HL Deb 04 February 1991 vol 525 cc968-72

7.4 p.m.

Viscount Astor

rose to move, That the draft order laid before the House on 19th December 1990 be approved [7th Report from the Joint Committee].

The noble Viscount said: My Lords, the purpose of the draft order before the House is to transfer to the Securities and Investments Board certain functions. The functions referred to in the order are those relating to an important civil remedy to protect the interests of investors.

The Financial Services Act was brought in by this Government in 1986 to provide a comprehensive framework of investor protection. The Act gives the Secretary of State powers to authorise and regulate the carrying on of investment business. However, the Act allows most of the Secretary of State's powers and functions to be transferred to a designated agency, if it appears to him that the designated agency is willing and able to discharge them and that certain other criteria are met. The majority of the powers and functions in question have now been transferred to the Securities and Investments Board which was set up for that purpose.

Section 61 of the Act allows the Secretary of State to apply to court for restitution orders against a person who has made profits, or caused investors to lose money, where this is the result of his contravening the conduct of business provisions in Chapter V of Part I of the Act.

Under subsections (4) and (5) of Section 61, the court may order the person concerned to pay a sum of money which appears to the court to be just, having regard to the loss suffered or profit made. The money may be paid into court or to the applicant for the order, or the court may appoint a receiver to recover it.

Subsections (6) and (7) make provision as to how the money is to be distributed. The Secretary of State's functions in relation to restitution orders were largely transferred to SIB in May 1987, although the Secretary of State has retained the right to exercise the powers concurrently.

SIB's exercise of the restitution functions in relation to contraventions mentioned in Section 61 is subject to the limitation that they cannot be exercised against a person who neither is nor ever has been an authorised person or an appointed representative under the Act. Such persons may however contravene the relevant provisions.

SIB have now indicated that they would find it valuable also to be able to exercise these functions against persons who are not or never have been authorised.

The Government believe that augmenting SIB's powers in this way is in the interests of investors and of effective regulation. Article 3 of the draft order now before the House therefore has the effect of transferring functions under Section 61(3) of the Act in relation to such persons, subject to the functions continuing to be exercisable concurrently by the Secretary of State.

However the effect of Article 3(2) of the draft order is not to transfer these functions in relation to the Society of Lloyd's and Lloyd's underwriters in so far as they are exempt from authorisation by virtue of Section 42 of the Act. This reflects the findings of the Neill Committee that Lloyd's should not be accountable to SIB and that SIB should not exercise any power over Lloyd's. I beg to move.

Moved, That the draft order laid before the House on 19th December 1990 be approved [7th Report from the Joint Committee].—(Viscount Astor.)

Lord Williams of Elvel

My Lords, the House will be grateful to the noble Viscount for introducing this order. I am glad to see that I am speaking to the usual full House when it comes to financial services orders! Indeed, I am glad to see that the noble Lords sitting on my right, the Liberals and Social Democrats as I understand them to be, will be contributing to this debate.

My reaction to the noble Viscount's introduction is that I have no problem at all with the substance of the order. Indeed, the only problem I have is that perhaps the order should have been introduced a little earlier than it has been. My problems relate to the primary legislation. I accept that the noble Viscount was not responsible for the primary legislation. But there are some difficulties under Section 114 of the Financial Services Act. The noble Viscount said that his Government were responsible for introducing that Act. That is true. But he would have done better to consider rather more carefully the drafting of some of the clauses of the Bill when it was before your Lordships' House and then we would not be faced with the rather extraordinary things we have this evening.

I itemise the extraordinary things as follows. First, there appears to be no time limit imposed on the laying of this order. This order is subordinate legislation under Section 144(1), but that imposes no time limit at all. I do not quite understand how markets can operate if delegation orders of this nature are going to be laid by secretaries of state with no particular time limit upon them. We frequently find in legislation a time limit of 28 days from the time the order is laid, and if it is not passed by a Motion of both Houses, it lapses.

These are very market-sensitive orders, and it is very odd that the primary legislation does not impose a time limit. The Secretary of State can lay an order now and for the next 12 months, 18 months, two years, five years, or three millennia, it can remain on the table. The market perceives that the Government wish to do something, but the Houses of Parliament have not determined whether that should be done. That seems to be a very odd defect in the primary legislation.

The second difficulty is that this order clearly does not fall under Section 114(9) of the Act because it is not an order which requires the SIB to make rules and regulations. That we understand. But subsection (10) of the section that I have just quoted is a catch-all section which states that: The Secretary of State shall also before making a delegation order transferring any functions"— and these come under "any functions"— to a designated agency"— which in this case is the SIB— require it to furnish him with a copy of any guidance intended to have continuing effect which it proposes to issue in writing or other legible form and the Secretary of State may take any such guidance into account in determining whether he is satisfied as mentioned in subsection (9) (b) above". So subsection (10) refers back to subsection (9) and particularly to paragraph (b).

I understand from the preamble to the order that: The Securities and Investments Board is not proposing to issue, in writing or other legible form, any guidance intended to have continuing effect". I ask myself—and the noble Viscount—under these circumstances what is "is not proposing"? It may not propose to do so now. It is now Monday; suppose that the order goes into effect on Wednesday, because it has gone through another place. What happens if it issues guidance on Thursday? Is that something of which the Secretary of State should be advised? Should the House be advised of it? What is the treatment of that?

Let us suppose that the Securities and Investments Board says to the Secretary of State, "We do not propose to issue any guidance whatsoever on this for all time". Is the Secretary of State then required to give an opinion? Does he have any opinion on whether the order as promulgated by his office—and presumably passed tonight by your Lordships—is in the interests that are specified in subsection (9) (b) of Section 114 of the Financial Services Act; that is to say, that it, will afford investors an adequate level of protection"? In the event of a non-issue of guidance at all does the Secretary of State have to be persuaded that investors are thereby properly protected?

I accept that the noble Viscount may not be able to answer all the queries that I have raised because they are comments on the primary legislation. However, I impress on him that a delegation order—an order delegating the powers of a Secretary of State to a governmental body (in this case, the Securities and Investments Board)—is an important order. It is not an order under social security regulations simply uplifting this rate or that. It is an important order and something to which the markets have to pay attention. I should be grateful if the noble Viscount could respond to my questions.

Viscount Astor

My Lords, I think I am right in saying that the noble Lord, Lord Williams, basically welcomes the draft order as laid before the House and therefore does not expect me to answer every technical question that he raised, particularly when it relates to the primary legislation. I explained with regard to time limits that that is not a new power but a transfer to the SIB of existing powers which are exercised by the Secretary of State and so the Secretary of State retains the right to act.

Lord Williams of Elvel

My Lords, I am sorry to have to intervene. I did not wish to do so. However, I understand that these are delegated powers. The Secretary of State already has these powers and he proposes to delegate them to the SIB. I understand that fully. But at what point are we to know that the Secretary of State in fact delegates those powers? Can he lay an order now, to lie on the table for two, three, four or five years? I said that it might be a millennium, but I exaggerated a little. In very simple terms, the market needs to know whether the SIB or the DTI will

Viscount Astor

My Lords, I shall try to answer that point in a moment. Perhaps I should just say that the SIB has requested a transfer of these powers. We do not think that any further powers will necessarily be transferred. With regard to the noble Lord's particular point, this order may be cited as the Financial Services Act 1986 (Delegation) Order 1991 and shall come into force on the day after the day on which it is made. I hope that that answers the noble Lord's point. I shall read very carefully any technical points that he made and I shall write to him.

Lord Williams of Elvel

My Lords, I am sorry to interject again but can the noble Viscount tell me when the order will be made?

Viscount Astor

My Lords, I believe that we are laying the draft order before the House. I am not sure that I can say when it will come into force. I might have to look at various papers. Obviously I understand the noble Lord's concern. It is a quickly changing world and business needs to know. My noble friend says, "When the Secretary of State says so". I think I can say no more than that that is the answer. I shall certainly look into that point and let the noble Lord know as soon as possible.

On Question, Motion agreed to.

Viscount Astor

My Lords, I beg to move that the House do now adjourn during pleasure.

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

[The Sitting was suspended from 7.17 to 8 p.m.]