HL Deb 18 April 2000 vol 612 cc611-39

(".— (1) If the Authority proposes to cancel an authorised person's Part IV permission otherwise than at his request, it must give him a warning notice. (2) If the Authority decides to cancel art authorised person's Part IV permission otherwise than at his request, it must give him a decision notice.").

The noble Lord said: My Lords, I beg to move Amendment No. 108, and Amendments Nos. 109 to 110 en bloc.

Lord Kingsland

My Lords, once again I find myself shut out from responding to a large number of government amendments. I shall not protest, formally, but the House ought to allow the Opposition to respond to a large number of detailed amendments to which my noble friend Lord Jenkin has referred. I am obliged to the Minister for indicating that he will allow me to do so. The Minister smirks and sniggers.

Lord McIntosh of Haringey

My Lords, after the noble Lords, Lord Jenkin and Lord Peyton, had spoken, I paused, I looked around, and I waited to see whether anyone else wanted to intervene before I responded to the debate. Fortunately, the noble Lord is entirely within his rights to speak to the Question that is now before the House. I shall endeavour to respond as best I can, both in relation to the amendments that are before the House and to other amendments in the group.

Lord Kingsland

My Lords, I am much obliged. First, I want to deal with the amendments to Clause 50. Amendment No. 107 deletes subsection (4) which relates to the determination of an application for permission, and limits the simple written notice to where the application is granted. In other words, it is a fast-track procedure. However, new subsections (6) to (9) bring in the warning and decision notice procedures in those cases where the authority gives a Part IV permission but imposes limitations or requirements on it.

We asked for this provision in another place and we are extremely pleased to see it on the face of the Bill. There is, however, one small point that we wish to raise with respect to it. The new subsection (6)(a) applies the warning notice procedures to the exercise by the authority of its powers under Clause 40(7)(a) and (b). Clause 40(7)(b) allows the authority to specify either a narrower or a wider description of regulated activity than was asked for. Where it is a narrower description, obviously the application has not been granted in full; therefore, the warning and decision notice procedures should be gone through. However, a wider description means that the applicant will be able to do more regulated activities than he applied for, and this can only be to his benefit.

We think that the specifying of a wider description should be treated in the same way as the giving of permission for a regulated activity which was not included among those asked for in the application. Accordingly, we think that in the new subsection (6)(a), after "or (b)" there should be inserted the expression, "in relation to specifying a narrow description". If that is done, the same amendment needs to be made in subsection (9)(a).

Perhaps I may make one small point on the new subsection (4). The noble Lord and his team may have picked it up already. I think it is clear that in the first line the word "the" should be inserted after the expression "or for".

So far as concerns Clause 51 and the two new clauses after it, Clause 51 is deleted, as I understand it, because it is covered by the amended Clause 50. There is then a new clause which sets out the procedures for the exercise by the authority of its own initiative power to vary Part IV permissions.

That is fine as far as it goes, but I humbly suggest two improvements. First, the authorised person whose Part IV permission is being varied should be allowed to see the evidence causing the authority to vary it. Otherwise, the whole situation is somewhat Kafkaesque in that, although the authorised person will know why the authority wants the variation, he will not know the evidence that has caused the authority to want it—so that he can, if he wishes, rebut it. Given that the authority is trying hard to be transparent, that evidence should be given to him. Therefore, although there is no warning or decision notice, it should be covered by Clause 389 concerning access to authority material. Clause 387, which lists the sections to which Clause 389 applies, should be amended appropriately.

Secondly, the period given to the authorised person to make representation should be reasonable. Therefore, I suggest that in the second line of the new subsection (5)(c), after "within such", the word "reasonable" should be inserted.

The second new clause, inserted after Clause 51, which applies to cancellation of permissions, is welcome, as it brings in all the normal disciplinary-type protections including access to authority evidence. The deletion of Clauses 52 and 53 is welcome. They have been replaced by the two new clauses after Clause 51.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord for his observations and, indeed, for his general welcome, which I believe I can infer from his specific objections. If those are the only objections he has, we are doing quite well.

On the issue of giving a Part IV permission to exercise power under Clause 40(7)(a) or (b), the noble Lord, Lord Kingsland, is right. Clause 40(7)(b) does provide for a narrower or wider description of regulated activity. I shall look into the question he raises as to whether "wider" would be inappropriate and I shall write to him on the point. If it seems necessary, I shall make such amendments as may be required.

As to Amendment No. 109, the noble Lord asks that under subsection (5) the notice should give evidence of the reasons for the variation. Subsection (5)(a) already provides that the notice should give details of the variation. Subsection (5)(b) provides that the notice should, state the Authority's reasons for the variation and for its determination as to when the variation takes effect". "Reasons for the variation" does not apply only to when the variation takes effect but the variation as a whole. I would have thought that it was rather difficult to provide detailed reasons without giving evidence. But if there is anything more in "evidence" than I believe is already provided for I shall look into the matter. My immediate judgment is that there is not.

The noble Lord also referred to subsection (5)(c) in Amendment No. 109. He suggested that the representation should be made to the authority within such reasonable period as might be specified. We had a debate in Committee on "reasonable". If anything, there are perhaps far too many "reasonables" in the Bill. I believe that here "reasonable" can be inferred. The noble Lord suggested that the variation of permission should be subject to Clause 389, which is concerned with access to FSA material. We have made generous provision as to access to material which goes beyond anything that exists currently. It would be inappropriate to extend this to supervisory decisions and, therefore, make supervision far too bureaucratic and litigious. With those responses to the specific points, to which I shall add if there is anything further that I can usefully say, I beg to move that Amendments Nos. 108 to 110 be agreed to.

On Question, amendments agreed to.

Clause 52 [Procedure on exercise of the Authority's own-initiative power]:

[Amendment No. 110A not moved.]

Lord McIntosh of Haringey

moved Amendments Nos. 111 and 112: Leave out Clause 52. Leave out Clause 53. On Question, amendments agreed to.

Clause 55 [Prohibition orders]:

Lord Kingsland

moved Amendment No. 112A: Page 25, line 11, at end insert— ("(4A) In proceedings for an offence under subsection (4) it is a defence for the accused to show that he took all reasonable precautions and exercised all due diligence to avoid committing the offence. "). The noble Lord said: My Lords, in moving Amendment No. 112A I should like to speak also to Amendments Nos. 112B, 114A and 115D. Clause 55 permits the authority to prohibit an individual from acting in a designated capacity in an authorised firm. Subsection (4) provides that an individual who acts in breach of a prohibition order is guilty of an offence. The purpose of the first amendment in the group is simply to provide the individual with a defence similar to that available in an action for breach of the general prohibition or the restrictions on financial promotion.

Subsection (5) provides that an authorised person must take reasonable care to ensure that none of his functions is performed by a prohibited person. The requirement to take reasonable care was inserted at Committee stage; prior to that, it was an absolute obligation. The amendment provides that where an authorised person contracts with another authorised person, who himself engages a prohibited person, the first authorised person will not be liable in stated circumstances.

I am assured that, in the securities and unit trust industries, it is quite common for an authorised firm to delegate fund management or settlement to another authorised firm. I understand that there is no practicable way in which the first firm can ensure that its authorised contractor observes the requirement. Therefore, it is reasonable for the first person to be able to rely on the second, who is also an authorised person, promising to perform the task.

Clause 58(1) requires an authorised person to take reasonable care to ensure that, when necessary, all of his staff are individually approved. Subsection (2) goes further and requires authorised firms to take reasonable care to ensure that all of their contractors' staff are duly authorised when required. Again, "take reasonable care" was inserted in Committee.

This is still a particularly onerous requirement. Firms would find it most helpful to receive some guidance on what is meant by "reasonable care"—hence the amendment. The amendment provides that, where the contracting firm is itself authorised, the duty is discharged where it undertakes in the out-sourcing contract to ensure that those of its staff who require individual approval are indeed approved.

Clause 65 empowers the authority to take disciplinary action against an individual who fails to comply with a statement of principle, or is knowingly concerned in a breach of rules by his employer or similar person. As mentioned already in relation to Clause 60, it would be easy for an individual to breach a principle and thus be guilty of misconduct. The purpose of this amendment is to provide the approved person with a defence that he took all reasonable precautions and exercised due diligence. This is the same defence as is available in relation to a breach of the general prohibition or a breach of the restrictions on financial promotion. I beg to move.

6.15 p.m.

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord, Lord Kingsland, for speaking to this group of amendments. I say immediately that some of the amendments cause us problems for one reason or another. However, this debate gives me an opportunity to explain what is required by the relevant provisions of Clauses 55, 58 and 65 which I hope noble Lords will find helpful. I said that some of the amendments 'were problematic. The noble Lord will be pleased to know that the first one is not one of them. That amendment would give an individual a statutory defence if he performed functions for an authorised or exempt person in contravention of a prohibition order. The wording of the amendment mirrors that in use in certain other statutory defences under the Bill, for example in Clause 21(3). It is important that a person should not be convicted of an offence where he has done what he can to avoid committing it. This amendment has that effect, and its drafting is without fault. I am pleased to accept it.

I turn to Amendments Nos. 112B and 114A which set out certain circumstances in which an authorised person is to be deemed to have taken reasonable care to ensure that persons subject to a prohibition order under Clause 55 do not perform functions on his behalf. I am not attracted to including such express provisions on the face of the Bill. What amounts to "reasonable care" will depend on all the circumstances of the case. The test, which is well established and understood, is simple enough and there is no need to define "reasonable care". I believe that it is fair enough to ask authorised persons to exercise such care to ensure that persons who are subject to a prohibition order are not employed by them. In any event, it is not clear to me that the cases set out in the amendments would always amount to the required standard; they might or might not. It would depend on the facts of the case. The extended definitions which would be imported by Amendments Nos. 112B and 114A might well fall short of what constituted reasonable care in any particular case. I do not think that it is right to provide that authorised persons should be able always to delegate their responsibilities in those particular cases in the way that the amendments allow.

Turning to Amendment No. 115D in Clause 65, this deals with breaches of the legislative provisions made by the authority under this part of the Bill. For convenience, I shall refer generally just to rules, but what I say here applies to other legislative instruments made by the FSA, including statements of principle under Clause 63(1). The same logic does not apply to the breach of a rule as it does to the commission of an offence. To be guilty of an offence carries a certain stigma. I do not for one moment condone breaches of the rules, but the reality is that they will occur more frequently and will not necessarily give grounds for criticism or discipline.

One of the underlying purposes of this Bill is to secure that consumers are protected, and that is what the disciplinary provisions under the Bill are designed to achieve. Any disciplining of authorised or approved persons is simply a means of securing that that end is achieved. For example, an authorised person may breach regulatory requirements that apply to him through no fault of his own. An approved person under this part may have been involved in the breach. In certain circumstances, the FSA's response may well be not to take disciplinary action against anyone, but instead it may decide to use its powers to help to rectify the problem. In our view, in a rule breach of that kind, it is immaterial whether the person took steps to avoid committing the rule breach; it happened and remedial action is required.

On the other hand, there will be times when the nature of the breach would suggest some kind of misconduct. I do not believe that it is particularly helpful or meaningful to say that in certain circumstances the breach did not happen, even in cases where the actions of the transgressor were perfectly well-meaning. The important issue in such cases is what would be the consequences of the breach.

The other possible consequence of a rule breach would be disciplinary action. In response to the recommendation of the Joint Committee, the Government have made changes to the Bill to offer protection to persons who have breached FSA requirements, and those amendments are relevant here. The relevant provisions are in Clause 69(2) referring to approved persons; Clause 91(2), referring to the official listing; Clause 120(2), referring to market abuse; and Clause 206(2), on discipline of authorised firms. Those provisions require the authority, when issuing a statement about its policy for imposing financial penalties, to take into account a number of relevant factors. In the case of Clause 69(2), the relevant factors are the seriousness of the breach, the extent to which the misconduct was deliberate or—dare I say it?—reckless, and whether the person was an individual.

In our view, there is a presumption that where a person had taken reasonable steps to avoid breaching a requirement, it would often be difficult for the FSA to justify taking disciplinary action. Clearly that would depend on the circumstances of the case. Moreover, even if the FSA proposed to take action, it would find it very difficult to impose a substantial penalty if the rule breach were quite clearly not deliberate and the person's behaviour had not been reckless. That would be all the more true if the person concerned had followed the guidance given by the authority, or indeed if he could show that he had taken legal or other professional advice to ensure that he would stay on the right side of the line.

On that basis, while I see what Amendments Nos. 112B, 114A and 115D are trying to achieve, I think that they could confuse a situation which at the moment is reasonably clear, and which certainly has the kind of effect I believe that the noble Lord seeks to achieve by his amendments.

There is another important point here. If we were to accept Amendments Nos. 112B, 114A and 115D, without doing so in every other relevant instance in the Bill, we would cast doubt over whether the effect of the other equivalent provisions would continue to be as I have just described—and which in our view deliver precisely the policy outcome that the noble Lord, Lord Kingsland, seeks to achieve. In the light of what I have said, I hope that he will appreciate the subtle distinction I have explained between the different cases. I hope that my acceptance of Amendment No. 112A will reassure the noble Lord that we have thought carefully about the effect of the relevant provisions of the Bill.

Lord Kingsland

My Lords, my initial elation at the news that the Government accept Amendment No. 112A has somewhat subsided. However, I shall read carefully in Hansard what the Minister said and reflect on whether it will be appropriate to return to Amendments Nos. 112B, 114A and 115D at Third Reading.

I am particularly sad that the Minister felt unable to move in my direction on Amendment No. 112B which reflects an everyday situation. I believe that the terms of the Bill will impinge harshly on innocent parties. Perhaps some comfort may be gleaned from some of the Minister's remarks. I am grateful for the noble Lord's full response. I commend the amendment.

On Question, amendment agreed to.

[Amendment No. 112B not moved.]

Clause 57 [Applications relating to prohibitions: procedure and right to refer to Tribunal]:

Lord McIntosh of Haringey

moved Amendment No. 113: Page 26, line 1, leave out ("refuses") and insert ("decides to refuse"). The noble Lord said: My Lords, in moving the amendment, I speak also to Amendment Nos. 114, 115, 118, 171 and 172. They are all drafting amendments. In each case they replace a reference to the FSA "refusing" with a reference to the FSA "deciding to refuse". It is a matter we discussed earlier today.

The point is to make it clear that the decision to refuse various types of application—an application for variation or revocation of a prohibition order; an application for approval under Part V; or an application for variation or revocation of a requirement imposed under Clause 316—is not the final determination of the matter. That does not occur until the period for referring the matter to the tribunal has expired without a reference, or if a reference is made, until the tribunal (and, where appropriate, the higher courts) have determined the matter. At that point, a final notice under Clause 385 will be issued. I beg to move.

Lord Kingsland

My Lords, as the Government have explained, the three amendments to Clauses 57 and 61 make it clear that the decision notice is only a decision to refuse an application to vary or revoke an order prohibiting someone from working in the financial services industry or to approve an individual to work in it. The actual refusal is dealt with by the final notice.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 114: Page 26, line 3, leave out ("application is refused, the applicant") and insert ("Authority gives the applicant a decision notice, he"). On Question, amendment agreed to.

Clause 58 [Approval for particular arrangements]:

[Amendment No. 114A not moved.]

Clause 60 [Determination of applications]:

Lord Kingsland

moved Amendment No. 114B: Page 27, line 34, leave out ("three months") and insert ("one month"). The noble Lord said: My Lords, under Clause 60(3), the authority is allowed three months to determine applications for individual authorisation. As the Minister will be well aware, the financial services industry believes that that period is unreasonably long; and we share that view. Firms need to fill vacancies much more quickly. They are frequently criticised by the authority for being under-resourced. It is not practicable for a firm to make a job offer, in particular to an overseas applicant, and then to have to wait up to three months for the authority's agreement. A period of one month should be long enough for the authority's purposes. I beg to move.

Lord Stewartby

My Lords, I support my noble friend's amendment. Clause 59(2) makes clear that discussion can take place before the application is made because the application has to, be made in such manner as the Authority may direct". The authority will have had the opportunity to ask for the application to be accompanied by the information that it needs. Before the clock starts ticking, under Clause 59 there will have been an opportunity for such discussion.

However, even if there had not been such discussion, under Clause 60(4), the clock stops running on the day that the authority asks for more information and starts again only when the information is received by the authority. If one limits to one month the period during which the application shall be determined, if there is any doubt on the part of the authority and it needs more information to check that out, in practice the period can be a good deal longer.

Given the pace at which matters move in these Financial markets, and the need for firms to have the right people in place as soon as possible, a period of three months seems very relaxed. I hope that the Minister can look favourably on the amendment.

6.30 p.m.

Lord McIntosh of Haringey

My Lords, the amendment would reduce the amount of time the FSA has to consider applications for approval under Part V. I certainly do not disagree with what the noble Lords, Lord Kingsland and Lord Stewartby, said about the importance of avoiding unnecessary delay. It is important that applications are turned around quickly and this is something that the FSA recognises. It has said that it intends to publish service standards, setting out how long it expects the application process to take, and has undertaken to publish its performance against those standards. It has already indicated that routine cases should be processed well within the one month deadline suggested by these amendments—somewhere between a few days and a couple of weeks. Therefore, in practice, the reduction in the time proposed in the amendments would not make any difference to most candidates.

However, there are bound to be a minority of more difficult cases. We believe that Clause 60 gives the FSA an appropriate amount of time to consider the detail of those difficult or complex applications and to weigh the relevant information, without allowing for unnecessary or damaging delays.

It is worth bearing in mind that the FSA is required to satisfy itself that a candidate is a "fit and proper" person to carry out the functions to which the application relates before it can grant the application. If it is unable to do so, it must reject the application. Against this background, a one-month deadline could be unworkable, particularly where a candidate is the subject of an investigation or where the FSA needs to obtain information from an overseas regulator.

These processes take time. It is unlikely that they could be completed within a month. This would mean that the FSA would be unable to satisfy itself that such candidates were "fit and proper" and would therefore have to reject their applications. That would be in no one's interests, least of all those of the individual or firm in question.

The important point is that at least part of the time period available to the FSA is not within its power. It is only within the power of those of whom it makes inquiries. I do not believe that the amendment would help. The three month period of consideration has to apply to all applications. If it is reduced, that will do nothing for most candidates who can expect a decision within that time. However, it could hamper the delivery of an effective and thorough approvals process, the purpose of which is to ensure that only those people who meet high standards are able to perform these functions.

Lord Kingsland

My Lords, the Minister said that most applications would be processed quickly, in a matter of a couple of weeks. Would he consider a variation on the amendment which in principle stated that one month was the right period, but subject to circumstances in which the authority had reasonable cause to believe that a longer time was required?

Lord McIntosh of Haringey

My Lords, with the leave of the House, we are always open to suggestions and we always consider them.

Lord Kingsland

My Lords, I asked whether the noble Lord would be prepared to give particular consideration to such a request with a view to coming back at Third Reading with his own amendment.

Lord McIntosh of Haringey

My Lords, I would rather first see the whites of the amendment's eyes. I would be prepared to consider such an amendment.

Lord Kingsland

My Lords, in those circumstances, I beg leave to withdraw my amendment.

Amendment, by leave, withdrawn.

Clause 61 [Applications for approval: procedure and right to refer to Tribunal]:

Lord McIntosh of Haringey

moved Amendment No. 115: Page 28, line 14, leave out ("refuses") and insert ("decides to refuse"). On Question, amendment agreed to.

Clause 63 [conduct: statements and codes]:

Lord Fraser of Carmyllie

moved Amendment No. 115YA: Page 28, line 41, leave out ("may") and insert ("shall"). The noble and learned Lord said: My Lords, as wit h previous and future amendments, I had intended to he as succinct as possible. However, after that intemperate attack by the noble Lord, Lord McIntosh, on my noble friends Lord Peyton and Lord Jenkin, I see no reason why I should be succinct.

If the noble Lord would care to reflect on matters more carefully than he did in the course of his attack, he would realise that this is not a club. This is a Parliament and there is a duty to ensure that whatever legislation comes before this revising Chamber is dealt with as carefully as possible. I make no apology for tabling my amendments yesterday. If the noble Lord were not so London-centric in all his attitudes, he would have appreciated that we last considered the Bill on a Thursday evening. If it has not yet dawned on him, let me indicate to him now that those of us who come from other parts of the United Kingdom tend to regard it as not a bad idea to return to those parts, particularly at the weekend.

Furthermore, if the noble Lord had looked in any way at a number of my amendments, it would have been obvious to him that their intention was to take up problems which seemed to me to emerge from the answers he gave on Thursday. He was all over the place on whether the offence of market abuse was civil, criminal, partly civil, partly criminal, none of those or some new hybrid creature. If he looks at those amendments, he will see that a number of my amendments deal with what might be an appropriate burden of proof.

If the noble Lord wants to indicate that at no time did he ever say to anyone that the first time he considered amendments was when he was reading them at the Dispatch Box, I shall unreservedly withdraw that comment. However, what troubled me was that the noble Lord launched out on an approach which indicated that such was his approach to the Bill that he would have been considering all the amendments over the weekend and would not have been considering them any later.

I hope that the noble Lord understands that what he has said has caused a real sense of outrage on this side of the House. If the noble Lord's Chief Whip has any arrangement through the usual channels, he had better be disabused about that. And, after what the noble Lord said, if he and his luckless officials are under any apprehension that they might be ready for an early bath tonight, they should be disabused of that idea. It seems to me that he has done no one any favours by adopting such an attitude. He has shown so swiftly such an unacceptable display of temper.

The amendment seeks to remove "may" and insert "shall". The provision relates to the clause which imposes or allows for the authority to issue statements of principle with respect to the conduct expected of approved persons. I should have thought that that was a highly desirable activity for the authority to carry out.

The amendment suggests that rather than leaving the matter to the discretion of the authority, it is something that it should do. If the Minister indicates that the authority will issue such a statement of principle, I suppose that in large measure I should be satisfied. I just want to make it clear beyond any doubt that that is something in which we believe the FSA should engage. I beg to move.

Lord Boardman

My Lords, I support my noble and learned friend's amendment. The clause is important because it relates to the conduct of the authority. Surely, a Bill which provides so many regulations about what everyone does should require that, as regards the conduct of the authority, the principles which it intends to follow in the process of its monitoring should be under "shall". It is not a question that the authority "may" want to do so, but that it "shall" do so. I strongly support my noble and learned friend and hope that the Minister will accept his amendment.

Lord Peyton of Yeovil

My Lords, I support my noble and learned friend. In doing so, perhaps I may express my gratitude to him for his support and friendly sympathy. Although, naturally, I am bruised by the savage attack which he thought the Minister directed at me, I have reasonable confidence that I shall in due course recover.

I entirely agree with my noble friend Lord Boardman. I always dislike giving authorities discretions. I believe that their duty should be clear. I do not like the idea that they should be free to decide whether or not something suits them, depending on which officials are handling the matter, and so on. I would much rather see something definite in the Bill. I hope that the noble Lord will go along with that and see fit to accept the amendment.

Lord Kingsland

My Lords, I wish to speak to Amendment No. 115A to Clause 63 and to Amendment No. 115B to Clause 64. As your Lordships are well aware, Clause 63 enables the authority to issue statements of principle on the conduct of approved persons. Subsection (2) requires the authority to issue a code of practice to help to determine whether a person's conduct complies with a statement of principle.

That is a particularly important power because subsection (7) provides that a code of practice can be relied upon as tending to establish whether the individual's conduct complies with a statement of principle. As presently drafted, subsection (3) enables the authority's code of practice to specify compliant conduct or non-compliant conduct or factors to be taken into account in determining compliance.

As I understand it, there is no requirement on the authority to issue all three categories of guidance. In consequence, the current draft, which is contained in consultation paper No. 26, contains only examples of non-compliant conduct. Moreover, the examples refer mainly to situations which people would automatically recognise as being non-compliant. As the Minister is well aware, the principles themselves are very broadly drafted. An authorised individual who breaches a rule will necessarily breach principle 2, while a manager who fails to run his section properly will probably be in breach of principles 5 to 7. Therefore, because of their breadth, it is important that the code sets out what the authority considers would be compliant behaviour in a number of real situations likely to be encountered in practice. At present, it does not do so. The current draft of the code is of limited or no assistance.

Clause 64 requires the authority to consult before it issues a statement or code with regard to the conduct of approved persons. Subsection (7) disapplies the consultation procedure if the authority considers that the delay would be prejudicial to the interests of consumers. However, that is no reason why the authority should not consult at the same time as the urgent statement or code is issued, and then proceed to make amendments if the representations are persuasive. Indeed, one could well argue that where material is issued urgently, and perhaps without full consideration of the consequences, there is a greater rather than a lesser need to consult and review the action that must be taken.

6.45 p.m.

Lord McIntosh of Haringey

My Lords, in response to the accusations of an intemperate attack, I would say only, "Cet animal est méchant; quand on attaque, il se défend", and I do not make any distinction between myself and the Government in this matter.

So far as concerns the specific amendments of the noble and learned Lord, Lord Fraser, I am grateful to him for setting out with some clarity what he intended because it was not entirely clear to us when we read them this morning. In our view, Amendment No. 1 15YA would not have any effect. He asks whether under Clause 63(1) the FSA can issue no statement of principle. At the minimum, the Bill provides that an approved person is guilty of misconduct if knowingly concerned in a breach of rules by the firm. Whether or not further statements of principle are required is properly a matter for the authority. We know that it intends to make such statements.

I believe that in this matter we are returning to the old issue of "may" and "shall". No doubt the noble and learned Lord and I have debated that on many occasions. Since the noble Lord, Lord Peyton, reminded me of my time in opposition, he will recall that on many occasions I used to use "shall" instead of "may". I was always told by the government that lawyers say that "may" means "shall". That always sounded quite implausible to me. However, that is what the Conservative government used to say to the Labour opposition, and I shall rest my case with that. If I can add to it, I shall of course write to the noble and learned Lord, Lord Fraser.

Amendment No. 115ZA addresses the question of the fee that may be charged when the authority issues statements and codes under this section. The provision, as drafted, is permissive. Within limits, it enables the authority to charge for a copy of the statement and code. That is provided because the authority will issue copies of the code to persons other than those to whom its fee-raising powers under Schedule 1 will apply. However, where the authority is able to distribute copies and absorb the costs, we see no reason to oblige it to charge people.

I turn now to the amendments moved by the noble Lord, Lord Kingsland. Amendment No. 115A raises a technical drafting point—again, in relation to "may" and "shall". However, in our view, the Bill is correct as it stands. Clause 63(1) confers power on the FSA to issue statements of principle with respect to the conduct expected of approved persons. Clause 63(2) then provides that if the authority issues a statement of principle, it must also issue a code of practice for the purpose of helping to determine whether or not a person's conduct complies with the statement of principle. Therefore, the authority cannot issue a statement of principle unless it also issues a code of practice which supplements that statement of principle.

Clause 63(3) sets out certain matters which the authority may include in a code. Its purpose is to make it clear that a code may make provision in those matters. The amendment would oblige the authority to include the matters mentioned in Clause 63(3) in every code of practice that it issues. However, that cannot be right. The contents must depend on the nature of the statement of principle which it supplements. The sole purpose of a code is to help a person to determine what he must do in order to comply with a particular principle. Although in many cases factors such as those set out in Clause 63(3) will be relevant, it is not possible to say with certainty that they will be relevant in all cases. Therefore, in a case in which those factors are not relevant, the effect of the amendment would be to require the authority to engage in some kind of work of fiction. I do not believe that that can be right.

Amendment No. 115B questions the Bill's arrangements for consultation on the FSA's proposals to exercise its delegated legislative powers under the Bill. I must remind the House that the Government brought forward a significant number of amendments to the Bill's consultation procedures at Report stage in another place. Those amendments sought to reinforce the procedures in the light of concerns expressed by the Opposition in Committee. The amendments also sought as far as possible to introduce consistency between the procedures for exercising the different delegated legislative powers under the Bill.

As currently drafted, when the authority proposes to make rules or issue statements and codes, including statements and codes under Clause 64, the Bill requires it to publish a consultation draft of the proposed rule, statement or code; to accompany the draft with a cost-benefit analysis; to provide a period for representations to be made; and to produce a feedback statement on the consultation. However, in each case, we have made provision which removes the need for the authority to follow those procedures where the need to make the rules, statements or codes is urgent. I am not sure that Amendment No. 115B, as drafted, would work because, if an issue had to be addressed so urgently, I would not expect the authority to be able to produce a meaningful cost-benefit analysis in the time available without there being an undue risk to consumers or the markets.

However, perhaps I can offer some reassurance to the noble Lord, Lord Kingsland, that will enable him to agree that the amendment is not necessary. The Bill allows the authority not to follow the usual procedures where the circumstances require the authority to act urgently. We do not believe that the authority would be able to avoid the procedures frequently. The noble Lord, Lord Kingsland, may have noticed that the period for consultation in Clause 64(2)(b) is expressed in a way that would give the authority flexibility to carry out a short consultation if that were practicable. I am sure that if it were, the FSA would do so. The point the amendment seeks to address will be something that arises only very rarely in relation to any kind of delegated legislative provision, and quite exceptionally in the case of a statement or code under Clause 63.

On these rare occasions where a change has to be made urgently it may be somewhat academic as to whether or not a provision to the effect of the amendment is introduced. The amended rule, statement or code will be in the public domain and those affected by it will be free to express their concerns and make representations, whether or not it is in the Bill. The practitioner and consumer panels will, of course, be able to make representations at any time.

Last Thursday I said that the Government would consider further the amendments tabled by the Opposition on the role of the panels and bring forward amendments to improve the feedback arrangements. I am sure that they would help in this case.

When the Authority makes rules of any kind, whether under the routine or the urgent procedure, it will be bound by the objectives and principles under Clause 2 and the Director-General of Fair Trading will have responsibility for ensuring that the requirements do not have an unduly adverse effect on competition.

There are plenty of safeguards in the Bill as it stands. I believe that imposing another requirement for consultation, cost-benefit analysis and feedback statements after the event, in cases where the FSA has had to act urgently in response to some unexpected circumstance, would be excessive.

Lord Fraser of Carmyllie

My Lords, I express some disappointment that the noble Lord did not take the opportunity to offer any sort of apology, but I will leave that for the time being.

I am also very much aware of the circumstances in which the courts have construed "may" as "shall" and other circumstances where they have construed "shall" as "may". My conclusion, however, is that this is a circumstance where the courts would construe "may" as "may".

The noble Lord has indicated that it is the intention of the Financial Services Authority to issue just such a code. I would regard that as very desirable and, for the present purposes, sufficient. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 115ZA and 115A not moved.]

Clause 64 [Statements and codes: procedure]:

[Amendment No. 115B not moved.]

Clause 65 [Disciplinary Powers]:

Lord Fraser of Carmyllie

moved Amendment No. 115BA: Page 30, line 45, leave out ("it appears to the Authority") and insert ("the Authority is satisfied beyond reasonable doubt"). The noble Lord said: My Lords, I understand that this amendment is coupled with Amendments Nos. 115CA and 133CA. Two of them relate to the issue of standard of proof and one relates to the issue of publication of findings in a national newspaper. They also tie in with other amendments that I shall wish to speak to later this evening.

They are all related to the issue which has been of some concern to me: that of market abuse and what exactly the Financial Services Authority is doing if it decides to pursue the matter of market abuse, impose penalties or make findings of misconduct.

When I was on the Joint Committee chaired by the noble Lord, Lord Burns—barring the clear expression of view given to us by the noble and learned Lord, Lord Hobhouse, that everything we were looking at was effectively criminal—I thought that I had a fairly clear understanding of what was contained within market abuse. In summary, it was this: that at one end of a continuum it was clearly civil in nature and, at the other end, it was almost undoubtedly criminal.

It would not be difficult to envisage circumstances when the criminal end of it would apply, where there had been conduct which might otherwise have been prosecuted as insider training but for the reluctance of prosecuting authorities to take that course because of the history of failure experienced in recent years.

What has always struck me as a difficulty, however—and no one has yet answered it for me—is whether at the point when one looks at behaviour that might be regarded as market abuse, before setting out to prosecute it, one can determine that it is civil or indeed criminal in character. In some circumstances it might appear to some to be a quarrel of an academic nature but, given the presence in our law—certainly north of the Border and shortly to be incorporated into English law—of the human rights legislation, it seems to me that we should be absolutely clear on what is the character of market abuse. We should certainly not attach to it any procedure or other characteristics that would allow any finding of market abuse or any conviction to be subjected to challenge in the courts thereafter.

One way of ensuring that that happened to the least possible degree would be to indicate that the appropriate test to be applied in those cases—whether civil or criminal—is that the burden of proof to be applied is that of beyond reasonable doubt.

If, looking at it in retrospect, the conclusion were that it was essentially criminal in character, that finding would be less likely to be challenged if the test applied throughout had been that of beyond reasonable doubt, In any event, it seems to me that in disciplinary proceedings of this sort such a test is appropriate.

My purpose in putting down these amendments is to explore further whether there is an appreciation of the concerns that I and others have, and whether the Government regard the approach that I have suggested as being at least part of a technique which could be applied to ensure that the risk of challenge was reduced as much as possible.

My second amendment, Amendment No. 115BA, relates to the publication of statements of misconduct in a national newspaper. In a way, it is of secondary importance. I would envisage in such circumstances, if there were findings of misconduct, provision would be made for publication in one form or another. Whether a national newspaper remains the most appropriate way in which to do that nowadays, I do not know.

I would wish for some reassurance, however, that, where there were such proceedings and where penalties were imposed, this was not done behind closed doors but in accord with principles of openness and transparency, which I understand the FSA, and those who support the broad new regulatory regime to be introduced, would regard as being important. I beg to move.

Lord Boardman

My Lords, I support this amendment. It is right that the authority, in reaching a decision, should do so beyond reasonable doubt. Beyond reasonable doubt is a judgment which is applied to so many cases, from murder downwards. It should be clearly on the statute in this case and those words should be inserted. It does nothing to detract from the Government's approach to this Bill.

With regard to the second amendment, I think that it would he helpful to say "publish in a national newspaper". The present wording leaves the matter open. One can publish in all sorts of forms, even by putting leaflets through everyone's letterbox. This amendment removes any doubt.

Lord Kingsland

My Lords, I wish to speak briefly to Amendments Nos. 115C and 122A. Amendment No. 1150 is intended to seek clarification that to be knowingly concerned in a contravention under Clause 65(2)(b) means that the person knows that the relevant authorised person is contravening a requirement imposed on the authorised person by or under the Act.

The same point applies to Amendment No. 122A, which relates to similar wording in Clause 89.

7 p.m.

Lord McIntosh of Haringey

My Lords, I speak first to Amendments Nos. 1 15BA and 115CA, if that order is convenient to the House.

Amendments Nos. 115BA and 133CA would both have the effect of requiring the FSA to prove disciplinary matters under Clause 65, or market abuse under Clause 119, to the criminal standard of proof of "beyond all reasonable doubt". I shall not enter into the wider issues (to which the noble and learned Lord, Lord Fraser, referred) of the extent to which these matters are criminal or civil. The noble Lord, Lord Boardman, referred to a body reaching a decision. But that is not the case here. In this case, the FSA is exercising a statutory discretion rather than reaching a decision. It is not so appropriate to be talking of standards of proof when a body is exercising a statutory discretion. The real point is that it should exercise its powers rationally.

I agree entirely that the FSA should be required to be satisfied of the facts before taking the action, but the present clauses achieve that. As the Bill stands, the FSA must reach a view as to whether it believes that a person has committed a disciplinary infraction or engaged in market abuse. It will therefore impose a penalty. It must issue a warning notice allowing that person to make representations and then, if it decides to proceed, it must issue a decision notice which will trigger the relevant person's right to take the matter to the independent tribunal.

The tribunal provides not only a safeguard but a strong incentive for the FSA to take the right decision at the start. If the case is referred to the tribunal, it will be subject to the appropriate civil standard of proof. As the former Economic Secretary to the Treasury, Patricia Hewitt, made clear to the Joint Committee—she was supported by learned witnesses; for example, Sir Sydney Kentridge—that is a sliding scale which takes account of the seriousness of the behaviour or failing alleged by the FSA. The more serious the behaviour, the higher the standard which will be applied. I believe that the noble and learned Lord, Lord Fraser, as a member of the Joint Committee, will well recall that debate and will recognise that that was the nature of the evidence given to the committee and which the committee acknowledged.

We are dealing with important provisions and it is right that they should be properly analysed and debated. But as it stands, the Bill delivers a balanced and appropriate package of measures with sufficient checks and balances. I hope that that will persuade the noble and learned Lord, Lord Fraser, not to press his amendments.

I deal now with the amendments which are concerned with Clauses 65 and 89, which give the FSA certain disciplinary powers in the event that rules or requirements are breached, and those concerned with Clause 119, which gives the FSA the power to impose penalties in cases of market abuse.

I deal with Amendments Nos. 115C and 122A in the name of the noble Lord, Lord Kingsland. Clauses 65 and 89 both refer to people—approved persons or directors respectively—being knowingly concerned in breaches by the firm of the relevant rules or requirements. Those amendments seek to define the concept of someone being "knowingly concerned" but we do not believe that any definition is necessary. The definition in these amendments might tighten the test in a way which is inappropriate.

It would, of course, be wrong to seek to impose penalties or to use other disciplinary powers against individuals where the person concerned had no knowledge of the action leading to the breach of rule or requirement. That would be draconian. It would also be a pointless sanction since such a case could not act as a deterrent because the person upon whom it was imposed would not have known anything about the action leading to the breach and so would hardly have been in a position to avoid it. That is why the Bill requires the individual to be "knowingly concerned" in the contravention before any action can be taken.

There is existing jurisprudence on the "knowingly concerned" test. The test requires the individual to be aware of the facts which give rise to the breach of the rule in question by the firm and aware too of his own involvement in that factual situation. But it does not have to be shown that the individual was aware of the legal rules which were contravened because ignorance of the law is rightly no defence.

The effect of the amendments would appear to be to require that the person involved not only knew about the action in question but must also have known that it involved a breach of a requirement or rule. If we adopted that approach, it could mean that we ended up in a position where people could avoid sanctions for breaches of rules or requirements simply by making sure that they kept themselves in the dark about what those rules or requirements are.

It is important to remember that we are talking about approved persons or directors—people holding responsible and important positions within the financial services industry who should make it their business to know the rules relevant to their sphere of activity and to ensure that systems are in place to avoid breaches. To give such people an incentive to remain ignorant of the rules does not seem to be either sensible or desirable.

I do not believe that it is the intention, but it seems to us also that the amendments would make it less clear than it currently is that the individual must also be shown to have been aware of his own involvement in the particular factual situation. The amendments might risk making individuals liable whenever they knew that something was being done wrongly by the firm, even when they were not aware that they were themselves involved in that wrongdoing. That might place too high a burden on individuals.

I assure the House that the concept of someone being "knowingly concerned" is not new. It is contained in the Financial Services Act 1986. It has been used by the FSA in proceedings that have been brought in the past. There is existing jurisprudence on what it means and it would be most undesirable to cast doubt on that. I believe that I have dealt with all the amendments.

Lord Boardman

My Lords, the Minister has not dealt with Amendment No. 115CA.

Lord McIntosh of Haringey

My Lords, the noble Lord must be right. Clause 65 is designed to provide for a proportionate approach towards the exercise of disciplinary powers under the approved persons regime. That approach would be somewhat undermined by Amendment No. 115CA, tabled by the noble and learned Lord, Lord Fraser of Carmyllie.

Where the FSA decides to take action in response to the misconduct of an approved person, it may either impose an appropriate penalty or, alternatively, publish a statement of his misconduct. Those disciplinary powers supplement the power to withdraw an approval.

They allow the FSA to make a measured response to instances where a person's behaviour did not meet expected standards but was not such as to justify withdrawing altogether the person's approval. I think that that is the response which the noble Lord, Lord Boardman, was seeking.

Lord Boardman

My Lords, as I understood the amendment, it was about publication in a national newspaper. It sought to clarify whether the information should be simply stuck up on a notice board or published in a national newspaper.

Lord McIntosh of Haringey

My Lords, the key to that is that the disciplinary powers must be used in an appropriate and measured way. Clearly, it may be right, on occasion, to publish in a national newspaper; but on other occasions, it would be disproportionate. Nothing would be gained by restricting the discretion of the FSA along the lines proposed in Amendment No. 115CA as to the nature of the action that it may take under Clause 65(3)(b). It may be wrong to arm it with a sledgehammer when perhaps a nutcracker would be more appropriate.

Lord Fraser of Carmyllie

My Lords, the noble Lord cited what the Minister said in evidence before the Joint Committee. He accurately recorded what her evidence was. But if he goes through the whole of the evidence, I should be surprised if he can discern from all that evidence one clear, unequivocal line of opinion given to the Joint Committee. Indeed, some were really quite troubled that it should have anything of a civil character and thought that it really was, from the word go, entirely criminal in nature.

However, that is not the point which really concerns me; it is the issue on which I have still not had an answer. I do not really blame the Minister. I am not trying to flatter or to criticise him; I am just making the point that I have not had an answer to that point. If it is a sliding scale—a continuum—at some point it changes from being civil in character to being criminal. No one has been able to identify for me—nor, I believe, before the Joint Committee—the point at which that change occurs. Once it occurs, particularly in the context of human rights legislation, one must ensure that, if they are criminal, there are attendant upon the proceedings a number of important safeguards set out in the convention and, more generally, in our criminal law. It seems that the best opinion that can be expressed is simply that after the event, it may be possible to look at the charge within the proceedings and then to say, "As we now look at it, it is clear that it was civil or criminal".

What troubles me about that approach, although I do not disagree with it, is that if we have a case on the borderline, there may be some risk of subsequent challenge to those proceedings. My sole purpose is to do what can be done to avoid the risk of such a challenge. I have no doubt that the harder and more rigorously we consider that matter, the better it will be. I have heard what the Minister has said and I shall certainly not be pressing the amendment at this stage.

In relation to my second amendment, he raised the provision of subsection (3) of Clause 65: If the Authority is entitled to take action … against a person, it may— (a) impose a penalty on him of such amount as it considers appropriate; or (b) publish a statement of his misconduct I can well envisage circumstances where the authority comes to the view that there has been a degree of misconduct and that that misconduct should be brought to wider attention. What is not entirely clear to me is how disjunctive that "or" is in the middle of the subsection. It seems that it is not difficult to envisage circumstances where a person has been reprehensibly guilty of misconduct and the authority, with good cause, might wish to impose a significant penalty on him, in which circumstances it would seem appropriate that that should also be published.

Lord McIntosh of Haringey

My Lords, with the leave of the House, I wonder whether the noble and learned Lord would allow me to intervene. I was not as full as I might have been in response to him. The current practice of the FSA is to make those statements in press notices which are widely reported in the trade press and can feature also in the national press in serious and high profile cases. Of course, we cannot force the national press to support such statements. The protection is that all FSA press notices are posted on its website. They are therefore available to members of the public.

Lord Fraser of Carmyllie

My Lords, I am grateful to the Minister for that intervention. It is not quite the answer to my point. He is absolutely right about that: if anyone has an adverse press notice about him posted or given any degree of publicity, I am aware that such individuals are often far more concerned about that than about any level of penalty that might be imposed upon them because of the reputational damage it might do to them. I am not saying that that is a bad thing, but I am indicating that I understand. What I am not clear about is whether those are alternatives or whether one may impose a major penalty and publish.

Lord McIntosh of Haringey

My Lords, the answer to that is "yes". If the FSA imposes a penalty, it may also make a statement of the fact that it has done so.

Lord Fraser of Carmyllie

My Lords, it has taken us a little time to get there, but I am grateful that we have done so. That is what I wanted to ascertain. As I indicated, publication in a national newspaper does not seem to be at the core of matters. As time Minister has indicated, publication on a website, where perhaps the whole world may pick it up, may be far more damaging than anything else. As I indicated, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 115C to 115D not moved.]

7.15 p.m.

Clause 67 [Notice for payment]:

Lord McIntosh of Haringey

moved Amendment No. 116: Leave out Clause 67. The noble Lord said: My Lords, in moving the amendment, I shall speak also to Amendments Nos. 127, 138, 184, 189, 190 and 191. That group of amendments completes the changes begun in Committee to replace the separate provisions dealing with notices for payment with a single over-arching clause dealing with final notices. Clause 385 deals with final notices, and subsection (5) requires a final notice imposing a financial penalty to state the amount of the penalty and the manner and period in which the penalty is to be paid and to give details of the way in which the penalty will otherwise be recovered.

That removes the need for a number of existing clauses which provide for separate notices for payments setting out those details. Of course, I understand that the Opposition had some worries about that. They felt that there was some ambiguity as to whether payment notices could be issued before the relevant decision was intended to take effect; that is, not until after any relevant tribunal and other judicial procedures, or the period for making references or appeals had passed. To address that concern we introduced Clause 385 in Committee. During discussion, noble Lords opposite sought my assurance that the remaining provisions dealing with notices for payment and, in particular, Clause 124, would be omitted on Report.

We offered that assurance and the amendments fulfil it. Thus the government amendments would omit all the remaining clauses which separately provide for notices for payment—Clauses 67, 93 and 124 under Parts V, VI and VIII and Clause 381, which provides for payment notices for restitution orders under Clause 378. Amendment No. 189 is a consequential amendment resulting from the omission of Clause 381. It requires final notices issued in connection with the restitution power to set out the persons to whom, the manner in which and the period within which payments or distributions should be made.

Amendment No. 190 specifies that, as for other final notices requiring payments to be made, that period may not be fewer than 14 days. Amendment No. 191 makes provision for those payments or distributions to be enforceable through the courts. Removing the separate provision for notices for payment and dealing with the issue in Clause 385 makes it clear that payment cannot be required until the decision has come into effect, either because the period for reference to the tribunal has passed without a reference being made, or because a reference has been made and is being determined by the tribunal or by the higher courts. I hope that that meets in full the points made by the Opposition in Committee. I beg to move.

Lord Kingsland

My Lords, Clause 67 relates to notices for payment and is deleted in line with the new procedures, which leave payment notices to the final notice. That seems sensible. Clause 93 deals with notices for payment and therefore, again in accordance with the new procedures, needs to be deleted because payment notices are again now dealt with by the final notice. We are also pleased about that. Am I right in thinking that there is a new clause after Clause 93 relating to competition?

Lord McIntosh of Haringey

Yes, my Lords. It is not in this grouping.

Lord Kingsland

My Lords, I am extremely pleased to hear that, because I was about to speak to it. I am much obliged.

On Question, amendment agreed to.

Clause 68 [Publication]:

Lord McIntosh of Haringey

moved Amendment No. 117: Page 32, line 13, leave out subsection (2). The noble Lord said: My Lords, in moving this amendment, I should like also to speak to Amendments Nos. 192 to 194. They are concerned with the publication of information concerning supervisory actions. It further underlines the basic presumption in favour of openness where that is consistent with fairness and the protection of consumers. On reflection, it occurs to me that perhaps we should have grouped these amendments with earlier amendments from the noble and learned Lord, Lord Fraser of Carmyllie, because they are on a similar subject. Perhaps that is one of the victims of oversight because of the speed with which we were doing things this morning.

However, one of the amendments also links into amendments we have already discussed and which address the question of when non-urgent supervisory decisions take effect. That is a point which has caused some concern to the Opposition.

Amendment No. 193 defines what is meant by "open to review" for these purposes. A matter is still open to review if the period for referring the matter to a tribunal is still running; there is a reference before the tribunal currently; the period for making an appeal against a tribunal ruling is still running; or an appeal is pending.

That feeds back into the relevant procedural clauses, such as the first new clause after Clause 51, which was introduced by Amendment No. 109 which we have already debated, and Clauses 255, 264 and 278, with the effect that a non-urgent supervisory decision does not take effect while the matter is open to review.

Turning to the issue of publicity, Clause 386(2) requires that when the FSA decides not to proceed with a proposed action and issues a notice of discontinuance, that notice must state that the FSA may publish appropriate information about the matter if the person consents. Similarly, subsection (3) of that clause requires that any copy of a notice of discontinuance given to a third party in accordance with Clause 388(14) must be accompanied by a statement that the FSA may publish appropriate information about the matter if that person consents. The FSA may not publish any information about the matter without the appropriate consents. That supersedes Clause 68(2) which Amendment No. 117 deletes.

Amendment No. 192 makes it clear that, like a final notice, information about a supervisory notice may be published if appropriate, once the notice takes effect. However, the Bill provides that it may not be published if this would be unfair to the person concerned or prejudicial to the interests of consumers. So, if publicising a supervisory action might give rise to a general loss of confidence and therefore may result in damage to consumers, the FSA should not publicise it. Amendment No. 194 imports the definition of "supervisory notice" from Clause 390 for that purpose.

Before I move from this amendment perhaps I may return to the point raised by the noble and learned Lord, Lord Fraser of Carmyllie, when we considered the words "knowingly concerned" in Clause 65. I believe it was the noble and learned Lord, but it may have been someone else. I thought that he was asking about the effect of the word "or" in Clause 65. I said that the authority was entitled, when imposing a financial penalty, also to make a public statement. To be more accurate, what will happen is that the final notice imposing the penalty will itself be published under Clause 386(4), subject to the exceptions in subsection (5) of that clause. So the publication will not be under Clause 65(3)(b). The word "or" does indeed mean "or". If it is of any consolation to the noble and learned Lord, he was right in that respect. I beg to move.

On Question, amendment agreed to.

Clause 71 [Actions for damages]:

Lord Fraser of Carmyllie

moved Amendment No. 117A: Page 33, line 24, at end insert ("but shall in any event include natural persons and Scottish partnerships under section 4 of the Partnership Act 1890"). The noble and learned Lord said: My Lords, this is a very "tartanising" short point. As I understand Clause 71(2), the opportunity is provided that a "private person" will be defined and shall have, such meaning as may he prescribed". I seek to ensure that there is due acknowledgement of the fact that in Scotland a partnership enjoys the status of a separate legal persona. I should like to see some provision made to ensure that where a meaning is given to the words "private person" in such prescription, the separate legal persona of a Scottish partnership will be recognized. I beg to move.

Lord McIntosh of Haringey

My Lords, this amendment would limit the Treasury's discretion when defining a "private person" for the purposes of Clause 71 which is concerned with rights of action. Our intention is to reproduce the regulations under the Financial Services Act 1986. The regulations do not include in the definition people acting in a professional capacity.

Lord Fraser of Carmyllie

My Lords, I am grateful to the noble Lord for that answer. I shall reflect on it. I am sure that there are also professionals who will reflect on it with even greater care than I. Although the amendment concerned partnerships rather than the status of professional persons, that of itself is revealing. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 76 [Decision on application]:

Lord McIntosh of Haringey

moved Amendment No. 118: Page 35, line 19, leave out ("refused") and insert ("decided to refuse"). On Question, amendment agreed to.

Lord Bach

moved Amendment No. 119: Page 35, line 19, at end insert— ("( ) If the competent authority decides to grant an application for listing, it must give the applicant written notice. ( ) If the competent authority proposes to refuse an application for listing, it must give the applicant a warning notice. ( ) If the competent authority decides to refuse an application for listing, it must give the applicant a decision notice. ( ) If the competent authority decides to refuse an application for listing, the applicant may refer the matter to the Tribunal."). The noble Lord said: My Lords, on behalf of my noble friend, in moving this amendment I speak also to Amendments Nos. 120, 123 and 124. We introduced a number of changes to Part VI of the Bill in Committee as a result of the transfer of the competent authority function from the London Stock Exchange to the FSA. My noble friend said then that the missing elements of the package concerned the procedures that the competent authority has to follow when coming to a decision, and the right to refer competent authority decisions to the tribunal to be established under the Bill. This set of amendments deals with these matters.

Amendment No. 119 to Clause 76 provides that the competent authority must give an applicant for listing a written notice if the application is accepted. If the competent authority proposes, however, to refuse an application, the amendment sets out the warning notice and decision notice procedures that it must go through. Additional provision on warning notices and decision notices is contained in Part XXVI of the Bill. The amendment also provides that if the competent authority decides to refuse an application for listing, the applicant may refer the matter to the tribunal.

Amendment No. 120 introduces a new clause after Clause 77 which sets out the procedures to be followed if the competent authority proposes to suspend or discontinue the listing of listed securities. These decisions are supervisory in nature rather than disciplinary, and the procedures are broadly in line with those which the FSA must follow when exercising its own-initiative powers under Part IV of the Bill.

The new clause provides that if the competent authority proposes to discontinue or suspend listing, or does so with immediate effect, it must give the issuer of the securities written notice, setting out its reasons, and informing him of the right to make representations and to refer the matter to the tribunal.

Having considered any representations, the competent authority then has to decide whether to continue with its proposal, or if it has suspended or discontinued listing with immediate effect, whether to continue with the suspension or discontinuance. Whatever it decides, it must give the issuer written notice, again informing him of his right to refer the matter to the tribunal.

The clause also deals with applications by issuers for the cancellation of suspensions which are in place. The procedures are the same as for refusal of an application for listing. The clause also provides for a right to refer a competent authority decision to refuse to lift a suspension to the tribunal.

The amendments to Clause 90 set out the steps that the competent authority must go through when it proposes to impose a penalty on someone or publish a statement censuring him under Clause 89. These are, of course, disciplinary sanctions. The first amendment, Amendment No. 123, simply replaces the reference to "imposing a penalty" with one to "taking action against". That is consequential on the introduction in Committee of the intermediate power of issuing a public censure against directors and ex-directors as well as against issuers.

The second amendment to Clause 90—Amendrnent No. 124—aligns the procedures for warning notices and decision notices with those that we are applying to the Financial Services Authority more generally when it proposes to impose a penalty or make a statement. We have debated those already. Subsection (7) of the amendment provides the right to refer a decision of the competent authority to the tribunal. I beg to move.

Lord Kingsland

My Lords, Clause 76 deals with applications for listing and makes it clear that the warning and decision notice procedures apply to proposed refusals and that the applicant can refer the matter to the tribunal. That is why the proposed amendment to page 35, line 19, changes "refused" to "decided to refuse". All this is most helpful.

As the Minister has already explained, the new clause after Clause 77 illuminates in great detail the procedures that will apply in the case of a discontinuance or suspension of listing and assists issuers, especially as it gives a right to refer the matter to the tribunal. However, three points trouble us.

First, in subsection (3)(c) the period for representations, in our view, should be a reasonable period. Secondly, subsection (9) provides that when a discontinuance is cancelled securities, are to be readmitted, without more, to the official list". Perhaps the Government can explain what that means. Presumably there does not need to be a new application for listing, but what sort of statement does the competent authority make to the public, saying that securities are readmitted?

Thirdly, there are some quite detailed provisions in subsections (10) to (12) allowing the issuer to apply for a suspension of listing to be cancelled. However, there does not seem to be any similar provision allowing the issuer to apply for a discontinuance of listing to be cancelled.

With regard to the amendments to Clause 90, I suppose that the first amendment to line four is required because the competent authority can either impose a penalty or publish a statement of censure. Therefore, it is inappropriate to refer to imposing a penalty only. The new provisions replacing subsections (2) and (3) simply spell out in a little more detail what happens with warning and decision notices and give a right to appeal to the tribunal, rather than, as the Government until now have wanted, a separate tribunal. That makes perfectly good sense.

Lord Bach

My Lords, I am grateful to the noble Lord for his general support for these government amendments. I shall attempt to deal with the questions that he asked about Amendment No. 120, the new clause after Clause 77. He takes issue with subsection (3)(c), saying that there should be a reasonable period for representations. The fact that the subsection makes no comment as to the period, in my view, means that the time given would have to be reasonable. If it were not reasonable, a court would intervene. The precise period would depend on how soon the discontinuance or the suspension took place.

On another question posed by the noble Lord, the effect of cancelling a discontinuance under subsection (9), is that the securities concerned are to be readmitted, without more", and the words "without more" imply that there would not have to be a fresh application. As to whether there was any further procedure that was necessary, I shall have to write to the noble Lord, as I fear I shall have to on his detailed question about subsections (10) and (11).

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendment No. 120: After Clause 77, insert the following new clause— DISCONTINUANCE OR SUSPENSION: PROCEDURE (" .—(1) A discontinuance or suspension takes effect—

  1. (a) immediately, if the notice under subsection (2) states that that is the case;
  2. (b) in any other case, on such date as may be specified in that notice.
(2) If the competent authority—
  1. (a) proposes to discontinue or suspend the listing of securities, or
  2. (b) discontinues or suspends the listing of securities with immediate effect,
it must give the issuer of the securities written notice.
(3) The notice must—
  1. (a) give details of the discontinuance or suspension
  2. (b) state the competent authority's reasons for the discontinuance or suspension and for choosing the date on which it took effect or takes effect;
  3. (c) inform the issuer of the securities that he may make representations to the competent authority within such period as may be specified in the notice (whether or not he has referred the matter to the Tribunal);
  4. (d) inform him of the date on which the discontinuance or suspension took effect or will take effect: and
  5. (e) inform him of his right to refer the matter to the Tribunal.
(4) The competent authority may extend the period within which representations may be made to it. (5) If, having considered any representations made by the issuer of the securities, the competent authority decides—
  1. (a) to discontinue or suspend the listing of the securities, or
  2. (b) if the discontinuance or suspension has taken effect, not to cancel it,
the competent authority must give the issuer of the securities written notice.
(6) A notice given under subsection (5) must inform the issuer of the securities of his right to refer the matter to the Tribunal. (7) If a notice informs a person of his right to refer a matter to the Tribunal, it must give an indication of the procedure on such a reference. (8) If the competent authority decides—
  1. (a) not to discontinue or suspend the listing of the securities, or
  2. (b) if the discontinuance or suspension has taken effect, to cancel it,
the competent authority must give the issuer of the securities written notice.
(9) The effect of cancelling a discontinuance is that the securities concerned are to be readmitted, without more, to the official list. (10) If the competent authority has suspended the listing of securities and proposes to refuse an application by the issuer of the securities for the cancellation of the suspension, it must give him a warning notice. (11) The competent authority must, having considered any representations made in response to the warning notice—
  1. (a) if it decides to refuse the application, give the issuer of the securities a decision notice;
  2. (b) if it grants the application, give him written notice of its decision.
(12) If the competent authority decides to refuse an application for the cancellation of the suspension of listed securities, the applicant may refer the matter to the Tribunal. (13) "Discontinuance" means a discontinuance of listing under section 77(1). (14) "Suspension" means a suspension of listing under section 77(2)."). On Question, amendment agreed to.

Lord McIntosh of Haringey

My Lords, I beg to move that further consideration on Report be adjourned. In moving the Motion I suggest that the Report stage begin again not before 8.35 p.m.

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