§ Lord Henley rose to move, That the draft regulations laid before the House on 10th May be approved [21st Report from the Joint Committee].
§ The noble Lord said: My Lords, I beg to move that the draft Public Offers of Securities Regulations be approved. In moving the regulations I also wish to speak to the Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995. Both measures were laid before the House on 10th May.
§ The two measures are part of a package of regulations which modernises United Kingdom law on public offers of securities and simplifies the law governing the issue of investment advertisements. The package offers a number of benefits. It makes clear what information must be disclosed in a prospectus, it removes some types of offer from prospectus law altogether and it makes it easier and cheaper for United Kingdom issuers to offer securities or gain admission to official listing on stock exchanges in other member states.
§ The overall effect of the measures is the following: first, to bring United Kingdom legislation on public offers of securities in line with the Prospectus Directive; secondly, to revise, extend and consolidate exemptions from controls imposed on the issue of investment advertisements by Section 57 of the Financial Services Act.1719
§ First, let me deal with the alignment with the Prospectus Directive which will change the present position in five ways. First, for offers to the public of listed securities falling within the scope of the Prospectus Directive, the person offering the securities must publish a prospectus rather than listing particulars. The key benefit from that will be that prospectuses which have received Stock Exchange approval will be able to be used in other member states, both for public offers under the mutual recognition provisions of the Prospectus Directive and for official listing under the equivalent provisions of the Listing Particulars Directive. The change will also mean that when the person offering the securities is not the issuer, the offeror will become responsible for the prospectus alongside the issuer.
§ The second major change will be to make offers to the public of unlisted securities subject to Part II of the regulations and the contents requirements of Schedule 1. That will mean that issuers and their advisers will know precisely what information they must provide in a prospectus.
§ Thirdly, Part IV of the Financial Services Act will be amended to allow a prospectus for an offer of unlisted securities to be drawn up in accordance with the listing rules of the Stock Exchange and submitted to the exchange for approval. That will enable unlisted securities to benefit from the mutual recognition provisions of the Prospectus Directive and the Listing Particulars Directive.
§ Fourthly, the regulations will ensure that prospectuses prepared in connection with a public offer in another member state will, if approved by the competent authorities in that state, be recognised in the United Kingdom.
§ Finally, the regulations will ensure that those offers of securities currently covered by Part III of the Companies Act which fall outside the scope of the directive will be subject to Section 57 of the Financial Services Act. That requires investment advertisements either to be published by a person authorised under the Financial Services Act to carry on investment business, or to be approved by such a person before publication.
§ I turn now to exemptions from Section 57. This second part of the package will consolidate and extend the exemptions from Section 57 of the Financial Services Act made under Section 58(3) of the Act. It will also make some minor amendments to those provisions necessary to take account of the repeal of Part V of the Financial Services Act by the Public Offers of Securities Regulations. In addition, Article 14 of this order introduces a new exemption from the Section 57 approval procedure in three separate but related cases. The first and second of these, relating to prospectuses issued in accordance with Part II of the Public Offers of Securities Regulations and certain advertisements announcing the availability of such prospectuses, will simply carry forward into the new regime the existing exemptions for prospectuses issued under Part III of the Companies Act and for advertisements concerning prospectuses covered by Part V of the Financial Services Act.
§ The effect of the third exemption, relating to documents required for admission to trading on markets operated by exchanges in member states, is to exempt 1720 from the Section 57 approval requirement admission documents required for the new Alternative Investment Market in cases where there is no associated offer of the securities to the public.
§ Taken together, the package of regulations secures a number of benefits. It modernises and clarifies the existing law and ensures that the UK has a body of coherent and comprehensible legislation governing public offers of securities. It enhances investor protection by imposing a general duty on those offering unlisted securities to disclose all material information; it is deregulatory in removing certain types of offer from the requirements of prospectus law; and finally it enables United Kingdom issuers of securities to take advantage of the mutual recognition provisions of the Prospectus and Listing Particulars Directives. We believe these regulations have the support of United Kingdom industry, the City and the stock markets. I commend the orders to your Lordships and I beg to move.
§ Moved, That the draft Regulations laid before the House on 10th May be approved [21st Report from the Joint Committee].—(Lord Henley.)
§ Lord Eatwell
My Lords, I am most grateful to the noble Lord, Lord Henley, for introducing these regulations with such clarity. I wish to address myself to the two particular documents in order, and deal first with the Public Offers of Securities Regulations 1995, which in particular establishes the responsibilities of those who would offer unlisted securities to the public. As such, as the noble Lord pointed out, these regulations are designed to ensure that, among other things, a potential purchaser of unlisted securities, other than a number of specific exceptions, receives all the relevant commercial intelligence known to the issuer and required for the prospective purchaser to make an informed commercial judgment as to the value of the securities.
I should like to illustrate, if I may, the characteristics of the relevant commercial intelligence set out in the regulations, and then to reflect upon them. Consider, for example, Regulation 9. It says:a prospectus shall … contain all such information as investors would reasonably require, and reasonably expect to find there, for the purpose of making an informed assessment of the assets and liabilities, financial position, profits and losses and prospects of the issuer of the securities …
Regulation 10 says that where:there is a significant change affecting any matter contained in the prospectus
ora significant new matter arises the inclusion of information in respect of which would have been so required if it had arisen when the prospectus was preparedthe offerer shall publish a supplementary prospectus.
Regulation 11 says that there are some exceptions to this that the Treasury may authorise when the Treasury feels that the omission from the prospectus or a supplementary prospectus of some information is "contrary to the public interest".
Then we are told in Regulation 14 that if these regulations have not been followed and the prospectus does not contain the information which investors might reasonably be expected to be given, then the person or persons responsible for a prospectus or supplementary 1721 prospectus shall be required to pay compensation to any person who has acquired the securities to which the prospectus relates, and suffers a loss in respect of them. The person who fails to comply with Regulation 10—that is the one about all the extra information—shall be liable to pay compensation to any person who has acquired any of the securities in question and suffered a loss in respect of them.
This is entirely desirable. It is quite appropriate that those who issue prospectuses should be expected to issue all the information to prospective purchasers, and if extra information arises they should provide that too. But it is impossible to read these regulations without reflecting on the conduct of Her Majesty's Government in the sale of the remaining shares in National Power and PowerGen. While it would be inappropriate to debate that matter this evening, I believe it is incumbent upon the Minister to explain to the House why the Government believe that these regulations are appropriate and yet do not maintain such standards themselves. Or, if he believes that such standards are maintained by Her Majesty's Government, why in the case of the National Power and PowerGen issues do the Government claim Crown immunity with respect to compensation to those who have suffered major losses as a result of the failure of Her Majesty's Government disclose information to which they had prior access?
I turn now to the Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995. As the Minister pointed out, it is vital for the successful and honest operation of the securities market that advertisements relating to investments should comply with required standards. I am therefore particularly disturbed by some of the exemptions granted in this order. For example, would the Minister explain to the House why investment advertisements issued for the purpose of promoting or encouraging industrial or commercial activity or enterprise are exempt? While the order makes clear that the body corporate that issues such an advertisement should have no direct or indirect pecuniary interest, I can see no reason why such an advertisement should not be seriously misleading to the public and a proper subject for the Act. And I do not see that the attachment of a health warning to an advertisement is sufficient to protect the public. And of course this order does not apply to an advertisement that applies to the issuing of a prospectus, which brings us neatly in a circle to the questions I have already raised about prospectuses.
Finally, in my view the explanatory notes which are attached to these measures are entirely inadequate, and are designed to obscure rather than to inform. It is entirely wrong that Parliament should be asked to consider such important documents without proper explanation being offered by the Government of their full implications. I hope that the Minister can give the House an assurance that in future the Treasury will be less irresponsible.
§ 8.15 p.m.
§ Lord Henley
My Lords, I reject the allegations that the Treasury has been irresponsible in these matters. These matters have been discussed in considerable detail 1722 with all relevant bodies and, as I made clear in my concluding remarks, they have had general support from United Kingdom industry, from the City, from the stock markets and indeed from all those concerned.
Perhaps I may deal very briefly with some of the points made by the noble Lord about the regulations and particularly about his allegation that we did not comply with the regulations ourselves. I utterly reject the allegation that we did not operate appropriate standards when it came to the sale of shares in PowerGen and National Power. As the noble Lord will be aware, this was the subject of a Statement made by my right honourable friend the Financial Secretary to the Treasury only last Friday. As the noble Lord will also be aware, it is the subject of a Question which is to be asked by, I believe, his noble friend Lord Haskel on Thursday of this week. I will address that matter on that occasion.
As my right honourable friend the Financial Secretary made quite clear in his Statement, the Treasury will take the work forward and respond in substance to the Stock Exchange in due course. The Treasury will examine the allegations that have been made. He also went on to say that since the exchange of letters there has been a great deal of misinformed, inaccurate and hysterical comment. He then went on to clarify those particular issues. It would not be right, as I think the noble Lord made clear, for me on this occasion to elaborate or to respond in detail to these points, because they were all dealt with by my right honourable friend the Financial Secretary on that occasion.
As regards the noble Lord's queries about the list of specific exemptions in the second set of regulations, those relating to the Financial Services Act 1986 (Investment Advertisements) (Exemptions) (No. 2) Order 1995, if I may, I would prefer to respond to those in writing with appropriate speed. I hope that those explanations, brief though they are, are satisfactory to the noble Lord and I hope that—I did not hear him say so—since these regulations have been welcomed by practically everyone else and, so far as I know by the Party to which the noble Lord belongs, on this occasion he will welcome these particular regulations.
§ Lord Eatwell
My Lords, before the Minister sits down, perhaps I should clarify the point I made at the end of my remarks about the explanatory notes. I did not suggest that the Government had not consulted with relevant parties concerning these regulations. I suggested that the explanations which are attached to the measures are inadequate for Parliament to have the opportunity to consider their full import. I really believe that if we are to give proper consideration to complex financial regulations it is incumbent upon Her Majesty's Government, and particularly upon the Treasury, to offer clearer, more extensive and certainly more informative explanatory notes prior to their consideration. Having said that, I agree with the noble Lord that, broadly, these regulations are desirable, subject to the questions that I have asked. I am grateful that the noble Lord will write to me concerning the issue of exemptions. There, I rest my case.
§ Lord Henley
Before the noble Lord rests his case, perhaps I may make just a couple of points about the explanatory notes. In my experience of orders—and I 1723 have moved a certain number in my time—the notes to these are fairly full and detailed. I appreciate the point that the noble Lord makes that these are particularly complicated sets of regulations.
Having said that in my view the explanatory notes are lengthy and quite detailed—compared with past regulations, as the noble Lord will see, at well over a page, they are quite long—I will pass the comments on to those who are concerned with these matters. I am sure that they will take note of the noble Lord's point. However, I am sure that someone of the noble Lord's eminence will have had little problem in understanding them. I commend the regulations to the House.
§ On Question, Motion agreed to.