HL Deb 24 January 1994 vol 551 cc855-8

5.50 p.m.

Lord Henley rose to move, That the draft order laid before the House on 8th December be approved [3rd Report from the Joint Committee 1993–94].

The noble Lord said: My Lords, I beg to move the Motion standing in my name on the Order Paper. The order is required to enable the insider dealing legislation contained within the Criminal Justice Act 1993—which repeals and restates the law on insider dealing—to be brought into force. The Government plan to commence the Act's insider dealing provisions on 1st March. Noble Lords will know that during the passage of the Criminal Justice Act the House considered at length the broad question of how to prevent insider dealing. It is not the function of the order to address this question. Instead, the issues with which it deals are much more specific, and I intend to confine my remarks to them during the course of this debate.

The order has three functions. First, it specifies the securities to which the Criminal Justice Act is to apply. The effect of the order is to apply the law to securities which are "market" related, reflecting the fact that the legislation is designed to protect the integrity of the market in its broadest sense.

The second function of the order is to specify what is meant by the term "regulated market", which is important for determining whether a transaction in a particular security is covered by the legislation. Transactions in "securities" will be covered if they occur on regulated markets or if they are done off-market in reliance on a professional intermediary. Regulated markets are stock exchanges within the European Economic Area, relevant domestic derivatives exchanges (LIFFE and OMLX) and the Recognised Overseas Investment Exchange (NASDAQ).

Finally, the order specifies what is meant by the term "market regulated in the UK". This is important because it is the Government's intention that all dealing which occurs on securities markets operating within the UK should fall within the ambit of the legislation, regardless of the whereabouts of the dealer. A UK regulated market is any market which is established under the rules of the London Stock Exchange, and LIFFE and OMLX.

The effect of the order, in combination with the Act passed by the House last year, is to provide a sensible reform of our legislation against insider dealing. The new legislation will tighten the law against insider dealing and thus play its part in protecting the integrity of the United Kingdom's financial services industry, to the benefit of the industry, those who use the markets to raise capital, and the investing public.

I commend the order to the House.

Moved, That the draft order laid before the House on 8th December be approved [3rd Report from the Joint Committee 1993–94].—(Lord Henley.)

Lord Peston

My Lords, I thank the Minister for introducing the order. It was debated at some length in the other place and I do not propose to repeat the argument. We all agree that insider dealing is a serious issue and that an order of this kind is an inevitable consequence of the Criminal Justice Act. One hopes that as a consequence what will happen will be precisely what was described by the Minister; that it will make control of insider trading more effective. The questions that one has are not for debate this evening; one is interested in how many more dealers will be caught and prosecuted and how tough the sentencing will be for those who are found guilty. I agree that we cannot talk about the matter in detail tonight but I should like to know how powerful the legislation will be. We on these Benches believe that it must become abundantly obvious that the game of insider dealing is not worth the candle and that it is an activity that should not be risked.

I hope that the legislation will work not only in order to catch the fraudulent traders but also for the sake of the good name of the City of London and for the good name of the overwhelming majority of financial operators who are honest. I echo the Minister in saying that what is involved is the integrity of the financial services industry. If we were debating the matter I should express my fears. However, I hope that the measure will be effective and that we shall read more of people being caught and severely sentenced.

I wish to ask one question about the order. The schedule lists the regulated markets but there appears to be no power to add a new stock exchange. If a new stock market or stock exchange were created would we have to agree a new order adding that to the list? That is a purely hypothetical question because it is unlikely that a new stock exchange will come into existence. However, as the measure does not contain words such as, "and such other stock exchanges as come into existence", will the noble Lord confirm that if that were the case we should have to have a new order?

Lord Taylor of Gryfe

My Lords, I do not propose to pursue a debate about the detail of the order, which was discussed in another place. However, the order enables us to express our anxieties about the effectiveness to date of the insider dealing provisions. I too sincerely hope that it will enhance confidence in the City, which has been shaken a little by some of the recent fraud cases and the relative ineffectiveness of the insider dealing provisions.

The financial services industry is important not only to the City of London but also to the economy of Edinburgh, which is a major financial centre. The City is prosperous only if people have confidence in its integrity. Anything which damages that integrity can affect this important industry. About 2 million people are employed in the financial services industry, whose earnings represent 18 per cent. of our gross domestic product. Let there be no mistake about it; if confidence in the City is in any way undermined, many countries in Europe which are jealous of the efficiency and innovativeness of the City will be pleased to assume some of the responsibilities which are important to our economy.

My noble friend Lord Peston expressed anxiety about the effectiveness of the existing legislation, which we have had since 1980. There has been surveillance by the SIB since that time. The Stock Exchange has referred 104 cases to the criminal courts for prosecution since that time. Twenty-two people have been prosecuted since the beginning. Since 1987, which was a very lively period in mergers and acquisitions, only 17 people were prosecuted in cases referred for prosecution by the Stock Exchange. That must give rise to some anxiety. The recent case of Roger Levitt indicates that the offences that those perpetrators of fraudulent acts are committing are not taken seriously. Account is not taken of the fact that they undermine the integrity of the City of London.

Roger Levitt received a sentence of community service following his prosecution. In the case of Terry Randall, £90 million of fraud was proved. He was not sent to prison as a result of that fraud. Incidentally, it was pointed out in the other place that a poacher in Scotland who had been poaching salmon received a sentence of three months' imprisonment, whereas Terry Randall suffered no serious punishment following a £90 million fraud.

Therefore, I suggest to your Lordships that if we are to pass this order, as I suspect we shall do, the Minister and his department should look seriously at the effectiveness and operation of legislation in connection with insider dealing. It is a crime against the City and is a crime against this country if insider dealing is not dealt with and punished as it should be.

6.2 p.m.

Lord Henley

My Lords, I welcome the support of the noble Lord, Lord Peston, and what I took to be a degree of support from the noble Lord, Lord Taylor. We all support the remarks of the noble Lord, Lord Taylor, in which he said that anything which damages the integrity of the industry could damage its prosperity. We accept that that would be to the detriment of us all.

As my honourable friend the Economic Secretary made clear in the debate in another place, no system will ever be absolutely perfect but it is important to achieve the right balance between the various forms of regulation.

I do not wish to comment on specific criminal charges that have arisen as a result of existing legislation, but I can confirm some of the figures which the noble Lord, Lord Taylor, gave. Since insider dealing was made illegal in 1980, there have been 33 cases, of which 18 have resulted in convictions. The cases involve some 52 individuals, of whom 24 were found guilty. Those figures include a case that was concluded on 17th January—that is, last week.

However, I believe that it is wrong to judge the success of any legislation merely by the number of successful prosecutions. The deterrent effect of both the existing legislation and this order is important. We believe that legislation has played an essential part in convincing people that insider dealing is wrong.

I can give the noble Lord, Lord Taylor, an assurance as regards looking at the effectiveness of the legislation. My right honourable and honourable friends will always bear that in mind and keep it under review for the very reasons which the noble Lord gave. This is a major industry in this country and it brings to it a great deal of prosperity. We believe that it is extremely important that that prosperity should remain within the industry to the benefit of the whole country. Therefore, it is important that we should ensure its continued integrity.

The noble Lord, Lord Peston, asked a specific question about whether we should need a new order if a new stock exchange were to be quoted. Regretfully I must inform him that we should need another order in the unlikely event of another stock exchange being set up. I am sure that the noble Lord would welcome the opportunity to have yet another discussion on an amendment order. Perhaps we should wait until such a situation arises.

I hope that I have reassured both noble Lords. I commend the order to the House.

On Question, Motion agreed to.