 188.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
304 After Clause 159, insert the following new clause —
'Offers of short-dated debentures.
. In section 195 of the Financial Services Act 1986 (circumstances in which certain offers of debentures not treated as offers to the public), for "repaid within less than one year of the date of issue" substitute "repaid within five years of the date of issue".'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 304.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde).
On Question, Motion agreed to.

COMMONS AMENDMENT
305 After Clause 159, insert the following new clause —
'Standard of protection for investors.
. —(1) In Schedule 2 to the Financial Services Act 1986 (requirements for recognition of self-regulating organisations), in paragraph 3 (safeguards for investors) for sub-paragraphs (1) and (2) substitute —
"(1) The organisation must have rules governing the carrying on of investment business by its members which, together with the statements of principle, rules, regulations and codes of practice to which its members are subject under Chapter V of Part I of this Act, are such as to afford an adequate level of protection for investors.
(2) In determining in any case whether an adequate level of protection is afforded for investors of any description, regard shall be had to the nature of the investment business carried on by members of the organisation, the kinds of investors involved and the effectiveness of the organisation's arrangements for enforcing compliance.".
(2) In Schedule 3 to the Financial Services Act 1986 (requirements for recognition of professional bodies), for paragraph 3 (safeguards for investors) substitute —
"3. —(1) The body must have rules regulating the carrying on of investment business by persons certified by it which, together with the statements of principle, rules, regulations and codes of practice to which those persons are subject under Chapter V of Part I of this Act, afford an adequate level of protection for investors.
(2) In determining in any case whether an adequate level of protection is afforded for investors of and description, regard shall be had to the nature of the investment business carried on by persons certified by the body, the kinds of investors involved and the effectiveness of the body's arrangements for enforcing compliance.".
(3) The order bringing this section into force may provide that, for a transitional period, a self-regulating organisation or professional body may elect whether to comply with the new requirement having effect by virtue of subsection (1) or (2) above or with the requirement which it replaces.
The Secretary of State may by order specify when the transitional period is to end.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 305.
I shall move the amendment formally and reply in more detail after those moving the amendments to Amendment No. 305 have had their say.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne).

AS AN AMENDMENT TO COMMONS AMENDMENT No. 305
305A Subsection (2), in the inserted paragraph 3(2), line 3, after ("had") insert (" —(a)").
Lord Elton: My Lords, I beg to move Amendment No. 305A. In debate on Amendment No. 295 questions of complexity were raised and also questions of costs.
Your Lordships will be under no illusion that the Financial Services Act is intensely resented by many to whom it is applied, both on grounds of complexity and on grounds of cost. I say to whom it is applied. In the context of self-regulation that may sound like a paradox. There is a paradox at the centre of the Act. Practitioners are responsible for applying the Act under supervision to themselves. Self-regulation is therefore conducted within strict limits laid down by Parliament and interpreted and applied by the Securities and Investments Board. Beyond those limits the "self disappears from regulation and the regulators are seen as the hostile engines of enforcement. In that atmosphere, there is a close interest among practitioners in fairness and equality of treatment between different sectors.
That brings me to Amendments Nos. 305A and 305B. Such a concern with fairness would be understandable and proper in any circumstances. Resentment sharpens the interest. Not only the practitioner but also the investor has a close interest in equality between the different sectors of which he may become a client, as whatever level of supervision is applied will be reflected precisely in the level of protection afforded to him.
The purpose of Amendments Nos. 305A and 305B is to secure equality of protection between two sectors —that of the recognised professional bodies, and that of the self-regulating organisations. Amendment No. 305, which they seek to amend, first appeared in another place and the general idea of a hierarchy of principles or core of designated rules was soon understood. It was understood to be equally applicable to all. In Standing Committee it was discovered at short notice that core rules could be designated on SROs but not on recognised professional bodies. When an attempt was made in another place to secure designation of core rules on both sectors some acrimony resulted from comparisons of the compliance standards in the two sectors. But another place decided to continue with the arrangement that we now have.
In establishing that arrangement, the Government declared their expectation of the result —that there would be equality between the sectors —but not in terms of an undertaking. Since their powers were delegated to the Securities and Investments Board,

1113
it might be thought that the undertaking or the intention was being expressed from the wrong quarter. I was therefore glad to hear my noble friend use words in regard to the earlier group of amendments which suggest that the intention that there should be absolute equality of treatment between the two sectors is one maintained by the Securities and Investments Board and one which the Government will support, and if necessary intervene on.
I think that I have said sufficient to explain that the effects of the amendment would be to require anyone deciding whether the provisions of the two sectors had an equal effect to consider in particular the adequacy of that effect in each case. The effect of my noble friend's words might be the same and, if it is, I shall be happy to withdraw the amendment.
4.15 p.m.
Lord Peston: My Lords, obviously, I shall speak to Amendment No. 305 and the amendments to it. I do not want to go over again the ground of Amendment No. 295, of which the noble Lord, Lord Elton, reminded us, save to say that the Financial Services Act was regarded —and, certainly in my experience, is still regarded —as hostile by many people in the financial markets.
Essentially, one may approach the subject in one of two ways. One may assume that a self-regulatory body will self-regulate correctly, but occasionally the whip needs to be cracked. In other words, one may assume that we are dealing with honest men or one may assume that they cannot be relied upon to self-regulate and one devises the whole system on the assumption that one is dealing with dishonest people. It seems to me that much of the experience has been by the latter approach which is why so many practitioners find the Government's approach rather hostile. As I understand it, the Government are now, in my view, quite rightly, anxious to be less hostile. I am extremely sympathetic to what the noble Lord, Lord Elton, said; but, having said that, I do not want to go over the ground again. However, I agree with him that cost is not a trivial matter.
On Amendment No. 305, which relates to standards of protection, I should welcome a clarification of two matters. First, subsection (3) of the clause contains certain remarks about transitional periods. In determining which of the two parts of the clause will be operational, I should like to hear any further comments from the Minister about transitional periods. I should also like some clarification of the wording as some of it may mean everything and nothing. Essentially, subsection (2) of the new clause concerns the provision of an adequate level of protection. It states:
"regard shall be had to the nature of the investment business carried on by members of the organisation, the kinds of investors involved and the effectiveness of the organisation's arrangements for enforcing compliance".
If we start from the proposition that things should be equal, the clause seems to give all kinds of grounds as to why they should be unequal. I should like a statement on equality, as I believe would practitioners.
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The noble Lord, Lord Elton, is right to say that equality is required here. It is required on the grounds of competition. Many of the relevant bodies compete with each other, at least at the margin, and they want to believe —certainly those who have been in touch with me over the past year want to believe this —that they are competing according to the same rules of the game. Having said that, I noted that the noble Lord used the words "absolute equality" at one stage. I am not clear whether the word "absolute" adds anything to "equality". The reason I take him up on that point is that I assume that equality is not the same as identity —it is certainly not the same mathematically —and it cannot be the same here. People want to be treated equally bearing in mind their circumstances; in other words, they do not want to be treated identically.
Lord Elton: My Lords, I eschewed the word "absolute" on almost every occasion. I apologise if I used the word on that occasion. There must be flexibility.
Lord Peston: My Lords, that enables me to proceed rapidly to the conclusion that I wished to reach; namely, that because, on the one hand, we do not want to over-regulate and because, on the other, there are so many different bodies involved, but, over all, because of the desire for fairness within the bounds of competition, I am persuaded that the noble Lord's amendments are, to say the least, worth taking seriously. They add something useful to the Bill. I should like either to believe that they are acceptable to the Government or —I am always open-minded —to hear the Government explain why they are already in the Bill. That is normally the Government's favourite answer to this kind of amendment. Either way however the operators in the City require at least some modicum of reassurance and certainly a less threatening approach to the subject of regulation.
Lord Trefgarne: My Lords, I have no hesitation in reassuring my noble friend about his anxieties regarding the equivalency of protection between regulators. The Government have every confidence that the SIB will make use of the revised test of recognition to ensure that high, consistent standards of investor protection are provided by both the SROs and the RPBs, as the board has indicated that it will do. However, if it became apparent that the system was not operating in the way intended, the Government would consider what steps might be appropriate to remedy the situation. I hope that that gives my noble friend the reassurance that he seeks.
Perhaps I may turn again to the question of adequacy and/or equivalence which we touched on in regard to the earlier amendment. The presence of the word "equivalent" in the Financial Services Act has been widely interpreted as requiring a close textual comparison of different sets of rules rather than the comparison of their effects. The amendment breaks that link, so ensuring that the recognised bodies are free to draw up detailed rules as appropriate for their particular membership. There is no reason to suppose that the overall standard of

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investor protection will decline as a result of the change.
The noble Lord, Lord Peston, asked me especially about the transitional period. The answer is that it will be up to the SROs themselves. The Government are ready to bring the new test into operation when requested, which presumably would be at the end of the transitional period that the SROs set for themselves.
I hope that in the light of those considerations and the assurances that I have given my noble friend will feel able not to press his amendments and that in a moment your Lordships will be able to agree to the amendment proposed by the other place.
Lord Elton: My Lords, I am grateful to my noble friend. The words that he has given to us on these amendments, when taken with the words he gave us on Amendment No. 295, amount to exactly the reassurance which I believe many practitioners require. Before I sit down again, I return to the question of absolutism raised by the noble Lord, Lord Peston. I think that there needs to be perceived equivalence for purposes of fairness. I was anxious not to include in the use of the word "absolute" the suggestion that the wording in every case should be exactly the same, because it may not be appropriate—although I believe that in many cases it would be appropriate —for recognised professional bodies to adopt the designated rules without the need for designation. That would be very welcome and further reassuring. I am most grateful to my noble friend. I beg leave to withdraw the amendment.
Amendment No. 305A, as an amendment to Amendment No. 305, by leave, withdrawn.
[Amendment No. 305B not moved.]
On Question, Amendment No. 305 agreed to.

COMMONS AMENDMENT
306 After Clause 159, insert the following new Clause —
'Cost of compliance.
'. —(1) In Schedule 2 to the Financial Services Act 1986 (requirements for recognition of self-regulating organisations), after paragraph 3 insert —
"Taking account of costs of compliance
3A. The organisation must have satisfactory arrangements for taking account, in framing its rules, of the cost to those to whom the rules would apply of complying with those rules and any other controls to which they are subject.";
and in Schedule 3 to that Act (requirements for recognition of professional body), after paragraph 3 insert —
"Taking account of costs of compliance
3A. The body must have satisfactory arrangements for taking account, in framing its rules, of the cost to those to whom the rules would apply of complying with those rules and any other controls to which they are subject.";
(2) The additional requirements having effect by virtue of subsection (1) do not affect the status of a self-regulating organisation or professional body recognised before the commencement of that subsection; but if the Secretary of State is of the opinion that any of those requirements is not met in the case of such an organisation or body, he shall within one month of commencement give notice to the organisation or body stating his opinion.
(3) Where the Secretary of State gives such a notice, he shall not —

(a) take action to revoke the recognition of such an organisation or body on the ground that any of the additional requirements is not met, unless he considers it essential to do so in the interests of investors, or

(b) apply on any such ground for a compliance order under section 12 of the Financial Services Act 1986,

until after the end of the period of six months beginning with the date on which the notice was given.
(4) In Schedule 7 to the Financial Services Act 1986 (qualifications of designated agency), after paragraph 2 insert —
"Taking account of costs of compliance
2A. —(1) The agency must have satisfactory arrangements for taking account, in framing any provisions which it proposes to make in the exercise of its legislative functions, of the cost to those to whom the provisions would apply of complying with those provisions and any other controls to which they are subject.
(2) In this paragraph 'legislative functions' means the functions of issuing or making statements of principle, rules, regulations or codes of practice.".
(5) The additional requirement having effect by virtue of subsection (4) above does not affect the status of a designated agency to which functions have been transferred before the commencement of that subsection; but if the Secretary of State is of the opinion the requirement is not met in the case of such an agency, he shall within one month of commencement give notice to the agency, stating his opinion.
(6) Where the Secretary of State gives such a notice, he shall not take action under section 115(2) of the Financial Services Act 1986 to resume any functions exercisable by such an agency on the ground that the additional requirement is not met, until after the end of the period of six months beginning with the date on which the notice was given.
(7) References in this section to a recognised self-regulating organisation include a recognised self-regulating organisation for friendly societies and references to a designated agency include a transferee body (within the meaning of that Act).
In relation to such an organisation or body —

(a) reference to the Secretary of State shall be construed as references to the Registrar (within the meaning of Schedule 11 to the Financial Services Act 1986), and

(b) the reference to section 12 of that Act shall be construed as a reference to paragraph 6 of that Schedule.'.

Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 306.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
307 Clause 160, page 153, line 39, leave out from 'paragraph' to 'insert' in line 40 and insert '5'.
308 Page 153, leave out lines 41 to 43 and insert —
'Supplementary
6. —(1) The provisions of this Schedule relate to an exchange only so far as it provides facilities for the carrying on of investment business; and nothing in this Schedule shall be construed as requiring an exchange to limit dealings on the exchange to dealings in investments.'.
309 Page 153, line 44, leave out 'paragraph 2(4) above' and insert 'this Schedule'.
310 Page 153, line 47, after 'procedures', insert '(including default procedures)'.
311 Page 153, line 48, leave out from 'exchange' to end of line 2 on page 154.
312 Page 154, line 3, at end insert—
'(3) In section 207(1) of the Financial Services Act 1986 (interpretation), at the appropriate place insert —
" 'ensure' and 'ensuring', in relation to the performance of transactions on an investment exchange, have the meaning given in paragraph 6 of Schedule 4 to this Act;".
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 307. In moving this Motion I shall also move, with permission, agreement to Amendments Nos. 308 to 312 inclusive.
These various amendments to Clause 160 clarify two points of uncertainty which have been identified in this provision. The first occurs in what had previously been intended to be sub-paragraph 2A(1) of Schedule 4 to the Financial Services Act. That provision had been introduced to make it clear that the requirement in the Schedule 4 recognition criteria that an exchange should restrict dealing to investments in which there was a proper market should not mean that the exchange could not permit dealings in things other than investments (for instance physical commodities as opposed to futures, since only the latter are investments within the meaning of the Act). However, that in turn begs the question of whether the requirements of Schedule 4 should apply to these non-investments. Our view is that they should not —the Financial Services Act is only concerned with investments.
Amendment No. 308 puts that point beyond doubt while at the same time tidying up the position of this provision in Schedule 4. Amendments Nos. 307 and 309 are consequential on that tidying up.
The second point of uncertainty was highlighted in Committee by the noble Lord, Lord Lloyd of Kilgerran. I am sorry that he is not in the Chamber to hear my words. He suggested that, as it stands, new paragraph 2A(2)(b) can be read as requiring a recognised exchange to have procedures to deal with all the possible consequences of a default and that this was an impossible requirement. As it was pointed out in offering to consider this point, there may be circumstances where we would want an exchange to concern itself with the consequences of so-called back-to-back transactions whereby the deal between the exchange member and the ordinary investor is not strictly speaking "on exchange". However, having considered the matter further we concluded that the wording of paragraph 2A(2)(b) was not ideal and that the question of back-to-back contracts was more appropriately dealt with in the context of Part VII itself. Amendment No. 311 therefore removes this sub-paragraph.
Amendment No. 310 is consequential to ensure that an exchange's procedures for settlement of on-exchange transactions include default procedures. Amendment No. 312 introduces a cross-reference to the new definitions inserted by
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this clause into the relevant definitions section in the Financial Services Act. I beg to move.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
313 After Clause 160 insert the following new Clause —
'Consequential amendments and delegation of functions on commencement.
'. —(1) The Financial Services Act 1936 has effect with the amendments specified in Schedule (Consequential amendments of the Financial Services Act 1986) which are consequential on the amendments made by sections (Statements of principle), (Application of designated rules and regulations to members of self-regulating organisations) and (Codes of practice).
(2) If immediately before the commencement of any provision of Part (sections (Statements of principle), 158, (Application of designated rules and regulations to members of self regulating organisations), (Codes of practice), (Regulations with other regulatory authorities), (Construction of references to incurring civil liability), (Offers of unlisted securities), (Offers of securities by private companies and old public companies), (Jurisdiction of the High Court and the Court of Session), 159, (Offers of short-dated debentures), (Standard of protection for investors), (Costs of compliance), 160 and (Consequential amendments and delegation of functions on commencement)) which amends Part I of the Financial Services Act 1986 —

(a) a designated agency is exercising by virtue of a delegation order under section 114 of that Act any functions of the Secretary of State under that Part, and

(b) no draft order is lying before Parliament resuming any of those functions,

the order bringing that provision into force may make, in relation to any functions conferred on the Secretary of State by the amendment, any such provision as may be made by an order under that section.
(3) If immediately before the commencement of any provision of Schedule (Consequential amendments of the Financial Services Act 1986) which amends Part III of the Financial Services Act 1986 —

(a) a transferee body (within the meaning of that Act) is exercising by virtue of a transfer order under paragraph 28 of Schedule 11 to that Act any functions of the Registrar under that Part, and

(b) no draft order is lying before Parliament resuming any of those functions,

the order bringing that provision into force may make, in relation to any functions conferred on the Registrar by the amendment, any such provision as may be made by an order under that paragraph.
(4) References in the Financial Services Act 1986 to a delegation order made under section 114 of that Act or to a transfer order made under paragraph 28 of Schedule 11 to that Act include an order made containing any such provision as is authorised by subsection (2) or (3).'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 313.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
314 After Clause 160, under the heading 'Transfer of securities' insert the following new Clause —
'Transfer of securities
. —(1) The Secretary of State may make provision by regulations for enabling title to securities to be evidenced and transferred without written instrument.
In this section —

(a) "securities" means shares, stock, debentures, debenture stock, loan stock, bonds, units of a collective investment scheme within the meaning of the Financial Services Act 1986 and other securities of any description;

(b) references to title to securities include any legal or equitable interest in securities; and

(c) references to a transfer of title include a transfer by way of security.

(2) The regulations may make provision —

(a) for procedures for recording and transferring title to securities, and

(b) for the regulation of those procedures and the persons responsible for or involved in their operation.

(3) The regulations shall contain such safeguards as appear to the Secretary of State appropriate for the protection of investors and for ensuring that competition is not restricted, distorted or prevented.
(4) The regulations may for the purpose of enabling or facilitating the operation of the new procedures make provision with respect to the rights and obligations of persons in relation to securities dealt with under the procedures.
But the regulations shall be framed so as to secure that the rights and obligations in relation to securities dealt with under the new procedures correspond, so far as practicable, with those which would arise apart from any regulations under this section.
(5) The regulations may include such supplementary, incidental and traditional provisions as appear to the Secretary of State to be necessary or expedient.
In particular, provision may be made for the purpose of giving effect to —

(a) the transmission of title to securities by operation of law;

(b) any restriction on the transfer of title to securities arising by virtue of the provisions of any enactment or instrument, court order or agreement;

(c) any power conferred by any such provision on a person to deal with securities on behalf of the person entitled.

(6) The regulations may make provision with respect to the persons responsible for the operation of the new procedures —

(a) as to the consequences of their involvency or incapacity, or

(b) as to the transfer from them to other persons of their functions in relation to the new procedures.

(7) The regulations may for the purposes mentioned above —

(a) modify or exclude any provision of any enactment or instrument, or any rule of law;

(b) apply, with such modifications as may be appropriate, the provisions of any enactment or instrument (including provisions creating criminal offences);

(c) require the payment of fees, or enable persons to require the payment of fees, of such amounts as may be specified in the regulations or determined in accordance with them;

(d) empower the Secretary of State to delegate to any person willing and able to discharge them any functions of his under the regulations.

(8) The regulations may make different provision for different cases.
(9) Regulations under this section shall be made by statutory instrument; and no such regulations shall be made unless a draft of the instrument has been laid before and approved by resolution of each House of Parliament.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 314. In moving this Motion, at the same time I shall speak to Amendment No. 528. These amendments are designed to make possible new methods of holding and transferring shares and other securities without the need for paper certificates or transfer forms.
Under present company law, share certificates must be provided by each company's registrar to shareholders as evidence of their title to shares and a company may not register a transfer of shares or debentures unless a completed stock transfer form is produced to it. The movement of certificates and transfer forms necessary during transactions is a significant obstacle to UK equity market efficiency. Though this can be partially overcome by trading instead in equitable interests in shares held in bulk by a nominee, that entails a further series of problems since investors do not acquire rights of company membership as they would if they held legal title to the underlying securities.
The difficulty mentioned above can be overcome only by detailed changes to company law and other enactments. The amendment provides order-making powers, subject to affirmative resolution of both Houses of Parliament. These powers may be used to make the necessary changes to legislation, but only for the purposes specified.
I think that it would be useful for me to explain exactly what these regulations could be used for. Broadly, their purposes are: first to dispense with the need for paper certificates and transfer forms; in that connection, secondly, to make any necessary provision as to the rights and obligations of any persons; finally, to provide for appropriate regulation of paperless shareholding schemes.
In so far as the changes affect the rights and obligations of investors, companies or the general public, their rights and obligations in respect of paperless securities must be broadly equivalent to those they possess in respect of certificated holdings.
It is expected that the powers will be used to make provision for the international stock exchange's Taurus scheme. The enabling power created by the amendment gives flexibility, within its delineated purposes, to take account of further development of that scheme and also, if desired, to make provision for competing schemes not necessarily operating in the same way. I beg to move.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
Lord Peston: My Lords, I thank the noble Lord for his exposition of this extremely important topic. We wish equity markets to operate as effectively as possible. We want them to be as up-to-date as possible. Certainly we want the international stock

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exchange to be able to use the very latest technology. Whatever our other disagreements, we all agree that this particular financial activity is of great benefit to our country and we hope that in future it will be of even more benefit. We cannot possibly allow an old-fashioned view, as it were, to hold back the kind of developments that we want.
Of course one does not want to delay this matter, especially, as the noble Lord reminded us, as the relevant order-making power will be by the affirmative route and therefore when the time comes this House will be able to express further opinions on the matter.
I should like to mention two or three matters at this point. They are mostly but not entirely to do with the small investor. Clearly what is called "dematerialisation" (which sounds like something out of the latest horror movie) can be of concern to the small investor —and when I say "concern" I mean psychological concern. At least if investors have a share certificate it looks as if they have something. If there is simply an entry, particularly on a computer, it worries them, even though in theory hard copy is available in the systems.
I hope that when this provision moves forward some account will be taken not merely of the needs of the small investor in an ordinary financial sense but also of the small investor's psychological needs in this area. In that sense I was reassured by the noble Lord when he said that there would be no loss of rights and equally no loss of obligations resulting from a move in that direction. However, when this goes forward I believe that there will be considerable requirement to let people know what will be happening.
I should like to remind the Minister that questions were raised in the other place concerning the construction of a firm's share register, and about security in connection with not letting it be public knowledge when a firm was scrutinising its register. It is fundamental to the operation of a mixed economy that a firm and any kind of investor is entitled to know who owns a particular commercial enterprise.
When we look at these matters in more detail we shall be pressing the points made in the other place concerning rights to know and, equally, rights to a modicum of secrecy with regard to trying to search the appropriate register, because there could be market sensitive information. Our main response to this matter is that we wish these kinds of development to go forward. I hope that nothing we say will be interpreted to mean otherwise.
Lord Strathclyde: My Lords, the noble Lord, Lord Peston, has been very wise in accepting the principle of these amendments. He mentioned the psychological feelings of small shareholders. It is particularly nice to see members of the Labour Party approving of small shareholders.
Lord Peston: My Lords, my position was not to approve or disapprove of small shareholders. I have a general interest in the problems of psychiatric medicine and that is why I intervened in that way.
Lord Strathclyde: My Lords, that clarification was extremely useful. The Government are very keen that small shareholders do not feel in any way deprived. We are not making a fundamental change as to the rights of ownership; it is simply the point with regard to dematerialisation that the noble Lord spoke about.
On Question, Motion agreed to.

COMMONS AMENDMENT
315 Clause 161, leave out Clause 161.

MOTION MOVED ON CONSIDERATION OF COMMONS AMENDMENT
315A The Lord Williams of Elvel to move, That this House do disagree with the Commons in their Amendment No. 315.
4.30 p.m.
Lord Williams of Elvel: My Lords, when the Bill left this House it contained Clause 161, entitled in the rubric "Set-off in bankruptcy". This clause was put into the Bill as a result of a number of months if not years of discussion between officials in the Department of Trade and Industry and members of the insolvency profession —both lawyers and accountants—who were worried about the impact of Section 323 of the Insolvency Act 1986.
That section had tried to restate Section 31 of the Bankruptcy Act 1914, but in changing the language it raised a number of problems which, in the view of the insolvency practitioners, were material. There was, is and should be a right of set-off between credits and debits when the liquidation is in process and a creditor is conducting business with the bankrupt organisation. That may appear to be a relatively simple matter, but it becomes complicated when the language of the 1914 Act, which talks about the concept of debts being due, is confused with the language of the 1986 Act, which is somewhat different. The interpretation of what is a debt and when it becomes due has been the object of considerable argument.
This point is of very great importance to businesses which have mutual dealings with customers and suppliers, but it is of greater importance to banks and other providers of finance for business. Although this matter sounds very technical and is very technical, it should not be disregarded as being a technical point. It is a point of great materiality.
When the Bill left your Lordships' House Clause 161 was accepted by members of the Insolvency Practitioners' Association and several learned ladies and gentlemen who have advised on insolvency practice. It is believed by those who advise me that the Government then started tinkering with Clause 161 and that that tinkering led to so many complications that Ministers decided to delete the clause completely. I am advised that this is giving rise to a great deal of concern among those who practise in insolvency because Section 323 of the 1986 Act gives rise to enormous complexity and difficulty of interpretation. Clause 161 was a satisfactory clarification of the position. There is no dispute about what the position should be. It was believed that Clause 161 should remain in the Bill.

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I think that it would be wrong to allow the Bill to leave Parliament for its Royal Asset without making this point and without having on the record a statement from the Government as to why they think that the views of the insolvency practitioners were wrong that Clause 161 should remain in the Bill.
Moved, That the House do disagree with the Commons in the said amendment. —(Lord Williams of Elvel.)
Lord Trefgarne: My Lords, I have listened with interest to the noble Lord's speech. It may help if I briefly set out the background to Clause 161. Set-off has been a basic principle of bankruptcy law since the last century. Before the Insolvency Act 1986 the provision was detailed in the Bankruptcy Act 1914, which had stood the test of time. There was no intention significantly to amend the law relating to set-off when insolvency law was reviewed in 1985–86. The existing legislation —Section 323 of the Insolvency Act 1986 —is therefore closely based on the provisions of the earlier Act.
Set-off permits a creditor to add up all his mutual credits and debits with an insolvent person and claim the net figure. Clause 161 was introduced to respond to doubts expressed as to whether Section 323 of the Insolvency Act 1986 permits debts which were not due and payable at the commencement of a bankruptcy to be incorporated in a set-off. The clause substitutes a new Section 323 and seeks to deal with the perceived doubt by omitting the word "due". Following further consideration we have concluded that the clause, while it clarifies the position of some contingent claims, potentially widens the scope of those claims capable of being included in the set-off unacceptably and creates fresh uncertainty. It is desirable as far as possible to maintain the principle of pari passu or fair distribution in insolvency. It is also desirable to avoid creating fresh uncertainty. We have concluded that it would be preferable to retain the existing law and to leave it to the courts to develop this point.
The variety of claims that can be outstanding between an insolvent person and his creditors and debtors is very wide. In some cases it is appropriate that they should be available for set-off and in others it is not. The approach that English law adopts to this matter is to make a general statement of principle, leaving the courts considerable discretion in applying it to different facts. Other legal systems list in considerable detail all the different kinds of claim that can, and cannot, be set-off.
There are advantages in either approach, but as long as we retain the former it is important that the scope for claiming a set-off should be kept within bounds. I am not satisfied that this clause has this effect, and in all the circumstances it is sensible and desirable to delete the clause. I hope therefore that the House will in due course agree with the Commons in their proposal and that the noble Lord will therefore see fit not to press his amendment.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord for reading out his brief with such
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elegance. I am bound to say that I do not think that his department has taken on board the arguments that have been put forward by the Insolvency Practitioners Association and those who advise the Law Society, all of whom say that Clause 161, as it left our House, was a useful, sensible clarification, and have not been persuaded to the contrary by any arguments that have been put forward by departmental officials.
I accept that we have on the record a statement of what the department believes. I am sure that the noble Lord will accept that it is not agreed by many distinguished lawyers (including those who advise the Law Society on the matter) that greater uncertainty would be created by including Clause 161. It is believed that Clause 161, which was a sensible clause, would have clarified section 323. The noble Lord is right in reciting the history of the Bankruptcy Act and the Insolvency Act 1986 and the problems to which those Acts have given rise. Nevertheless I think that the Government ought to be aware that the courts will have enormous difficulty in interpreting the law as it now stands if Clause 161 is not included.
However, as I said, although this is an important matter it is a technical matter and I do not intend to divide the House on the issue. We have had a statement of how the Government see the position. I believe, and others believe —this is not a party-political issue in any way —that the Government are wrong. We will see in the event how that works out. I beg leave to withdraw my Motion.
Motion, by leave, withdrawn.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 315.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
316 After Clause 161, under the heading 'Miscellaneous and General Provisions' insert—
Summary proceedings in Scotland for offences in connection with disqualification of directors
'. In section 21 of the Company Directors Disqualification Act 1986 (application of provisions of the Insolvency Act 1986), after subsection (3) add —
"(4) For the purposes of summary proceedings in Scotland, section 431 of that Act applies to summary proceedings for an offence under section 11 or 13 of this Act as it applies to summary proceedings for an offence under Parts I to VII of that Act.".
Prosecutions in connection with insider dealing
. In section 8 of the Company Securities (Insider Dealing) Act 1985 (punishment of contraventions), in subsection (2) (institution of proceedings in England and Wales), for "by the Secretary of State or by, or with the consent of, the Director of Public Prosecutions".substitute "by, or with the consent of, the Secretary of State or the Director of Public Prosecutions".'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 316, and with permission I should

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like to speak to Amendments Nos. 530 and 531 at the same time. The first part of Amendment No.316 harmonises the position in Scotland with that already existing in England and Wales, so that offences under Section 11 or Section 13 of the Company Directors Disqualification Act 1986 can be prosecuted in a summary manner up to three years from the commission of the offence and not six months, as the law in Scotland currently permits. The second part of Amendment No. 316 amends Section 8(2) of the Company Securities (Insider Dealing) Act 1985. At present a prosecution may be instituted under Section 8(2) by the Secretary of State, the Director of Public Prosecutions, or a person acting with the consent of the DPP.
The effect of this new clause is that the Secretary of State will be empowered to consent to insider dealing proceedings being brought by third parties, as can the Director of Public Prosecutions as the section now stands. The reason for the amendment is to permit the International Stock Exchange, which has built up its expertise in insider-dealing cases, to carry a case through to prosecution. Amendments Nos. 530 and 531 are consequential on Amendment No. 316, simply amending the Title of the Bill to include a reference to the Insider Dealing Act and the Company Directors Disqualification Act.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
317 Clause 163, page 155, line 9, after 'Or insert 'In section 104 of the Building Societies Act 1986 (power to assimilate law relating to building societies and law relating to companies), in subsection (2) (relevant provisions of that Act), omit the word "and" before paragraph (d) and after that paragraph add —
"; and
(e) section 110 (provisions exempting officers and auditors from liability)."
(2)'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 317.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.
4.45 p.m.

COMMONS AMENDMENT
318 Leave out Clause 165 and insert —
'Provisions extending to Northern Ireland.
. —(1) The provisions of this Act extend to Northern Ireland so far as they amend, or provide for the amendment of, an enactment which so extends.
(2) So far as any provision of this Act amends the Companies Act 1985 or the Insolvency Act 1986, its application to companies registered or incorporated in Northern Ireland is subject to section 745(1) of the Companies Act 1985 or section 441(2) of the Insolvency Act 1986, as the case may be.
(3) In Part III (investigations and powers to obtain information), sections 76 to 81, (Exercise of powers in relation to Northern Ireland), (Prosecutions) (Offences by
1126
bodies corporate, partnerships and unincorporated associations) and (Jurisdiction and procedure in respect of Offences) (powers exercisable to assist overseas regulatory authorities) extend to Northern Ireland.
(4) Part VI (mergers and related matters) extends to Northern Ireland.
(5) In Part VII (financial markets and insolvency) the following provisions extend to Northern Ireland —

(a) sections 125 and 126 (introductory provisions and definitions of "market contract"),

(b) section 127 and Schedule 16 (additional requirements for recognition of investment exchange or clearing house),

(c) sections 128, 131, 133, (Powers of Secretary of State to give directions), (Application to determine whether default proceedings to be taken), 138 and 139 (provisions relating to recognised investment exchanges and clearing houses),

(d) sections 140, (Certain money market institutions) and (Settlement arrangements provided by the Bank of England) (power to extend provisions to other financial markets),

(e) section 152 (indemnity for certain acts), and

(f) sections (Power to make further provision by regulations), 153, (Construction of references to parties to market contracts), and 154 to 157 (supplementary provisions).

(6) Part (sections (Statement of principle), 158, (Application of designated rules and regulations to members of self-regulating organisations), (Codes of practice), (Regulations with other regulatory authorities), (Construction of references to incurring civil liability), (Offers of unlisted securities), (Offers of securities by private companies and old public companies), (Jurisdiction of the High Court and the Court of Session), 159, (Offers of short-dated debentures), (Standard of protection for investors), (Costs of compliance), 160 and (Consequential amendments and delegation of functions on commencement)) (amendments of Financial Services Act 1986) extends to Northern Ireland.
(7) Part (section (Transfer of securities) (transfer of securities) extends to Northern Ireland. Subject to any Order made after the passing of this Act by virtue of section 3(1)(a) of the Northern Ireland Constitution Act 1973. the transfer of securities shall not be a transferred matter for the purposes of that Act but shall for the purposes of section 3(2) be treated as specified in Schedule 3 to that Act.
(8) Part (sections (Summary proceedings in Scotland for offences connected with disqualification of directors), (Prosecutions in connection with insider dealing), 162, 163, 164, (Provisions extending to Northern Ireland), (Making of corresponding provision for Northern Ireland), 166 and 167 (miscellaneous and general provisions), this section, section (making of corresponding provision for Northern Ireland), 166 and 167 (general provisions) extend to Northern Ireland.
(9) Except as mentioned above, the provisions of this Act do not extend to Northern Ireland.
Making of corresponding provision for Northern Ireland
. —(1) An Order in Council under paragraph 1(1)(b) of Schedule 1 to the Northern Ireland Act 1974 (legislation for Northern Ireland in the interim period) which contains a statement that it is only made for purposes corresponding to the purposes of provisions of this Act to which this section applies —

(a) shall not be subject to paragraph 1(4) and (5) of that Schedule (affirmative resolution of both Houses of Parliament), but

(b) shall be subject to annulment in pursuance of a resolution of either House of Parliament.

(2) The provisions of this Act to which this section applies are —

(a) Parts I to V, and

(b) Part VII, except sections 127, 128 and 139 and Schedule 16.'.

Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 318. Amendment No. 318 inserts two new clauses in place of the present Clause 165. The new clauses govern the application of the Bill's provisions to Northern Ireland. They set out the provisions more clearly than before and incorporate changes made in the Bill.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
319 Clause 166, page 156, line 36, after 'The' insert 'following provisions of this Act come into force on Royal Assent —

(a) in Part V (amendments of company law), section 131 (application to declare dissolution of company void);

(b) in Part VI (mergers)—

(i) sections 118 to 121, and

(ii) paragraphs 2 to 11, 13 to 15, 17 to 19 and 21 to 23 of Schedule 15, and section 124 so far as relating to those paragraphs;

(c) on Part (sections (Statements of principle), 158, (Application of designated rules and regulations to members of self-regulating organisations), (Codes of practice), (Regulations with other regulatory authorities), (Construction of references to incurring civil liability), (Offers of unlisted securities), (Offers of securities by private companies and old public companies), (Jurisdiction of the High Court and the Court of Session), 159, (Offers of short-dated debentures), (Standard of protection for investors), (Costs of compliance), 160 and (Consequential amendments and delegation of functions on commencement)) (amendments of the Financial Services Act 1986), section (Offers of short-dated debentures) (Offers of short-dated debentures);

(d) in Part (sections (Summary proceedings in Scotland for offences connected with disqualification of directors), (Prosecutions in connection with insider dealing), 162, 163, 164, (Provisions extending to Northern Ireland), (Making of corresponding provision for Northern Ireland), 166 and 167) (miscellaneous and general provisions), the repeals made by Schedule 17 in sections 71, 74, 88 and 89 of, and Schedule 9 to, the Fair Trading Act 1973, and section 164 so far as relating to those repeals.

(1A) The other'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 319. That brings certain provisions of the Bill into effect upon Royal Assent. The most important of these are in Part VI of the Bill on mergers. They are the new powers to accept undertakings to divest instead of making a reference, the temporary restriction on share dealings once a reference is made, and the improved powers for looking at so-called creeping acquisitions. These provisions are likely to prove of sufficient immediate use to warrant having immediate effect on Royal Assent. They do not need complicated commencement arrangements and will not impinge unfairly on business. I beg to move.
Moved, That the House do agree with the Commons in the said amendment. —( Lord Trefgarne.)
AS AN AMENDMENT TO COMMONS AMENDMENT No. 319
319A Line 30, after ("(1A)") insert ("Except for the provisions of Part I ("Company accounts") which shall come into force in respect of financial years beginning on or after 1 June 1990,")
Lord Williams of Elvel: My Lords, I beg to move Amendment No. 319A. The reasons for this amendment are to introduce a relatively small delay in introducing Part I. Briefly, the reasons are: first, the comparative figures rule will require 1989 figures to be referred under the Dearing rules—the new rules—as well as the 1990 figures. This is going to mean that there is a problem for companies who have not prepared their 1989 figures under the new rules.
The second point is that presenting information—requires the appropriate underlying records to be in place. If we take the new definition of subsidiaries, or undertakings to be consolidated under the new definitions for a group—for instance, partnerships and other entities—the relevant records which would enable the 1989 figures to be adjusted would probably not be available because they are not currently subject to Companies Act rules. It has clearly not been possible to finalise plans for doing all this while the Bill has been progressing through Parliament and contantly amended.
Therefore, it seems to us that it would be sensible to have the commencement date for Part I delayed for six months, or indeed three months if that is the wish of the Government. It would at least relieve accounts made up to the two most popular balance sheet dates, which are of course the end of December and the end of March.
Moved, That Amendment No. 319A, as an amendment to Commons Amendment No. 319, be agreed to. —(Lord Williams of Elvel.)
Lord Trefgarne: My Lords, in replying to the noble Lord's amendment, I can best and most shortly say that our position is that we are doing our best to meet the 7th Directive in a timely and prompt way. That is why we have the dates that we have in the Bill. If we were to agree to what the noble Lord is proposing, we would find ourselves departing a little further from the 7th Directive, and that would be regrettable. In the light of these considerations, I hope that the noble Lord will not press his amendment.
Lord Williams of Elvel: My Lords, I understand the pressure of time that the directive places upon us. Nevertheless, I am sure that this will create enormous difficulty, and I hope that the Government recognise the difficulty. If the noble Lord would like to intervene again, I would be perfectly happy to give way.
Lord Trefgarne: My Lords, I am grateful for your Lordships' permission to intervene again. I recognise the fact that companies will have to prepare prior year figures. However, I emphasise that we have received no representations on the point beyond that made by the noble Lord. Therefore we do not believe that there will be any real problem. The provision

1129
will apply only to the financial years after January, 1990.
Lord Williams of Elvel: My Lords, I am grateful to the noble Lord. My advice comes from the Institute of Chartered Accountants. If it has not made representations and nor have any of the major accountants, it is their fault rather than anyone else's. However, I thought that the Government should consider the fact that inevitably there will be problems as a result of the new definition of undertakings to be consolidated.
If there is some way by some form of regulation that the Government can allow auditors and companies to alleviate the problems, I hope that they will take that route. However, I believe that as it stands the provision will cause many companies and auditors a great number of problems. I recognise that the Minister has said all that he can on the subject, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Amendment No. 319 agreed to.

COMMONS AMENDMENT
320 Page 156, line 42, at end insert —
'(3) The Secretary of State may also by order under this section amend any enactment which refers to the commencement of a provision brought into force by the order so as to substitute a reference to the actual date on which it comes into force.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 320.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
321 Clause 167, page 157, line 1, leave out subsection (2).
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 321. The amendment removes the privilege motion which this House set on the Bill at Third Reading.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
322 Schedule 1, page 159, line 21, at end insert —
'Compliance with accounting standards
6A. After paragraph 36 (disclosure of accounting policies) insert —
"36A. It shall be stated whether the accounts have been prepared in accordance with applicable accounting standards and particulars of any material departure from those standards and the reasons for it shall be given.".'.
323 Page 159, line 25, at end insert —
'Loans in connection with assistance for purchase of company's own shares
7A. In paragraph 51(2) (disclosure of outstanding loans in connection with certain cases of financial assistance for purchase of company's own shares), after "153(4)(b)" insert ",(bb)".'.
324 Page 159, line 31, leave out '21(4) and (5)' and insert '21(1)(d)'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 322 to 324.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
325 Schedule 2, page 161, line 11, leave out 'that of the parent company' and insert 'the end of the parent company's financial year'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 325. I should like to speak also to Amendments Nos. 336, 337, 339 to 343 and 346 to 356. The amendments make minor changes to Schedules 2 and 3. Amendments Nos. 325, 339, 340, 342, 346 and 349 make identical changes in a number of places in Schedules 2 and 3 to the meaning of the expression "relevant financial year". In various contexts it removes an ambiguity which might otherwise cause confusion in relation to various references to financial years.
Amendments Nos. 336 and 337 correct small defects in paragraph 17 of Schedule 2. That paragraph requires that where a parent company excludes one or more of its subsidiary undertakings from its consolidated accounts in accordance with the requirements of the new section 229(4) the group's interests in that undertaking shall be shown by way of the equity method of accounting.
Amendment No. 341 removes an unnecessary burden. Amendments Nos. 343, 350 to 356 make minor changes to paragraphs 10 and 29 of Schedule 3. I hope that all the amendments will commend themselves to your Lordships.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
326 Page 162, line 6, leave out 'the business of the undertaking as a whole' and insert 'a business of the undertaking'.
327 Page 162, line 10, leave out sub-paragraph (4) and insert —
'(4) There shall be set off against the acquisition cost of the interest in the shares of the undertaking held by the parent company and its subsidiary undertakings the interest of the parent company and its subsidiary undertakings in the adjusted capital and reserves of the undertaking acquired.
For this purpose —
"the acquisition cost" means the amount of any cash consideration and the fair value of any other consideration, together with such amount (if any) in respect of fees and other expenses of the acquisition as the company may determine, and
"the adjusted capital and reserves" of the undertaking acquired means its capital and reserves at the date of the acquisition after adjusting the identifiable assets and liabilities of the undertaking to fair values as at that date.'.
(5) There shall be set off against the aggregate of—
328 Page 163, line 1, leave out sub-paragraph (5) and insert —

(a) the appropriate amount in respect of qualifying shares issued by the parent company or its subsidiary undertakings in consideration for the acquisition of shares in the undertaking acquired, and

(b) the fair value of any other consideration for the acquisition of shares in the undertaking acquired, determined as at the date when those shares were acquired,

the nominal value of the issued share capital of the undertaking acquired held by the parent company and its subsidiary undertakings.
(6) The resulting amount shall be shown as an adjustment to the consolidated reserves.
(7) In sub-paragraph (5)(a) "qualifying shares" means —

(a) shares in relation to which section 131 (merger relief) applies, in respect of which the appropriate amount is the nominal value; or

(b) shares in relation to which section 132 (relief in respect of group reconstructions) applies, in respect of which the appropriate amount is the nominal value together with any minimum premium value within the meaning of that section.'.

329 Page 163, line 10, at end insert —
'11A. —(1) Where a group is acquired, paragraphs 9 to 11 apply with the following adaptations.
(2) References to shares of the undertakings acquired shall be construed as references to shares of the parent undertaking of the group.
(3) Other references to the undertaking acquired shall be construed as references to the group; and references to the assets and liabilities, income and expenditure and capital and reserves of the undertaking acquired shall be construed as references to the assets and liabilities, income and expenditure and capital and reserves of the group after making the set-offs and other adjustments required by this Schedule in the case of group accounts.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 326 to 329. I shall speak also to Amendment No. 455. They fine tune the provisions in Schedule 2 to the Bill which prescribe rules deriving from the Seventh Directive for the accounting treatment of mergers and acquisitions. The changes have been brought forward by the Government following discussions with outside accountants since the Bill last left your Lordships' House and also in response to a valid point made in another place by the honourable Member for Norwich South, Mr. John Garrett.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, I am glad that the noble Lord has indicated the Government's debt to my honourable friend in another place. The point that he made was one that I raised at the same time. As the Minister will know, because we had a number of exchanges on the matter in Committee and on Report, merger accounting has been a matter of consistent trouble. We are not completely satisfied that the Government have interpreted the directive in the best possible way. Nevertheless, the Government have given it that interpretation and we have tried to argue that there could be different interpretations. That being so, we must accept that the Government have taken the decision which I do not intend to oppose. However, I believe that it will
1132
give rise to enormous difficulties in practice but perhaps that is the fault of the directive rather than the Government.
On Question, Motion agreed to.

COMMONS AMENDMENTS
330 Page 163, line 14, leave out from first 'the' to 'and' and insert 'name of the undertaking acquired or, where a group was acquired, the name of the parent undertaking of that group'.
331 Page 163, line 21, leave out sub-paragraph (4) and insert —
'(4) The profit or loss of the undertaking or group acquired shall be stated —

(a) for the period from the beginning of the financial year of the undertaking or, as the case may be, of the parent undertaking of the group, up to the date of the acquisition, and

(b) for the previous financial year of that undertaking or parent undertaking;

and there shall also be stated the date on which the financial year referred to in paragraph (a) began.'.
332 Page 163, line 25, after 'undertaking', insert 'or group'.
333 Page 163, line 31, after 'undertaking', insert 'or group'.
334 Page 163, line 33, at end insert —
'(7) In ascertaining for the purposes of sub-paragraph (4), (5) or (6) the profit or loss of a group, the book values of assets and liabilities of a group or the amount of the assets and liabilities of a group, the set-offs and other adjustments required by this Schedule in the case of group accounts shall be made.'.
335 Page 163, line 39, leave out paragraph 14 and insert —
'14. Where during the financial year there has been a disposal of an undertaking or group which significantly affects the figures shown in the group accounts, there shall be stated in a note to the accounts —

(a) the name of that undertaking or, as the case may be, of the parent undertaking of that group, and

(b) the extent to which the profit or loss shown in the group accounts is attributable to profit or loss of that undertaking or group.'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 330 to 335. They improve the new disclosure requirements in paragraphs 12 to 14 of Schedule 2. We have introduced them in order to help the reader of accounts unravel the confusing treatment of presentation of mergers and acquisitions sometimes found in company accounts. Better statutory disclosure in this area commanded widespread support in the consultation exercise carried out last year by the Department of Trade and Industry.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
336 Page 165, line 4, after 'consolidation)', insert ', and the amount of profit or loss attributable to such an interest,'.
337 Page 165, line 5, leave out 'accounts' and insert 'balance sheet or, as the case may be, in the consolidated profit and loss account'.
338 Page 165, line 31, leave out from 'matters' to end of line 12 on page 166 and insert —
'(4) The provisions of paragraphs 5 to 11 of Schedule 10A (rights to be taken into account and attribution of rights) apply in determining for the purposes of this paragraph whether an undertaking holds 20 per cent. or more of the voting rights in another undertaking.'.
339 Schedule 3, page 167, line 38, leave out 'that of the company' and insert 'the end of the company's financial year'.
340 Page 167, line 45, leave out 'that of the company' and insert 'the end of the company's financial year'.
341 Page 169, line 21, at end insert —
'(1A) That information need not be given if—

(a) the company is exempt by virtue of section 228 from the requirement to prepare group accounts (parent company included in accounts of larger group), and

(b) the investment of the company in all undertakings in which it has such a holding as is mentioned in sub-paragraph (1) is shown, in aggregate, in the notes to the accounts by way of the equity method of valuation.'.

342 Page 169, line 33, leave out 'that of the company' and insert 'the end of the company's financial year'.
343 Page 170, line 11, after 'were', insert 'at the time of the disposal'.
344 Page 171, line 9, leave out 'in'.
345 Page 171, line 23, leave out sub-paragraph (4) and insert —
'(4) For the purposes of any of those provisions, shares held by way of security shall be treated as held by the person providing the security —

(a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are exercisable only in accordance with his instructions, and

(b) where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are execisable only in his interests.'.

346 Page 172, line 39, leave out 'that of the company' and insert 'the end of the company's financial year'.
347 Page 173, line 15, leave out 'that of the company' and insert 'the end of the company's financial year'.
348 Page 175, line 18, leave out 'that of the company' and insert 'the end of the company's financial year'.
349 Page 176, line 12, leave out 'that of the parent company' and insert 'the end of the parent company's financial year'.
350 Page 176, line 20, leave out 'company makes' and insert 'parent company made'.
351 Page 176, line 26, leave out 'consolidated' and insert 'parent company's individual and group'.
352 Page 176, line 29, leave out 'consolidated' and insert 'group'.
353 Page 176, line 32, leave out 'an undertaking included in the consolidation' and insert 'the parent company'.
354 Page 176, line 35, leave out from 'year' to 'on' in line 36.
355 Page 176, line 40, leave out from 'year' to 'on' in line 41.
356 Page 176, line 43, after 'were', insert 'at the time of the disposal'.
357 Page 178, line 5, leave out sub-paragraph (4) and insert —
'(4) Shares held by way of security shall be treated as held by the person providing the security—

(a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are exercisable only in accordance with his instructions, and

(b) where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights attached to the shares are exercisable only in his interests.'.

Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 336 to 357.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
358 Schedule 4, page 178, line 16, leave out 'minor'.
359 Page 178, line 28, after 'with', insert 'the management of'.
360 Page 178, leave out lines 44 to 46.
361 Page 180, line 13, at end insert—
'(4) References to pensions include benefits otherwise than in cash and in relation to so much of a pension as consists of such a benefit references to its amount are to the estimated money value of the benefit.
The nature of any such benefit shall also be disclosed.'.
362 Page 180, line 22, after 'with', insert 'the management of'.
363 Page 180, line 24, after 'with', insert 'the management of'.
364 Page 180, line 43, after 'with', insert 'the management of'.
365 Page 181, line 21, at end insert —
'(4) References to amounts paid to or receivable by a person include amounts paid to or receivable by a person connected with him or a body corporate controlled by him (but not so as to require an amount to be counted twice).'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 358 to 365. When the Bill was last before your Lordships substantial improvements were made to the provision relating to the disclosure of directors' emoluments. These amendments further refine those provisions.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, we agree with the amendments. We were glad to see that the Government amended the Bill in our House in respect of this matter. We believe that they clarify certain outstanding issues and we are grateful.
On Question, Motion agreed to.

COMMONS AMENDMENTS
366 Insert the following new Schedule —
'MATTERS To BE INCLUDED IN DIRECTORS' REPORT
1. Schedule 7 to the Companies Act 1985 (matters to be included in directors' report) is amended as follows.
Subsidiary undertakings.
2.—(1) In paragraph 1(1) (significant changes in fixed assets) for "subsidiaries" substitute "subsidiary undertakings".
(2) In paragraph 6 (general information), for "subsidiaries" in each place where it occurs (three times) subsitute "subsidiary undertakings".
Directors' interests
3. For paragraph 2 (directors' interests) substitute —
"2. —(1) The information required by paragraphs 2A and 2B shall be given in the directors' report, or by way of notes to the company's annual accounts, with respect to each person who at the end of the financial year was a director of the company.
(2) In those paragraphs —

(a) "the register" means the register of directors' interests kept by the company under section 325; and

(b) references to a body corporate being in the same group as the company are to its being a subsidary or holding company, or another subsidiary of a holding company, of the company.

1135
2A. —(1) It shall be stated with respect to each director whether, according to the register, he was at the end of the financial year interested in shares in or debentures of the company or any other body corporate in the same group.
(2) If he was so interested, there shall be stated the number of shares in and amount of debentures of each body (specifying it) in which, according to the register, he was then interested.
(3) If a director was interested at the end of the financial year in shares in or debentures of the company or any other body corporate in the same group —

(a) it shall also be stated whether, according to the register, he was at the beginning of the financial year (or, if he was not then a director, when he becomes one) interested in shares in or debentures of the company or any other body corporate in the same group, and

(b) if he was so interested, there shall be stated the number of shares in and amount of debentures of each body (specifying it) in which, according to the register, he was then interested.

(4) In this paragraph references to an interest in shares or debentures have the same meaning as in section 324; and references to the interest of a director include any interest falling to be treated as his for the purposes of that section.
(5) The reference above to the time when a person became a director is, in the case of a person who became a director on more than one occasion, to the time when he first became a director.
2B. —(1) It shall be stated with respect to each director whether, according to the register, any right to subscribe for shares in or debentures of the company or another body corporate in the same group was during the financial year granted to, or exercised by, the director or a member of his immediate family.
If any such right was granted to, or exercised by, any such person during the financial year, there shall be stated the number of shares in and amount of debentures of each body (specifying it) in respect of which, according to the register, the right was granted or exercised.
(3) A director's "immediate family" means his or her spouse and infant children; and for this purpose "children" includes step-children, and "infant", in relation to Scotland, means pupil or minor.
(4) The reference above to a member of the director's immediate family does not include a person who is himself or herself a director of the company.".'.
367 Schedule 185, line 35, leave out from beginning to end of line 18 on page 187 and insert —
'Preliminary
Schedule 9 to the Companies Act 1985 is amended in accordance with this Schedule, as follows —

(a) for the heading of the Schedule substitute "SPECIAL PROVISIONS FOR BANKING AND INSURANCE COMPANIES AND GROUPS":

(b) omit the introductory paragraph preceding Part I, together with its heading;

(c) make the present provisions of Parts I to V of the Schedule (as amended by Part I of this Schedule) Part I of the Schedule, and accordingly —

(i) for the descriptive Part heading before paragraph 2 substitute "FORM AND CONTENT OF ACCOUNTS", and

(ii) omit the Part headings before paragraphs 19, 27, 31 and 32;

(d) the provisions of Parts II, III and IV of this Schedule have effect as Parts II, III and IV of Schedule 9 to the Companies Act 1985.

FORM AND CONTENT OF ACCOUNTS
1. In paragraph 10(1)(c) of Schedule 9 to the Companies Act 1985 (disclosure of outstanding loans in connection with certain cases of financial assistance for purchase of company's own shares), after "153(4)(b)" insert ',(bb)".
2. In paragraph 13 of that Schedule (information supplementing balance sheet), omit sub-paragraph (3) (information as to acquisition of, or creation of lien or charge over, company's own shares).
3. In paragraph 17(5) of that Schedule (statement of turnover: companies exempt from requirement) for "neither a holding company nor a subsidiary of another body corporate" substitute "neither a parent company nor a subsidiary undertaking".
4. After paragraph 18 of that Schedule insert —
"Supplementary provisions
18A. —(1) Accounting policies shall be applied consistently within the same accounts and from one financial year to the next.
(2) If it appears to the directors of a company that there are special reasons for departing from the principle stated in sub-paragraph (1) in preparing the company's accounts in respect of any financial year, they may do so; but particulars of the departure, the reasons for it and its effect shall be given in a note to the accounts.
18B. It shall be stated whether the accounts have been prepared in accordance with applicable accounting standards, and particulars of any material departure from those standards and the reasons for it shall be given.
18C.—(l) In respect of every item shown in the balance sheet or profit and loss account, or stated in a note to the accounts, there shall be shown or stated the corresponding amount for the financial year immediately preceding that to which the accounts relate, subject to sub-paragraph (3).
(2) Where the corresponding amount is not comparable, it shall be adjusted and particulars of the adjustment and the reasons for it shall be given in a note to the accounts.
(3) Sub-paragraph (1) does not apply in relation to an amount shown —

(a) as an amount the source or application of which is required by paragraph 8 above (reserves and provisions),

(b) in pursuance of paragraph 13(10) above (acquisitions and disposals of fixed assets),

(c) by virtue of paragraph 12 of Schedule 4A (details of accounting treatment of acquisitions),

(d) by virtue of paragraph 2, 8(3), 16, 21(1)(d), 22(4) or (5), 24(3) or (4) or 27(3) or (4) of Schedule 5 (shareholdings in other undertakings), or

(e) by virtue of Part II or III of Schedule 6 (loans and other dealings in favour of directed and others).".

5. —(1) Before paragraph 19 of that Schedule insert the heading "Provisions where company is parent company or subsidiary undertaking"; and that paragraph is amended as follows.
(2) In sub-paragraph (1) for the words from "is a holding company" onwards substitute "is a parent company".
(3) In sub-paragraphs (2)—

(a) for "subsidiaries" (four times) substitute "subsidiary undertakings", and

(b) in paragraph (a), for "'Part I" substitute "paragraphs 5, 6, 10, 13 and 14".

(4) Omit sub-paragraphs (3) to (7).
6. For paragraph 20 of that Schedule substitute —
"20. —(1) This paragraph applies where the company is a subsidiary undertaking.
(2) The balance sheet of the company shall show —

(a) the aggregate amount of its indebtedness to undertakings of which it is a subsidiary undertaking or which are fellow subsidiary undertakings, and

(b) the aggregate amount of the indebtedness of all such undertakings to it,

distinguishing in each case between indebtedness in respect of debentures and otherwise.
(3) The balance sheet shall also show the aggregate amount of assets consisting of shares in fellow subsidiary undertakings.".
7. Omit paragraphs 21 to 26 of that Schedule.
8. —(1) Before paragraph 27 of that Schedule insert the heading "Exceptions for certain companies"; and that paragraph is amended as follows.
(2) In sub-paragraph (2)—

(a) for "Part I of this Schedule" substitute "paragraphs 2 to 18 of this Schedule", and

(b) in paragraph (b) for the words from "paragraphs 15" to the end substitute "and paragraph 15".

(3) In sub-paragraph (4), omit "of said Part I".
9. In paragraph 28 of that Schedule, in sub-paragraph (1) (twice) and in sub-paragraph (2) for "Part I" substitute "paragraphs 2 to 18".
10. After that paragraph insert —
"28A. Where a company is entitled to, and has availed itself of, any of the provisions of paragraph 27 or 28 of this Schedule, section 235(2) only requires the auditors to state whether in their opinion the accounts have been properly prepared in accordance with this Act.".
11. Omit paragraphs 29 to 31 of that Schedule.
12. Before paragraph 32 of that Schedule insert the heading "Interpretation"; and in sub-paragraphs (1) and (2) of that paragraph for "this Schedule" substitute "this Part of this Schedule".
13. In paragraph 36 of that Schedule for "this Schedule" substitute "this Part of this Schedule".'.
368 Page 187, line 22, leave out from beginning to end of line 6 on page 189 and insert —
'Undertakings to be included in consolidation
1. The following descriptions of undertaking shall not be excluded from consolidation under section 229(4) (exclusion of undertakings whose activities are different from those of the undertakings consolidated)—

(a) in the case of a banking group, an undertaking (other than a credit institution) whose activities are a direct extension of or ancillary to banking business;

(b) in the case of an insurance group, an undertaking (other than one carrying on insurance business) whose activities are a direct extension of or ancillary to insurance business.

For the purposes of paragraph (a) "banking" means the carrying on of a deposit-taking business within the meaning of the Banking Act 1987.
General application of provisions applicable to individual accounts
2. —(1) In paragraph 1 of Schedule 4A (application to group accounts of provisions applicable to individual accounts), the reference in subparagraph (1) to the provisions of Schedule 4 shall be construed as a reference to the provisions of Part I of this Schedule; and accordingly —

(a) the reference in sub-paragraph (2) to paragraph 59 of Schedule 4 shall be construed as a reference to paragraphs 19(2) and 20 of Part I of this Schedule; and

(b) sub-paragraph (3) shall be omitted.

(2) The general application of the provisions of Part I of this Schedule in place of those of Schedule 4 is subject to the following provisions.
Treatment of goodwill
3. —(1) The rules in paragraph 21 of Schedule 4 relating to the treatment of goodwill, and the rules in paragraphs 17 to 19 of that Schedule (valuation of fixed assets) so far as they relate to goodwill, apply for the purpose of dealing with any goodwill arising on consolidation.
(2) Goodwill shall be shown as a separate item in the balance sheet under an appropriate heading; and this applies notwithstanding anything in paragraph 10(1)(b) or (2) of Part I of this Schedule (under which goodwill, patents and trade marks may be stated in the company's individual accounts as a single item).
Minority interests and associated undertakings
4. The information required by paragraphs 16 and 19 to 21 of Schedule 4A (minority interests and associated undertakings) to be shown under separate items in the
1138
formats set out in Part 1 of Schedule 4 shall be shown separately in the balance sheet and profit and loss account under appropriate headings.
5. —(1) Where a banking or insurance company is entitled to the exemptions conferred by paragraph 27 or 28 of Part I of this Schedule, a group headed by that company is similarly entitled.
(2) Paragraphs 27(4), 28(2) and 28A (accounts not to be taken to be other than true and fair; duty of auditors) apply accordingly where advantage is taken of those exemptions in relation to group accounts.
Information as to undertaking in which shares held as result of financial assistance operation
6. —(1) The following provisions apply where the parent company of a banking group has a subsidiary undertaking which—

(a) is a credit institution of which shares are held as a result of a financial assistance operation with a view to its reorganisation or rescue, and

(b) is excluded from consolidation under section 229(3)(c) (interest held with a view to resale).

(2) Information as to the nature and terms of the operation shall be given in a note to the group accounts and there shall be appended to the copy of the group accounts delivered to the registrar in accordance with section 242 a copy of the undertaking's Latest individual accounts and, if it is a parent undertaking, its latest group accounts.
If the accounts appended are required by law to be audited, a copy of the auditors' report shall also be appended.
(3) If any document required to be appended is in a language other than English, the directors shall annex to the copy of that document delivered a translation of it into English, certified in the prescribed manner to be a correct translation.
(4) The above requirements are subject to the following qualifications —

(a) an undertaking is not required to prepare for the purposes of this paragraph accounts which would not otherwise be prepared, and if no accounts satisfying the above requirements are prepared none need be appended;

(b) the accounts of an undertaking need rot be appended if they would not otherwise be required to be published, or made available for public inspection, anywhere in the world, but in that case the reason for not appending the accounts shall be stated in a note to the consolidated accounts.

(5) Where a copy of an undertaking's accounts is required to be appended to the copy of the group accounts delivered to the registrar, that fact shall be stated in a note to the group accounts.
(6) Subsections (2), (4) and (5) of section 242 (penalties, &c. in case of default) apply in relation to the requirements of this paragraph as regards the delivery of documents to the registrar as they apply in relation to the requirements of subsection (1) of that section.'.
369 Page 189, line 6, at end insert —

ADDITIONAL DISCLOSURE: RELATED UNDERTAKINGS
1. Where accounts are prepared in accordance with the special provisions of this Part relating to banking companies or groups, there shall be disregarded for the purposes of —

(a) paragraphs 7(2)(a), 23(2)(a) and 26(2)(a) of Schedule 5 (information about significant holdings in undertakings other than subsidiary undertakings: definition of 10 per cent. holding), and

(b) paragraphs 9(1), 25(1) and 28(1) of that Schedule (additional information in case of 20 per cent. holding),

any holding of shares not comprised in the equity share capital of the undertaking in question.'.
370 Page 189, leave out lines 10 to 14 and insert —
1. The provisions of this Part of this Schedule have effect with respect to the application of Schedule 6 (additional disclosure: emoluments and other benefits of directors and others) to a banking company or the holding company of such a company.'.
371 Page 189, line 25, leave out from 'to' to end of line 27 and insert 'a transaction, arrangement or agreement made by that banking company for —

(a) a person who was a director of the company preparing the accounts, or who was connected with such a director, or

(b) a person who was a chief executive or manager (within the meaning of the Banking Act 1987) of that company or its holding company.'.

372 Schedule 6, page 189, line 37, leave out from beginning to end of line 24 on page 191 and insert —
'DIRECTORS' REPORT WHERE ACCOUNTS PREPARED IN ACCORDANCE WITH SPECIAL PROVISION FOR BANKING OR INSURANCE COMPANIES OR GROUPS
Recent Issues
1. —(1) This paragraph applies where a company prepares individual accounts in accordance with the special provisions of this Part relating to banking or insurance companies.
(2) If in the financial year to which the accounts relate the company has issued any shares or debentures, the directors' report shall state the reason for making the issue, the classes of shares or debentures issued and, as respects each class, the number of shares or amount of debentures issued and the consideration received by the company for the issue.
Turnover and profitability
2. —(1) This paragraph applies where a company prepares group accounts in accordance with the special provisions of this Part relating to banking or insurance groups.
(2) If in the course of the financial year to which the accounts relate the group carried on business of two or more classes (other than banking or discounting or a class prescribed for the purposes of paragraph 17(2) of Part I of Schedule 9) that in the opinion of the directors differ substantially from each other, there shall be contained in the directors' report a statement of —

(a) the proportions in which the turnover for the financial year (so far as stated in the consolidated accounts) is divided amongst those classes (describing them), and

(b) as regards business of each class, the extent or approximate extent (expressed in money terms) to which, in the opinion of the directors, the carrying on of business of that class contributed to or restricted the profit or loss of the groups for that year (before taxation.)

(3) In sub-paragraph (2) "the group" means the undertakings included in the consolidation.
(4) For the purposes of this paragraph classes of business which in the opinion of the directors do not differ substantially from each other shall be treated as one class.
Labour force and wages paid
3. —(1) This paragraph applies where a company prepares individual or group accounts in accordance with the special provisions of this Part relating to banking or insurance companies or groups.
(2) There shall be stated in the directors' report —

(a) the average number of persons employed by the company or, if the company prepares group accounts, by the company and its subsidiary undertakings, and

(b) the aggregate amount of the remuneration paid or payable to persons so employed.

(3) The average number of persons employed shall be determined by adding together the number of persons employed (whether throughout the week or not) in each week of the financial year and dividing that total by the number of weeks in the financial year.
(4) The aggregate amount of the remuneration paid or payable means the total amount of remuneration paid or
1140
payable in respect of the financial year; and for this purpose remuneration means gross remuneration and includes bonuses, whether payable under contract or not.
(5) The information required by this paragraph need not be given if the average number of persons employed is less than 100.
(6) No account shall be taken for the purposes of this paragraph of persons who worked wholly or mainly outside the United Kingdom.
(7) This paragraph does not apply to a company which is a wholly-owned subsidiary of a company incorporated in Great Britain.
372A After Schedule 6, insert—

PARENT AND SUBSIDIARY UNDERTAKINGS: SUPPLEMENTARY PROVISIONS
Introduction.
1. The provisions of this Schedule explain expressions used in section 257 (parent and subsidiary undertakings) and otherwise supplement that section.
Voting rights in an undertaking.
2. —(1) In section 257(2)(a) and (d) the references to the voting rights in an undertaking are to the rights conferred on shareholders in respect of their shares or, in the case of an undertaking not having a share capital, on members, to vote at general meetings of the undertaking on all, or substantially all, matters.
(2) In relation to an undertaking which does not have general meetings at which matters are decided by the exercise of voting rights, the references to holding a majority of the voting rights in the undertaking shall be construed as references to having the right under the constitution of the undertaking to direct the overall policy of the undertaking or to alter the terms of its constitution.
Right to appoint or remove a majority of the directors.
3. —(1) In section 257(2)(b) the reference to the right to appoint or remove a majority of the board of directors is to the right to appoint or remove directors holding a majority of the voting rights at meetings of the board on all, or substantially all, matters.
(2) An undertaking shall be treated as having the right to appoint to a directorship if —

(a) a person's appointment to it follows necessarily from his appointment as director of the undertaking, or

(b) the directorship is held by the undertaking itself.

(3) A right to appoint or remove which is exercisable only with the consent or concurrence of another person shall be left out of account unless no other person has a right to appoint or, as the case may be, remove in relation to that directorship.
Right to exercise dominant influence.
4.—(1) For the purposes of section 257(2)(c) an undertaking shall not be regarded as having the right to exercise a dominant influence over another undertaking unless it has a right to give directions with respect to the operating and financial policies of that other undertaking which its directors are obliged to comply with whether or not they are for the benefit of that other undertaking.
(2) A "control contract" means a contract in writing conferring such a right which —

(a) is of a kind authorised by the memorandum or articles of the undertaking in relation to which the right is exercisable, and

(b) is permitted by the law under which that undertaking is established.

(3) This paragraph shall not be read as affecting the construction of the expression "actually exercises a dominant influence" in section 257(4)(a).
Rights exercisable only in certain circumstances or temporarily incapable of exercise.
5. —(1) Rights which are exercisable only in certain circumstances shall be taken into account only —

(a) when the circumstances have arisen, and for so long as they continue to obtain, or

(b) when the circumstances are within the control of the person having the rights.

(2) Rights which are normally exercisable but are temporarily incapable of exercise shall continue to be taken into account.
Rights held by one person on behalf of another.
6. Rights held by a person in a fiduciary capacity shall be treated as not held by him.
7. —(1) Rights held by a person as nominee for another shall be treated as held by the other.
(2) Rights shall be regarded as held as nominee for another if they are exercisable only on his instructions or with his consent or concurrence.
Rights attached to shares held by way of security.
8. Rights attached to shares held by way of security shall be treated as held by the person providing the security —

(a) where apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in accordance with his instructions, and

(b) where the shares are held in connection with the granting of loans as part of normal business activities and apart from the right to exercise them for the purpose of preserving the value of the security, or of realising it, the rights are exercisable only in his interests.

Rights attributed to parent undertaking.
9. —(1) Rights shall be treated as held by a parent undertaking if they are held by any of its subsidiary undertakings.
(2) Nothing in paragraph 7 or 8 shall be construed as requiring rights held by a parent undertaking to be treated as held by any of its subsidiary undertakings.
(3) For the purposes of paragraph 8 rights shall be treated as being exercisable in accordance with the instructions or in the interests of an undertaking if they are exercisable in accordance with the instructions of or, as the case may be, in the interests of any group undertaking.
Disregard of certain rights.
10. The voting rights in an undertaking shall be reduced by any rights held by the undertaking itself.
Supplementary
11. References in any provision of paragraphs 6 to 10 to rights held by a person include rights falling to be treated as held by him by virtue of any other provision of those paragraphs but not rights which by virtue of any such provision are to be treated as not held by him.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 366 to 372A.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
373 Schedule 7, page 192, line 2, leave out from beginning to end of line 3.
374 Page 192, line 5, at end insert —
'1A. In section 209(5)(a)(i) for "an authorised institution" substitute "a banking company".'.
375 Page 192, line 17, leave out from 'with' to 'insurance' in line 18 and insert 'the special provisions of Part VII relating to banking or'.
376 Page 192, line 21, at end insert —
'8A. In sections 338(4), 339(4), 343(1) and 344(2) for "an authorised institution", wherever occurring, substitute "a banking company".'.
377 Page 192, line 22, after '343(2)' insert 'and 4'.
378 Page 192, line 23, leave out 'Schedule 9B' and insert 'Part IV of Schedule 9'.
379 Page 192, line 24, leave out paragraph 10.
380 Page 193, line 12, leave out from beginning to end of line 14 and insert —
'702. —(1) An overseas company shall in respect of each financial year of the company deliver to the registrar copies of the accounts and reports prepared in accordance with section 700.
If any document comprised in those accounts or reports is in a language other than English, the directors shall annex to the copy delivered a translation of it into English, certified in the prescribed manner to be a correct translation.'.
381 Page 193, line 16, leave out 'the delivering of' and insert 'delivering'.
382 Page 193, line 23, leave out from 'Britain' to end of line 26.
383 Page 193, line 29, leave out 'for delivering accounts'.
384 Page 193, line 41, leave out from beginning to end of line 43 and insert —
'703. —(1) If the requirements of section 702(1) are not complied with before the end of the period allowed for delivering accounts and reports, or if the accounts and reports delivered do not comply with the requirements of this Act, the company and every person who immediately before the end of that period was a director of the company is guilty of an offence and liable to a fine and, for continued contravention, to a daily default fine.
(2) It is a defence for a person charged with such an offence to prove that he took all reasonable steps for securing that the requirements in question would be complied with.
(3) It is not a defence in relation to a failure to deliver copies to the registrar to prove that the documents in question were not in fact prepared as required by this Act.'.
385 Page 193, line 45, at end insert —
'13A. For section 742 (expressions used in connection with accounts) substitute —
"Expressions used in connection with accounts.
742. —(1) In this Act, unless a contrary intention appears, the following expressions have the same meaning as in Part VII (accounts)—
"annual accounts",
"accounting reference date" and "accounting reference period",
"balance sheet" and "balance sheet date",
"current assets",
"financial year", in relation to a company,
"fixed assets",
"parent company" and "parent undertaking",
"profit and loss account", and
"subsidiary undertaking".
(2) References in this Act to "realised profits" and "realised losses", in relation to a company's accounts, shall be construed in accordance with section 262(2A).'.
386 Page 193, line 45, at end insert —
'13B. In section 744 (interpretation), omit the definition of "authorised institution" and at the appropriate place insert —
" 'banking company' means a company which is authorised under the Banking Act 1987;".
387 Page 194, leave out from '(1)' to 'and' in line 6 and insert omit paragraph 60(2) of Schedule 4, or paragraph 19(3) of Schedule 9";'.
388 Page 194, line 9, leave out '(2)' and insert '(1)'.
389 Page 194, line 12, leave out sub-paragraph (5) and insert —
'(5) In paragraph 4—

(a) in sub-paragraph (1) omit "(whether as personal representative or otherwise)", and

(b) in sub-paragraph (2) omit ", paragraph 60(2) of Schedule 4 and paragraph 19(3) of Schedule 9";

and at the end add —
"(3) As respects sections 145, 146 and 148, sub-paragraph (1) above applies where a company is a personal representative as it applies where a company is a trustee.".'.
390 Page 195, line 24, leave out '(whether as personal representative or otherwise)'.
391 Page 195, line 34, leave out sub-paragraph (2) and insert —
'(2) "Undertaking" and "shares", in relation to an undertaking, have the same meaning as in Part VII.'.
392 Page 195, line 46, at end insert —
'15A. —(1) Part II of Schedule 3 (prospectuses: auditors' and accountants' reports to be set out) is amended as follows.
(2) In paragraph 16 (auditors' reports), in sub-paragraph (2) for "subsidiaries" substitute "subsidiary undertakings" and for sub-paragraph (3) substitute —
"(3) If the company has subsidiary undertakings, the report shall —

(a) deal separately with the company's profits or losses as provided by sub-paragraph (2), and in addition deal either —

(i) as a whole with the combined profits or losses of its subsidiary undertakings, so far as they concern members of the company, or

(ii) individually with the profits or losses of each of its subsidiary undertakings, so far as they concern members of the company,

or, instead of dealing separately with the company's profits or losses, deal as a whole with the profits or losses of the company and (so far as they concern members of the company) with the combined profits and losses of its subsidiary undertakings; and

(b) deal separately with the company's assets and liabilities as provided by sub-paragraph (2), and in addition deal either —

(i) as a whole with the combined assets and liabilities of its subsidiary undertakings, with or without the company's assets and liabilities, or

(ii) individually with the assets and liabilities of each of its subsidiary undertakings,

indicating, as respects the assets and liabilities of its subsidiary undertakings, the allowance to be made for persons other than members of the company.".

(3) For paragraph 18 (accountants' reports) substitute —
"18. —(1) The following provisions apply if —

(a) the proceeds of the issue are to be applied directly or indirectly in any manner resulting in the acquisition by the company of shares in any other undertaking, or any part of the proceeds is to be so applied, and

(b) by reason of that acquisition or anything to be done in consequence of or in connection with it, that undertaking will become a subsidiary undertaking of the company.

(2) There shall be set out in the prospectus a report made by accountants upon —

(a) the profits or losses of the other undertaking in respect of each of the five financial years immediately preceding the issue of the prospectus, and

(b) the assets and liabilities of the other undertaking at the last date to which its accounts were made up.

(3) The report shall —

(a) indicate how the profits or losses of the other undertaking would in respect of the shares to be acquired have concerned members of the company and what allowance would have fallen to be made, in relation to assets and liabilities so dealt with, for holders of other shares, if the company had at all material times held the shares to be acquired, and

(b) where the other undertaking is a parent undertaking, deal with the profits or losses and the assets and liabilities of the undertaking and its subsidiary undertakings in the manner provided by paragraph 16(3) above in relation to the company and its subsidiary undertakings.

(4) In this paragraph "undertaking" and "shares", in relation to an undertaking, have the same meaning as in Part VII.".
1144
(4) In paragraph 22 (eligibility of accountants to make reports), for sub-paragraph (2) substitute —
"(2) Such a report shall not be made by an accountant who is an officer or servant, or a partner of or in the employment of an officer or servant, of —

(a) the company or any of its subsidiary undertakings,

(b) a parent undertaking of the company or any subsidiary undertaking of such an undertaking.".'.

393 Page 194, line 49, leave out paragraph 17 and insert —
17. —(1) Schedule 11 is amended as follows.
(2) For the heading substitute 'MODIFICATIONS OF PART VIII WHERE COMPANY'S ACCOUNTS PREPARED IN ACCORDANCE WITH SPECIAL PROVISIONS FOR BANKING OR INSURANCE COMPANIES'.
(3) In paragraphs 1 and 2(a) for "Schedule 9" substitute "Part I of Schedule 9".
(4) In paragraph 4 —

(a) in sub-paragraph (a) for "Schedule 9" substitute "Part I of Schedule 9", and

(b) omit sub-paragraphs (b) and (c).

(5) In paragraph 5 —

(a) in sub-paragraph (a) for "Part III of Schedule 9" substitute "paragraph 27 or 28 of Schedule 9", and

(b) omit sub-paragraph (b).

(6) In paragraph 6 —

(a) in sub-paragraph (a), for "section 228" substitute "section 226" and for "section 258 and Schedule 9" substitute "section 255 and Part I of Schedule 9", and

(b) in sub-paragraph (b), for "Part III of Schedule 9" substitute "paragraph 27 or 28 of Schedule 9".

(7) In paragraph 7(a) for "Schedule 9" substitute "Part I of Schedule 9".'.
394 Page 196, line 7, leave out paragraph 18 and insert —
'18. —(1) In Schedule 15A (renumbered 15B) (provisions applicable to mergers and divisions of public companies), paragraph 6 (documents to be made available for inspection) is amended as follows.
(2) In sub-paragraph (1)(b) (directors' report on merger or division), after "directors' report" insert "referred to in paragraph 4 above".
(3) For sub-paragraph (1)(d) and (e) substitute —"(d) the company's annual accounts, together with the relevant directors' report and auditors' report, for the last three financial years ending on or before the relevant date; and
(e) if the last of those financial years ended more than six months before the relevant date, an accounting statement in the form described in the following provisions.".
(4) In sub-paragraph (1), after the paragraphs add —
"In paragraphs (d) and (e) "the relevant date" means one month before the first meeting of the company summoned under section 425(1) or for the purposes of paragraph 1.".
(5) For sub-paragraphs (2) to (5) substitute —
"(2) the accounting statement shall consist of —

(a) a balance sheet dealing with the state of the affairs of the company as at a date not more than three months before the draft terms were adopted by the directors, and

(b) Where the company would be required to prepare group accounts if that date were the last day of a financial year, a consolidated balance sheet dealing with the state of affairs of the company and its subsidiary undertakings as at that date.

(3) The requirements of this Act as to balance sheets forming part of a company's annual accounts, and the matters to be included in notes thereto, apply to any balance sheet required for the accounting statement, with such modifications as are necessary by reason of its being prepared otherwise than as at the last day of a financial year.
(4) Any balance sheet required for the accounting statement shall be approved by the board of directors

1145
and signed on behalf of the board by a director of the company.
(5) In relation to a company within the meaning of Article 3 of the Companies (Northern Ireland) Order 1986, the references in this paragraph to the requirements of this Act shall be construed as reference to the corresponding requirements of that Order.".'.
395 Page 196, line 35, at end insert —
'18A. In Schedule 22 (provisions applying to unregistered companies), in the entry relating to Part VII, in column I, for "Schedule 10" substitute "Schedules 10 and 10A".'.
396 Page 196, line 36, leave out paragraph 19.
397 Page 196. line 45, column 2, leave out '224(4)' and insert '222(4)'.
398 Page 197, line 1, column 2, at end insert —

'In column 2, for "the section" substitute 'Part VII".'.

399 Page 197, line 7, column 2, at end insert —

'In column 2, for "company accounts" substitute "company's annual accounts, directors' report and auditors' report".'.

400 Page 197, line 8, leave out the words in column 2 and insert 'Omit the entry.'.
401 Page 197, line 15, leave out from beginning to 'requirements' in line 16 and insert 'Failure to comply with'.
402 Page 197, line 20, at end, insert —

'233(4A)

Approving defective accounts

2. On indictment

A fine.

2. Summary.

The statutory maximum.'.

403 Page 197, line 26, at end insert —

'252(6)

Failure to comply with requirements in relation to summary financial statements.

Summary.

One-fifth of the statutory maximum.',

404 Page 197, line 26, at end insert —
'(4) In the entry for section 703(1) (failure by oversea company to comply with requirements as to accounts and reports), in column 2 for the words from "s. 700" to the end substitute "requirements as to accounts and reports".'.
405 Page 198, line 12, at end insert —
'Aircraft and Shipbuilding Industries Act 1977
23A. —(1) Section 17 of the Aircraft and Shipbuilding Industries Act 1977 (British Shipbuilders: accounts and audit) is amended as follows.
(2) In subsection (1)(c) (duty to prepare consolidated accounts) for "subsidiaries" substitute "subsidiary undertakings".
(3) In subsection (9) (copies of accounts to be sent to the Secretary of State) for "subsidiaries" substitute "subsidiary undertakings" and for "subsidiary" substitute "subsidiary undertaking".
(4) After subsection (9) add —
"(10) In this section "subsidiary undertaking" has the same meaning as in Part VII of the Companies Act 1985.".
Crown Agents Act 1979
23B. In section 22 of the Crown Agents Act 1979 (accounts and audit), in subsection (2) (duty to prepare consolidated accounts) for "subsidiaries" (three times) substitute "subsidiary undertakings", and at the end of that subsection add —
"In this subsection "subsidiary undertaking" has the same meaning as in Part VII of the Companies Act 1985.".'.
406 Page 198, line 15, leave out '(3)(c)(i)' and insert '(1)(c)(i)'.
407 Page 198, line 23, at end insert —
'Oil and Pipelines Act 1985
26A. In Schedule 3 to the Oil and Pipelines Act 1985 (Oil and Pipelines Agency: financial and other provisions), in paragraph 9(2) (duty to prepare consolidated accounts)
1146
for "subsidiaries" (three times) substitute "subsidiary undertakings", and at the end of that sub-paragraph add —
"In this sub-paragraph "subsidiary undertaking" has the same meaning as in Part VII of the Companies Act 1985.".
Patents, Designs and Marks Act 1986
26B. In Schedule 2 to the Patents, Designs and Marks Act 1986 (service marks), in paragraph 1(2) (provisions in which reference to trade mark includes service mark) for sub-paragraph (ii) substitute —
"(ii) Part I of Schedule 4 and paragraphs 5(2)(d) and 10(1)(b) and (2) of Schedule 9 (form of company balance sheets); and".'.
408 Page 198, line 27, leave out from '(b)' to end of line and insert '(default orders)—

(a) in sub-paragraph (i) for "section 244" substitute "section 242(4)", and

(b) after that sub-paragraph insert—

"(ia) section 245B of that Act (order requiring preparation of revised accounts),'.
409 Page 199, line 15, at end insert —
'(1A) In section 46(2) (duties of auditor of authorised institution), in paragraph (c) for "section 236" substitute "section 235(2)" and for "section 237" substitute "section 235(3) or section 236"; and in section 46(4) (adaptation of references for Northern Ireland) for "236 and 237" substitute "235(2) and 235(3) and 236".'.
410 Page 199, line 41, at end insert—
'Income and Corporation Taxes Act 1987
30. —(1) The Income and Corporation Taxes Act 1988 is amended as follows.
(2) In section 180 (annual return of registered profit related pay scheme), in subsection (3) for "section 242(3)" substitute "section 244(3)".
(3) In section 565(6) (conditions for exemption from provisions relating to sub-contractors in construction industry: compliance with requirements of Companies Act 1985), in paragraph (a) for "section 227 and 241" substitute "sections 226, 241 and 242".
Dartford-Thurrock Crossing Act 1988 (c.20)
31. In section 33 of the Dartford-Thurrock Crossing Act 1988 (duty to lay before Parliament copies of accounts of persons appointed to levy tolls), for subsection (2) substitute —
"(2) In relation to a company "accounts" in subsection (1) means the company's annual accounts for a financial year, together with the relevant directors' report and the auditors' report on those accounts.
Expressions used in this subsection have the same meaning as in Part VII of the Companies Act 1985.".'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 373 to 410. They simply tidy up and complete Schedule 7 to the Bill which makes changes consequential on Part I of the Bill.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, this is a large grouping to which we have not objected although a large number of points are covered. As the Minister has said, they are in general tidying up amendments. I wish to ask one question concerning banking companies which are the subject of Amendments Nos. 374 and 376. I understand that within the European Community there are moves to issue a draft directive on banking company accounts. As the noble Lord is aware, we on this side of the House

1147
believe that banking companies should be treated in exactly the same way as other companies. Can the noble Lord give us any indication of what progress is being made so that we can know roughly how long these amendments will stay on the statute?
Lord Trefgarne: My Lords, I am afraid that I do not have that information to hand. However, I shall very readily find that out and convey it to the noble Lord.
On Question, Motion agreed to.

COMMONS AMENDMENTS
411 Schedule 8, page 200, line 7, at end insert 'of this Act'.
412 Page 200, line 27, at end, insert 'of this Act'.
5 p.m.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 411 and 412 and I shall speak also to Amendments Nos. 427 to 429, 432 and 448. These are merely drafting amendments. I beg to move.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.
COMMONS AMENDMENT
413 Page 201, line 46, leave out from beginning to end of line 6 on page 202 and insert —
'4. —(1) The body must have rules to the effect that a person is not eligible for appointment as a company auditor unless —

(a) in the case of an individual, he holds an appropriate qualification;

(b) in the case of a firm —

(i) the individuals responsible for company audit work on behalf of the firm hold an appropriate qualification, and

(ii) the firm is controlled by qualified persons (see paragraph 5 below).

(2) This does not prevent the body from imposing more stringent requirements.
(3) A firm which has ceased to comply with the conditions mentioned in sub-paragraph (1)(b) may be permitted to remain eligible for appointment as a company auditor for a period of not more than three months.'.
414 Page 202, leave out lines 7 to 13 and insert —
'5. —(1) The following provisions explain what is meant in paragraph 4(1)(b)(ii) by a firm being "controlled by qualified persons".
(2) For this purpose references to a person being qualified are, in relation to an individual, to his holding an appropriate qualification, and in relation to a firm, to its being eligible for appointment as a company auditor.
(3) A firm shall be treated as controlled by qualified persons if, and only if —

(a) a majority of the members of the firm are qualified persons, and

(b) where the firm's affairs are managed by a board of directors, committee or other management body, a majority of the members of that body are qualified persons or, if the body consist of two persons only, that at least one of them is a qualified person.'.

415 Page 202, leave out lines 14 to 25 and insert —
'(4) A majority of the members of a firm means —

(a) where under the firm's constitution matters are decided upon by the exercise of voting rights, members
1148
holding a majority of the rights to vote on all, or substantially all, matters;

(b) in any other case, members having such rights under the constitution of the firm as enable them to direct its overall policy or alter its constitution.

(5) A majority of the members of the management body of a firm means —

(a) where matters are decided at meetings of the management body by the exercise of voting rights, members holding a majority of the rights to vote on all, or substantially all, matters at such meetings.

(b) in any other case, members having such rights under the constitution of the firm as enable them to direct its overall policy or alter its consititution.'.

416 Page 202, leave out lines 26 to 48 and insert —
'(6) The provisions of paragraphs 5 to II of Schedule 10A to the Companies Act 1985 (rights to be taken into account and attribution of rights) apply for the purposes of this paragarph.'.
417 Page 203, line 2, leave out from first 'The' to 'that' and insert 'body must have adequate rules and practices designed to ensure'.
418 Page 203, line 19, leave out 'voting rights at any general meeting' and insert 'rights to vote on all, or substantially all, matters at general meetings'.
419 Page 203, line 23, leave out from 'have' to end of line and insert adequate rules and practices designed to ensure —'.
420 Page 203, line 28, leave out from 'have' to end of line and insert 'adequate rules and practices designed to ensure'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 413 to 420. In parenthesis, in answer to an earlier point, I am told that the bank accounts directive has recently been agreed and we have just finished consultation, which I hope meets the point put to me by the noble Lord.
The amendments have four main effects. First, a recognised supervisory body need only have rules to the effect that, in short, company auditors are controlled by qualified persons, rather than having to have rules and practices which secure that result. Similarly Amendments Nos. 417, 419 and 420 alter other relevant provisions in Schedule 8 so as to make it clear that a recognised supervisory body only has to have adequate rules and practices designed to ensure the desired objective, or has rules to a particular effect.
In making this change, the Members of another place had had regard to concerns expressed in this House by the noble Lord, Lord Benson, and the noble and learned Lord, Lord Roskill, who were concerned that, if taken too literally, the original requirement would prove an impossible hurdle, since no body could guarantee that its members will always obey the rules. Although it may be argued that, in context, the provisions did not demand this degree of perfection, the amendments will put the point beyond doubt.
Moved, That the House do agree with the Commons in the said amendments —(Lord Trefgarne.)
Lord Williams of Elvel: My Lords, I am grateful to the Government for attending to what the noble Lord, Lord Benson, and the noble and learned Lord, Lord Roskill, said, on this matter. I believe that they had a very fair point and I think it is right that the Government adjusted the text in another place.

1149
Perhaps I may return to the comment made by the Minister on the previous amendment on the banking accounts directive. If that is now almost upon us, does that mean that we shall have a new Companies Bill as soon as the directive requires implementation, or would it not be better —and here I am arguing against myself—to have a clause allowing the Secretary of State to implement provisions of the directive by regulation?
On Question, Motion agreed to.

COMMONS AMENDMENTS
421 Page 203, line 30, leave out 'such persons as are mentioned below' and insert —

(a) individuals who do not hold an appropriate qualification, and

(b) persons who are not members of the firm,'.

422 Page 203, line 34, leave out sub-paragraph 3).
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 421 and 422. Those amendments change the restrictions on the categories of person who are to be prevented from exercising an undesirable influence over the conduct of company audit work. The effect is that a wider group of persons is to be prevented from exercising that influence.
Potentially any person who is unqualified could exercise undue influence, as could anyone who was not a member of the firm. Accordingly the amendments lay down that those persons are to be prevented from exercising any influence over the way in which the audit is conducted in circumstances in which that influence would be likely to affect the independence or integrity of the audit.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
423 Page 204, line 29, after 'have', insert 'adequate'.
424 Page 204, line 30, leave out 'are reasonably' and insert 'take such steps as may reasonably be expected of them to secure that they are'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 423 and 424. The amendments alter the test in the requirement that recognised supervisory bodies have rules and arrangements on meeting claims arising out of company audit work. As the Bill left your Lordships' House, the test entailed assessing whether the body's rules produce the result that company auditors will be reasonably able to meet claims if claims are made.
The amendments require an assessment of whether the rules and arrangements are designed to achieve the result that the company auditors take such steps as may reasonably be expected of them to secure that they are able to meet claims. The purpose is to reinforce the point that the test is not an absolute one. In considering it, the Secretary of State may have regard to the circumstances, such as
1150
the cost and availability of professional indemnity insurance, in deciding whether it is met.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
425 Page 204, line 34, leave out paragraph 15 and insert —
'Register of auditors and other information to be made available
15. The body must have rules requiring, persons eligible under its rules for appointment as a corr pany auditor to comply with any obligations imposed on them by regulations under section 33 or 34.'.
Lord Strathclyde: My Lords, I beg 10 move that the House do agree with the Commons in their Amendment No. 425.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
426 Page 204, line 42, at end insert —
'Taking account of costs of compliance
15A. The body must have satisfactory arrangements for taking account, in framing its rules, of the cost to those to whom the rules would apply of complying with those rules and any other controls to which they are subject.'.
Lord Strathclyde: My Lords, I beg to move that the House do o agree with the Commons in their Amendment No. 426. This amendment requires a recognised supervisory body to have satisfactory arrangements for taking account of costs of compliance in its rules for any other controls to which its members are subject. An analogous requirement is placed by Amendment No. 306 upon recognised bodies under the FSA. Both amendments reflect the Government's concern that the proper assessment of the costs is made before a decision on rules are made.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, there is a difference between those governing the bodies which spend the majority of their time in business other than the investment business and the SROs which govern organisations which spend almost the totality of their time in the investment business. Therefore, I am much more doubtful about the costs of compliance argument in the case of recognised supervisory bodies than I am in the case of SROs. I am not tremendously persuaded by the argument in the case of SROs.
Perhaps I may take an example. The Institute of Chartered Accountants of England and Wales being a recognised supervisory body, if a firm of accountants decides to go into the investment business, I see no reason whatever why the institute should have satisfactory arrangements for taking account, in framing its rules, of the cost to that firm of accountants of going into the investment business.

1151
I should have thought it perfectly ordinary and proper, if the firm wishes to go into the investment business, for it to assess what the costs of compliance are under the rules as set out by the institute and to decide whether or not, in the light of that assessment, it wishes to continue or go into that business at all. I find this provision much more objectionable than that in the case of SROs.
Lord Strathclyde: My Lords, the noble Lord is very fair in what he said. The Government believe that it is vital for regulatory bodies to pay proper regard to the direct and indirect costs of complying with the rules. It is all too easy, even for practitioner-based bodies, to decide upon an approach to a regulatory problem without having assessed the costs of the various alternatives. Unless costs are properly assessed, the regulatory system risks being more burdensome than necessary.
This amendment simply requires the bodies to have satisfactory arrangements for taking account of the costs of the rules and other controls. I assure the noble Lord, Lord Williams, that there is no possibility of this requirement undermining the other criteria which recognised supervisory bodies have to satisfy. That is because paragraph 2(2) of Schedule 8 states that the Secretary of State may not make a recognition order unless it appears to him that the requirements in Part II of the schedule are satisfied. Therefore, the body will not be able to excuse inadequate supervision on the grounds that it is too expensive to achieve. This new requirement is simply to ensure that the recognised supervisory body takes account of compliance costs in framing the rules and so satisfies the other requirements of the Bill in the most cost-effective way.
On Question, Motion agreed to.

COMMONS AMENDMENTS
427 Schedule 9, page 205, line 14, at end, insert 'of this Act'.
428 Page 205, line 37, at end, insert 'of this Act'.
429 Page 205, line 38, after 'Part' insert 'of this Act'.
Lord Trefgarne: My Lords. I beg to move that the House do agree with the Commons in their Amendments Nos. 427, 428 and 429.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
430 Page 207, line 3, leave out from 'means' to end of line 10 and insert '—

(a) being educated to such a standard as would entitle him to be considered for such admission on the basis of—

(i) academic or professional qualifications obtained in the United Kingdom and recognised by the Secretary of State to be of an appropriate standard, or

1152

(ii) academic or professional qualifications obtained outside the United Kingdom which the Secretary of State considers to be of an equivalent standard; or

(b) being assessed on the basis of written tests of a kind appearing to the Secretary of State to be adequate for the purpose, with or without oral examination, as of such a standard of ability as would entitle him to be considered for such admission.

(3) The assessment, tests and oral examination referred to in sub-paragraph (2)(b) may be conducted by the qualifying body or by some other body approved by the Secretary of State.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 430. In rising to move that the House do agree with the Commons in that amendment I am conscious of the fact that the noble Lord, Lord Williams, and his colleagues do not have any further amendments to Commons amendments. Will the noble Lord agree, therefore, that we can take a large number of the amendments en bloc? I am happy to go through them one by one or agree groupings if the noble Lord prefers; but if he does not have any further questions the time of the House may be saved if I can move them further en bloc. Perhaps the noble Lord will indicate his wishes.
Lord Peston: My Lords, I am grateful to the noble Lord. We have some comments on the amendment the noble Lord has moved and some further comments on Amendment No. 431. We may have further comments as we go along. Until we hear the noble Lord's explanation on these amendments we do not know whether we shall have any serious comments. In general, we are anxious to get on with the business quickly, but we prefer to stick to the groupings as they are.
Lord Trefgarne: My Lords, I apologise to the noble Lord in the Chair for the somewhat unusual procedure. I shall continue with Amendment No. 430. This amendment extends the meaning of university entrance level. The effect is that a recognised qualifying body may regard persons as having attained that level —and thus able to embark on the qualification —if the body or some other body approved by the Secretary of State has assessed them on the basis of written tests approved by the Secretary of State as being of a standard of ability which would entitle them to be considered for admission to a university or other similar establishment. This will extend the number of persons who can be considered for entry to a course leading to the qualification while maintaining the requirement in the directive that unless the prospective auditor has had certain periods of relevant professional experience he must attain university entrance level.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
Lord Peston: My Lords, I wish to confine myself solely to the topic raised by the noble Lord, which is the concept of attaining university entrance level, and to make the observation that this is a Bill

1153
promoted by the Department of Trade and Industry. It is rather strange to find that the concept of attaining university entrance level is defined within a Bill proposed by the Department of Trade and Industry with no reference to the Department of Education and Science.
I thought that attaining university entrance level was a well defined concept in this country. It consists, of certain rules concerning A-levels or other matters relating to what universities themselves regard as acceptable for entry. I am not opposing an interest on the part of the Department of Trade and Industry on what is to be regarded as attaining university entry level, but I am slightly taken aback by sub-paragraph (b) because the only references within these written tests, with or without oral examination, are still to the Secretary of State for Trade and Industry.
I must ask the noble Lord whether the Secretary of State for Trade and Industry has consulted his right honourable colleague the Secretary of State for Education and Science on intervening or interfering in areas which many of us would have thought were none of his business. I am not saying that that is a bad thing. It is always a pleasure when the Department of Trade and Industry takes an interest in the subject of education, but I have to put on record the fact that it is slightly odd.
Lord Trefgarne: My Lords, I can confirm that the Government are a broad catholic church and have taken all the necessary views into account. The problem is one of mature students who are sometimes admitted to universities without development A-levels but on the basis of a test conducted by the university at the time.
Lord Peston: My Lords, that is my point. As a university person myself I am well aware of the existence of mature students. At the very least I hope that the Department of Trade and Industry will therefore consult universities which have had a lot of experience in dealing with mature students. My reason for intervening was precisely to draw that to the attention of the Minister. I am well aware of the reason for the amendment, but I also hope he is aware that there is a vast experience within the university and polytechnic worlds of dealing with these matters.
On Question, Motion agreed to.

COMMONS AMENDMENT
431 Page 208, line 6, leave out from 'which' to end of line 7 and insert '—

(a) part was spent being trained in company audit work, and

(b) a substantial part was spent being trained in company audit work or other audit work of a description approved by the Secretary of State as being similar to company audit work.

For this purpose "company audit work" includes the work of a person appointed as auditor under the Companies (Northern Ireland) Order 1986 or under the law of a country or territory outside the United Kingdom where it appears to the Secretary of State that the law and practice with respect to the audit of company accounts is similar to that in the United Kingdom.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 431. This amendment concerns the content of the practical training which auditors must undergo. The amendment substitutes that a part must be spent on company audit work and a substantial part on such work or other work approved by the Secretary of State as being similar to company audit work.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
Lord Williams of Elvel: My Lords, I am puzzled by the expression "similar to company audit work". Does that include training in consultancy, which many auditing firms engage in? We have had a number of arguments about whether they should be engaging in consultancy work and whether fees should be shown separately. Parts of the Bill cover that.
What is an activity similar to company audit work? By what criteria will the Secretary of State approve these activities as being similar? Perhaps the noble Lord can help me on that point.
Lord Strathclyde: My Lords, let me explain. The amendment meets a concern expressed by the Institute of Chartered Accountants in England and Wales. It represented that in some offices there would be a concentration of audit work other than company audit work —the auditing of building societies, for example —and that that could count towards the requirement in the Bill. We have sought to meet that concern. We believe the directive permits us to do so as it refers to the auditing of similar financial statements. The amendment therefore provides that a substantial part of the training must be spent on company audit work or other audit work which is approved by the Secretary of State as being similar.
In order to ensure that auditors are properly trained to carry out company audits, the amendment also requires that part of the training is spent on company audit work whether in the UK or under a jurisdiction where the law and practices of company auditing are similar.
Lord Williams of Elvel: My Lords, before the noble Lord sits down, I wonder whether he can enlighten me on this question of consultancy. Does this mean that people can be trained in consultancy as well as audit work for part of their time?
Lord Strathclyde: My Lords, I can broadly say that the training in work is similar to company audit work, but management consultancy is not envisaged as being acceptable.
On Question, Motion agreed to.

COMMONS AMENDMENTS
432 Page 208, line 15, after 'Part', insert 'of this Act'.
433 Schedule 10, page 208, line 33, at end insert 'under section 44; and any power to make provision by order is to make provision by order under that section.'.
434 Page 208, line 44, leave out 'delegation order may make provision' and insert 'Secretary of State may make provision by order'.
435 Page 209, line 2, leave out paragraph 4 and insert —
'4. —(1) The body shall pay to its chairman and members such remuneration, and such allowances in respect of expenses properly incurred by them in the performance of their duties, as the Secretary of State may determine.
(2) As regards any chairman or member in whose case the Secretary of State so determines, the body shall pay or make provision for the payment of —

(a) such pension, allowance or gratuity to or in respect of that person on his retirement or death, or

(b) such contributions or other payment towards the provision of such a pension, allowance or gratuity,

as the Secretary of State may determine.
(3) Where a person ceases to be a member of the body otherwise than on the expiry of his term of office and it appears to the Secretary of State that there are special circumstances which make it right for him to receive compensation, the body shall make a payment to him by way of compensation of such amount as the Secretary of State may determine.'.
436 Page 209, line 31, leave out 'by virtue of the delegation order'.
437 Page 209, line 32, leave out 'agency' and insert 'body'.
438 Page 209, line 40, leave out 'designated'.
439 Page 209, line 44, leave out sub-paragraph (6).
440 Page 210, line 7, leave out from first 'The' to 'thinks' in line 8 and insert 'Secretary of State may by order impose such requirements as he'.
441 Page 210, line 30, after second 'the', insert 'delegation'.
442 Page 210, line 32, leave out 'order may' and insert 'Secretary of State may by order'.
443 Page 210, line 41, leave out paragraph 11 and insert —
'11. —(1) The transfer of a function to a body established by a delegation order does not affect anything previously done in the exercise of the function transferred; and the resumption of a function so transferred does not affect anything previously done in exercise of the function resumed.
(2) The Secretary of State may by order make such transitional and other supplementary provision as he thinks necessary or expedient in relation to the transfer or resumption of a function.
(3) The provision that may be made in connection with the transfer of a function includes, in particular, provision —

(a) for modifying or excluding any provision of this Part of this Act in its application to the function transferred;

(b) for applying to the body established by the delegation order, in connection with the function transferred, any provision applying to the Secretary of State which is contained in or made under any other enactment;

(c) for the transfer of any property, rights or liabilities from the Secretary of State to that body;

(d) for the carrying on and completion by that body of anything in process of being done by the Secretary of State when the order takes effect;

(e) for the substitution of that body for the Secretary of State in any instrument, contract or legal proceedings.

(4) The provision that may be made in connection with the resumption of a function includes, in particular, provision —

(a) for the transfer of any property, rights or liabilities from that body to the Secretary of State;

(b) for the carrying on and completion by the Secretary of State of anything in process of being done by that body when the order takes effect;

(c) for the substitution of the Secretary of State for that body in any instrument, contract or legal proceedings.

12. Where a delegation order is revoked, the Secretary of State may by order make provision—
1156

(a)for the payment of compensation to persons ceasing to be employed by the body established by the delegation order; and

(b) as to the winding up and dissolution of the body.'.

5.15.p.m.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 432 to 443.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
444 Schedule 11, page 213, line 6, leave out from 'matter' to end of line and insert 'in connection with his functions under paragraph 1 or 3.'.
445 Page 213, line 12, leave out 'carrying on any business'.
446 Page 213, line 21, leave out '(5)' and insert '(6)'.
447 Page 213, line 23, at end insert 'but as if, in subsection (7) of that section, for the words from "any one" to "the Commission" there were substituted "the Director".'
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 444 to 447.
These amendments extend the purposes for which the Director General of Fair Trading may exercise his investigatory powers under paragraph 4 of Schedule 1 to the Bill. As the Bill left your Lordships' House, the director could exercise the powers for the purpose of investigating any matter with a view to its consideration under paragraph 3 of Schedule 11. That paragraph requires the director to keep the rules and guidance of recognised bodies under review, and to report to the Secretary of State if he thinks they have or are likely or intended to have a significantly anti-competitive effect. But this is too narrow.
Paragraph 1 of the schedule requires the director to consider and report on the effect on competition of the rules and guidance of applicants when they apply for recognition, and the powers of investigation would be equally useful to him then. The amendments would therefore enable the director to exercise the investigatory powers for the purpose of investigating any matter in connection with his functions under paragraphs 1 or 3 of the schedule.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
448 Page 213, line 40, at end, insert 'of this Act'.
449 Page 215, line 12, leave out from 'it' to end of line and insert 'relates to rules of or guidance issued by the body, and incidental matters connected therewith, including any term deemed to be contained in it by virtue of section 8(2) or 16(3) of that Act.'.
450 Schedule 12, leave out Schedule 12.
451 After Schedule 12, insert the following new schedule
'CHARGES NO PROPERTY OF OVERSEA COMPANIES
The following provisions are inserted in Part XXIII of the Companies Act 1985—

REGISTRATION OF CHARGES
703A.(1) The provisions of this Chapter have effect for securing the registration in Great Britain of charges on the property of a registered oversea company.
(2) Section 395(2) and (3) (meaning of "charge" and "property") have effect for the purposes of this Chapter.
(3) A "registered oversea company", in relation to England and Wales or Scotland, means an oversea company which has duly delivered documents to the registrar for that part of Great Britain under section 691 and has not subsequently given notice to him under section 696(4) that it has ceased to have an established place of business in that part.
(4) References in this Chapter to the registrar shall be construed in accordance with section 703E below and references to registration, in relation to a charge, are to registration in the register kept by him under this Chapter.
Charges requiring registration.
703B.—(1) The charges requiring registration under this Chapter are those which if created by a company registered in Great Britain would require registration under Part XII of this Act.
(2) Whether a charge is one requiring registration under this Chapter shall be determined—

(a) in the case of a charge over property of a company at the date it delivers documents for registration under section 691, as at that date,

(b) in the case of a charge created by a registered oversea company, as at the date the charge is created, and

(c) in the case of a charge over property acquired by a registered oversea company, as at the date of the acquisition.

(3) In the following provisions of this Chapter references to a charge are, unless the context otherwise requires, to a charge requiring registration under this Chapter.
Where a charge not otherwise requiring registration relates to property by virtue of which it requires to be registered and to other property, the references are to the charge so far as it relates to property of the former description.
The register.
703C.—(1) The registrar shall keep for each registered oversea company a register, in such form as he thinks fit, of charges on property of the company.
(2) The register shall consist of a file containing with respect to each such charge the particulars and other information delivered to the registrar under or by virtue of the following provisions of this Chapter.
(3) Section 397(3) to (5) (registrar's certificate as to date of delivery of particulars) applies in relation to the delivery of any particulars or other information under this Chapter.
Company's duty to deliver particulars of charges for registration.
703D.—(1) If when an oversea company delivers documents for registration under section 691 any of its property is situated in Great Britain and subject to a charge, it is the company's duty at the same time to deliver the prescribed particulars of the charge, in the prescribed form, to the registrar for registration.
(2) Where a registered oversea company—

(a) creates a charge on property situated in Great Britain, or

(b) acquires property which is situated in Great Britain and subject to a charge,

it is the company's duty to deliver the prescribed particulars of the charge, in the prescribed form, to the
1158
registrar for registration within 21 days after the date of the charge's creation or, as the case may be, the date of the acquisition.
This subsection does not apply if the property subject to the charge is at the end of that period no longer situated in Great Britain.
(3) Where the preceding subsections do not apply and property of a registered oversea company is for a continuous period of four months situated in Great Britain and subject to a charge, it is the company's duty before the end of that period to deliver the prescribed particulars of the charge, in the prescribed form, to the registrar for registration.
(4) Particulars of a charge required to be delivered under subsections (1), (2) or (3) may be delivered for registration by any person interested in the charge.
(5) If a company fails to comply with subsection (1), (2) or (3), then, unless particulars of the charge have been delivered for registration by another person, the company and every officer of it who is in default is liable to a fine.
(6) Section 398(2), (4) and (5) (recovery of fees paid in connection with registration, filing of particulars in register and sending of copy of particulars filed and note as to date) apply in relation to particulars delivered under this Chapter.
Registrar to whom particulars, &c. to be delivered
703E.—(1) The particulars required to be delivered by section 703D(1) (charges over property of oversea company becoming registered in a part of Great Britain) shall be delivered to the registrar to whom the documents are delivered under section 691.
(2) The particulars required to be delivered by section 703D(2) or (3) (charges over property of registered oversea company) shall be delivered —

(a) if the company is registered in one part of Great Britain and not in the other, to the registrar for the part in which it is registered, and

(b) if the company is registered in both parts of Great Britain but the property subject to the charge is situated in one part of Great Britain only, to the registrar for that part;

and in any other case the particulars shall be delivered to the registrars for both parts of Great Britain.
(3) Other documents required or authorised by virtue of this Chapter to be delivered to the registrar shall be delivered to the registrar or registrars to whom particulars of the charge to which they relate have been, or ought to have been, delivered.
(4) If a company gives notice under section 696(4) that it has ceased to have an established place of business in either part of Great Britain, charges over property of the company shall cease to be subject to the provisions of this Chapter, as regards registration in that part of Great Britain, as from the date on which notice is so given.
This is without prejudice to rights arising by reason of events occurring before that date.
Effect of failure to deliver particulars, law delivery and effect of errors and omissions
703F.—(1) The following provisions of Part XII—

(a) section 399 (effect of failure to deliver particulars),

(b) section 400 (late delivery of particulars), and

(c) section 402 (effect of errors and omissions in particulars delivered),

apply, with the following modifications, in relation to a charge created by a registered oversea company of which particulars are required to be delivered under this Chapter.
(2) Those provisions do not apply to a charge of which particulars are required to be delivered under section 703D(1) (charges existing when coin pany delivers documents under section 691).
(3) In relation to a charge of which particulars are required to be delivered under section 703D(3) (charges registrable by virtue of property being within Great Britain for requisite period), the references to the period

1159
of 21 days after the charge's creation shall be construed as references to the period of four months referred to in that subsection.
Delivery of further particulars or memorandum
703G. Sections 401 and 403 (delivery of further particulars and memorandum of charge ceasing to affect company's property) apply in relation to a charge of which particulars have been delivered under this Chapter.
Further provisions with respect to voidness of charges
703.—(1) The following provisions of Part XII apply in relation to the voidness of a charge by virtue of thisChapter—

(a) section 404 (exclusion of voidness as against unregistered charges),

(b) section 405 (restrictions on cases in which charge is void),

(c) section 406 (effect of exercise of power of sale), and

(d) section 407 (effect of voidness on obligation secured).

(2) In relation to a charge of which particulars are required to be delivered under section 7O3D(3) (charges registrable by virtue of property being within Great Britain for requisite period), the reference in section 404 to the period of 21 days after the charge's creation shall be construed as references to the period of four months referred to in that subsection.
Additional information to be registered.
7031.—(1) Section 408 (particulars of taking up of issue of debentures) applies in relation to a charge of which particulars have been delivered under this Chapter.
(2) Section 409 (notice of appointment of receiver or manager) applies in relation to the appointment of a receiver or manager of property of a registered oversea company.
(3) Regulations under section 410 (notice of crystallisation of floating charge, &c.) may apply in relation to a charge of which particulars have been delivered under this Chapter; but subject to such exceptions, adaptations and modifications as may be specified in the regulations.
Copies of instruments and register to be kept by company.
703J-—(1) Sections 411 and 412 (copies of instruments and register to be kept by company) apply in relation to a registered oversea company and any charge over property of the company situated in Great Britain.
(2) They apply to any charge, whether or not particulars are required to be delivered to the registrar.
(3) In relation to such a company the references to the company's registered office shall be construed as references to its principal place of business in Great Britain.
Power to make further provision by regulations.
703K.—(1) The Secretary of State may by regulations make further provision as to the application of the provisions of this Chapter, or the provisions of Part XII applied by this Chapter, in relation to charges of any description specified in the regulations.
(2) The regulations may apply any provisions of regulations made under section 413 (power to make further provision with respect to application of Part XII) or make any provision which may be made under that section with respect to the application of provisions of Part XII.
Provisions as to situation of property.
703L.—(1) The following provisions apply for determining for the purposes of this Chapter whether a vehicle which is the property of an oversea company is situated in Great Britain—

(a) a ship, aircraft or hovercraft shall be regarded as situated in Great Britain if, and only if, it is registered in Great Britain;

1160

(b) any other description of vehicle shall be regarded as situated in Great Britain on a day if, and only if, at any time on that day the management of the vehicle is directed from a place of business of the company in Great Britain;

and for the purposes of this Chapter a vehicle shall not be regarded as situated in one part of Great Britain only.
(2) For the purposes of this Chapter as it applies to a charge on future property, the subject—matter of the charge shall be treated as situated in Great Britain unless it relates exclusively to property of a kind which cannot, after being acquired or coming into existence, be situated in Great Britain; and references to property situated in a part of Great Britain shall be similarly construed.
Other supplementary provisions.
703M. The following provisions of Part XII apply for the purposes of this Chapter—

(a) section 414 (construction of references to date of creation of charge),

(b) section 415 (prescribed particulars and related expressions),

(c) section 416 (notice of matters disclosed on the register),

(d) section 417 (power of court to dispense with signature),

(e) section 418 (regulations) and

(f) section 419 (minor definitions).

Index of defined expressions
703N. The following Table shows the provisions of this Chapter and Part XII defining or otherwise explaining expressions used in this Chapter (other than expressions used only in the same section)—

charge

sections 703A(2), 703B(3) and 395(2)

charge requiring registration

sections 703B(1) and 396

creation of charge

sections 703M(f) and 419(2)

date of acquisition (of property by a company)

sections 703M(f) and 419(3)

date of creation of charge

sections 703M(a) and 414

property

sections 703A(2) and 395(2)

registered oversea company

section 703A(3)

registrar and registration in relation to a charge situated in Great Britain

sections 703A(4) and 703E

in relation to vehicles

section 703L(1)

in relation to future property

section 703L(2)".

452 Insert the following new schedule:

AMENDMENTS CONSEQUENTIAL ON PART IV
Land Charges Act 1972 (c.61)
1.—(1) Section 3 of the Land Charges Act 1972 (registration of land charges) is amended as follows.
(2) In subsection (7) (registration in companies charges register to have same effect as registration under that Act), for "any of the enactments mentioned in subsection (8) below" substitute "Part XII, or Chapter III of Part XXIII, of the Companies Act 1985 (or corresponding earlier enactments)".
(3) In subsection (8) for "The enactments" substitute "The corresponding earlier enactments" and at the end insert "as originally enacted".
Companies Act 1985 (c.6)
2.—(1) Schedule 24 to the Companies Act 1985 (punishment of offences) is amended as follows.
(2) For the entries relating to sections 399(3) to 423(3) (offences under Part XII: registration of charges) substitute—

"398(3)

Company failing to deliver particulars of charge to registrar.

1. On indictment.

A fine.

2. Summary.

The statutory maximum.

408(3)

Company failing to deliver particulars of taking up of issue of debentures

Summary.

One-fifth of the statutory maximum

409(4)

Failure to give notice to registrar of appointment of receiver or manager, or of his ceasing to act.

Summary.

One-fifth of the statutory maximum.

410(4)

Failure to comply with requirements of regulations under s.410.

Summary.

One-fifth of the statutory maximum.

411(4)

Failure to keep copies of charging instruments or register at registered office.

1. On indictment 2. Summary.

A fine. The statutory maximum.

412(4)

Refusing inspection of charging instrument or register or failing to supply copies.

Summary.

One-fifth of the statutory maximum."

(3) After the entry relating to section 703(1)insert—

703D(5)

Oversea company failing to deliver particulars of charge to registrar

1. On indictment

A fine

2. Summary

The statutory maximum."

Insolvency Act 1986 (c. 45)
3.—(1) The Insolvency Act 1986 is amended as follows.
(2) In section 9(3) (restrictions on making administration order where administrative receiver has been appointed), in paragraph (b) (exceptions) insert—
"(i) be void against the administrator to any extent by virtue of the provisions of Part XII of the Companies Act 1985 (registration of company charges),";
and renumber the existing sub-paragraphs as (ii) to (iv).
(3) In sections 45(5), 53(2), 54(3) and 62(5) (offences of failing to deliver documents relating to appointment or cessation of appointment of receiver) omit the words "and, for continued contravention, to a daily default fine".
Company Directors Disqualification Act 1986 (c.46)
4. In Schedule 1 to the Company Directors Disqualification Act 1986 (matters relevant to determining unfitness of directors), in paragraph 4 (failure of company to comply with certain provisions), for sub-paragraph (h) substitute—
"(h) sections 398 and 703D (duty of company to deliver particulars of charges on its property)."
453 Insert the following new schedule:
COMPANY CONTRACTS, SEALS, &C.: FURTHER PROVISIONS
Execution of deeds abroad
1.—(1) Section 38 of the Companies Act 1985 (execution of deeds abroad) is amended as follows.
(2) In subsection (1) (appointment of attorney to execute deeds), after "A company may" insert "under the law of England and Wales".
(2) For subsection (2) (effect of deed executed by attorney) substitute—
"(2) A deed executed by such an attorney on behalf of the company has the same effect as if it were executed under the company's common seal.".
Official seal for use abroad
2.—(1) Section 39 of the Companies Act 1985 (power to have official seal for use abroad) is amended as follows.
(2) In subsection (1), after "A company" insert "which has a common seal" and for "the common seal of the company" substitute "its common seal".
(3) For subsection (2) (effect of sealing with official seal) substitute—
"(2) The official seal when duly affixed to a document has the same effect as the company's common seal.".
(4) In subsection (3) (instrument authorising person to affix official seal), after "by writing under its common seal" insert "or, in the case of a company registered in Scotland, subscribed in accordance with section 36B,".
Officcial seal for share certificates, &c.
3.—(1) Section 40 of the Companies Act 1985 (official seal for share certificates, &c.) is amended as follows.
(2) After "A company" insert "which has a common seal" and for "the company's common seal" substitute "its common seal".
(3) At the end add—
"The official seal when duly affixed to a document has the same effect as the company's common seal.".
Authentication of documents
4. In section 41 of the Companies Act 1985 (authentication of documents), for the words from "may be signed" to the end substitute "is sufficiently authenticated for the purposes of the law of England and Wales by the signature of a director, sec-etary or other authorised officer of the company.".
Share certificate as evidence of Title
5. For section 186 of the Companies Act 1985 (certificate to be evidence of title) substitute—
"Certificate to be evidence of tile.
186.—(1) A certificate under the common seal of the company (or, in the case of a company registered in Scotland, subscribed in accordance with section 36B) specifying any shares held by a member is—

(a) in England and Wales, prima facie evidence, and

(b) in Scotland, sufficient evidence unless the contrary is shown,

of his title to the shares.".
Share warrants to bearer
6. For section 188 of the Companies Act 1985 (issue and effect of share warrant to bearer) substitute—
"Issue and effect of share warrant to bearer.
188.—(1) A company limited by shares may, if so authorised by its articles, issue with respect to any fully paid shares a warrant (a "share warrant") stating that the bearer of the warrant is entitled to the shares specified in it.
(2) A share warrant issued under the company's common seal (or, in the case of a company registered in Scotland, subscribed in accordance with section 36B) entitles the bearer to the shares specified in it; and the shares may be transferred by delivery of the warrant.
(3) A company which issues a share warrant may, if so authorised by its articles, provide (by coupons or otherwise) for the payment of the future dividends on the shares included in the warrant.".
Identification of company on common seal
7. In section 350 of the Companies Act 1985 (identification of company on company seal), for subsection (1) substitute—
"(1) A company which has a common seal shall have its name engraved in legible characters on the seal; and if it fails to comply with this subsection it is liable to a fine.".
Floating charges under Scots law
In section 462 of the Companies Act 1985 (power of company to create floating charge), for subsections (2) and (3) substitute—
"(2) In the case of a company which the Court of Session has jurisdiction to wind up, a floating charge may be created only by a written instrument which is presumed under section 36B to be subscribed by the company.".
9. In section 466(2) of the Companies Act 1985 (execution of instrument altering floating charge)—

(a) at the beginning of the subsection insert "Without prejudice to any enactment or rule of law regarding the execution of documents.";

(b) omit paragraph (a);

(c) at the end of paragraph (b) insert ";or", and

(d) omit paragraph (d) and the word "or" preceding it.

10. In section 53(3) of the Insolvency Act 1986 (execution of instrument appointing receiver), in paragraph (a) for "in accordance with the provisions of section 36 of the Companies Act as if it were a contract" substitute "in accordance with section 36B of the Companies Act 1985".'.
454 Schedule 13, page 225, line 8, leave out paragraph 32 and insert—
'32.—(1) The following provisions have effect with respect to the operation of section 23 of the Companies Act 1985 (prohibition on subsidiary being a member of its holding company).
(2) In relation to times, circumstances and purposes before the commencement of section 115(1) of this Act, the references in section 23 to a subsidiary or holding company shall be construed in accordance with section 736 of the Companies Act 1985 as originally enacted.
(3) Where a body corporate becomes or ceases to be a subsidiary of a holding company by reason of section 115(1) coming into force, the prohibition in section 23 of the Companies Act 1985 shall apply (in the absence of exempting circumstances), or cease to apply, accordingly.'.
455 Schedule 14, page 226, line 38, at end insert—
'Correction of cross-reference
(0)A. In section 131(1) of the Companies Act 1985 (merger relief) for "section 132(4)" substitute "section 132(8)".
This amendment shall be deemed always to have had effect.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 448 to 455.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
456 Page 227, line I, leave out from 'directors' to end of line 2 and insert—

(a) in sub-paragraph (i) for "Christian name and surname" and in sub-paragraph (ii) for "Christian name or surname" substitute "name", and

(b) for sub-paragraph (vii) substitute—

"(vii) the date of his birth;".'.
457 Page 227, line 6, leave out '(1)' and insert '(1)(a)'.
458 Page 227, line 24, leave out '(twice)' and insert 'and "Christian name or surname" '.
459 Page 227, line 26, leave out from beginning to end of line 27 and insert—
'"(3) Section 289(2)(a) and (b) apply for the purposes of the obligation under subsection (1)(a) of this section to state the name or former name of an individual.".'.
460 Page 227, line 46, at end insert—
'3A.—(1) Section 686 of the Companies Act 1985 (documents to be delivered to registrar on registration of company not formed under companies legislation) is amended as follows.
(2) In subsection (1) (particulars to be delivered to registrar), for paragraph (b) (particulars of directors and managers) substitute—
"(b) a list showing with respect to each director or manager of the company —

(i) in the case of an individual, his name, address, occupation and date of birth,

(ii) in the case of a corporation or Scottish firm, its corporate or firm name and registered or principal office,".

(3) After that subsection insert—
"(1A) For the purposes of subsection (1)(b)(i) a person's 'name' means his Christian name (or other forename) and surname, except that in the case of a peer, or an individual usually known by a title, the title may be stated instead of his Christian name (or other forename) and surname or in addition to either or both of them.".
3B. In section 691 of the Companies Act 1985 (documents to be delivered to registrar on registration of oversea company), for subsection (2) (particulars of directors and secretary) substitute—
1164
"(2) The list referred to in subsection (1)(b)(i) shall contain the following particulars with respect to each director—

(a) in the case of an individual—

(i) his name,

(ii) any former name,

(iii) his usual residential address,

(iv) his nationality,

(v) his business occupation (if any),

(vi) if he has no business occupation but holds other directorships, particulars of them, and

(vii) his date of birth;

(b) in the case of a corporation or Scottish firm, its corporate or firm name and registered or principal office.

(3) The list referred to in subsection (1)(b)(i) shall contain the following particulars with respect to the secretary (or, where there are joint secretaries, with respect to each of them)—

(a) in the case of an individual, his name, any former name and his usual residential address;

(b) in the case of a corporation or Scottish firm, its corporate or firm name and registered or principal office.

Where all the partners in a firm are joint secretaries of the company, the name and principal office of the firm may be stated instead of the particulars required by paragraph (a).
(4) In subsections (2)(a) and (3)(a) above—

(a) 'name" means a person's Christian name (or other forename) and surname, except that in the case of a peer, or an individual usually known by a title, the title may be stated instead of his Christian name (or other forename) and surname, or in addition to either or both of them; and

(b) the reference to a former name does not include—

(i) in the case of a peer, or an individual normally known by a British title, the name by which he was known previous to the adoption of or succession to the title, or

(ii) in the case of any person, a former name which was changed or disused before he attained the age of 18 years or which has been changed or disused for 20 years or more, or

(iii) in the case of a married woman, the name by which she was known previous to the marriage.".'.

461 Page 227, line 49, after `directors)' insert '—(a)'.
462 Page 227, line 50, at end insert '; and
(b) For the words from "and, in the case" to the end substitute "and his date of birth".'.
463 Page 228, line 3, leave out '3(a)' and insert '3(1)(a)'.
464 Page 228, line 6, leave out '1 and 3' and insert '1(a) and 3(1)(a)'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 456 to 464. The principal change which these amendments make is a new requirement to give the dates of birth of all directors —not just those of companies to which the age restrictions apply—in the register of directors, in a statutory notification to the registrar of a change of director and in the documents which must be sent to the registrar on incorporation.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Strathclyde.)
Lord Peston: My Lords, the noble Lord said what the schedule does, but he did not tell us why it does it. Is it because it is perfectly obvious to all intelligent people why dates of birth are so relevant to the

1165
fundamentals of company law? In that case it is obvious to all intelligent people but one. I have not the faintest idea why dates of birth are relevant to this matter. I do not need an answer now, but I would like to know what is the significance of dates of birth in relation to company law.
Lord Strathclyde: My Lords, it is no insult to the noble Lord's intelligence. It is simply a matter of knowledge. If he knew the Bill slightly better he would realise that it already requires this information to be given in the annual return and Clause 109, new Section 364(1)(e)(i) applies. That information can be up to a year out of date. Hence we seek these changes as a helpful aid. It will also assist Companies House to prepare a database of company directors with greater accuracy.
Lord Peston: My Lords, I understand the Minister to be saying that, with their great interest in sociology, the Government want to provide appropriate databases for their sociologists who wish to investigate the company sector. However, he has still not told me why the information is relevant. He has simply said that the matter goes back even earlier in the Bill. Obviously, it is such an important matter that one could not possibly oppose it.
On Question, Motion agreed to.

COMMONS AMENDMENTS
465 Page 228, line 20, at end insert—
'Transactions with directors not requiring authorization
4A. In section 321 of the Companies Act 1985 (exceptions from provisions requiring authorisation for substantial property transactions with directors, &c.), after subsection (3) insert—
"(4) Section 320(1) does not apply to a transaction on a recognised investment exchange which is effected by a director, or a person connected with him, through the agency of a person who in relation to the transaction acts as an independent broker.
For this purpose an "independent broker" means—

(a) in relation to a transaction on behalf of a director, a person who independently of the director selects the person with whom the transaction is to be effected, and

(b) in relation to a transaction on behalf of a person connected with a director, a person who independently of that person or the director selects the person with whom the transaction is to be effected;

and "recognised", in relation to an investment exchange, means recognised under the Financial Services Act 1986.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree wth the Commons in their Amendment No. 465. I shall speak at the same time to Amendments Nos. 467, 468 and 469. These amendments makes further minor changes to the 1985 Act which I shall explain if noble Lords require me to.
Moved, That the House do agree with the Commons in the said amendment.—(Lord Trefgarne.)
On Question, Motion agreed to.
466 Page 229, line 6, at end insert—
'Delivery of documents by overseas companies
8A. In Chapter I of Part XXIII of the Companies Act 1985 (oversea companies: registration, &c.), for section 696 (office where documents to be filed) substitute—
"Registrar to whom documents to be delivered.
696.—(1) References to the registar in relation to an oversea company (except references n Chapter III of this Part (registration of charges): see section 703CC), shall be construed in accordance with the following provisions.
(2) The documents which an oversea company is required to deliver to the registrar shall be delivered—

(a) to the registrar for England and Wales if the company has established a place of business in England and Wales, and

(b) to the registrar for Scotland if the company has established a place of business in Scotland;

and if the company has an established place of business in both parts of Great Britain, the documents shall be delivered to both registrars.
(3) If a company ceases to have a place of business in either part of Great Britain, it shall forthwith give notice of that fact to the registrar for that part; and from the date on which notice is so given it is no longer obliged to deliver documents to that registrar.'.'.
467 Page 229, line 32, at end insert—
'Exemptions from limit of 20 on members of partnership
9A.—(1) Section 716 of the Companies Act 1985 (prohibition of formation of company, association or partnership with more than 20 members unless registered as company, &c.) is amended as follows.
(2) In subsection (2) (exemptions), after paragraph (c) insert—
"(d) for any purpose prescribed by regulations (which may include a purpose mentioned above), of a partnership of a description so prescribed.";
and omit the words inserted by paragraph 22 of Schedule 16 to the Financial Services Act 1986.
(3) For subsections (3) and (4) substitute—
"(3) In subsection (2)(a) "solicitor"—

(a) in relation to England and Wales, means solicitor of the Supreme Court, and

(b) in relation to Scotland, means a person enrolled or deemed enrolled as a solicitor in pursuance of the Solicitors (Scotland) Act 1980.

(4) In subsection (2)(c) "recognised stock exchange" means—

(a) The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited, and

(b) any other stock exchange for the time being recognised for the purposes of this section by the Secretary of State by order made by statutory instrument."

9B.—(1) Section 717 of the Companies Act 1985 (limited partnerships: limit on number of members) is amended as follows.
(2) In subsection (1) (exemptions from limit of 20 members under section 4(2) of Limited Partnerships Act 1907), after paragraph (c) insert—
"(d) to a partnership carrying on business of any description prescribed by regulations (which may include a business of any description mentioned above), of a partnership of a description so prescribed.";
and omit the words inserted by paragraph 22 of Schedule 16 to the Financial Services Act 1986.
(3) For subsections (2) and (3) substitute—
"(2) In subsection (1)(a) "solicitor"—

(a) in relation to England and Wales, means solicitor of the Supreme Court, and

(b) in relation to Scotland, means a person enrolled or deemed enrolled as a solicitor in pursuance of the Solicitors (Scotland) Act 1980.

(3) In subsection (1)(c) "recognised stock exchange" means—

(a) The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited, and

(b) any other stock exchange for the time being recognised for the purposes of this section by the Secretary of State by order made by statutory instrument.".

Meaning of "officer who is in default"
9C. In section 730 of the Companies Act 1985 (punishment of offences), in subsection (5) (meaning of "officer who is in default"), after "company" (twice) insert "or other body".
Offences committed by partnerships and other unincorporated bodies
9D. In section 734 of the Companies Act 1985 (criminal proceedings against unincorporated bodies), at the end add—
"(5) Where such an offence committed by a partnership is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, a partner, he as well as the partnership is guilty of the offence and liable to be proceeded against and punished accordingly.
(6) Where such an offence committed by an unincorporated body (other than a partnership) is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of, any officer of the body or any member of its governing body, he as well as the body is guilty of the offence and liable to be proceeded against and punished accordingly.".'.
468 Page 229, line 38, at end, insert—
'Index of defined expressions
11. In Part XXVI of the Companies Act 1985 (interpretation), after section 744 insert—
"Index of defined expressions.
744A. The following Table shows provisions defining or otherwise explaining expressions for the purposes of this Act generally—

accounting reference date,

sections 224 and

accounting reference period

742(1)

acquisition (in relation to non-cash asset)

section 739(2)

agent

section 744

allotment (and related expressions

section 738

annual accounts

sections 261(2), 262(1) and 742(1)

annual general meeting

section 366

annual return

section 363

articles

section 744

authorised minimum

section 118

balance sheet and balance sheet date

sections 261(2), 262(1) and 742(1)

bank holiday

section 744

banking company

section 744

body corporate

section 740

books and papers, books or papers

section 744

called-up share capital

section 737(1)

capital redemption reserve

section 170(1)

the Companies Acts

section 744

companies charges register company

section 397

section 735(1)

the Consequential Provisions Act

section 744

corporation

section 740

the court (in relation to a company)

section 744

1168

current assets

sections 262(1) and 742(1)

debenture

section 744

director

section 741(1)

document

section 744

elective resolution

section 379A

employees' share scheme

section 743

equity share capital

section 744

existing company

section 735(1)

extraordinary general meeting

section 368

extraordinary resolution

section 378(1)

financial year (of a company)

sections 223 and 742(1)

fixed assets

sections 262(1) and 742(1)

floating charge (in Scotland)

section 462

the former Companies Acts

section 735(1)

the Gazette

section 744

hire-purchase agreement

section 744

holding company

section 736

the Insider Dealing Act

section 744

the Insolvency Act

section 735A(1)

insurance company

section 744

the Joint Stock Companies Acts

section 735(3)

limited company

section 1(2)

member (of a company)

section 22

memorandum (in relation to a company)

section 744

non-cash asset

section 739(1)

number (in relation to shares)

section 744

office copy (in relation to a court order in Scotland)

section 743A

officer (in relation to a body corporate)

section 744

official seal (in relation to the registrar of companies)

section 744

oversea company

section 744

overseas branch register

section 362

paid up (and related expressions)

section 738

parent company and parent undertaking

sections 257 and 742(1)

place of business

section 744

prescribed

section 744

private company

section 1(3)

profit and loss account

sections 261(2), 262(1) and 742(1)

prospectus

section 744

public company

section 1(3)

realised profits or losses

sections 262(2A) and 742(2)

registered number (of a company)

section 705(1)

registered office (of a company)

section 287

registrar and registrar of companies)

section 744

resolution for reducing share capital

section 135(3)

shadow director

section 741(2) and (3)

share

section 744

share premium account

section 130(1)

share warrant

section 188

special notice (in relation to a resolution)

section 379

special resolution

section 378(2)

subsidiary

section 736

1169

subsidiary undertaking

sections 257 and 742(1)

transfer (in relation to a non-cash asset)

section 739(2)

uncalled share capital

section 737(2)

undistributable reserves

section 264(3)

unlimited company

section 1(2)

unregistered company

section 718

wholly-owned subsidiary

section 736(6).".'.

469 Page 229, line 38, at end, insert—
`Fraudulent trading by unregistered companies.
12. In Schedule 22 to the Companies Act 1985 (provisions applying to unregistered companies), at the appropriate place insert—

"Part XVI

Fraudulent trading by a company.

—".'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 466 to 469.
Moved, That the House do agree with the Commons in the said amendments. — (Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
470 Schedule 15, page 230, line 4, at end insert—
'(2) This paragraph does not apply in relation to any newspaper merger reference made before the passing of this Act.'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 470.
Moved, That the House do agree with the Commons in the said amendment. — (Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
471 Page 230, line 13, leave out '62(2)(a) of that Act' and insert '67 of that Act, in subsection (2)(a).'.
472 Page 230, line 19, at end insert —
'(2) In subsection (4) of that section —

(a) after "section 66" there is inserted "or subsection (1) of section 66A", and

(b) for "that subsection" there is substituted "either of those subsections".'

473 Page 230, line 33, leave out 'paragraph (a)' and insert 'paragraphs (a) and (b)'.
474 Page 230, line 42, at end insert —
`(b) in section 67(4) the references to subsection (1) of section 66 and subsection (1) of section 66A shall be construed as references to those subsections as modified in accordance with paragraph (a) or (aa), of this subsection;".'
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 471 to 474. The substantive amendment here is Amendment No. 472, which is consequential on the new Section 66A introduced into the Fair Trading Act under Clause 121 of the Bill and dealing with creeping acquisitions. Amendments Nos. 471, 473 and 474 all flow from Amendment No. 472.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
475 Page 230, line 42, at end insert —
'9A. Paragraphs 4 to 9 (and the repeals in Schedule 22 corresponding to paragraphs 7 and 8(a)) do not apply in relation to any merger reference made before the passing of this Act.'.
476 Page 231, line 16, at end insert —
'(2) This paragraph does not apply in relation to any report made before the passing of this Act.'.
477 Page 232, line 2, at end insert —
'(5) Sub-paragraphs (1) and (4) (and the repeal in Schedule 17 corresponding to sub-paragraph (4)) do not apply in relation to any report made before the passing of this Act.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 475 to 477.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENT
478 Page 232, leave out lines 4 to 13 and insert 'for paragraphs (a) and (b) there is substituted —

"(a) in the circumstances specified in subsection (1) of any of the following sections —

(i) sections 56, 73 and 75K of this Act, and

(ii) section 10 of the Competition Act 1980, the Secretary of State makes, has made or has under consideration the making of, an order under the section in question exercising any of the powers specified in Schedule 8 to this Act, or

(b) in the circumstances specified in subsection (1) of section 12 of the Competition Act 1980 the Secretary of State makes, has made or has under consideration the making of, an order under subsection (5) of that section exercising any of those powers.".

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 478. This amendment allows interim orders to be made following adverse reports by the MMC under the Competition Act and provides for interim orders to be made where the Secretary of State has already made a principal order in respect of a report by the MMC under the Fair Trading Act or the Competition Act.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Trefgarne.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
479 Page 232, line 17, at end insert —
'(4) The amendments made by sub-paragraphs (1) to (3) have effect in relation to the making of any order under section 89 of the Fair Trading Act 1973 after the passing of this Act, whether the principal order (within the meaning of that section) was made before or after that time.'.
480 Page 232, line 35, at end insert —
'(2) This paragraph does not apply in relation to any report made before the passing of this Act.'.
481 Page 233, line 12, at end insert —
'(2) This paragraph has effect in relation to the laying of any draft order under paragraph 4 of Schedule 9 to the Fair Trading Act 1973 after the passing of this Act, whether the notice under that Schedule was published before or after that time.'.
482 Page 233, line 23, leave out 'commencement of paragraph 21 of Schedule 15 to' and insert 'passing of'.
483 Page 233, line 29, leave out 'commencment of paragraph 22 of Schedule 15 to' and insert 'passing of'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 479 to 483.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENT
484 Schedule 15, page 233, line 32, at end insert —
'22A. In section 29(1)(a) of that Act after "section" there is inserted "75G or".'.
Lord Strathclyde: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 484. This amendment exempts undertakings given under the provisions of Clause 118 of the Bill from the Restrictive Trade Practices Act 1976.
Moved, That the House do agree with the Commons in the said amendment. —(Lord Strathclyde.)
On Question, Motion agreed to.

COMMONS AMENDMENTS
485 Schedule 15, page 233, line 40, at end insert —
'Financial Services Act 1986 (c.60)
24. In section 123(3) of the Financial Services Act 1986 —

(a) for "(5)" there is substituted "(6)", and

(b) at the end there is inserted "but as if, in subsection (7) of that section, for the words from 'any one' to 'the Commission' there were substituted 'the Director'".'.

486 Schedule 16, page 234, line 6, leave out paragraphs 1 to 4 and insert —
'1. —(1) The exchange must have default rules which, in the event of a member of the exchange appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken in respect of unsettled market contracts to which he is party.
(2) The rules may authorise the taking of the same or similar action in relation to a member who appears to be likely to become unable to meet his obligations in respect of one or more market contracts.
(3) The rules must enable action to be taken in respect of all unsettled market contracts, other than those entered into by a recognised clearing house for the purposes of or in connection with the provision of clearing services for the exchange.
(4) As regards contracts entered into by the exchange for the purposes of or in connection with the provision of its own clearing services, the rules must contain provision corresponding to that required by paragraphs 9 to 11 below in the case of a UK clearing house.
(5) As regards other contracts the rules must contain provision complying with paragraphs 2 and 3 below.
Content of rules
2. —(1) The rules must provide for all rights and liabilities between those party as principal to unsettled market contracts to which the defaulter is party as principal to be discharged and for there to be paid by one party to the other such sum of money (if any) as may be determined in accordance with the rules.
(2) The rules must further provide —

(a) for the sums so payable in respect of different contracts between the same parties to be aggregated or set off so as to produce a net sum, and

(b) for the certification by or on behalf of the exchange of the net sum payable or, as the case may be, of the fact that no sum is payable.

(3) The rules may make special provision with respect to, or exclude from the provisions required by sub-paragraphs (1) and (2), contracts of any description prescribed for the purposes of this sub-paragraph by regulations made by the Secretary of State.
Notification to other parties affected
3. The exchange must have adequate arrangements for securing that —

(a) parties to unsettled market contracts with a defaulter acting as principal are notified as soon as reasonably practicable of the default and of any decision taken under the rules in relation to contracts to which they are a party; and

(b) parties to unsettled market contracts with a defaulter acting as agent and the defaulter's principals are notified as soon as reasonably practicable of the default and of the identity of the other party to the contract.

Application of default rules to designated non-members
4. —(1) The rules may make the same or similar provision in relation to designated non-members as in relation to members of the exchange.
(2) If such provision is made, the exchange must have adequate procedures —

(a) for designating the persons, or descriptions of persons, in respect of whom action may be taken,

(b) for keeping under review the question which persons or descriptions of persons should be or remain so designated, and

(c) for withdrawing such designation.

(3) The procedures shall be designed to secure that a person is not or does not remain designated if failure by him to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market, and that a description of persons is not or does not remain designated if failure by a person of that description to meet his obligations in respect of one or more market contracts would be unlikely adversely to affect the operation of the market.
(4) The exchange must have adequate arrangements —

(a) for bringing a designation or withdrawal of designation to the attention of the persons or description of persons concerned, and

(b) where a description of persons is designated, or the designation of a description of persons is withdrawn, for ascertaining which persons fall within that description.'.

487 Page 235, line 33, leave out sub-paragraph (1) and insert —
'(1) The clearing house must have default rules which, in the event of a member of the clearing house appearing to be unable to meet his obligations in respect of one or more market contracts, enable action to be taken to close out his position in relation to all unsettled market contracts to which he is a party.'.
488 Page 236, line 3, after `by' insert `or on behalf of'.
489 Page 236, line 7, after 'by' insert 'or on behalf of'.
490 Page 236, line 26, at end insert —
`(3) The reference in paragraph 9 to the rights and liabilities of a defaulter under or in respect of an unsettled market contract does not include, where he acts as agent, rights or liabilities of his arising out of the relationship of principle and agent.'.
491 Page 236, line 42, leave out paragraph 14 and insert —
'14. —(1) The rules of the clearing house must provide that, in the event of a default, margin provided by the defaulter for his own account is not to be applied to meet a shortfall on a client account.
(2) This is without prejudice to the requirements of any relevant regulations under section 55 of the Financial Services Act 1986 (clients' money).'.
492 Page 237, line 7, leave out paragraph 15 and insert —
'15. —(1) The rules and practices of the body, together with the law of the country in which the body's head office is situated, must be such as to provide adequate procedures for dealing with the default of persons party to market contracts connected with the body.
(2) The reference in sub-paragraph (1) to default is to a person being unable to meet his obligations.'.
493 After Schedule 16, insert the following new Schedule—
'FINANCIAL MARKETS AND INSOLVENCY: PROVISIONS APPLYING TO PRE-COMMENCEMENT CASES
Introductory
1. The provisions of this Schedule have effect for the purpose of safeguarding the operation of certain financial markets—

(a) in the event of the insolvency, winding-up or default of a person party to transactions in the market (paragraphs 2 to 8), and

(b) as regards the effectiveness or enforcement of certain charges given to secure obligations in connection with such transactions (paragraphs 9 to 12).

Recognised investment exchanges and clearing houses
2. —(1) This Schedule applies to the following descriptions of contract connected with a recognised investment exchange or recognised clearing house.
The contracts are referred to in this Schedule as "market contracts".
(2) In relation to a recognised investment exchange, this Schedule applies to —

(a) contracts entered into by a member or designated non-member of the exchange which are —

(i) made on or otherwise subject to the rules of the exchange,

(ii) on terms expressed to be as traded on the exchange, or

(iii) on the same terms as those on which an equivalent contract would be made on the exchange; and

(b) contracts subject to the rules of the exchange entered into by the exchange for the purposes of or in connection with the provision of clearing services.

A "designated non-member" means a person in respect of whom action may be taken under the default rules of the exchange but who is not a member of the exchange.
(3) In relation to a recognised clearing house, this Schedule applies to contracts subject to the rules of the clearing house entered into by the clearing house for the purposes of or in connection with the provision of clearing services for a recognised investment exchange.
This includes contracts effected under or in consequence of action taken by the clearing house under its default rules.
3. The general law of insolvency has effect in relation to market contracts, and action taken under the rules of a recognised investment exchange or recognised clearing house with respect to such contracts, subject to the following provisions of this Schedule.
4. —(1) None of the following shall be regarded as to any extent invalid at law on the ground of inconsistency with the law relating to the distribution of the assets of a person on bankruptcy, winding-up or sequestration, or in the administration of an insolvent estate —

(a) a market contract.

(b) the rules of a recognised investment exchange or recognised clearing house as to the settlement of market contracts,

1174

(c) the default rules of a recognised investment exchange or recognised clearing house.

(2) The powers of a relevant office-holder in his capacity as such, and the powers of the court under the Insolvency Act 1986 or the Bankruptcy (Scotland) Act 1985, shall not be exercised in such a way as to prevent or interfere with —

(a) the settlement of a market contract in accordance with the rules of a recognised investment exchange or recognised clearing house,

(b) any action taken under the default rules of such an exchange or clearing house.

(3) Nothing in the following provisions of this Schedule shall be construed as affecting the generality of sub-paragraph (2).
(4) A debt or other liability arising out of a market contract which is the subject of default proceedings may not be proved in a winding-up or bankruptcy, or in Scotland claimed in a winding-up or sequestration, until the completion of the default proceedings.
A debt or other liability which by virtue of this sub paragraph may not be proved or claimed shall not be taken into account for the purposes of any set-off until the completion of the default proceedings.
5. —(1) A liquidator or trustee of a defaulter shall not —

(a) declare or pay any dividend to the creditors, or

(b) return any capital to contributories,

unless he has retained what he reasonably considers to be an adequate reserve in respect of any claims arising as a result of the default proceedings of the exchange or clearing house concerned.
(2) Nothing in sections 11(3), 130 or 285 of the Insolvency Act 1986 (which restrict the taking of certain legal proceedings and other steps), and nothing in the Bankruptcy (Scotland) Act 1985, shall affect any action taken by an exchange or clearing house for the purpose of its default proceedings.
6. —(1) The following provisions apply with respect to the net sum certified by a recognised investment exchange or recognised clearing house, upon the completion of proceedings under its default rules, to be payable by or to a defaulter.
(2) If, in England and Wales, a bankruptcy or winding-up order has been made, or a resolution for voluntary winding-up has been passed, the debt —

(a) is provable in the bankruptcy or winding-up or, as the case may be, is payable to the relevant office-holder, and

(b) shall be taken into account, where appropriate, under section 323 of the Insolvency Act 1986 (mutual dealings and set-off) or the corresponding provision applicable in the case of a winding-up,

in the same way as a debt due before the commencement of the bankruptcy or winding-up.
(3) If, in Scotland, an award of sequestration or a winding-up order has been made, or a resolution for voluntary winding-up has been passed, the debt —

(a) may be claimed in the sequestration or winding-up or, as the case may be, is payable to the relevant office-holder, and

(b) shall be taken into account for the purposes of any rule of law relating to compensation of set-off applicable in sequestration or winding-up,

in the same way as a debt due before the date of sequestration (within the meaning of section 73(1) of the Bankruptcy (Scotland) Act 1985) or the commencement of the winding-up.
7. —(1) Sections 178, 186, 315 and 345 of the Insolvency Act 1986 (power to disclaim onerous property and court's power to order rescission of contract s, &c.) do not apply in relation to —

(a) a market contract or

(b) a contract effected by the exchange or clearing house for the purpose of realising property provided as margin in relation to market contracts.

In the application of this sub-paragraph in Scotland, the reference to sections 178 and 315 shall be construed as a reference to any rule of law having the like effect as those sections.
(2) Sections 127 and 284 of the Insolvency Act 1986 (avoidance of property dispositions effected after commencement of winding-up or presentation of bankruptcy petition) do not apply to —

(a) a market contract, or any disposition of property in pursuance of such a contract,

(b) the provision of margin in relation to market contracts,

(c) a contract effected by the exchange or clearing house for the purpose of realising property provided as margin in relation to a market contract, or any disposition of property in pursuance of such a contract, or

(d) any disposition of property in accordance with the rules of the exchange or clearing house as to the application of property provided as margin.

(3) However, if a person enters into a market contract knowing that a petition has been presented for the winding-up or bankruptcy of the other party to the contract, the value of any profit or benefit to him arising from the contract is recoverable from him by the relevant office-holder unless the court directs otherwise.
(4) Any sum recoverable by virtue of sub-paragraph (3) has the same priority, in the event of the insolvency of the person from whom it is due, as if it were secured by a fixed charge.
8. —(1) No order shall be made in relation to a market contract under —

(a) section 238 or 339 of the Insolvency Act 1986 (transactions at an under-value),

(b) section 239 or 340 of that Act (preferences), or

(c) section 423 of that Act (transactions defrauding creditors),

unless the court is satisfied that the person in favour of whom the contract was made knew at the time he entered into it that it was at an under-value (within the meaning of the relevant provision) or, as the case may be, that a preference was being given.
(2) As respects Scotland, no decree shall be granted in relation to a market contract —

(a) under section 34 or 36 of the Bankrupty (Scotand) Act 1985 or section 242 or 343 of the Insolvency Act 1986 (gratuitous alienations and unfair preferences), or

(b) at common law,

unless the court is satisfied that the person with whom the contract was made knew at the time he entered into it that it was challengeable under any of the provisions mentioned in paragraph (a) or at common law.
(3) Sub-paragraphs (1) and (2) apply in relation to —

(a) a disposition of property in pursuance of a market contract,

(b) the provision of margin in relation to market contracts,

(c) a contract effected by a recognised investment exchange or recognised clearing house for the purpose of realising property provided as margin, or

(b) a disposition of property in accordance with the rules of the exchange or clearing house as to the application of property provided as margin,

as they apply in relation to the making of a market contract.
Market charges
9. —(1) The charges to which paragraphs 10 to 12 apply are charges, whether fixed or floating, granted —

(a) in favour of a recognised investment exchange, for the purpose of securing debts or liabilities arising in connection with the settlement of market contracts,

(b) in favour of a recognised clearing house, for the purpose of securing debts or liabilities arising in connection with their ensuring the performance of market contracts, or

(c) in favour of a person who agrees to make payments as a result of the transfer of specified securities made through the medium of a computer-based system established by the Bank of England and The Stock
1176
Exchange, for the purpose of securing debts or liabilities of the transferee arising in connection with the payments.

Those charges are referred to in this Schedule as "market charges".
(2) Where a charge is granted partly for purposes specified in sub-paragraph (1)(a), (b) or (c) and partly for other purposes, paragraphs 10 to 12 apply to it so far as it has effect for the specified purposes; and the expression "market charge" shall be construed accordingly.
(3) In this paragraph and paragraphs 10 to 12 —
"charge" means any form of security, including a mortgage and, in Scotland, a heritable security; and "specified securities" means securities for the time being specified in the list in Schedule Ito the Stock Transfer Act 1982, and includes any right to such securities.
10. The general law of insolvency has effect in relation to market charges and action taken in enforcing them subject to the following provisions of this Schedule.
11. —(1) Sections 10(1)(b) and 11 (3)(c) of the Insolvency Act 1986 (no enforcement of security while petition for administration order pending or order in force) do not apply to a market charge.
(2) Section 11(2) of that Act (receiver to vacate office when so required by administrator) does not apply to a receiver appointed under a market charge.
(3) Section 15(1) and (2) of that Act (administrator's power to deal with charged property) do not apply to a market charge.
(4) Sections 127 and 284 of that Act (avoidance of property dispositions effected after commencement of winding up or presentation of bankrutpcy petition) do not apply to —

(a) a disposition of property as a result of which the property becomes subject to a market charge, or any transaction pursuant to which that disposition is made, or

(b) any disposition of property made in enforcing a market charge.

(5) However, if a person (other than the chargee under the market charge) who is a party to a disposition mentioned in sub-paragraph (4)(a) knows at the time of the disposition that a petition has been presented for the winding-up or bankruptcy of the party making the disposition, the value of any profit or benefit to him arising from the disposition is recoverable from him by the relevant office-holder unless the court directs otherwise.
(6) Any sum recoverable by virtue of sub-paragraph (5) has the same priority, in the event of the insolvency of the person from whom it is due, as if it were secured by a fixed charge.
12. —(1) No legal proceedings, execution or other legal process may be commenced or continued, and no distress may be levied against property which is, or becomes, subject to a market charge except with the consent of the person in whose favour the charge was granted or the leave of the court.
(2) The court may give leave subject to such terms as it thinks fit.
(3) Sub-paragraph (1) does not apply to proceedings to enforce any security over, or any equitable interest in, the property.
(4) Sections 10(1)(c), 11(3)(d), 130(3) and 285(3) of the Insolvency Act 1986 (which restrict the taking of certain legal proceedings and other steps) have effect accordingly.
(5) In the application of this paragraph to Scotland, the reference to execution being commenced or continued includes a reference to diligence being carried out or continued, and the reference to distress being levied shall be omitted.
Supplementary provisions
13. —(1) In this Schedule 'default rules' means —

(a) in relation to a recognised investment exchange, rules which provide in the event of a member or designated non-member of the exchange appearing to be unable, or likely to become unable, to meet his obligations

1177
in respect of one or more market contracts, for the settlement forthwith of all unsettled market contracts to which he is a party as principal, other than those whose performance is ensured by a recognised clearing house;

(b) in relation to a recognised clearing house, rules which provide in the event of a member of the clearing house appearing to be unable, or likely to become unable, to meet his obligations in respect of any market contract, for the closing out of his position in relation to all market contracts to which he is a party.

(2) References in this Schedule to a "defaulter" are to a person in respect of whom action has been taken by a recognised investment exchange or recognised clearing house under its default rules, whether by declaring him to be a defaulter or otherwise; and references in this Schedule to "default" shall be construed accordingly.
(3) In this Schedule "default proceedings" means proceedings taken by a recognised investment exchange or recognised clearing house under its default rules.
14. —(1) The following are relevant office-holders for the purposes of this Schedule —

(a) the official receiver,

(b) any person acting in relation to a company as its liquidator, provisional liquidator, administrator or administrative receiver,

(c) any person in relation to an individual (or, in Scotland, a deceased debtor) as his trustee in bankruptcy or interim receiver of his property or as permanent or interim trusteee in the sequesteration of his estate,

(d) any person acting as administrator (or, in Scotland, as judical factor) of an insolvent estate of a deceased person.

(2) Sub-paragraph (1)(c) applies in relation to a partnership, and any debtor within the meaning of the Bankruptcy (Scotland) Act 1985, as it applies in relation to an individual.
(3) In this paragraph —
"administrative receiver" has the meaning given by section 251 of the Insolvency Act 1986;
"company" means a company within the meaning of section 735(1) of the Companies Act 1985 or a company which may be wound up under Part V of the Insolvency Act 1986 (unregistered companies); and
"interim trustee" and "permanent trustee" have the same meaning as in the Bankruptcy (Scotland) Act 1985.
15. —(1)( In this Schedule—
"clearing house" has the same meaning as in the Financial Services Act 1986;
"investment" and "investment exchange" have the same meaning as in the Financial Services Act 1986;
"recognised" means recognised under the Financial Services Act 1986;
"The Stock Exchange" means The International Stock Exchange of the United Kingdom and the Republic of Ireland Limited.
(2) References in this Schedule to ensuring the performance of a transaction have the same meaning as in the Financial Services Act 1986.
(3) References in this Schedule to a market contract to which a person is a party include, unless the contrary intention appears, contracts to which he is party as agent'.
494 Insert the following new Schedule—
CONSEQUENTIAL AMENDMENTS OF THE FINANCIAL SERVICES ACT 1986

GENERAL AMENDMENTS
1. —(1) Section 13 of the Financial Services Act 1986 (power to direct alteration of rules of recognised self-regulating organisation) is amended as follows.
(2) Omit subsection (1).
(3) For subsection (2) substitute —
"(2) If at any time it appears to the Secretary of State that—

(a) a recognised self-regulating organisation is concerned with two or more kinds of investment business, and

(b) the requirement in paragraph 3(1) of Schedule 2 to this Act is not satisfied in respect of investment business of one or more but not all of those kinds,

he may, instead of revoking the recognition order or making an application under section 12 above, direct the organisation to alter, or himself alter, its rules so that they preclude a member from carrying on investment business of a kind in respect of which that requirement is not satisfied, unless he is an author's:4 person otherwise than by virtue of membership of the organisation or is an exempted person in respect of that business.".
(4) For subsection (3) substitute —
"(3) A direction under this section is enforceable on the application of the Secretary of State by injunction or, in Scotland, by an order under section 45 of the Court of Session Act 1988.".
(5) Omit subsections (4) to (6).
2. —(1) Section 48 of the Financial Services Act 1986 (conduct of business rules) is amended as follows.
(2) In subsection (1) omit the words "members of a recognised self-regulating organisation or" and "organisation or".
(3) After subsection (10) insert —
"(11) Section 63A below (application of designated rules) has effect as regards the application of rules under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.".
3. —(1) Section 49 of the Financial Services Act 1986 (financial resources rules) is amended as follows.
(2) For subsection (1) substitute —
"(1) The Secretary of State may make rules requiring —

(a) a person authorised to carry on investment business by virtue of section 25 or 31 above, or

(b) a member of a recognised self-regulating organisation carrying on investment business in the carrying on of which he is subject to the rules of the organisation,

to have and maintain in respect of that business such financial resources as are required by the rules.".
(3) After subsection (2) insert—
"(3) Section 63A below (application of designated rules) has effect as regards the application of rules under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.".
4, In section 50 of the Financial Services Act 1986 (power of Secretary of State to modify conduct of business and financial resources rules for particular cases), after subsection (3) insert—
"(4) The powers conferred by subsection (1) above shall not be exercised in a case where the powers conferred by section 63B below are exercisable (powers of recognised self-regulating organisation in relation to designated rules).".
5. In section 52 of the Financial Services Act 1986 (notification regulations), in subsection (3) (application to member of recognised self-regulating organisation or professional body), for "subject to any of the rules made under section 48 above" substitute "not subject to the rules of that organisation or body".
6. —(1) Section 55 of the Financial Services Act 1986 (clients' money) is amended as follows.
(2) In subsection (2)(b) and (3) omit the words "a member of a recognised self-regulating organisation or" and "organisation or".
(3) In subsection (3) omit the words "organisation or".
(4) After subsection (5) insert —
"(6) Section 63A below (application of designated regulations) has effect as regards the application of regulations under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.".
7. In Section 56 of the Financial Services Act 1986 (unsolicited calls), for subsection (7) substitute —
"(7) Section 63A below (application of designated regulations) has effect as regards the application of regulations under this section to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.
As it applies to such persons in respect of such business the reference in subsection (1) above to conduct permitted by regulations made by the Secretary of State shall be construed —

(a) where or to the extent that the regulations do not apply, as a reference to conduct permitted by the rules of the organisation; and

(b) where or to the extent that the regulations do apply but are expressed to have effect subject to the rules of the organisation, as a reference to conduct permitted by the regulations together with the rules of the organisation.

(7A) In the application of this section to anything done by a person certified by a recognised professional body in carrying on investment business in the carrying on of which he is subject to the rules of the body, the reference in subsection (1) above to conduct permitted by regulations made by the Secretary of State shall be construed as a reference to conduct permitted by the rules of the body.".
8. In section 86 of the Financial Services Act 1986 (collective investment schemes constituted in other member States), in subsection (7) (restriction on application of conduct of business rules), at the end add—
"This subsection also applies to statements of principle under section 47A and codes of practice under section 63A so far as they relate to matters falling within the rule-making power in section 48.".
9. In section 95 of the Financial Services Act 1986 (collective investment schemes: contraventions), after subsection (2) add —
"(3) The disciplinary action which may be taken by virtue of section 47A(3) (failure to comply with statement of principle) includes —

(a) the giving of a direction under section 91(2), and

(b) the application by the Secretary of State for an order under section 93;

and subsection (6) of section 47A (duty of the Secretary of State as to exercise of powers) has effect accordingly.".
10. —(1) Section 107 of the Financial Services Act 1986 (appointment of auditors) is amended as follows.
(2) For subsection (1) (power to make rules) substitute—
"(1) The Secretary of State may make rules requiring —

(a) a person authorised to carry on investment business by virtue of section 25 or 31 above, or

(b) a member of a recognised self-regulating organisation carrying on investment business in the carrying on of which he is subject to the rules of the organisation,

and who, apart from the rules, is not required by or under any enactment to appoint an auditor, to appoint as an auditor a person satisfying such conditions as to qualifications and otherwise as may be specified in or imposed under the rules.".
(3) After subsection (3) add—
"(4) In its application to members of recognised self-regulating organisations, this section has effect subject to section 107A below.".
11. After section 107 of the Financial Services Act 1986 insert—
"Application of audit rules to members of self-regulating organisations
107A. —(1) The Secretary of State may in rules under section 107 designate provisions which apply, to such extent as may be specified, to a member of a recognised self-regulating organisation in respect of investment business in the carrying on of which he is subject to the rules of the organisation.
(2) It may be provided that the designated rules have effect, generally or to such extent as may be specified subject to the rules of the organisation.
(3) A member of a recognised self-regulating organisation who contravenes a rule applying to him by virtue of that section shall be treated as having contravened the rules of the organisation.
(4) Except as mentioned above, rules made under section 107 do not apply to members of recognised self-regulating organisations in respect of investment business in the carrying on of which they are subject to the rules of the organisation.
(5) A recognised self-regulating organisation may on the application of a member of the organisation —

(a) modify a rule designated under this section so as to adapt it to his circumstances or to any particular kind of business carried on by him, or

(b) dispense him from compliance with any such rule, generally or in relation to any particular kind of business carried on by him.

(6) The powers conferred by subsection (5) shall not b exercised unless it appears to the organisation —

(a) that compliance with the rule in question would be unduly burdensome for the applicant having regard to the benefit which compliance would confer on investors, and

(b) that the exercise of those powers will not result in any undue risk to investors.

(7) The powers conferred by subsection (5) may be exercised unconditionally or subject to conditions; and subsection (3) applies in the case of a contravention of a condition as in the case of contravention of a designated rule.
(8) The reference in paragraph 4(1) of Schedule 2 (requirements for recognition of self-regulating organisations) to monitoring and enforcement of compliance with rules includes monitoring and enforcement of compliance with conditions imposed by the organisation under subsection (7).".
12. —(1) Section 114 of the Financial Services Act 1986 (power to transfer functions to designated agency) is amended as follows.
(2) For subsection (9) substitute —
"(9) The Secretary of State shall not make a delegation order transferring any legislative functions unless —

(a) the agency has furnished him with a copy of the instruments it proposes to issue or make in the exercise of those functions, and

(b) he is satisfied that those instruments will afford investors an adequate level of protection and, in the case of such provisions as are mentioned in Schedule 8 to this Act, comply with the principles set out in that Schedule.

In this section "legislative functions" means the functions of issuing or making statements of principle, rules, regulations or codes of practice.".
(3) In subsection (12) for "rules or regulations made" substitute "statements of principle, rules, regulations or codes of practice issued or made".
13. —(1) Section 115 of the Financial Services Act 1986 (resumption of transferred functions) is amended as follows.
(2) For subsection (5) substitute —
"(5) Where the transferred functions consist of or include any legislative functions, an order may be made

1181
under subsection (2) above it' at any time it appears to the Secretary of State that the instruments issued or made by the agency do not satisfy the requirements of section 1 14(9)(b) above.".
(3) In subsection (7)—

(a) in the opening words, for "subsection (2)(b) above" substitute "this section", and

(b) in paragraph (a) for "functions of making rules or regulations" substitute "functions of issuing or making statements of principle, rules, regulations or codes of practice.".

14. —(1) Section 119 of the Financial Services Act 1986 (competition scrutiny: recognition orders) is amended as follows.
(2) In susbection (1) (considerations relevant to making of recognition order), for paragraphs (a) and (b) substitute —

"(a) in the case of a self-regulating organisation, the rules and any guidance of which copies are furnished with the application for the order, together with any statements of principle, rules, regulations or codes of practice to which members of the organisation would be subject by virtue of Chapter V of this Part,

(b) in the case of an investment exchange, the rules and any guidance of which copies are furnished with the application for the order, together with any arrangements of which particulars are furnished with the application,

(c) in the case of a clearing house, the rules and any guidance of which copies are furnished with the application for the order,".

(3) In subsection (2) (circumstances in which powers are exercisable in relation to recognised body), for paragraphs (a) to (c) substitute —

"(a) in the case of a self-regulating organisation,

(i) any rules made or guidance issued by the organisation,

(ii) any practices of the organisation, or

(iii) any practices of person who are members of, or otherwise subject to the rules made by, the organisation,

together with any statements of principle, rules, regulations or codes of practice to which members of the organisation are subject by virtue of Chapter V of this Part,

(b) in the case of a recognised investment exchange—

(i) any rules made or guidance issued by the exchange,

(ii) any practices of the exchange, or

(iii) any practices of persons who are members of, or otherwise subject to the rules made by, the exchange,

(c) in the case of a recognised clearing house —

(i) any rules made or guidance issued by the clearing house,

(ii) any practices of the clearing house, or

(iii) any practices of persons who are members of, or otherwise subject to the rules made by, the clearing house,

or any clearing arrangements made by the clearing house,".

(4) In subsection (3) (powers exercisable in relation to recognised body)—

(a) in paragraph (b) for "the rules" substitute "its rules, or the", and

(b) in paragraph (c) for "the rules" substitute "its rules".

(5) In subsection (5) (construction of references to practices)—

(a) for "paragraph (b)" substitute "paragraph (a)(ii), (b)(ii) and (c)(ii)", and

(b) omit the words from "and the practices referred to in paragraph (c)" to the end.

(6) After that subsection insert —"
"(6) The practices referred to in paragraph (a)(iii), (b)(iii) and (c)(iii) of subsection (2) above are —
1182

(a) in relation to a recognised self-regulating organisation, practices in relation to business in respect of which the persons in question are subject to —

(i) the rules of the organisation, or

(ii) statements of principle, rules regulations or codes of practice to which its members are subject by virtue of Chapter V of this Part,

and which are required or contemplated by the rules of the organisation or by those statements, rules, regulations or codes, or by guidance issued by the organisation,

(b) in relation to a recognised investment exchange or clearing house, practices in relation to business in respect of which the persons in question are subject to the rules of the exchange or clearing house, and which are required or contemplated by its rules or guidance,

or which are otherwise attributable to the conduct of the organisation, exchange or clearing house as such.".
15. —(1) Section 121 of the Financial Services Act 1986 (competition scrutiny: designated agencies) is amended as follows.
(2) In subsection (1) for "rules, regulations" substitute "statements of principle, rules, regulations, codes of practice".
(3) In subsection (2)(a) and (c) for "rules or regulations made" substitute "statements of principle, rules, regulations or codes or practice issued or made".
(4) In subsection (3)(b) for "rules, regulations" substitute "statements of principle, rules, regulations, codes of practice".
(5) In subsection (4) for "rules or regulations" (twice) substitute "statements of principle, rules, regulations or codes or practice".
16. —(1) Section 122 of the Financial Services Act 1986 (reports by Director General of Fair Trading) is amended as follows.
(2) In subsection (1) for "and regulations" substitute ", statements of principle, regulations and codes of practice".
(3) In subsection (2) for "regulations," substitute "statements of principle, regulations, codes of practice".
(4) In subsection (4) —

(a) in paragraph (a) for "rules, guidance, arrangements and regulations" substitute "rules, statements of principle, regulations, codes of practice, guidance and arrangements", and

(b) in the words following the paragraphs, for "rules, guidance, arrangements, regulation" substitute "rules, statements of principle, regulations, codes of practice, guidance, arrangements", and for "rules, guidance arangements or regulations" substitute "rules, statements of principle, regulation, codes of practice, guidance or arrangements".

17. —(1) Section 124 of the Financial Services Act 1986 (matters to be left out of account for certain purposes in connection with competition scrutiny) is amended as follows.
(2) In subsection (1) (matters to be left out of account in determining whether monopoly situation exists), in paragraph (c) for "rules or regulations made or guidance issued" substitute "statements of principle, rules, regulations, codes of practice or guidancs., issued or made".
(3) In subsection (3) (matters to be excluded from consideration where monopoly situation exists)—

(a) in paragraph (a), for "rules or regulations made" substitute "statements of principle, rules, regulations or codes of practice issued or made",

(b) in paragraph (b), for "rules or regulations" substitute "statements of principle, rules, regulations or codes of practice", and

(c) in the closing words, for "rules, regulations" substitute "statements of principle, rules, regulations, codes of practice".

18. For section 205 of the Financial Services Act 1986 (regulations, rules and orders) substitute—
"General power to make regulations
205. The Secretary of State may make regulations prescribing anything which by this Act is authorised or required to be prescribed.
Supplementary provisions with respect to subordinate legislation
205A. —(1) The following provisions apply to any power of the Secretary of State under this Act —

(a) to issue statements of principle,

(b) to make rules or regulations,

(c) to make orders (other than such orders as are expected by subsection (4) below), or

(d) to issue codes of practice.

(2) Any such power is exercisable by statutory instrument and includes power to make different provision for different cases.
(3) Except as otherwise provided, a statutory instrument containing statements of principle, rules or regulations shall be subject to annulment in pursuance of a resolution of either House of Parliament.
(4) The above provisions do not apply to a recognition order, an order declaring a collective investment scheme to be an authorised unit trust scheme or a recognised scheme or to an order revoking any such order.".
19. In section 206(1) of the Financial Services Act 1986 (publication of information and advice)—

(a) in paragraph (a), for "rules and regulation made" substitute "statements of principle, rules, regulations and codes of practice issued or made", and

(b) in paragraph (b) for "rules or regulations" substitute "statements of principle, rules, regulations or codes of practice".

20. In Schedule 2 to the Financial Services Act 1986 (requirements for recognition of self-regulating organisations), in paragraph 4(1) (monitoring and enforcement) for "rules or regulations" substitute "statements of principle, rules, regulations or codes of practice".
21. In Schedule 3 to the Financial Services Act 1986 (requirements for recognition of professional bodies), in paragraph 4(2) (monitoring and enforcement) for "rules or regulations" substitute "statements of principle, rules, regulations or codes of practice".
22. In Schedule 7 to the Financial Services Act 1986 (qualifications of designated agency), in paragraph 2(2) (arrangements for discharge of functions: matters to be decided upon by the governing body) for "rules or regulations must be made" substitute "statements of principle, rules, regulations and codes of practice must be issued or made".
23. —(1) Schedule 8 to the Financial Services Act 1986 (principles applicable to designated agency's rules and regulations) is amended as follows.
(2) In the heading for "RULES AND REGULATIONS" substitute "LEGISLATIVE PROVISIONS".
(3) For paragraph 1, and the cross-heading preceding it, substitute—
"Introduction
1. —(1) In this Schedule "legislative provisions" means the provisions of statements of principle, rules, regulations and codes of practice issued or made under Part I of this Act.
(2) References in this Schedule to "conduct of business provisions" are to rules made under section 48 of this Act and statements of principle and codes of practice so far as they relate to matters falling within that rule-making power.
(3) References in this Schedule to provisions made for the purposes of a specified section or Chapter are to rules or regulations made under that section or Chapter and statements of principle and codes of practice so far as they relate to matters falling within that power to make rules or regulations.
Standards
1A. The conduct of business provisions and the other legislative provisions must promote high standards of
1184
integrity and fair dealing in the conduct of investment business.".
(4) In paragraphs 2 to 7, 9, 11 and 12 for "conduct of business rules" substitute "conduct of business provisions".
(5) In paragraph 7 for "those rules and rules under" substitute "those provisions and provisions made for the purposes of".
(6) In paragraph 8 for "Rules made under" substitute "provisions made for the purposes of".
(7) In paragraph 9 for "regulations made under" substitute "provisions made for the purposes of".
(8) In paragraph 10 for "Rules made under" substitute "Provisions made for the purposes of and for "under those sections" substitute "for the purposes of those sections".
(9) In paragraph 12 for "rules and regulations made under" substitute "provisions made for the purposes of".
24. —(1) Schedule 9 to the Financial Services Act 1986 (designated agency: exercise of transferred functions) is amended as follows.
(2) In paragraph 4(1) (copies of instruments to be sent to Secretary of State), for "any rules or regulations made" substitute "any statements of principle, rules, regulations or codes of practice issued or made".
(3) For paragraphs 5 and 6 substitute —
"5. Paragraphs 6 to 9 below have effect instead of section 205A of this Act in relation to statements of principle, rules, regulations and codes of practice issued or made by a designated agency in the exercise of powers transferred to it by a delegation order.
6. Any such power is exercisable by instrument in writing and includes power to make different provision for different cases.".
(4) In paragraph 8 (instruments to be printed and made available to public) —

(a) in sub-paragraph (1) for "is made" substitute "is issued or made", and

(b) in sub-paragraph (2) for "rules or regulation" (twice) substitute "statement of principle, rule, regulation or code of practice".

(5) In paragraph 9 (proof of instruments), for "made by the agency" (twice) substitute "made or issued by the agency".
(6) For paragraph 12 (consultation) substitute—
"12. —(1) Where a designated agency proposes, in the exercise of powers transferred to it by a delegation order, to issue or make any statements of principle, rules, regulations or codes of practice, it shall publish the proposed instrument in such manner as appears to it best calculated to bring the proposals to the attention of the public, together with a statement that representations about the proposals (and, in particular, representations as to the cost of complying with the proposed provisions) can be made to the agency within a specified time.
(2) Before issuing or making the instrument the agency shall have regard to any representations duly made in accordance with that statement.
(3) The above requirements do not apply —

(a) where the agency considers that the delay involved in complying with them would be prejudicial to the interests of investors;

(b) to the issuing or making of an instrument in the same, or substantially the same, terms as a proposed instrument which was furnished by the agency to the Secretary of State for the purposes of section 114(9) of this Act.".

25. —(1) Schedule 10 to the Financial Services Act 1986 (application of investment business provisions to regulated insurance companies) is amended as follows.
(2) In paragraph 4 (modification of conduct of business rules), after sub-paragraph (2) insert —
"(2A) Sub-paragraphs (1) and (2) also apply to statements of principle under section 47A and codes of practice under section 63A so far as they relate to matters falling within the rule-making power in section 48.".
(3) In paragraph 7 (withdrawal of authorisation) after sub-paragraph (2) insert —
"(3) The disciplinary action which may be taken by virtue of section 47A(3) of this Act (failure to comply with statement of principle) includes —

(a) the withdrawal of authorisation under section 11(2)(a) of the Insurance Companies Act 1982, and

(b) the giving of a direction under section 13(2A) of that Act;

and subsection (6) of section 47A (duty of the Secretary of State as to exercise of powers) has effect accordingly.".

AMENDMENTS RELATING TO FRIENDLY SOCIETIES
26. Schedule 11 to the Financial Services Act 1986 (friendly societies) is amended as follows.
27. In paragraph 3(2) (competition scrutiny: recognition of self-regulating organisation for friendly societies), after "sent to him under this sub-paragraph" insert ", together with any statements of principle, rules, regulations or codes of practice to which members of the organisation would be subject by virtue of this Schedule,".
28. —(1) In paragraph 4 (requirements for recognition of self-regulating organisation for friendly societies) is amended as follows.
(2) In sub-paragraph (4) —

(a) in paragraph (a) for "22" substitute "22C", and

(b) omit paragraph (b).

(3) sub-paragraph (5) for "22" substitute "22C".
29. Omit paragraph 7.
30. —(1) Paragraph 10 (competition scrutiny: circumstances in which powers are exercisable in relation to recognised self-regulating organisation for friendly societies) is amended as follows.
(2) In sub-paragraph (1), after paragraph (c) insert "together with any statements of principle, rules, regulations or codes of practice to which members of the organisation are subject by virtue of this Schedule,".
(3) In sub-paragraph (2) —
(a) in paragraph (b), for "the rules' substitute "its rules, or the", and
(c) in paragraph (c), for "the rules" substitute 'is rules".
(4) In sub-paragraph (3) (construction of references to practices), omit the words from "and the practices referred to in paragraph (c)" to the end; and after that sub-paragraph insert —
"(3A) The practices referred to in paragraph (c) of sub-paragraph (1) above are practices in relation to business in respect of which the persons in question are subject to —

(a) the rules of the organisation, or

(b) statements of principle, rules regulations or codes of practice to which its members are subject by virtue of this Schedule,

and which are required or contempleted by the rules of the organisation or by those statements, rules, regulations of codes, or by guidance issued by the organisation, or which are otherwise attributable to the conduct of the organisation as such.".
31. In paragraph 13, for "Paragraphs 14 to 25" substitute "Paragraphs 13A to 25".
32. Before paragraph 14 and after the heading "Conduct of investment business", insert —
"13A. —(1) The Registrar may issue statements of principle with respect to the conduct expected of regulated friendly societies.
(2) The conduct expected may include compliance with a code or standard issued by another person, as for the time being in force, and may allow for the exercise of discretion by any person pursuant to any such code or standard.
(3) Failure to comply with a statement of principle under this paragraph is a ground for the taking of disciplinary action or the exercise of powers of intervention, but it does not give rise to any right of
1186
action by investors or other persons affected or affect the validity of any transaction.
(4) The disciplinary action which may be taken by virtue of sub-paragraph (3) is —

(a) the making of a public statement under paragraph 21, or

(b) the application by the Registrar for an injunction, interdict or other order under paragraph 22(1), or

(c) any action under paragraph 26 or 27 of this Schedule;

and the reference in that sub-paragraph to powers of intervention is to the powers conferred by Chapter VI of Part I of this Act.
(5) Where a statement of principle relates to compliance with a code or standard issued by another person, the statement of principle may provide —

(a) that failure to comply with the code or standard shall be a ground for the taking of disciplinary action, or the exercise of powers of intervention, only in such cases and to such extent as may be specified; and

(b) that no such action shall be taken, or any such power exercised, except at the request of the person by whom the code or standard in question was issued.

(6) The Registrar shall exercise his powers in such manner as appears to him appropriate to secure compliance with statements of principle under this paragraph.
13B. —(1) The relevant regulatory authority may on the application of a regulated friendly society —

(a) modify a statement of principle issued under paragraph 13A so as to adapt it to the circumstances of the society or to any particular kind of business carried on by it, or

(b) dispense the society from compliance with any such statement of principle, generally or in relation to any particular kind of business carried on by it.

(2) The powers conferred by this paragraph shall not be exercised unless it appears to the relevant regulatory authority —

(a) that compliance with the statement of principle in question would be unduly burdensome for the applicant having regard to the benefit which compliance would confer on investors, and

(b) that the exercise of those powers will not result in any undue risk to investors.

(3) The powers conferred by this paragraph may be exercised unconditionally or subject to conditions; and paragraph 13A(3) applies in the case of failure to comply with a statement of principle.
(4) The relevant regulatory authority for the purposes of this paragraph is —

(a) in the case of a member society of a recognised self-regulating organisation for friendly societies, in relation to investment business in the carrying on of which it is subject to the rules of the organisation, that organisation;

(b) in any case, or in relation to other investment business, the Registrar.

(5) The reference in paragraph 4(1) of Schedule 2 as applied by paragraph 4 above (requirements for recognition of self-regulating organisation for friendly societies) to monitoring and enforcement of compliance with statements of principle includes monitoring and enforcement of compliance with conditions imposed by the organisation under this paragraph.".
33. —(1) Paragraph 14 (conduct of business rules) is amended as follows.
(2) In sub-paragraph (1), omit the words "other than a member society".
(3) After sub-paragraph (2) insert —
"(2A) Paragraph 22B below has effect as regards the application of rules under this paragraph to member societies in respect of investment business in the carrying on of which they are subject to the rules of a recognised self-regulating organisation for friendly societies.".
(4) In sub-paragraph (3), omit the word "and" after paragraph (a); and after paragraph (b) insert —
";and
(c) for the references in subsection (4) to section 63B and a recognised self-regulating organisation there shall be substituted references to paragraph 13B and a recognised self-regulating organisation for friendly societies,".
34. —(1) Paragraph 19 (clients' money regulations) as amended as follows.
(2) In sub-paragraph (2) for the words from "(but with the substitution" to the end substitute "(but with the substitution for the reference in paragraph (e) of subsection (2) to the Secretary of State of a reference to the Registrar)".
(3) After that sub-paragraph insert —
"(3) Paragraph 22B below has effect as regards the application of regulations under this paragraph to member societies in respect of investment business in the carrying on of which they are subject to the rules of a recognised self-regulating organisation for friendly societies.".
35. For paragraph 20 (unsolicited calls) substitute —
"20. —(1) Regulations under section 56(1) of this Act shall not permit anything to be done by a regulated friendly society but that section shall not apply to anything done by such a society in the course of or in consequence of an unsolicited call which, as respects the society, constitutes the carrying on of regulated business, if it is permitted to be done by the society by regulations made by the Registrar with the consent of the Secretary of State.
(2) Paragraph 22B below has effect as regards the application of regulations under this paragraph to member societies in respect of investment business in the carrying on of which they are subject to the rules of a recognised self-regulating organisation for friendly societies.
(3) As it applies to such persons in respect of such business, the reference in sub-paragraph (1) above to conduct permitted by regulations made by the Registrar with the consent of the Secretary of State shall be construed—

(a) where or to the extent that the regulations do not apply, as a reference to conduct permitted by the rules of the organisation; and

(b) where or to the extent that the regulations do apply but are expressed to have effect subject to the rules of the organisation, as a reference to conduct permitted by the regulations together with the rules of the organisation.".

36. After paragraph 22 (and after the paragraph inserted by section 158(3)) insert—
"22B. —(1) The Registrar may in rules and regulations under —

(a) paragraph 14 (conduct of business rules),

(b) paragraph 19 (client's money regulations), or

(c) paragraph 20 (regulations as to unsolicited calls), designate provisions which apply, to such extent as may be specified, to a member society in respect of investment business in the carrying on of which it is subject to the rules of a recognised self-regulating organisation for friendly societies.

(2) It may be provided that the designated rules or regulations have effect, generally or to such extent as may be specified, subject to the rules of the organisation.
(3) A member society which contravenes a rule or regulation applying to it by virtue of this paragraph shall be treated as having contravened the rules of the relevant recognised self-regulating organisation for friendly societies.
(4) It may be provided that, to such extent as may be specified, the designated rules or regulations may not be modified or waived (under paragraph 22C below or section 50) in relation to a member society.
Where such provision is made any modification or waiver previously granted shall cease to have effect, subject to any transitional provision or saving contained in the rules or regulations.
(5) Except as mentioned in sub-paragraph (1), the rules and regulations referred to in that sub-paragraph do not apply to a member society in respect of investment business in the carrying on of which it is subject to the rules of a recognised self-regulating organisation for friendly societies.
22C. —(1) A recognised self-regulating organisation for friendly societies may on the application of a society which is a member of the organisation—

(a) modify a rule or regulation designated under paragraph 22B so as to adapt it to the circumstances of the society or to any particular kind of business carried on by it, or

(b) dispense the society from compliance with any such rule or regulation, generally or in relation to any particular kind of business carried on by it.

(2) The powers conferred by this paragraph shall not be exercised unless it appears to the organisation—

(a) that compliance with the rule or regulation in question would be unduly burdensome for the applicant having regard to the benefit which compliance would confer on investors, and

(b) that the exercise of those powers will not result in any undue risk to investors.

(3) The powers conferred by this paragraph may be exercised unconditionally or subject to conditions; and paragraph 22B(3) applies in the case of a contravention of a condition as in the case of contravention of a designated rule or regulation.
(4) The reference in paragraph 4(1) of Schedule 2 as applied by paragraph 4 above (requirements for recognised self-regulating organisation for friendly societies) to monitoring and enforcement of compliance with rules and regulations includes monitoring and enforcement of compliance with conditions imposed by the organisation under this paragraph.
22D. —(1) The Registrar may issue codes of practice with respect to any matters dealt with by statements of principle issued under paragraph 13A or by rules or regulations made under any provision of this Schedule.
(2) In determining whether a society has failed to comply with a statement of principle —

(a) a failure by it to comply with any relevant provision of a code of practice may be relied on as tending to establish failure to comply with the statement of principle, and

(b) compliance by it with the relevant provisions of a code of practice may be relied on as tending to negative any such failure.

(3) A contravention of a code of practice with respect to a matter dealt with by rules or regulations shall not of itself give rise to any liability or invalidate any transaction; but in determining whether a society's conduct amounts to contravention of a rule or regulation—

(a) contravention by it of any relevant provision of a code of practice may be relied on as tending to establish liability, and

(b) compliance by it with the relevant provisions of a code of practice may be relied on as tending to negative liability.

(4) Where by virtue of paragraph 22B (application of designated rules and regulations to member societies) rules or regulations —

(a) do not apply, to any extent, to a member society of a recognised self-regulating organisation for friendly societies, or

(b) apply, to any extent, subject to the rules of the organisation,

a code of practice with respect to a matter dealt with by the rules or regulations may contain provision limiting its application to a corresponding extent.".
37. For paragraph 29 (transfer of functions of making rules or regulations) substitute—
"29. —(1) The Registrar shall not make a transfer order transferring any legislative functions to a transferee body unless—

(a) the body has furnished him and the Secretary of State with a copy of the instruments it proposes to issue or make in the exercise of those functions, and

(b) they are both satisfied that those instruments will—

(i) afford investors an adequate level of protection,

(ii) in the case of provisions corresponding to those mentioned in Schedule 8 to this Act, comply with the principles set out in that Schedule, and

(iii) take proper account of the supervision of friendly societies by the Registrar under the enactments relating to friendly societies.

(2) In this paragraph "legislative functions" means the functions of issuing or making statements of principle, rules, regulations or codes of practice.".
38. In paragraph 30(2), for "rules or regulations made" substitute "statements of principle, rules, regulations or codes of practice issued or made".
39. In paragraph 31(6)(c), for "as if the reference to section 205(2) were a reference to paragraph 45(1) below" substitute "as if the reference to section 205A were a reference to paragraph 45(1) and (3) below".
40. For paragraph 34 substitute—
"34.—(1) A transferee body to which the Registrar has transferred any legislative functions may exercise those functions without the consent of the Secretary of State.
(2) In this paragraph "legislative functions" means the functions of issuing or making statements of principle, rules regulations or codes of practice".
41. In paragraph 36 (competition scrutiny: transferee bodies) in sub-paragraphs (1) and (3)(b) for "rules, regulations" substitute "statements of principle, rules, regulations, codes of practice".
42. In paragraph 38(1) (publication of information and advice)—

(a) in paragraph (a), for "rules and regulations made" substitute "statements of principle, rules, regulations and codes of practice issued or made", and

(b) in paragraph (b) for "rules or regulations" substitute "statements of principle, rules, regulations or codes of practice".

43. In paragraph 45—

(a) in sub-paragraph (1) for "make regulations, rules or orders" substitute "issue or make statements of principle, rules, regulations, orders or codes of practice", and

(b) in sub-paragraph (3) for "regulations, rules or orders" substitute "statements of principle, rules, regulations, orders or codes of practice".'.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 485 to 494.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
Lord Hooson: My Lords, I cannot help noticing that Amendment No. 494 consists of 17 pages. It purports to amend the Financial Services Act 1986 which has given such trouble to everyone who has had anything to do with it. I was drafted into my present interest in the Bill at this very late stage and I cannot pretend that I have absorbed all the detail of the amendment. As a matter of principle, it seems
1190
to me to be wrong that such complicated amendments as this to an Act that has given such trouble in its interpretation should be introduced into a Bill of this kind at such a late stage. I wonder what the explanation is.
Lord Trefgarne: My Lords, this amendment is consequential to one that we discussed earlier at some length. In fact, this is purely a repeal schedule.
On Question, Motion agreed to.

COMMONS AMENDMENTS
495 Schedule 17, page 237, line 15, at end insert—

`1964 c. 40.

Harbours Act 1964.

In section 42(6), the words "required to be attached to a company's balance sheet".'.

496 Page 237, column 3, leave out line 25 and insert—

'In section 85, subsection (5) and, in subsection (6), paragraph (b) and the word "or" preceding it.

497 Page 237, line 31, column 3, leave out from 'section' to `the' in line 36 and insert '89(2)'.
498 Page 237, line 41, leave out from beginning to end of line 44.
499 Page 237, line 45, column 3, leave out from beginning to end of line 48.
500 Page 237, line 48, column 3, at end, insert—

`Section 160(3)'.

501 Page 238, column 3, leave out line 40.
502 Page 238, line 41, column 3, at end, insert—

`Section 440.'

503 Page 238, line 48, column 3, leave out from beginning to end of line 50 and insert—

`Sect ion 447(1)'.

504 Page 239, line 2, column 3, at end insert—

'(a) in subsection (2), paragraphs (a) and (d) and the word "or" preceding the latter;".'.

505 Page 239, line 11, column 3, at end insert—

In section 708(1)(b), the words "or other material".

Sections 172 and 715.

In section 716(2), the words following paragraph (c).

In section 717(1), the words following paragraph (c).'.

506 Page 239, column 3, leave out line 17 and insert—

In section 744, the definitions of "annual return", "authorised institution",

"authorised minimum", "expert", "floating charge", "joint stock company" and "undistributable reserves".

In section 746, the words "Except as provided by section 243(6),".

In Schedule 2— (a) in paragraph 1(1), the words "paragraph

60(2) of Schedule 4 or paragraph 19(3) of Schedule 9";

(b) paragraph 1(5);

(c) in paragraph 2(1), the word "23,";

(d) paragraph 2(2);

(e) in paragraph 3(1), the words "paragraph 60(2) of Schedule 4 or paragraph 19(3) of Schedule 9";

(f) paragraph 3(3);

(g) in paragraph 4(1), the words "(whether as personal representative or otherwise)";'

(h) in paragraph 4(2), the words "paragraph 60(2) of Schedule 4 or paragraph 19(3) of Schedule 9".'.

507 Page 239, line 19, column 3, after '50(6),' insert '53(7),'.
508 Page 239, line 19, column 3, leave out '78, 80' and insert '77 to'.
509 Page 239, line 20, column 3, leave out 'and 92' and insert '90 to 92 and 95'.
510 Page 239, column 3, leave out lines 21 to 23 and insert—

'In Schedule 9—

(a) paragraphs 1, 13(3) and (18), 16, 18(5) 19(3) to (7) and 21 to 26;

(b) in paragraph 27(4), the words "of the said Part I";

(c) in paragraph 28, in sub-paragraph (1) the words "to which Part II of the Insurance Companies Act 1982 applies" and in sub-paragraph (2) the words "of Part I of this Schedule":

(d) paragraphs 29 to 31.'.

511 Page 239, line 31, column 3, at end insert—

'In Schedule 22—

(a) the entry relating to section 36(4);

(b) in the entry relating to sections 363 to 365, the words "(with Schedule 15)";

(c) in the entry relating to sections 384 to 393, in column 2, the word "qualifications".'.

512 Page 239, line 33, column 3, after 'sections' insert '245(1)'.
513 Page 239, line 34, column 3, after '260(3)', insert '287(3)'.
514 Page 239, line 35, column 3, leave out '392(3),' and insert '384(5), 386(2), 389(10), 390(7), 391(4), 392(2),'.
515 Page 239, line 35, column 3, leave out '393 and 703(1)' and insert 'and 393'.
516 Page 239, line 36, leave out from beginning to end of line 38.
517 Page 239, line 39, column 3, leave out 'paragraph' and insert 'paragraphs 7(3), 23 and'.
518 Page 239, line 45, column 3, after 'sections', insert '45(5)'.
519 Page 239, line 51, column 3, after 'sections' insert '45(5)'.
520 Page 239, line 52, column 3, at end, insert—

In Part I of Schedule 13, the entries relating to sections 222(4), 225 and 733(3),'.

521 Page 239, line 52, at end insert—

'1986 c. 46.

Company Directors Disqualification Act 1986.

In section 21(2), the word "and section 431 (summary proceedings)".'.

522 Page 240, line 2, column 3, at beginning insert—

In section 13— (a) subsection (1); (b) subsections (4) to (6).

In section 48(1), the words "members of a recognized self-regulating organization or" and "organisation or".

In section 55—

(a) in subsection (2)(b) and (e), the words "a member of a recognised self-regulating organisation or" and "organisation or";

(b) in subsection (3), the words "organisation or".'.

523 Page 240, line 12, column 3, at end insert—

'In section 119(5), the words from "and the practices referred to in paragraph (c)" to the end'.

In sections 159(1) and 160(1), the words from the beginning to "section 161 below".'.

524 Page 240, line 21, column 3, at end insert—

In Schedule 11—

(a) paragraph 4(4)(b);

(b) paragraph 7;

(c) in paragraph 10(3), the words from "and the practices referred to in paragarph (c)" to the end;

(d) in paragraph 14(1), the words "other than a member society";

(e) in paragraph 14(3), the word "and" after paragraph (a).'.

In Schedule 16, paragraph 22.'.

525 Page 240, line 22, column 3, leave out lines 22 to 24 and insert—

'In the Table in section 84(1), the entry relating to persons appointed under section 94, 106 or 177 of the Financial Services Act 1986.'.

Section 90(1).

In Schedule 6—

(a) paragraph 18(1) to (6);

(b) in paragraph 18(7) the words "and (1A)";

(c) in paragraph 18(8) and (9);

(d) in paragraph 27(3) the words "and (6)".

526 Page 240, line 26, at end insert—

'1988 c. 1.

Income and Corporation Taxes Act 1988.

Section 565(6)(b).'.

527 Page 240, line 27, at end insert—

'1988 c. 48.

Copyright, Designs and In Schedule 7, paragraph 31.'. Patents Act 1988.

Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 495 to 527. This group of amendments makes changes to Schedule 17 of the Bill which lists the repeals made in the Bill to various amendments in consequence of its provisions. The amendments are either in consequence of changes discussed earlier or have been left over from earlier stages during the passage of the Bill.
Moved, That the House do agree with the Commons in the said amendments.—(Lord Trefgarne.)
On Question, Motion agreed to.
COMMONS AMENDMENTS
528 In the Title, line 15, after first '1986', insert'; to enable provision to be made for the recording and transfer of title to securities without a written instrument; to amend'.
529 Line 15, leave out 'the Insolvency Act 1986,'.
530 Line 15, after second '1986,' insert 'the Company Securities (Insider Dealing) Act 1985,'.
531 Line 15, after second '1986,' insert 'the Company Directors Disqualification Act 1986,.'.
Lord Trefgarne: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 528 to 531.
Moved, That the House do agree with the Commons in the said amendments. —(Lord Trefgarne.)
On Question, Motion agreed to.
An Amendment (privilege) made.

Trade Union Act 1984 (Amendment) Bill [H.L.]
5.28 p.m.
Read a third time, and passed and sent to the Commons.

Waste Materials: Re-use
5.29 p.m.
Lord Ezra Lord Ezra rose to ask Her Majesty's Government whether they are satisfied with the progress being made with the reclamation and recycling of waste materials.
The noble Lord said: My Lords, I have tabled this Question on the subject of recycling tonight because I believe it is of crucial importance in the whole area of environmental improvement to which so much thought and effort is now being devoted. I believe that the timing of the debate is appropriate because we expect that in the Queen's Speech there will be an indication of a Green Bill to be put before us before long. Therefore this debate provides us with an opportunity for making some suggestions about what the Bill might contain regarding the important subject of recycling.
I have a personal involvement in this matter. I am president of the UK Reclamation Council which is a body that aims to stimulate interest in the reclamation and recycling of waste materials. It has representation from appropriate trade associations, local authorities, and national bodies. It also works very closely with the Department of the Environment and the Department of Trade and Industry.
Undoubtedly there has been much progress over the years in the area of recycling. That is particularly true at the production end. In most production systems care is taken to recycle waste materials as they arise in the process. I have been very used to it myself in the coalmining industry where we tried to recycle as much as we could. We did so to the point that some of our customers from time to time felt that we recycled too much.
This has also been particularly true of the metal industry. The amount of scrap used in the production of iron and steel is considerable. That is equally so
1194
in the production of non-ferrous metals. The glass and paper industries have also achieved notable levels of recycling. In the plastics industry, on the other hand, a start has only just been made. It is much more difficult in that industry because of the nature of plastics.
There is a great deal more to be done in two areas. First, compared with what happens on the Continent, our performance in recycling in the various sectors to which I have referred is, generally speaking, relatively low. Secondly, the proportion of recycling from domestic waste is relatively small. We have this in common with our continental friends. Certainly, in this country the proportion is smaller than in almost any other. No less than 90 per cent. of the 20 million tonnes of domestic waste produced every year goes into landfill. One problem with landfilling is that it will become more and more expensive. Secondly, it has environmental disadvantages, such as leaching and the escape of methane. Thirdly, the movement of vast quantities of waste over longer and longer distances is a nuisance. Other methods will undoubtedly have to be devised. More domestic waste has tended to be reclaimed on the Continent because landfilling has been more expensive. But sooner or later we shall be in that position ourselves.
A certain proportion of domestic refuse is incinerated. In more forward-looking councils such as Sheffield, Nottingham and Edmonton, the process of incineration is connnected with the use of waste heat. I am involved in a project in Sheffield where most of the city's refuse is incinerated. We have recently set up a district heating system whereby the heat which was previously wasted to atmosphere is now used to heat neighbouring blocks of flats, and that facility is being moved to the city centre. Relatively small quantities —not much more than 5 per cent. —of the domestic refuse generated in this country is recycled.
The Secretary of State for the Environment stated at the Conservative Party conference:
"We should aim to recycle half our household waste within the next 10 years".
That is a desirable objective, but it will require an enormous amount of effort. In no country at the moment is that proportion of domestic waste recycled. It would be a great plus for us if we could achieve anything like that. Before considering the actions required to achieve it, let us consider the priorities in the treatment of waste. In the first instance, it should obviously be minimised at the production end. The less waste that is generated to begin with, the better off we shall be. Secondly, if it has to be produced in the manufacturing process, it should be done in such a way that it is possible to recycle. In other words, there has to be a planning or designing for recyclability.
A number of forward-looking enterprises are taking this into account. Only the other day I was at a presentation on this subject. General Motors (Europe) indicated what it is doing regarding the parts that it puts into its cars. It is making sure that as much as possible of what goes into the manufacture and assembly of cars is recyclable. This is one of the most important areas that we can look

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to in industry. We should design for recyclability, but we should also have the ability to recycle the resultant products. In the paper industry, for example, there have often been drives to collect waste paper. But the waste could not be used because demand was exceeded. The demand and supply of waste materials must go together.
There have been many studies on designing for recyclability. I should like to draw the attention of the House to one study by Dr. Michael Henstock on behalf of the Institute of Metals. It examines this area in some detail and shows how much can be done in the industrial approach to designing for recyclability. What cannot be recovered for recycling should be efficiently and safely disposed of; but let us hope that as a result of all these efforts the proportion will reduce over the years.
Many initiatives to deal with the problem have been launched in recent years. In particular, I should like to pay tribute to the Department of Trade and Industry for its efforts in tackling the problem on a sectoral basis. It recently set up a recycling strategy group and kindly invited me to participate in its deliberations. It is reviewing the whole position and considering where further action should be taken. Quite rightly the DTI has proclaimed through its Ministers that waste recovery must be approached on a cradle to the grave basis. One must start at the beginning in order to make sure that as much of the resultant waste as possible is efficiently recycled and re-used.
There is no doubt that there is a growing awareness of this problem, from government downward. But we must also consider the steps that are needed to convert the recognition of the problem and the growing attention paid to it into practical reality. What is certain is that there can be no single simple way of dealing with it. There must be co-ordination of actions at government and industrial level. Voluntary organisations and local authorities have their part to play, as do individuals. We all have a role to play. I should like to suggest what specifically each of those bodies should do in order to convert the intention stated by the Secretary of State for the Environment into reality.
I start with government. The Government have taken many initiatives. They have convened conferences and carried out studies. However, a point that worries those who deal with the problem is that responsibility for recycling is divided between two departments—the Department of the Environment and the Department of Trade and Industry. It would simplify matters if one department could take responsibility on board. The next thing the Government should do is to make sure that adequate advice and information is circulated. A good start has been made and I hope that it will be maintained.
We also need to remove obstacles. What are the obstacles in the way of the development of recycling? One is emerging from the Brussels directives. A definition of waste emerging in the directives from Brussels is likely to act as an impediment to the stimulation of recycling. Under the broader
1196
definition of waste which is proposed, those who collect scrap for recycling could well be denominated as handling waste and have to be specially licensed for the purpose. That would introduce new impediments. My council, the UKRC, has been in communication with the DTI on the subject. I am glad to say that we have received a positive response. Perhaps the noble Lord will be able to tell us a little more about how we can get this definition of waste modified in such a way so as not to inhibit the recycling process.
I move on from the removal of obstacles and turn to incentives. In my view it is the role of government in major issues of policy to provide incentives from time to time. A successful incentive which the Government recently introduced is one which directs motorists towards using unleaded petrol. I should like to suggest that they look very seriously at the recycling objective to see whether an appropriate fiscal measure, or series of fiscal measures, could be introduced to stimulate recycling.
My next point concerns technology. Here again, while much of the technology will no doubt evolve from industrial efforts, the Government have a role to play to stimulate developing technology in recycling. The contribution of the Warren Spring Laboratory in this whole area is considerable. It is now organised on an agency basis. I suggest that the Government consider intensifying the number of projects which they put to Warren Spring which could lead to the technological development of recycling.
I turn now to industry. I have already mentioned that I believe the first action industry should take is to minimise its waste and then design for recycling. I am glad to say that there is evidence of a growing awareness on the part of industry in this subject. Only the other day, on 6th November, 19 leading European industrial companies, including some from Britain, joined together in a recycling initiative. They are prepared to make quite substantial funds available to ensure that recycling, and reclamation of recyclable materials, is developed in various European countries. The chemical industry, likewise, has now also become very conscious of this fact.
Therefore there is not the slightest doubt that there is a growing awareness on the part of industry in the matter. However, what is necessary is to stimulate its interest in the subject to ensure that this design for recyclability is widened throughout the production sector and to make sure that there is the capacity to deal with the reclaimed materials. In this respect I instance the case of the paper industry. I am glad to note that there is new capacity now coming on stream which should be in operation by 1993 and which will enable a substantially greater amount of wastepaper to be reclaimed and utilised.
In the whole area voluntary organisations play a crucial role. The subject is one which appeals to people. The voluntary organisations which have played a noticeable part in this are Friends of the Earth and the National Council for Voluntary Organisations. I have read with great care the documents which they have produced. They are well researched and based upon careful statistical studies. The benefit of the voluntary organisations is that

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they reach out into the communities. They have stimulated a great deal of response. Therefore I think that they should be encouraged to continue with their efforts and to work closely with government initiatives.
Finally, I turn to local authorities and to such bodies as the London Waste Regulation Authority. If we are talking about domestic waste, it is here that the whole process starts: in the whole business of the segregation of waste and its collection. Successful efforts have been made in certain other countries. I should mention Ontario in particular where they have what is known as the blue box system. Householders are asked to put their reclaimable waste, which is clearly defined, into the blue box. They must be clean waste materials, such as tin cans, bottles, plastics, newsprint, and so on. There is a separate collection each week for such materials from the blue boxes. I am glad to say that this system will be tried out in Sheffield, which has set itself up as a recycling city of the future. The city is to try out many of these different methods. There have been other centres which have also tried out the scheme; for example, Richmond is one of them. If we are to break the back of this question of reclamation and recycling of domestic waste, it is essential that separation should start at the household. Any other system is extremely costly. However, in order to do that it must be generally spread on the most effective basis. Local authorities must respond accordingly and be resourced so that they will be able to do so.
In summary, I should like to emphasise what I have to say. I should first emphasise that I think there has undoubtedly been a growing interest throughout the country in the subject; that is, from the Government, from industry, from local authorities, from individuals and from voluntary bodies. The Secretary of State for the Environment has boldly identified an important objective. What we must now do is to ensure that practical methods are used to achieve that aim.
I shall emphasise again the three points I have made. First, I think that at government level they should seriously consider providing incentives for recycling. Secondly, at industrial level the crucial matter is that of design for recyclabilty; and, thirdly, at local level the separation of waste to enable the collection of recyclable materials is most important. If those three methods, among others, are adopted, we should be able to translate the intention stated by the Secretary of State into reality by the end of the century.
5.47 p.m.
Lord St. John of Bletso: My Lords, I should like to thank the noble Lord, Lord Ezra, for introducing this debate today. I should also like to apologise for having arrived a few minutes late. I was unaware that the consideration of Commons amendments on the Companies Bill would come to such an abrupt end. I was under the impression that it would continue until 10 o'clock this evening.
The problem of disposing of refuse, sewage sludges and commercial refuse in an environmentally acceptable manner is becoming a major headache in
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all developed and developing countries. Many local authorities are running out of sites in which to dump their domestic waste. With the world's burgeoning population growth rate —it is believed to be almost 5 billion at present —the question must be: how can we effectively handle the vast, increasing volume of waste products?
The noble Lord, Lord Ezra, very eloquently outlined the various techniques for the recycling of waste products. I do not profess to have any expertise in this particular area; I am simply a concerned citizen looking at what I believe is an under-utilised industry in Britain. The concept of lining tips with non-pervious materials is admirable. However, it has not yet stood the test of time, nor does it seem very practical when one watches lorries without any proper supervision tipping waste products containing sharp metal objects on top of the lining material. I am sure that during his speech the noble Lord, Lord Addington, will be raising the issue of the polluting of underground water canals.
The Minister of State said in his opening address in the pollution and the environment debate on 1st February that:
"we should start by trying to reduce the total quantity of waste".—[Official Report, 1/2/89; col. 1098.]
He went on to mention the fact that the Government should encourage the recycling of domestic waste products to the maximum extent consistent with sound economics. Surely it is not just the cost at stake; it is the protection of our environment for future generations.
Recent evidence to the environment committee of the other place estimated that there a re some 1,400 landfill sites in England and Wales which may be emitting enough gas to cause serious fires and explosions. We are aware of many methods of counteracting such accidents. Landfill gas is a national problem and needs monitoring. I should like to hear from the Minister what measures Her Majesty's Government are taking to regulate the use of landfill sites.
It has been estimated that within 20 years most of the peat-producing areas in Britain will be worked out. It is feasible that recycled compost could take its place. Systems and processes are available to reclaim and recycle over 90 per cent. of domestic waste. Those systems also regulate the sludge residue from sewage treatment works which is currently dumped into the sea. The system incorporates all the standard waste recovery procedures with the important addition of electricity generation, which makes the plant self-sufficient in energy while it produces compost.
On the question of paper recycling, the Department of the Environment figures for 1985 show that 7·7 million tonnes of paper and board were consumed by manufacturers in the United Kingdom, of which 2 million tonnes were recycled —about 27 per cent. of the total. Although paper recycling is uneconomic, it is believed that it is possible that more paper could be recycled. The noble Lord, Lord Kenilworth, in his maiden speech during a similar debate, made the point that the ever-increasing weight of the Sunday Times gives great scope for recycling that paper. Estimates of

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the number of trees needed to produce 7·7 million tonnes of paper and board vary from 80 million to 100 million.
The recycling of plastic is more problematic. It is not economic and some recycled plastic can give off noxious gases.
Two supermarket chains, Sainsbury's and Tesco's, have launched campaigns to provide more organic food; to have a range of biodegradable packaging; and to take part in large waste recycling projects. I hope that other retail stores will follow their good example.
In conclusion, a clearly defined waste management strategy with planned arrangements for landfill sites, recycling, incineration, re-use projects and compost systems is needed.
5.54 p.m.
Lord Addington: My Lords, waste recycling involves issues which run throughout the green debate and the whole environment. Effectively, it can be seen as a microcosm of the recycling problem. We are talking about the most effective use of our finite natural resources. We could make far better use of materials such as the timber which goes into newspapers, which we could re-use several times, and the metal used in canning. It has been estimated that 99 per cent. of aluminium can be recycled at only 5 per cent. of the energy cost. Such statistics make one realise how much we are throwing away and how much we could claw back.
As has been pointed out by the two previous speakers, our rubbish invariably ends up in large holes in the ground which are called landfill sites; and 90 per cent. of the sites produce methane gas which adds to the greenhouse effect and produces toxic seepages which, as the noble Lord, Lord St. John of Bletso, pointed out can make their way through ground water into our water supply. Many of the sites are too close to our rivers for comfort and so we may already have some toxic residue in the rivers.
The incineration of waste is not an option which should be considered lightly because when something is burnt it gives off gases. If something unpleasant is burnt it can easily give off damaging gases. Once again, incorrect incineration may contribute to acid rain and the greenhouse effect. It is believed that many of our incineration plants are of a lower standard than is desirable, and once EC regulations are introduced they will be illegal.
Landfill sites do not just have the dangers of direct pollution which I have already mentioned. They are not useful once they have been reclaimed. One can build houses on them if one does not mind them exploding now and again. If a house is built, one may find that the value goes down. Landfill sites are hardly ideal for recreational purposes. I spent six years playing for a rugby club on a pitch built on a reclaimed site in Norwich. It was the worst rugby pitch in the entire eastern counties. It was notorious for producing old pieces of argicultural machinery from the pitch at various points in the game. It was constantly surrounded by six inches of stagnant water which disguised six inches of stagnant mud.
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When Norfolk County Council built a bypass on top of the pitch everyone was heartily glad to leave it.
We must consider increased recycling so that we do not have a waste problem. I have already pointed out that aluminium is greatly under-utilised. It is usually only used once and then thrown away, although it could easily be reclaimed if a reclaiming system were set up. Scrap metal provides a precedent for reclaiming used substances. In 1982 it was estimated that 63 per cent. of the United Kingdom's iron and steel derived from scrap and only one-quarter of the energy was required to reclaim steel from ferrous ores.
Recycling can be pushed further. Glass represents 10 per cent. of this country's rubbish. Virtually all glass can be recycled. We waste vast quantities of it when we throw it away. It is estimated that in 1985 Britain reclaimed 210,000 tonnes of glass and Holland reclaimed 230,000 tonnes. Put another way, Holland met 53 per cent. of its demand for glass from glass which had already been used once. Britain managed 12 per cent., which is an appallingly low figure.
Domestic paper is a subject with which many of your Lordships are probably only too boringly familiar. We must all have collected waste paper at some time and given it in. The last time I visited my native Norwich I noticed signs at collection points which said that they were sorry but they could not take any more waste paper. Surely more encouragement should be given to increasing the number of points which take in waste paper and reprocess it. That is a subject which will probably be covered by every speaker, but it bears repeating.
I could continue listing the types of materials that can be reprocessed and whose full potential is not realised. A more englightening fact is that some local councils have not merely managed to reclaim and recycle huge quantities of otherwise waste material but have also made a profit. In Richmond, Surrey, the local council managed to generate through the reclamation of waste £167,000 which was redistributed into the community. In other words, it appears that when we do not recycle waste to its full potential we are throwing money away hand over fist. I suggest that if waste can generate such an income we should look very seriously at the process for simple economic reasons. Also, if the Government were seen to be investing a little time and possibly money in this field, there could be handsome dividends.
Finally, the Government must take this problem very seriously. I wish to see them start by educating the public and indeed industry, the whole nation, into thinking about recycled waste as a real economic opportunity and social duty. When the Prime Minister said that we had only a lifetime lease on the planet, she seemed to be comparing the whole planet with one large piece of property. I suggest that, if a person were to lease a piece of property to somebody and received it back in reasonably good nick except that one or two of its rooms were absolutely disgusting, that person would be rather annoyed.
6 p.m.
Lord Hooson: My Lords, I congratulate my noble friend Lord Ezra on raising this very important Question at such a time. I am sure that all noble Lords in the House are entirely agreed that it is highly desirable to reclaim and recycle waste materials. However, the point at issue which is posed by the Unstarred Question is whether Her Majesty's Government are satisfied with the progress which is being made on reclamation and recycling. I should have thought that it was obvious that they cannot be.
Looking at the statistics, I am told that the estimate of the domestic waste produced by each person in this country is between one-third and half a tonne annually. If we are to recycle and re-use that waste material, it seems to me essential that it should be separated quickly at source. Once it is mixed with all kinds of other waste materials, it is thereafter difficult to process. Therefore it seems to me essential to have a partnership between central government, local government, private industry and public industry, the voluntary organisations and so on. This would enable the process to be carried out in such a way that it enlists public participation. A great deal will depend on voluntary separation of the potential waste at source by the users. It needs to be properly processed by the local authority. There must be beneficial economic results for the industrialists who will do the recycling. The whole effort must be promoted and co-ordinated by the Government.
My noble friend Lord Ezra gave the glass industry a pat on the back for the way we use and recycle glass. I am not sure that we deserve it. A survey was conducted jointly by a London packaging consultancy, Michael Peters & Partners, and Diagnostic Market Research. I quote their figures from an article which appeared in the Guardian Newspaper on 20th July 1989:
"Only 16 per cent. of glass jars and bottles are recycled in Britain against a European average of 30 per cent. Denmark, Germany, Holland and Switzerland all recycle nearly half their glass containers".
That shows the progress that we must make to draw level with European countries similar to ours.
I am happy to say that for over a year now in my own small town of Llanidloes in mid-Wales, a small market town with about 2,500 inhabitants, and in other small towns in our area we see large bottle bins. We separate the bottles and put green bottles into one bin, brown into another, clear bottles into another. The public have taken to this in a big way and an effort is certainly being made in my area as well as, I am sure, in many other areas of the country. But we still have a great deal of progress to make.
The Guardian article which quotes the figures in the survey states:
"Britain ranks well behind the rest of the world in recycling only 5 per cent. of aluminium cans. The European average is 13 per cent.",
so that is not very high. We compare those figures with the United States, where it is 55 per cent., Canada, 65 per cent. and Japan, 42 per cent. As my noble friend Lord Addington pointed out, there are
1202
obviously beneficial economic consequences of the recovery in particular of aluminium cans.
Waste paper has been referred to. I wish to ask the noble Lord, Lord Trefgarne, this question: what do we do with waste paper in this establishment, in the Royal Palace of Westminster? Do we recycle it properly? Do we recover it? What use do we make of the recovered paper? We use an enormous amount of paper here. We only have to look at the Benches around us to see the amount of paper that is left here every day. What happens to it? Are we setting an example to the rest of the country?
On waste paper, it is known that Canada and the United States have so enlisted public support for the recovery of waste paper, without ensuring that the waste paper is properly processed, that I understand that they now sell subsidised waste paper to Europe. One of the reasons why the price of waste paper to voluntary organisations in this country has dropped is that it is cheaper for the processors to import it from abroad at present. That illustrates some of the problems involved.
However, it seems to me that the Government must take an initiative. A great deal has been said lately by government ministers about the desirability of improving the environment and of recycling all kinds of waste. But somebody must co-ordinate the effort that is needed. My attention was drawn recently —and I should have known of this before—to an organisation called C.SAWS. It stands for the Community Support Anti-Waste Scheme, which was started in Cardiff about 13 years ago in a deprived area. One hundred local businesses were involved, the local authority was involved and there was an urban aid grant from central government. Recycling took place with eventually a full-time staff of 47. There was a great deal of voluntary collection, and the activity was particularly directed at paper recovery. That shows what can be done in one town. There was the example of Richmond given by my noble friend and I am told that Leeds is now an important centre for this kind of innovative work.
However, it should take place throughout the country. There should be much more education to make young and old appreciate the importance of recycling. It is a matter which has excited the attention of the public generally only in recent years. Previously the great British public by and large were unaffected by the prospect of recycling and indeed the need to recycle.
However I am sure that my noble friend is right to ask the Government at this stage whether they are satisfied with the progress that has been made. If they are not satisfied, as I suspect must be the case, what steps do they intend to take to improve progress in this very important sphere?
6.10 p.m.
Lord McIntosh of Haringey: My Lords, I echo the thanks which have been given to the noble Lord, Lord Ezra, for introducing this very important subject, and indeed achieving prime time for it. The noble Lord succeeded so well in achieving prime time that I must apologise to him for being three

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minutes late arriving for the debate, and therefore missing the early part of his speech. The noble Lord is clearly extremely expert on this subject. I must confess from the outset that not only am I less expert, but I am also probably less expert than almost any other Member of your Lordships' House.
In the 1950s I lived for a year in the Middle West of the United States. Despite outrage from my landlord, I could never grasp the distinction between trash and garbage. That was despite having been brought up in London during the war when my most unfavourite task was to take the pig swill out to the pig bin on the corner of the road. I was extremely pleased when the pig bins were abolished after the war had ended and I no longer had to perform that unpleasant task. However, I am sure the noble Lord, Lord Ezra, deplores my selfish attitude towards reclamation and recycling.
When I entered local government, I was associated for many years with the London borough of Tottenham, which had its own pig farm. That pig farm was maintained successfully for many years after the war and was only given up in the 1960s because the land was more valuable for development purposes than it was as a pig farm. The successor borough of Haringey, where I still live, had for a number of years the habit of having a trailer at the back of the rubbish collection carts which was used for waste paper. I believe that it is 15 years since that was abolished, but I still religiously put my paper separately from other waste. I usually carry it out in a wine box and put it separately as if it were going to be reclaimed.
I thought for many years that it was the fault of the trade unions that that recycling no longer occurred. However, when I inquired about it recently, I found the confirmation of what the noble Lord, Lord Ezra, has said, which is that it simply is not worth the effort, and that the extra payment that would have to be made is not justified by the price that could be obtained for the waste paper. Therefore, even if our waste paper is offered separately, it is collected together with other materials.
It seems to me that in many ways we are moving backwards rather than forwards. If we are asking the Government whether they are satisfied with progress, we should look back to war time when the level of reclamation and recycling was very much higher in this country than it is today. At that time there was a collective public spirit regarding the separation of waste materials which led to a public attitude which encouraged recycling, whereas all public attitudes now go in the direction of greater waste, less recycling and more damage to the environment rather than less.
I suggest to the House and to the Government that recycling is paradoxically not the first target that we should strive for. I should have thought that there were three levels of dealing with these problems, of which recycling is really only the third. The first should be to cut down on the production of waste; that is, dealing with the matter at source. There should be some kind of disincentive for the vast
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amounts of packaging materials which are lavished on so many products nowadays. I am not talking only of food products but also of electrical goods, white goods, hardware and almost everything that we buy which used to come almost without packaging or with the minimum of packaging but is now wrapped, gift wrapped and treble wrapped in far too much material. That material is a positive embarrassment to get rid of and there is usually far more of it than is necessary. Instead of having prizes for packaging as the French have, perhaps we should have prizes for lack of packaging. That would deal with some of the problems that we have at the present time.
A further level of dealing with the problem of waste which is still preferable to recycling, although not as good as not using so much material in the first place, is the re-use of materials. The noble Lord, Lord Hooson, referred to bottle banks in his home town. In my part of London we are religious users of bottle banks. However, that is nothing like as efficient as what happens in the United States, for example, where there is a prize for the recovery of bottles and of aluminium cans; or in France where wine bottles are returned and the consigne system is used. That system does not exist and has never been made to exist in this country. I would look to the re-use of materials such as bottles and cans rather than remaking glass from broken bottles in bottle banks as a more efficient system than the one we have at the present time.
Having gone through those steps, then perhaps it is more appropriate to think about recycling. Noble Lords have made a number of suggestions which I hope will receive the serious attention of the Government. It is certainly true that whichever aspect of recycling or reclamation we look at, there are examples of better practice in other countries than here. Examples have been given of reclamation of glass in the United States and Canada, and examples of the re-use of materials in Holland. My noble friend Lord Underhill reminds me that there is hardly a public place with a public lavatory in Holland which does not have recycled paper as opposed to the non-recycled paper and bleached paper that we have on our toilet rolls. The bleach causes additional damage to the environment.
We have a long way to go on almost every aspect of reclamation and recycling. The noble Lord, Lord Ezra, referred to the removal of obstacles. I was interested to hear what he said about the European Community definition of waste. I shall be interested to hear the Government's response to that. The noble Lord then referred to incentives for better reclamation and recycling. He quite rightly referred to the admirable move to cut the tax on unleaded petrol. However, incentives can be of two kinds. They can be carrots, as the lower tax on unleaded petrol is, or they can be sticks. I suggest that this is an area where there is a real role for regulation and control as well as for encouragement and incentives. The example I gave of excessive packaging is one where we might well consider the role of regulation.
I was impressed by what the noble Lord, Lord Ezra, said about the necessity for design for recyclability. That is a horrid word and I wish we could do without it, but I think the point the noble

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Lord made is valid. The point that he made about the need for partnership between government, local authorities and industry is also valid. But above all it is up to us as individuals to see to it that we co-operate and it is up to government to encourage us to do so. I look forward very much to the response of government to this most important issue.
6.17 p.m.
Lord Trefgarne: My Lords, your Lordships will be grateful to the noble Lord, Lord Ezra, for raising this important subject. Reclamation and recycling of waste materials has been of real importance for many years, but latterly has taken on an even greater significance. The noble Lord's longstanding involvement in these matters is well recognised, and I pay tribute to the contribution which he and other members of the UK Reclamation Council have made.
The Government have long accepted the crucial importance of recycling, and took a number of early initiatives in response to the Trade and Industry Select Committee's 1984 report entitled The Wealth of Waste. These included: the allocation of co-ordinating responsibility for recycling matters to a Minister within the Department of Trade and Industry, now my honourable friend the Parliamentary Under-Secretary of State for industry and consumer affairs, Mr. Forth, and the setting-up of supporting interdepartmental committees of Ministers and of officials; the establishment of a recycling advisory unit at Warren Spring laboratory, where the technology for recycling materials and recovering fuel from waste is researched and developed; the development of an awareness campaign, including the preparation of a video and the distribution of an education pack that went to every secondary school in the country; and a sectoral examination of the best ways to encourage recycling and put in place systems for its growth.
That programme of measures was, in the Government's view, successful. It helped to increase awareness of the benefits of recycling, and in particular encouraged the co-operation between different groups which is so vital to recycling success. I give as an example the targets set at the 1986 glass commitment conference; these aimed to double the number of bottle banks to 5,000 by 1991 and achieve a ratio of one to every 10,000 head of population. Good progress is being made towards achieving those targets—more than 3,800 bottle banks are now in place, and we are up to one bank for every 16,000 people. The involvement of industry, of local authorities and of the individual in that activity is typical of the co-ordinated approach we need to encourage.
Your Lordships may be interested to know that when I recently visited K89 —an international plastics exhibition in Dusseldorf —I met with representatives of the British plastics industry. They assured me that recycling is at the very top of the industry's environmental agenda. That is why, for example, it is such an active participant in collaborative initiatives such as the recycling city experiment in Sheffield to which the noble Lord, Lord Ezra, referred.
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The United Kingdom has a recycling record for many materials and products which is second to none, and of which we can rightly be proud. Last year, for example, it is estimated that the UK reclamation industry recovered almost 27 million tonnes of re-usable material from the waste stream, with a value of some £2 billion. All those involved are to be congratulated. Their contribution to raw material and energy savings, to the balance of payments and to environmental improvement was considerable. But the Government recognise, as many have said tonight, that much more needs to be done, especially in the area of collection and recycling of household waste, where our record is not as good as that claimed by some of our European neighbours. There are several reasons.
One is that the United Kingdom is one of the few European countries having widely available and relatively low-cost landfill sites. Some European countries turned to recycling earlier than we did because they were faced with very expensive disposal options such as incineration. Recycling was economically attractive as well as being environmentally beneficial. Another reason is that "green consumerism" has been slower to develop here than in some other countries. Only in the past year or so has there been much consumer demand for less environmentally-damaging products —recycled paper for writing is an example. Without a secure demand, companies have been reluctant to invest in the equipment to process recycled materials into end products.
Much is now changing. There will now be a strong natural push towards greater recycling because landfill costs will continue to rise sharply and because individuals are increasingly willing to express their environmental concern through the pattern of their spending. But the Government have also stated their commitment strongly to encouraging the further development of recycling as a central plank of a more comprehensive approach to environmental issues.
In May of this year my noble friend the then Secretary of State launched an innovative and co-ordinated DTI environmental programme. Among other measures, the programme included the establishment of a DTI environmental inquiry point at Warren Spring laboratory so that business and local authorities with questions on environmental issues—including recycling—can telephone free of charge for advice and guidance. The department's Enterprise Initiative was also extended to provide financial support to companies which need to bring in outside consultants to help them come to grips with environmental challenges and opportunities.
A further initiative was the establishment of a new business and the environment unit within the DTI. Officials from that unit are participating in numerous conferences, workshops, seminars and exhibitions to get the environmental message—and in particular the recycling message—across to business and to assess more clearly the different routes to effective recycling. They are focusing on products which offer particular challenges for recycling, such as CFCs in refrigerators, recycled paper, batteries, plastics, and tyres, and on issues

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such as designing products to improve their recyclability. They are also collaborating in the preparation of new education packs aimed at primary and secondary school children and designed for incorporation into the new national curriculum. The unit is also negotiating in Brussels on several EC directives which have recycling implications.
In recent weeks the DTI has brought together an advisory group to help develop a co-ordinated national approach to recycling and to consider ways of boosting recycling from household waste. That group, drawn from business, government, local authorities and voluntary organisations, has begun by concentrating upon why more of such valuable materials as glass, paper, cans and plastics are not being economically recycled now. My right honourable friend the Secretary of State for the Environment recently stated that the United Kingdom should set itself the goal of recycling 50 per cent. of the recyclables —with apologies to the noble Lord, Lord McIntosh —in household waste by the year 2000. The advisory group will be considering ways of achieving such an ambitious target. Success would make us the international leader in that area.
The noble Lord, Lord Ezra, is a member of that advisory group and I feel sure that his very great experience of these matters will be invaluable to the group's deliberations. Ministers will certainly place great weight upon his remarks this evening in opening the debate.
I hope that your Lordships will agree that this is a very ambitious programme of government activity, and that the focus upon reclamation and recycling is appropriate. I am convinced that the climate has never been better for real progress to be made in improving the United Kingdom's performance. There is an encouraging willingness being shown by large numbers of the public to contribute in some way to protecting and preserving the environment, and the extraction and collection of valuable material from the domestic waste stream is one direct means of demonstrating that concern. It is up the Government, industry and all concerned at local and regional level to help facilitate the process.
We have heard this evening of a variety of proposals for achieving higher recycling rates. They will all be taken into account by Ministers when deciding upon the way forward. However, I should sound a cautionary note. Recycling is not an end in itself. It is only one means of conserving resources and achieving environmental improvement. That is especially relevant when addressing the kind of mandatory measures that some are pressing to see introduced. Several other countries have indeed legislated for materials to be collected; others have suggested mandatory deposits on various recyclable products. The result has been that they now have mountains of paper, plastics, metals and other materials that nobody wishes to buy. Recycling is about more than just collecting recyclable products and materials —they have to be separated, graded and processed to remove contaminants and the recycled materials used to manufacture new products
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for which there is a customer prepared to pay a realistic price.
The introduction of short-term or blanket measures or incentives into this chain of activity could disrupt the fine balance between supply and demand of virgin and recycled materials which is sustained by market forces. Any interference in this balanced mechanism —either centrally or via local authorities —should, in the Government's view, only be contemplated if a significant market failure needs to be corrected in the wider interest or perhaps to secure a specific objective. That said, however, there should now be greater recognition of the savings available to local authorities by the removal through recycling programmes of quantities of materials from the waste stream. I hope that forthcoming legislation will address that issue.
Perhaps I may turn now to some of the points that have been made during the course of the debate this evening. The noble Lord, Lord Ezra, suggested that DoE and DTI responsibilities should be brought together. I can assure the noble Lord that close rapport between the two departments already exists. However, it is logical that DoE with its regulatory and local authority responsibilities —which include waste disposal —should have a role distinct from that of the DTI with its market responsibilities and close involvement with the business community.
The noble Lord also asked about waste treatment priorities. I agree with the noble Lord that waste treatment priorities, particularly minimising waste, are critical. The DTI is co-sponsoring with the CBI a conference on the issue next Wednesday.
The noble Lord, Lord St. John of Bletso, asked about paper recycling and that subject was also mentioned by the noble Lord, Lord Addington. More than half the paper manufactured in this country last year was made from reclaimed waste paper. Only two countries in the world achieved a better performance, so perhaps the problem is not quite as black as noble Lords have suggested.
The noble Lords, Lord St. John and Lord Addington, referred to problems with landfilling. I was sorry to hear about the noble Lord's problems with his rugby pitch. The government view is that when properly managed and operated landfill is an effective method of waste disposal. It can be beneficial and an increasing volume of landfill gas is being tapped and used for heating in industry.
The noble Lord, Lord Hooson, asked me about the quantities of paper collected in the Palace of Westminster. I understand that all the salvageable waste paper collected from the Palace of Westminster goes for recycling. I was somewhat surprised to learn that the amounts involved average no fewer than 2 tonnes a day and on a high day —which may well be today —are as high as 4 tonnes a day.
Reference was made too to the current glut of collected newspaper and its relation to imports of waste paper from North America. We are concerned at the present glut. The noble Lord, Lord Hooson, was right to point out that some charities are not able to collect waste paper nowadays because of the low price that it commands. However, the

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Government believe that that glut is restricted to newspapers and magazines and is a continuation of the traditional cycles in that sector. There is no evidence to substantiate the claim that imports of subsidised waste paper are having a significant effect in that area. I am told that there are already signs of an improvement in the situation. In the longer term, expansion of the United Kingdom paper-making capacity should absorb all the waste paper collected by voluntary groups. I am told that demand for most other grades of waste paper remains strong.
As I said, the Government are anxious to encourage recycling on every front. I note too the comments of the noble Lord, Lord Ezra, about the difficult definition of waste issue. I understand that officials in the Department of Trade and Industry and in the Department of the Environment are shortly due to meet representatives of the reclamation industry to discuss further this vexed question. I agree that it would be most unfortunate if licensing procedures were to have an adverse effect on reclamation and recycling in the United Kingdom and we shall certainly seek to ensure that that does not happen.
This has been a timely and interesting debate, giving noble Lords the opportunity to express views on this important matter. The Government are working towards a coherent approach to recycling which will sustain long-term improvements over the levels currently being reached. The issues are complex and we do not seek quick-fix solutions which will ultimately do more harm than good. However, we must not forget that it is business, not government, which will create the wealth to pay for a better environment and that the drive and
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innovation of business will be needed to achieve the higher recycling rates which we all wish to see, as will the efforts of individuals and voluntary groups.
The government programme which I have described this evening is designed to complement the work of others engaged in recycling. We all share the same objective —to achieve much higher levels of recycling from industrial and household waste. I am confident that significant progress will be made during the coming years.

Opticians Bill [H.L.]
Returned from the Commons agreed to.
Prisons (Scotland) Bill [H.L.]
Returned from the Commons agreed to.
Statute Law (Repeals) Bill [H.L.]
Returned from the Commons agreed to.

International Westminster Bank Bill
Returned from the Commons with the amendments agreed to.
House adjourned at twenty-seven minutes before seven o'clock.