Financial Services and Markets Bill

HL Deb 18 April 2000 vol 612 cc561-611

3.9 p.m.

Lord McIntosh of Haringey

My Lords, I beg to move that the Bill be now further considered on Report.

Moved, That the Bill be further considered on Report.—(Lord McIntosh of Haringey.)

On Question, Motion agreed to.

Clause 17 [The general prohibition]:

Lord Kingsland

moved Amendment No. 47A: Page 8, line 6, leave out from ("person") to end of line 7. The noble Lord said: My Lords, Clause 17(2) defines the prohibition contained in Clause 17(1) as the "general prohibition". As your Lordships are aware, the Bill provides in Clause 36(1) that exempt persons are, to be exempt from the general prohibition". This applies to "exempt persons", whether specified in exemption orders or exempted under various provisions in the Bill—for example, under Clause 37. However, if we look back at Clause 17(1), we see that the general prohibition only prohibits the person carrying on the activity unless he is authorised or exempt. Accordingly, the general prohibition in terms does not apply to an authorised person or an exempt person, and therefore an exempt person cannot be exempt from the general prohibition". It may be that the general prohibition is supposed to stop after or purport to do so", but, as a matter of construction, it does not.

It is quite clear what is meant; but, given how long the Bill has been in Parliament and how complicated it is, we ought at least to get this part of it right. This is what the amendment seeks to achieve. I beg to move.

Lord Newby

My Lords, in this group we have three amendments which relate to Clause 322. They seek to deal with a problem which arises for lawyers who give financial advice as a part of their business. There are two categories of such advice: the first category relates to major blocks of investment advice in terms of the management of funds; the second category relates to ancillary financial advice given by solicitors in the course of their day-to-day business.

The fear expressed by a number of legal firms dealing in this area is that the Bill as presently drafted is over-onerous for those firms which give advice purely as an ancillary function, rather than providing, as it were, mainstream investment advice in respect of major funds which they manage on behalf of their clients. These three amendments seek to avoid a double burden of regulation and to make it easier for solicitors to continue to give such ancillary advice without feeling the pressure of over-regulation, with which the Bill as it stands threatens them.

Lord McIntosh of Haringey

My Lords, as we indicated at Committee stage, the Bill was amended at Report stage in another place to incorporate Government proposals under which professional firms which are, among other things, subject to regulation by a designated professional body and which provide financial services as an incidental and complementary part of their professional practice, will not require authorisation by the FSA. These amendments were broadly welcomed by the Law Society and by the Institute of Chartered Accountants.

A member of a designated professional body needs to consider the regime established under Part XX, to which Amendments Nos. 173 to 175 relate, only if he is carrying on activities which fall outside the exclusions which will be contained in the regulated activities order, a draft of which was published for consultation last year. That order will be finalised after the Bill has received its Royal Assent and the Government have taken into account comments made during the consultation process. Of course, the proceedings of your Lordships' House are assumed to be part of that consultation process.

I turn now to Amendments Nos. 173 to 175, which were spoken to by the noble Lord, Lord Newby. Amendment No. 175 proposes the deletion of subsection (7) of Clause 322, with a consequential adjustment to Clause 322(1)(a). This subsection makes it clear that, in order for the Part XX exemption to apply, the financial services activities carried on incidentally by a professional firm must be the only regulated activities carried on by that firm.

In Committee, the noble Lord, Lord Taverne, referred to: the problems faced by solicitor investment managers who may now find themselves at a disadvantage because they are subject to regulation by both the FSA and one of the Law Societies".—[Official Report, 30/3/00; col. 1003.] It is not clear to me that the amendments of the noble Lord, Lord Newby, would make any difference to that situation. Allowing a professional firm to carry on regulated activities other than exempt regulated activities would not remove the FSA's ability to regulate all the regulated activities—both mainstream and non-mainstream—carried on by the firm if the firm was authorised. I am afraid that we cannot accept these amendments.

It is only right and proper that firms carrying on mainstream investment business should require permission from the FSA to carry on those activities. It is a recipe for ineffective regulation to tie the FSA's hands so that it is unable to look at the whole of a firm's financial service business where that is appropriate. It is in the interests of consumers that an authorised firm's overall fitness to conduct financial services be assessed in the light of its activities as a whole. Such oversight by the FSA is what any firm, whether or not a professional firm, has to undergo.

However, as we indicated in Committee, it does not follow that the FSA will or must necessarily apply additional burdens in respect of the non-mainstream business of authorised professional firms. The FSA will, on the contrary, be expected to act in accordance with its statutory duties, including the need to have regard to considerations of proportionality and competition. For example, any restrictions relating to the introduction by authorised firms of clients to independent financial advisers would be a matter for FSA rules—and I understand that there is no intention to make rules to that effect.

We also referred in Committee to the FSA's October 1999 consultation paper on the regulation of professional firms, in which it was made clear that with regard to the provision of non-mainstream activities, in line with the degree of risk attaching to such business, a differentiated and, where appropriate, less burdensome regime is proposed.

Amendment No. 174 relates to Clause 322(5). This subsection makes it clear that a professional firm seeking to benefit from the Part XX exemption will need to ensure that it does not carry on, or hold itself out as carrying on, a regulated activity other than one which rules made as a result of Clause 327(3) allow it to carry on. The amendment seeks to delete this provision, amending subsection (5) so that it provides that, The regulated activity is one which rules made as a result of section 327(3) allow him to carry on". I am afraid that we cannot accept that amendment either.

Where a breach of the Clause 322(5) prohibition occurs, it is important that the offending firm be subject to the authorisation offences set out in Clause 21. We cannot risk professional firms giving the impression that they are free to operate outside the regime for which Part XX of the Bill makes provision. I appreciate that this means that firms who do hold themselves out as carrying on regulated activities which they are not permitted to carry on by the rules of the professional body of which they are members will be subject to criminal penalties. But in this regard they are no different from other firms which conduct regulated activities but are not authorised by the SPA.

I understand that the general policy behind Clause 322(5)—namely, that professional firms should keep within their designated professional body's rules subject to criminal sanctions—is broadly supported by the professional bodies currently recognised under the Financial Services Act 1986. The main objection, as I understand it, is that a breach under this subsection would render inoperable a firm's entire exemption from the general prohibition, and therefore mean that all exempt regulated activities undertaken would he illegal, and not just the particular transaction which had breached Clause 322(5).

I understand that the Treasury has recently talked this issue over with various professional bodies and has made it clear that the Government are prepared to look at the issue again. But whatever the outcome of that consideration, it will remain the case that a firm which carries on or holds itself out as carrying on activities which it is not permitted to carry on will commit an offence.

Turning to Amendment No. 218A, to which the noble Lord, Lord Kingsland, has spoken, the only effect of this amendment is to include professional firms benefiting from the Part XX exemption within the "exempt persons" definition in Clause 407 so putting them on the same footing as, for example, recognised investment exchanges and their recognised nominees. However, professional firms benefiting from the Part XX regime are more closely analogous to those members of Lloyd's who currently do not require authorisation by virtue of the provisions of Part XIX of the Bill than they are to the persons which the Bill describes as "exempt persons". In both cases, the FSA has the power to direct that the authorisation requirement should apply. In both cases, it would be misleading to describe the persons who benefit from the regime as "exempt" from the authorisation requirement in any true sense of that word since the Bill expressly contemplates the possibility that the authorisation requirement may be applied to them. Amendment No. 218A is therefore inappropriate and would have a confusing impact.

Amendments Nos. 47A and 47B are drafting amendments. They restructure Clause 17 in it way that makes the clause less clear than it currently is. We do not see the reason for those amendments and we are therefore unable to support them. In any case, Clause 17 is drafted in almost exactly the same terms as Section 3 of the Financial Services Act 1986. The meaning has remained clear for 14 years and there does not appear to be any reason for changing it.

Lord Kingsland

My Lords, I thank the Minister for his reply but I am surprised that he has not been prepared to accept my amendments. Es it not clear—perhaps this will prove to be a rhetorical question; your Lordships will wait and see—that something cannot be exempt from something which never applied to it in the first place? That is the effect of Clauses 17 and 36 if they are read together.

Lord McIntosh of Haringey

My Lords, with the leave of the House, if that were the effect, it would still apply even if Amendments Nos. 47A and 47B were added to the Bill. Clause 17 deals with regulated activities and specifically refers in the same terms to "an authorised person" and "an exempt person". If the noble Lord's argument were the case, Amendment No. 47B would restore exempt persons to Clause 17 and would not make anything other than a drafting difference.

Lord Kingsland

My Lords, that is an argument for improving my amendments, not for rejecting them. I shall leave the noble Lord to reflect on what he said. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 47B not moved.]

Clause 19 [Restrictions on financial promotion]:

Lord Kingsland

moved Amendment No. 48: Page 8, line 22, leave out ("or inducement to engage in investment activity") and insert ("to engage in investment activity or information which is intended or might reasonably be presumed to be intended to induce any person to do so"). The noble Lord said: My Lords, Clause 19 of the Bill sets out the fundamental financial promotion prohibition. As your Lordships are well aware, it applies to invitations or inducements to engage in investment activity. That expression is defined in subsection (8) in two different ways. Subsection (8)(a) provides that entering or offering to enter into agreements will be, Engaging in investment activity", if the making or performance of the agreement, constitutes a controlled activity". Subsection (8)(b) provides that exercising rights conferred by an investment is, Engaging in investment activity", if the rights are to, acquire, dispose of, underwrite or convert an investment". Subsection (9) provides that an activity is a "controlled activity" for the purposes of subsection (8)(a), and so is subject to the financial promotion regime, if it is an activity specified by the Treasury and relates to an investment specified by the Treasury. However, subsection (8)(b), which is supposed to cover the same ground, does not limit investments to those specified by the Treasury. Accordingly, the fundamental financial promotion prohibition in subsection (1) is currently much wider than intended.

Although subsection (8)(a), which spells out the main meaning of engaging in investment activity, is limited to investments specified by the Treasury—because subsection (9) applies to it—there is no such limitation on the second meaning of engaging in investment activity; namely, exercising any rights conferred by an investment to acquire, dispose of, underwrite or convert an investment". These amendments are intended to limit the regime in relation to the exercise of investment rights. The new subsection (9A) requires the Treasury to specify again the same investments or classes of investment it has specified under subsection (9). Surely it is much simpler just to say that an investment is a controlled investment if it falls within subsection (9)(b). It will be far too complicated for the Treasury to specify different investments for the purposes of subsection (9) and for the purposes of new subsection (9A).

The amendment to "investment" in line 10 is probably misdirected. I refer to Amendment No. 51. Surely the financial promotion regime ought to extend to cover rights to acquire, dispose of, and so on, any investment and not just an investment which is itself subject to the financial promotion regime. Restricting the regime to where the investment which can be acquired, disposed of, and so on, is a controlled investment is therefore too limiting.

The other amendments seem to me to be wholly admirable. As the effect of specifying controlled investments is to limit the financial promotion regime, I think—dare I say it?—like the Government, that there is no need for the special parliamentary control provisions in paragraph 26 to apply. I beg to move.

Lord Elton

My Lords, I do not want in any way to cut across discussion of my noble friend's amendment but to leave a thought with the Minister to consider and perhaps discuss before the final stage. I do so because this is the last opportunity to suggest improvements for the final stage of the Bill. We have here a series of definitions and we have a series of definitions scattered throughout the Bill. In view of the great facilitation it would be to users of the Bill when it becomes an Act and is published, would it be possible to have an index in the Bill—there is precedent for this—of terms which are defined in the Bill? That would mean that where there is a different definition of the same term in different parts of the Bill, people using the Bill will not be led into confusion by thinking that the interpretation is the same in both parts.

I do not wish to promote a discussion of the merits of that idea, which I think are self-evident, but merely to leave it with the Minister so that perhaps we can return to it at Third Reading.

3.30 p.m.

Lord McIntosh of Haringey

My Lords, perhaps I may respond first to the helpful point made by the noble Lord, Lord Elton. There is indeed such an index in the Explanatory Notes which takes up several pages and indicates where in the Bill these definitions are to be found. However, that is not much help to the noble Lord as the clause numbers have changed considerably. It may be helpful, and it would not be difficult for us, if between now and Third Reading we were to circulate an updated list of definitions with reference to their location in the Bill, as amended on Report.

Lord Elton

My Lords, lapsing into the style of a Committee stage, publication in a separate explanatory document would not be the remedy for which I had hoped. What is needed is an index which will travel with the Act itself and should therefore be incorporated in it. Otherwise, the noble Lord got my middle stump!

Lord McIntosh of Haringey

My Lords, the definitions are in the Act. Where it is possible for a definition to apply to the whole Act, that definition is to be found in whichever clause it is that has changed. I do not have the number offhand, but it is there. The only reason why there are sometimes definitions in other places is that they only apply to parts of the Bill. That is the situation in regard to Clause 19. So it cannot be done by means of the index that the noble Lord wants on the face of the Bill. However, I undertake to see to it that when we return to these matters at Third Reading the noble Lord and other noble Lords who have taken part in the debates can have in front of them not merely the definitions as they appear in the Bill but also an index of where to find them. I appreciate the difficulty.

I am grateful to the noble Lord, Lord Kingsland, for his exposition of the government amendments. I was slightly taken aback that the noble Lord did not speak to his Amendment No. 48, as I had intended to be rather sympathetic to it—and probably still shall be. The difference between us on this amendment is narrowing.

Amendment No. 48 to Clause 19 seeks to delete "inducement" from the financial promotion restrictions and replace it with, invitations to engage in investment activity or information which is intended or might reasonably be presumed to be intended to induce any person to do so". I understand the concern that the Opposition have. It has been expressed at various stages throughout the Bill. I undertook in Committee to look at whether Clause 19( 1) needs further clarification. As we have always said, it is implicit in the phrase "invitation or inducement" that only promotional communications will be targeted by Clause 19, and I believe that that is the intention of Amendment No. 48.

As things stand, in my view Clause 19 as drafted is the best way of tackling these issues. The word "inducement" should catch only communications of a promotional nature. However, we should appreciate the opportunity to confirm that that LS so, and that that is the Opposition's intention. I issued half an invitation to talk to the noble Lord, Lord Kingsland, before Report stage. I should now like to issue a firmer invitation to meet the noble Lord to discuss the matter before Third Reading. My office will make arrangements for such a meeting if the noble Lord wishes. On that basis, I urge him to withdraw the amendment.

Amendment No. 49 seeks to amend subsection (3) of Clause 19 so that subsection (1), which sets out the basic prohibition, does not apply unless the communication is intended or might reasonably be presumed to be intended to be aced on by a person". in the United Kingdom. That was also proposed in Committee. The Opposition were concerned that the clause is not sufficiently clear and that communication will be caught only if it is targeted or "directed at" a person ill the United Kingdom. We believe that this issue is best dealt with in subordinate legislation and we have proposed something designed to achieve that in the draft order set out in the second consultation document on the subject of financial promotion; namely, cutting back on the "capable of having an effect" test in subsection (3). The reason why we believe it should be in secondary legislation is that we are presently in an intermediate stage between the home state regime and the host state regime and it is difficult to estimate the speed or in which direction it will go. It is not clear what "acted on" means. For example, if a communication is sent From abroad for onward transmission by an agent in the UK, is that a communication which is intended to be "acted on" by a person in the UK? If so, is onward transmission acted on in a sense that should be covered by the Bill?

Another intention behind the amendment may be the need to address the UK's Community obligations. In any event, I should like to say a few words about this for the record. Let me say quite categorically that the United Kingdom takes its obligations seriously. That is in respect both of our treaty obligations in general and any specific legislation such as the proposed e-commerce directive, in particular with regard to territorial jurisdiction and other requirements it might place on the UK's financial promotion regime. The UK is committed to ensuring that the financial promotion regime complies with all Community requirements.

Clause 19 was amended in Committee in order to clarify that the Treasury can adjust the scope of the Bill's financial promotion regime in order to take full account of international and technological developments. Under subsection (6) of Clause 19 as it now stands, an order made under subsection (5) may in particular provide that subsection (1) does not apply in relation to communications originating in specific countries or groups of countries such as EU member states. These provisions will enable us to comply with our obligations to give effect to requirements such as a home state regime for e-commerce transactions. In the meantime, the provisions will enable us to give effect to obligations which arise by virtue of general EU law under the treaty. In applying controls of the kind which will be imposed once the necessary subordinate legislation is in place, which will be before Clause 19 and the Bill as a whole are brought into force, we must ensure that any requirements we impose are not discriminatory, are objectively justifiable, are not disproportionate to the ends to be achieved and do not duplicate controls to which a person is subject in his home state. Given our intention to modify the scope of the prohibition using secondary legislation, I hope that the noble Lord will not press the amendment.

The amendment to Clause 23, also proposed in Committee, still puzzles us. We are still unclear as to why oral communications not amounting to an invitation to engage in investment activity should be given a special exemption from criminal liability when presumably oral communications which amount to both an invitation and an inducement would remain subject to Clause 23(1).

The Government remain concerned that the impact of this amendment would be to create a two-tier regime with regard to penalties for breach of Clause 19 whereby some communications which breach the prohibition are subject to criminal sanctions while others are exempt. The Government do not favour that. We see no reason to apply a softer touch to all oral communications, which can after all be just as misleading as other forms of communication.

The Government have already proposed that solicited real-time communications (including oral communications) which are not part of a co-ordinated promotional strategy should benefit from an exemption. However, we remain convinced that unsolicited real-time communications should be subject to restrictions.

In any event, it is in the interests of consumers that a uniform approach be taken on the face of the Bill. Debate on the draft Financial Promotions Exemptions Order is the appropriate place to discuss which real-time communications should be classified as exempt from the prohibition.

Perhaps I may say a word about the government amendments in this group. Amendments Nos. 50 to 53 and 54 to 56 are technical, tidying-up amendments to Clause 19. Under Clause 19(8), one meaning that is ascribed to "engaging in investment activity" is, exercising any rights conferred by an investment to acquire, dispose of, underwrite or convert an investment". Under Clause 19(13) "investment" is defined to include any "asset, right or interest". That represents the only limitation placed on what constitutes an investment. The amendments will serve to narrow the definition. The thrust of many of our amendments which we shall debate today are to limit the scope of the Bill and define it more closely; they are certainly not to extend its scope.

Amendments Nos. 50 and 51 seek to amend subsection (8)(b) so that engaging in investment activity is defined to mean, exercising any rights conferred by a controlled investment to acquire, dispose of, underwrite or convert a controlled investment". Amendment No. 52 seeks to introduce a new subsection (9A) to define a "controlled investment" as one that is specified in an order made by the Treasury or, one which falls within a specified class of investment". One appreciates that that is not much of a definition unless one knows what the specification is to be, but this is another aspect of the flexibility which is required as financial markets change. Amendments Nos. 54 to 56 are consequential on those amendments.

Amendments Nos. 224 and 225 make consequential changes to Clause 41 which is concerned with the parliamentary control of statutory instruments. The amendments add to the list of statutory instruments which require an affirmative resolution procedure for the first orders to be made, or contain provisions made under Clause 19(9A), as well orders that add one or more investments to those which are controlled investments for the purposes of Clause 19. Amendment No. 223 also adds to this list orders which vary a previous order made under Clause 19(5) so as to make Clause 19(1) apply in circumstances where it did not apply as a result of a previous order. All these changes to Clause 418 have been approved by the Delegated Powers and Deregulation Committee.

Clause 19(9) provides that an activity is controlled for the purposes of financial promotion if it relates to an activity or investment that is specified in an order by the Treasury. Schedule 2 sets out the boundaries of what may be specified. Clause 19(10) provides that Schedule 2 applies for the purposes of subsection (9) and that references in Schedule 2 to Clause 20 should be read as references to Clause 19(9).

Parliamentary control of the secondary legislation is set out in Clause 418. Paragraph 26 of Schedule 2 also sets out parliamentary control of orders made under Clause 20. Therefore, by virtue of the provisions of Clause 19(10), paragraph 26 of Schedule 2 applies to Clause 19(9). The form of parliamentary control differs. Schedule 2 specifies that an order must be laid before Parliament after being made and that it comes into effect immediately but ceases to have effect if it is not approved by both Houses within 28 days. Clause 418 provides that a draft order is to be laid before Parliament which requires the approval of both Houses before it can come into effect. The reason for the difference is that orders under Clause 20 may need to be made urgently. Amendment No. 53 has the effect of bringing parliamentary control of Clause 19(9) unambiguously into Clause 418 by making it clear that paragraph 26 of Schedule 2 does not apply to Clause 19(9).

I hope that I have set out the reasons for the government amendments in this group. Although we are sympathetic to Amendment No. 48 and should like to discuss it further, we cannot accept the other amendments in the group.

Lord Kingsland

My Lords, I thank the Minister for his reply. The noble Lord will be relieved to hear that I do not intend to speak again to amendments that have been retabled following Committee stage. I would rather leave them where they are to ferment, perhaps steadily improving with age, so that at Report stage the Minister may find them more palatable. I am most grateful to the noble Lord for his response to Amendment No. 48 and look forward to receiving his kind invitation, in appropriate copperplate. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 49 not moved.]

Lord McIntosh of Haringey

moved Amendments Nos. 50 to 56: Page 9, line 9, leave out ("an") and insert ("a controlled"). Page 9, line 10, leave out ("an") and insert ("a controlled"). Page 9, line 15, at end insert— ("(9A) An investment is a controlled investment if it is an investment of a specified kind or one which falls within a specified class of investment."). Page 9, line 16, after ("2") insert ("(except paragraph 26)"). Page 9, line 16, leave out ("subsection (9)") and insert ("subsections (9) and (9A)"). Page 9, line 17, leave out ("that subsection") and insert ("each of those subsections"). Page 9, line 19, at end insert ("or (9A)"). On Question, amendments agreed to.

3.45 p.m.

Clause 20 [The classes of activity and categories of investment]:

Lord Kingsland

moved Amendment No. 57: Page 9, line 31, at end insert— ("( ) The activity carried on by way of business of giving or offering or agreeing to give advice (other than legal advice) to persons in their capacity as borrowers or potential borrowers on the terms of a loan or a proposed loan secured or to be secured on land or any other property shall be a regulated activity."). The noble Lord said: My Lords, as noble Lords are well aware, this amendment is intended to ensure that the giving of advice in relation to mortgages is a regulated activity. Such an activity could be a regulated one if the Treasury included advice on mortgages in the regulated activities order. However, it seems that, at least at present, the Government do not intend that the provision of advice on mortgages should be regulated. This is not satisfactory given that the provision of mortgages is to be a regulated activity. It is not sufficient to rely on mortgage providers, who are to be regulated, to ensure that independent mortgage advisers adopt appropriate standards.

The argument for regulation can be illustrated by asking why someone who advises on an ISA, which may involve a modest investment of only a few hundred pounds, is required to be regulated, while someone who advises on a mortgage, which may well involve a loan of many thousands of pounds, is not. Why should the former be required to carry out a detailed fact-finding of his customer while the latter is not? It is not enough to say that in the case of an ISA it is the customer's money which is being invested whereas in the case of a mortgage the customer is a recipient of someone else's money. The fact is that in the case of a mortgage the customer enters into a very substantial long-term commitment which may have a major impact on his financial position. Nowadays, the marketplace is full of different types of mortgage product and the average borrower is in greater, not less, need of help in determining the advantages and disadvantages of particular products.

The impression gained is that the standards of advice are very variable, with many borrowers still entering into quite unsuitable mortgages. The introduction of new standards for mortgages will help but will not provide the complete answer. In our view, it would be a major anomaly if the provision of mortgage advice was not part of the new regulatory regime from the outset. The amendment is intended to remove that anomaly. I beg to move.

Lord Newby

My Lords, in Committee we moved three amendments relating to mortgages which covered two issues: first, what was meant by "a mortgage"; and, secondly, what a mortgage could cover. My noble friend Lord Sharman described in graphic detail mortgages on boats, caravans and various other categories of property which are as important to the person who holds the mortgage as the person's home. We believe that the question of the inclusion of those mortgages in the remit of the Bill may be dealt with in regulation and that the Government accept that they are just as important as mortgages on houses. On that understanding, we have not retabled the amendment.

As to advice, we tabled an amendment which in many ways mirrored the amendment which has been moved by the noble Lord, Lord Kingsland. In Committee, the noble Lord, Lord Burns, explained why the Joint Committee believed that mortgage advice should be included in the scope of the Bill. We still believe that at some stage the FSA may wish to look at the regulation of mortgage advice, but it has been borne in upon us that the other category of advisers not covered by the Bill is insurance brokers. We believe that there is an illogicality in formally including one and not the other. Therefore, in relation to advice, at this stage we do not table an amendment similar to that tabled in Committee.

Lord Elton

My Lords, I am sorry that the noble Baroness, Lady Turner, is not present. She is at least with us in the spirit of the terms of Amendment No. 59.

It seems extraordinary that regulation of advice for the most important financial decision that many people will take in their lives should be left to subordinate regulation or made the responsibility of a body other than the FSA. The commitment to a mortgage often outlasts the commitment even to a life insurance policy. It determines the manner of life of many people. We have seen recently how people who have been wrongly advised have overcommitted themselves to a mortgage and have been caught in the negative equity trap. If there is any purpose in having the Bill so far as concerns the private citizen, this is an area of the most important sensitivity. Therefore, I support my noble friend. I hope that he does not let the matter drop.

Lord Jenkin of Roding

My Lords, I add my voice in support of the amendment. For a long time there was a great sense of injustice that life insurance companies were subject to the full rigours of the then regulatory system whereas building societies—in many cases they were involved in far larger financial transactions than those for life or pension policies—were not. That situation has changed; and I welcome it. It was an unfair form of competition. The full rigours of the regulatory system applied to selling life insurance but not to selling mortgages.

However, the Bill has only gone half way. Many of the products are promoted by advisers even though the mortgage product is provided by the building society, bank—or whoever it may be. It is upon the person with whom the public has the face-to-face contact that the regulation should bite. The broker may be able to offer a range of products from different providers. But in the end it is probably on his or her advice that the punter finally decides to move forward; and it may be bad advice. There are many reasons why that may be so. I do not need to go into them now.

As my noble friend from the Front Bench said, it is extraordinary that the Bill moves only part of the way. Many people believed that if we were to have a system of regulation, it should surely cover, as my noble friend Lord Elton said, the largest single transaction that most people are likely ever to take on in their lives. With respect, it is unfair that the providers of mortgages should have to second-guess the advice of the brokers because the brokers are not regulated or subject to the regime established by the FSA; and that in order to protect themselves the building societies will need to go much further into the circumstances of the individual borrower than they might if the process were properly regulated from beginning to end.

If my noble friend receives what I suspect will be a somewhat unsatisfactory answer from the Minister, I, too, hope that he will take the matter further. It is a curious lacuna in the Bill. I am at a loss to understand why the Government are so reluctant to move this last stage.

Baroness Oppenheim-Barnes

My Lords, I support my noble friend's amendment and all who have spoken in favour of it. No doubt the noble Lord, Lord Borrie, waits to intervene in support. He knows as well as I do that this area is something of a jungle for consumers.

There is a good deal of wise advice available, but it varies, as my noble friend said. Brokers are, after all, brokers; they have a job to do which they see in one light. I do not blame the providers of the mortgages, but the variations are great. Consumers are entering a jungle; they are not confident; they are confused. The amendment seeks to ensure that the advice they receive is bona fide: that there is no unacceptable variation.

I hope, therefore, that my noble friend will not let the matter drop. The issue is important for consumers.

Lord Boardman

My Lords, I strongly support the amendment for the reasons outlined by noble Lords on this side of the House.

There is no numerically larger group in the community than mortgagors. No group needs wise advice more than they do. Often a mortgage may be the only investment they have made and they want the best advice they can get in order to invest wisely. I urge the Minister to accept the amendment moved by my noble friend and to allow mortgages to be covered by the safeguards provided in the Bill.

Lord Borrie

My Lords, the noble Baroness, Lady Oppenheim-Barnes, will be glad to know that I wish to repeat something I said at Second Reading; namely, that the provisions for regulation should apply to those who give advice. At that time I disclosed that I was a non-executive director of the Woolwich plc, which is a provider of financial services. At the annual general meeting I ceased to be a non-executive director. However, I have the same view today as at Second Reading. The remarks of the noble Lord, Lord Jenkin, chimed with my point of view. Providers of mortgages are keen, as is the Woolwich plc, that brokers should be subject to regulation in the way that providers of financial services are.

Brokers may be or can be—it varies from case to case—exceedingly important in the choice of and decisions on investment made by the customer. As others have said, a mortgage is often the most important investment that a consumer may make in the course of his or her lifetime. I should like the Government to convince me that somehow or other such advisers should not be subject to regulation.

Lord Lipsey

My Lords, I should not like it to be thought that the controversy is between those in favour of and those against the regulation of mortgages. In answer to the point raised by the noble Lord, Lord Boardman, the Bill allows full regulation of mortgage products to be brought in by order.

The question is a practical one. Can the FSA so early in its life, with such a huge workload to digest, take on the task of regulating the vast number of mortgage brokers? I think that I have seen the figure of 20,000. Is that a sensible priority at stage one? Whatever position noble Lords take, they should not think that it is the end of the matter. It would be better to make provision at the right time—it may be later—and to get it right.

Lord McIntosh of Haringey

My Lords, we debated these matters in Committee. As I said in Committee, the Treasury consulted last year on whether mortgage advice should be regulated. The Treasury consultation document on mortgages, Regulation of Mortgages—a discussion document by HM Treasury, was published on 20th July, 1999; and the feedback document, Evidence of consumer damage reported during Treasury Mortgage Consultation, was published in January of this year. Both documents are published on the Treasury website.

The Treasury received little evidence of consumers receiving bad or biased advice and when that was mentioned it was in the context of selling commission-based products such as endowment policies, which are already regulated under the Bill. Indeed, they have been regulated as "investment activity" since the Financial Services Act 1986. The Bill provides that that will continue. Therefore, the problem that has arisen is already covered by the regulatory system and as matters stand it will continue to be so. Making advice on mortgages which does not also involve advice on products such as endowment policies a regulated activity will not add to the protections which are already available.

The Government have recently taken steps to remedy one other area in which problems arise. The area was highlighted in consultation as causing particular consumer detriment; namely, the provision of poor quality or misleading information which has resulted in consumers buying an inappropriate mortgage product or being subject to hidden charges.

One interesting feature of the consultation exercise was that about half the replies the Treasury received came from borrowers who had simply not appreciated what their mortgage loans really entailed. There was clear evidence that people were willing to look after their own interests in taking out and servicing their loans if they could be empowered to do so by the available information about the loan itself.

As a result of the consultation, the Economic Secretary to the Treasury announced on 10th April important new standards which relate to standard variable and fixed rate or capped mortgages, including some discounted and cashback loans. As noble Lords who have been following the legislation in ISAs will remember, the CAT standards refer to charges, access and terms. They will help to make mortgages more straightforward, clear, fair and easy to understand. CAT standards set minimum standards, most importantly in relation to the advertising of mortgage products. That is a crucial improvement in terms of product transparency, ensuring that the consumer has access to all the information required to make an informed decision as to which mortgage product to apply for.

These measures add to those already announced to benefit borrowers, such as the proposal in the Bill that the Financial Services Authority should have a regulatory objective aimed at improving public awareness and understanding of financial products. I understand that in line with this proposed objective the FSA is currently developing information tables to assist consumers in their comparison of the different products on the market. Once again, where the issues have emerged action has been taken.

The objective of the Bill is to provide a sensible regulatory framework which focuses on areas where regulation is required. Blanket regulation of mortgage advice may look attractive, but is it sensible or proportionate? As I said, action has already been taken in those areas where problems are thought to arise. In addition—and I note that my noble friend Lady Turner is not here—if the amendment is successful, the implementation of the new regime could be substantially delayed, which I do not believe is the intention.

Lord Jenkin of Roding

My Lords, I am afraid that I missed the Economic Secretary's announcement, which is probably my fault. The Minister said that endowment mortgages were covered by regulation because they involved life insurance. Often, the biggest single issue facing a mortgagor is whether there should be an interest-only mortgage or an endowment mortgage. Perhaps the Minister could clarify whether the announcement made on 10th April ensures that those who are advising on that critical question will be subject to the regulation of the authority.

4 p.m.

Lord McIntosh of Haringey

My Lords, the announcement which the Economic Secretary made related to the introduction of the charges, access and terms regime (CAT) to mortgage products where they had not previously existed. Noble Lords who have been familiar with individual savings accounts since they were announced some two years ago will recall that the CAT standards have ensured that there is available a range of ISAs which have a kite mark in terms of the charges made on the amount paid in, ensuring adequate access and comprehensible and fair terms. That will be introduced in relation to mortgages.

If that is put alongside the now acknowledged fact that any endowment policy is investment and is regulated as such, it is clear that the two difficulties which have been identified in consultation are dealt with by the Government's proposals.

I turn to the effect of the amendment. Our previous amendments and those that we are to introduce limit the scope of the Financial Services and Markets Bill. This amendment would extend the scope of the Bill and enormously extend the responsibilities of the Financial Services Authority. It would mean—and my noble friend Lord Lipsey gave an underestimate—that the FSA would have to authorise 20,000 broker firms and 40,000 individual brokers. The FSA estimates that if the amendment were passed and the proposal carried through, it would require an additional 200 staff.

We have seen much in the press about the huge power that is being given to the FSA and the huge risks which go with that power. I do not accept what has been said in the press, but in the amendment the Conservative Party proposes an enormous extension to the power and responsibilities of the FSA.

Lord Elton

My Lords, I had brief experience as a regulator when the Financial Services Act 1986 was brought into force and I was called upon to deal with the regulation of independent financial advisers. The numbers the Minister gives do not surprise me, but they strengthen my view that on the penumbra of the large number of reputable advisers there is an enormous penumbra of highly unreputable ones. That is what we found in independent financial advisers, whose employment is similar to that which we are now discussing. The bigger the numbers become, the more the matter should be brought into regulation.

Lord McIntosh of Haringey

My Lords, the noble Lord is forgetting two things. First, we have already agreed that mortgage products will be regulated by the Financial Services Authority. Mortgage products must be introduced by large-scale institutions.

Lord Elton

My Lords—

Lord McIntosh or Haringey

My Lords, we are at the Report stage.

Lord Elton

My Lords, the Minister is under a misapprehension. The financial advisers to whom I am referring did not produce a product. They took a commission on advising other people to get it. That is exactly where we are here.

Lord McIntosh of Haringey

My Lords, that is exactly my point. The mortgage brokers and the individual brokers to whom I am referring have no option but to sell products which are themselves regulated under the Bill. That is the difference and the extent of their powers.

Lord Boardman

My Lords, the noble Lord gave the number of additional staff who would be required if the amendment were accepted. Could he estimate the annual number of mortgagors who would be unprotected if the amendment were rejected?

Lord McIntosh of Haringey

My Lords, no mortgagors would go unprotected because the Bill proposes, and we propose in regulation, that mortgage products will be covered. But the situation is worse than that. The amendment would bring far more than mortgage advice within the scope of the Bill. Anyone who advises on any loan would require authorisation provided that the loan was secured on some form of property. That is an extension of the power of what is being described as an "overweening authority" beyond anything I would have thought possible for noble Lords opposite to propose.

The noble Lord, Lord Newby, in a balanced speech, said that he could understand that in future it might be— he believed that it probably would be—necessary to bring such advice into the scope of the Bill. Of course, as has already been made clear, it is always possible, by regulation, to bring mortgage advice within the scope of the Bill. However, I can give him an assurance that the Treasury will examine how the new measures play out in the market place. If, in a few years' time after implementation, borrowers experience significant and widespread problems that lie at the door of bad advice, rather than relying on opaque product terms, Ministers will have no hesitation in using their powers to extend the scope of statutory mortgage regulation.

Everything that we have seen and heard so far has persuaded the Government that the measures that they have put, and will be putting, in place with regard to mortgages are a proportionate and measured response to the need to protect borrowers from unfair or restrictive practices. At the same time, they do not saddle the industry with costs and delays which, in the long term, simply rebound on the consumer. I ask the noble Lord to withdraw the amendment.

Lord Kingsland

My Lords, I hope that the Minister will agree that any attempt by me to disguise the strength of feeling on this side of the House about this matter will be futile. I was surprised to hear the noble Lord the Minister say that it would lead to a large extension of the power and the responsibilities of the authority. I agree that it would lead to an extension of the responsibilities of the authority, but I do not see how that would lead also to an extension of power. It means simply that the authority would apply the same powers in a wider field.

As I understand it, the main reason for establishing the authority is to protect the consumer. The consumer needs protection in this, more than any other, area of financial activity. If the noble Lord the Minister had given me some encouragement to believe that, in a reasonable time under delegated legislation, those activities would be covered, I would be inclined to withdraw my amendment. He gave me no such encouragement. Therefore, in the circumstances, I feel obliged to press the amendment.

I am disappointed that the noble Lord, Lord Newby, is not with me. However, at least I am comforted by the thought that the fewer the men, the greater the share of honour. I wish to test the opinion of the House.

4.12 p.m.

On Question, Whether the said amendment (No. 57) shall be agreed to?

*Their Lordships divided: Contents, 93; Not-Contents, 145.

Division No. 1
CONTENTS
Anelay of St. Johns, B.	Eccles of Moulton, B.
Astor of Hever, L.	Eden of Winton, L.
Attlee, E.	Elliott of Morpeth, L.
Bagri, L.	Elton, L.
Barber, L.	Ferrers, E.
Beaumont of Whitley, L.	Flather, B.
Blaker, L.	Fraser of Carmyllie, L.
Boardman, L.	Gardner of Parkes, B.
Bowness, L.	Garel-Jones, L.
Brabazon of Tara, L.	Geddes, L.
Bridgeman, V.	Goschen, V.
Brougham and Vaux, L.	Gray of Contin, L.
Burnham, L. [Teller]	Hayhoe, L.
Buscombe, B.	Henley, L. [Teller]
Byford, B.	Higgins, L.
Campbell of Alloway, L.	Hogg, B.
Campbell of Croy, L.	Holderness, L.
Carlisle of Bucklow, L.	Howe, E.
Carnegy of Lour, B.	Howell of Guildford, L.
Chilver, L.	Hunt of Wirral, L.
Clark of Kempston, L.	Hylton-Foster, B.
Cope of Berkeley, L.	Jenkin of Roding, L.
Courtown, E.	Kingsland, L.
Cranborne, V.	Kirkham, L.
Dean of Harptree, L.	Knight of Collingtree, B
Dundee, E.	Liverpool, E.

Luke, L.	Platt of Writtle, B.
Lyell, L.	Prior, L.
McCarthy, L.	Rawlings, B.
McConnell, L.	Reay, L.
MacFarlane of Bearsden, L.	Renton, L.
Mackay of Ardbrecknish, L.	Roberts of Conwy, L.
Marlesford, L.	Rotherwick, L.
Masham of Ilton, B.	Ryder of Wensum, L.
Mayhew of Twysden, L.	Seccombe, B.
Miller of Hendon, B.	Sharpies, B.
Monro of Langholm, L.	Shaw of Northstead, L.
Mowbray and Stourton, L.	Shrewsbury, E.
Moynihan, L.	Skelmersdale, L.
	Strathclyde, L.
Northbrook, L.	Thomas of Gwydir, L.
Norton of Louth, L.	Trumpington, B.
Onslow, E.	Vivian, L.
Oppenheim-Barnes, B.	Waddington, L.
Park of Monmouth, B.	Wedderburn of Charlton, L
Pearson of Rannoch, L.	Willoughby de Broke, L.
Pilkington of Oxenford, L.	Windlesham, L.

[The votes of L. Mc Carthy and L. Wedderburn of Charlton in the Content Lobby were given in error.]

[*The Tellers for the Not-Contents reported 145 votes; the Clerks recorded 144 names.]

4.22 p.m.

Lord Lipsey

moved Amendment No. 58: Page 9, line 33, at end insert— ("( ) The Treasury shall within 28 days of the passing of this Act make provision under subsection (1) in respect of buying, selling, subscribing for, carrying out or underwriting contracts of insurance against the provision of long-term care or offering to do so, either as a principal or as an agent."). The noble Lord said: My Lords, it has been said previously on this subject, at Second Reading and in Committee, that a boom in sales of the products covered by my amendment is to be expected when the Government respond to the Royal Commission on long-term care when it reports in July and it becomes clear that the Government cannot pay and w ill not pay for everything people require in their extreme old age.

These products are strong candidates for regulation: they are expensive; they are complicated, and once you are in you cannot get out; once you have bought it, you are stuck. They are sold in particular to vulnerable people or to people who may be at a particularly vulnerable stage in their lives, when they are going into care. There is therefore a wide consensus that they should be subject to regulation, which includes in its bounds the Personal Investment Authority, the FSA, the ABI, Age Concern, the Continuing Care Conference, the Burns committee which scrutinised this Bill before its introduction, Uncle Tom Cooley and all.

When this matter was raised by a number of noble Lords in Committee the Minister made encouraging noises in response. It might therefore be for the convenience of the House if we asked him to give us the result of his further deliberations right at the start of the debate. I beg to move.

Lord McIntosh of Haringey

My Lords, I believe that there is precedent for the Government to respond to a request of that kind at Report stage, and I am happy to do so.

As I said in Committee, the market for long-term care financial products is new and relatively small, though it is developing. The products are sometimes complex. There is as yet not enough claims history to provide a track record to discover whether the cover that is ultimately provided matches people's expectations of what they thought they were buying.

I referred in Committee to the work of the Treasury committee, which was established to explore with the financial services industry how long-term care insurance products and other financial products could best be designed, to see whether they could be made more attractive to a wider audience. The committee comprises representatives from the industry and consumers, as well as some academics who specialise in this area. The committee has been reviewing how the best features of existing products, coupled with good practice and an appropriate degree of regulation, can be combined to make long-term care insurance products a safe and attractive proposition for as many people as possible.

We expect the committee to report by early stages of the summer. I am assured that the committee has made a great deal of progress in a complex area. Among other things, it has discussed existing products; how they are sold; the desirable characteristics of each product; as well as topics such as the claims criteria, claims procedure, people's understanding of what they were buying, and what good practice might entail.

In developing product design criteria, the committee is considering cost and reliability as well as ease of understanding and competition. The committee is also considering how providers can be encouraged to market acceptably designed products, for example, through disclosure, benchmarks, minimum standards, codes of conduct and invitations to tender.

Once the committee has delivered its report we will be in a better position to judge what measures should be taken to ensure that consumers in this area are fully protected.

As will be clear from what I have said, the Government need to go through various processes before finally resolving this matter. These include completion of the process of regulatory impact analysis and the necessary consultations with interested parties.

However, provided that that work confirms, as my noble friend Lord Lipsey clearly expects it will confirm, that regulation will be proportionate and effective, we shall aim to include long-term care products in the regulated activities order, often referred to as the scope order, which will follow the passage of this Bill. I should add that the order is subject to the affirmative resolution procedure; it will therefore be debated in both Houses.

I undertake that we will give the House a full report of our conclusions, with a clear timetable for future action, at the time when the order is debated. The Government intend to lay that order before Parliament as soon as is reasonably practicable. We are determined—to pick up a phrase used by my noble friend Lord Lipsey at an earlier stage—that the stable door will not be left open so long that there is a serious risk that the horse will bolt.

The Government are grateful to those who have expressed concern over this matter. They have given us a welcome opportunity to set out our views more fully and, I hope, to alleviate the real concerns which have been expressed.

Lord Lipsey

My Lords, I am extremely grateful to the Minister for what he has said. His words are so moving as to reduce the House to silence. I could not have put his concluding words better had I drafted them myself.

I would like to thank noble Lords on all sides of the House who have supported me in our discussions of the regulation of long-term care. I would also thank the Minister, the Economic Secretary and the Treasury team for the time that they have devoted to the matter, for their consideration and for their sympathy. In truth, I do not think that there was ever much between us, and now there is nothing.

At one point a newspaper reported that the Treasury had caved in on this matter. The Treasury never caves in, and it certainly did not on this occasion. Matters have been crystallised and clarified, and I believe that the Minister's statement will delight those outside Whitehall who have supported regulation. I hope that it will also delight the House, from which I will, with your Lordships' permission, withdraw my amendment.

Amendment, by leave, withdrawn.

Schedule 2 [Regulated Activities]:

[Amendment No. 59 not moved.]

Clause 23 [Contravention of section 19]:

[Amendment No. 60 not moved.]

4.30 p.m.

Lord Kingsland

moved Amendment No. 61: Page 10, line 43, leave out ("purchaser")") and insert ("other party")"). The noble Lord said: My Lords, Amendments Nos. 61 to 64 and 70 are variations on similar amendments tabled in Committee and are intended to avoid the word "purchaser".

As pointed out in Committee, in some circumstances, the purchaser may be a seller. That may be confusing and our original proposal was to substitute the word "purchaser" with the word "counterparty". In Committee, the Minister acknowledged the point and said that he was unsure whether "counterparty" was quite the right word. However, no alternative has been forthcoming from the Government and, therefore, we suggest the rather straightforward alternative of "other party" to "purchaser". I shall be interested to hear the Minister's response to that suggestion.

Meanwhile, the other government amendments are welcome. As we have said on previous occasions, both in another place and in Committee in your Lordships' House, with respect to Clause 26, the only test for enforcement of an agreement should be whether it is just and equitable. I am delighted to say that the Government have now made it clear that what are now the issues, formerly conditions, are not fatal, even if they are answered in the negative, although the court may have regard to them.

The amendment to Clause 27 is to the same effect as that to Clause 26. It makes enforcement depend only on whether it is just and equitable, albeit that it requires the court to have regard to the question as to whether the deposit-taker really did believe that he was not contravening the authorisation requirement.

The series of amendments to Clause 28 makes the same changes in relation to the enforcement of agreements entered into pursuant to unlawful financial promotion communications, as do the amendments on the question of enforceability in Clauses 26 and 27 in relation to carrying on business without authorisation. Those amendments are also welcome.

However, I make one small point. I have noticed that in the new subsection (5A), line 3, after the words "under the agreement", there should be inserted the words "or obligation". That was missing in earlier versions and it appears to me that the omission has been carried forward. I beg to move.

Lord McIntosh of Haringey

My Lords, I have a complicated but friendly message on Amendments Nos. 61 to 64 and 70. I ask the noble Lord, Lord Kingsland, to withdraw Amendment No. 61, which changes the tag or label in Clause 24 from "purchaser" to "other party" so that we can consider in what form to bring it back on Third Reading.

The simplest thing may be to leave "other party" as it is in Clause 24 and not to have any tag or label at all rather than to put a new tag "other party" so that the phrase is not repeated, as the Bill would read were the amendment to be accepted. If the noble Lord, Lord Kingsland, will withdraw Amendment No. 61, the Government can then agree to opposition Amendments Nos. 62, 63, 64 and 70 which all take out the word "purchaser" and replace it by the words "other party". If that is done, we shall make speedy progress.

Government Amendment No. 72 deals with deposit-taking and third party breaches. That would introduce a new clause dealing with deposit agreements entered into as a result of illegal regulated activity by a third party. The need for the third party provisions in Clauses 25 and 26 arises from the fact that advising on and arranging deals in investments are currently regulated activities and will remain so under the regulated activities order that we are proposing.

But in the case of deposits, a similar situation does not arise. It is only the activity of accepting deposits that is intended to be a regulated activity. As now, there will be no third party activities—for example, advising or arranging—which could be carried on by a third party in contravention of the general prohibition in relation to deposits and which could lead to deposit-taking by an authorised person. So making equivalent third party provision for deposit-taking would be an unnecessary complication.

I turn now to government amendments to Clauses 26 and 28. I wrote to those noble Lords who took part in the debate in Committee or, indeed, at any stage, with what I believe is called a "Keeling schedule"; in other words, a text of how those complicated amendments will read when inserted into Clauses 26 and 28. I am already grateful to the noble Lord, Lord Kingsland, for his support for them because they establish the just and equitable test as the sole test on which a court must be satisfied in order to enforce an agreement where that agreement is the result of some breach of either the general prohibition—that is, the prohibition under Clause 17 on carrying on regulated business without the necessary authorisation or exemption—or the financial promotion prohibition under Clause 19.

The other tests do not disappear. They are there as particular issues to which the court is directed to have regard in deciding what is just and equitable in any particular case.

Where the provider—that is, the person carrying on the regulated activity—is doing so in contravention of the general prohibition or where the agreement results from an illegal promotion that the provider himself has communicated, the court is directed to consider whether the provider reasonably considered that he was not acting in breach.

Where the provider has not committed any breach but the agreement results from a breach, of either prohibition, by another person, the court is directed to consider whether the provider knew that the agreement resulted from a breach. As has been acknowledged, the amendments respond to the point made by the Opposition in another place that the court should have flexibility to judge what is just and equitable in difficult cases, and not be hound absolutely by the "reasonably believed" and knowledge tests.

The amendments enhance the discretion of the court in those matters but we believe that that compromise establishes sufficient certainty.

I am advised that I should retract in a very modest way from the offer I made to the noble Lord, Lord Kingsland. I ask him to withdraw Amendments Nos. 61 and 63 and we can agree the other amendments. I am sure that we can find a solution in relation to Amendments Nos. 61 and 63 in due course.

Lord Jenkin of Roding

My Lords—

Lord McIntosh of Haringey

My Lords, no.

Lord Jenkin of Roding

My Lords, but I was just going to comment on what the Minister said.

Lord McIntosh of Haringey

My Lords, this is Report stage. The order of business is that the mover speaks; any other noble Lord who wishes to speak speaks; the Minister replies; and no other speeches are taken other than that of the mover of the amendment. That is the rule and has been for many years.

Lord Kingsland

My Lords, I am extremely grateful to hear that the Minister is prepared to entertain my amendment. I look forward to seeing the fruits of that undertaking on Third Reading. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Kingsland

moved Amendment No. 62: Page 11, line 1, leave out ("purchaser") and insert ("other party"). On Question, amendment agreed to.

Clause 25 [Agreements made through unauthorised persons]:

[Amendment No. 63 not moved.]

Lord Kingsland

moved Amendment No. 64: Page 11, line 18, leave out ("purchaser") and insert ("other party"). On Question, amendment agreed to.

Clause 26 [Agreements made unenforceable by section 24 or 25]:

Lord McIntosh of Haringey

moved Amendments Nos. 65 to 69: Page 11, line 35, leave out ("the enforcement conditions are met.") and insert ("it is just and equitable in the circumstances of the case,"). Page 11, line 40, leave out from beginning to second ("the") and insert ("In considering whether to allow"). Page 11, line 41, leave out ("for"). Page 11, line 42, leave out from ("retained") to first ("the") in line 43 and insert ("the court must—

1. (a) if the case arises as a result of section 24, have regard to the issue mentioned in subsection (4A); or
2. (b) if the case arises as a result of section 25, have regard to the issue mentioned in subsection (4B).

(4A) The issue is whether"). Page 11, line 45, leave out from ("agreement") to second ("that") in line 1 on page 12, and insert— ("(4B) The issue is whether the provider knew"). The noble Lord said: My Lords, I beg to move.

Lord Jenkin of Roding

My Lords, perhaps I may make my point at this stage. It is only brief but it is rather important. I am sure that the House will have in mind the extremely unfortunate circumstances which took place some years ago when a local authority, engaging in interest-swap transactions involving very large sums of money with a number of banks, both foreign and British, was held to have acted ultra vires. The effect of that was to void all the transactions. I must say that it did not redound to the advantage of this country as a centre for financial services. The solution that has been found, incorporating the government amendments, seems to go a long way to avoid any repetition of what was, in terms of the financial reputation of this country, an extremely unhappy chapter.

On Question, amendments agreed to.

Lord Kingsland

moved Amendment No. 70: Page 12, line 4, leave out ("purchaser") and insert ("other party"). On Question, amendment agreed to.

Clause 27 [Deposit-taking in breach of general prohibition]:

Lord McIntosh of Haringey

moved Amendment No. 71: Page 12, line 25, leave out ("and (b)") and insert (", having regard to the issue mentioned in subsection (3A). (3A) The issue is whether"). On Question, amendment agreed to.

[Amendment No. 72 not moved.]

Clause 28 [Enforceability of agreements resulting from unlawful communications]:

Lord McIntosh of Haringey

moved Amendments Nos. 73 to 79: Page 13, line 15, leave out from ("that") to ("it") in line 16. Page 13, line 16, leave out ("for") and insert ("in the circumstances of the case. (5A) In considering whether to allow"). Page 13, line 17, leave out ("for"). Page 13, line 18, leave out ("and— (a)") and insert ("the court must have regard to the issues mentioned in subsections (5B) and (5C). (5B)"). Page 13, line 19, leave out ("that") and insert ("the issue is whether"). Page 13, line 21, leave out ("or (b)") and insert ("(5C)"). Page 13, line 22, leave out ("that he did not know") and insert ("the issue is whether he knew"). On Question, amendments agreed to.

Schedule 3 [EEA Passport Rights]:

Lord McIntosh of Haringey

moved Amendment No. 80: Page 241, leave out lines 19 to 23 and insert— ("12.—(1) Once an EEA firm which is seeking to establish a branch in the United Kingdom in exercise of an EEA right satisfies the establishment conditions, it qualifies for authorisation. (2) Once an EEA firm which is seeking to provide services in the United Kingdom in exercise of an EEA right satisfies the service conditions, it"). The noble Lord said: My Lords, I shall speak first to Amendments Nos. 80 and 86, which make it clear that the key question as to whether an European Economic Area firm qualifies for authorisation is whether it has met the establishment or service conditions. As the Bill stands, it appears that an EEA firm qualifies for authorisation only when it is seeking to establish a branch or to provide services and not when it is already doing so by virtue of the schedule.

Amendments Nos. 81 to 85 are the first of a number of groups which include amendments to complete the Government's rationalisation of the decision-making procedures in the Bill announced at Second Reading. The House will recall that we introduced a number of amendments in Committee and circulated further draft amendments to the early parts of the Bill to ensure that your Lordships would not only have the opportunity to discuss those changes in Committee and on Report, but also to ensure that the whole picture could be seen and understood. Amendments Nos. 81 to 85 are part of that group. They were all circulated to interested noble Lords when we tabled our amendments for Committee stage. They deal with the procedures under Part III of Schedule 3 for the FSA giving or withholding consent for UK firms to establish new places of business in, or to provide cross-border services into other EEA member states.

As with the Government's other amendments, they provide for a simple written notice procedure for granting requests and applications. That ensures a minimum of bureaucracy and hold-up where a firm is being granted consent for what it wishes to do. Even where the consent is not as broad as that sought, there is no reason for there to be any delay in the firm's ability to benefit from it. To the extent that the application is granted in part, that will have immediate effect. Thus, Amendments Nos. 81 to 84 are drafting amendments which require formal written notice to be given to a UK firm by the FSA, rather than the FSA simply informing the firm, when granting consent for that firm to establish a branch in another EEA state, or to provide cross-border services into another EEA state. On the other hand, the warning and decision notice procedure will apply for refusals and part-refusals.

Amendment No. 85 makes it clear that the decision by the FSA to refuse consent for a UK firm to change the details of its activities or establishments in other member states and, therefore, to issue a decision notice, is not the final determination of the matter. Heading 20(3)(b), which Amendment No. 85 amends, gives the firm a right to refer the matter to the tribunal. The refusal does not become effective 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.

Paragraph 5(1) of Schedule 4 makes it an offence for a treaty firm to carry on a regulated activity in the United Kingdom before the expiry of the period of seven days beginning with the day on which it gave the FSA notice of its intention to do so. Amendments Nos. 87, 88 and 90 to 92 correct an unintended effect of that by making it clear that a treaty' firm that is already authorised by virtue of holding a Part IV permission, or having notified under Schedule 3 or 4, is not required to cease the regulated activity it may be carrying on already in the UK by virtue of its existing permission.

Thus, Amendments Nos. 87 and 88 ensure that a treaty firm which is already authorised by virtue of Schedule 4 should not have to cease for seven days its existing regulated activity when it wishes to expand the range of regulated activities it carries on in the UK. Equally, Amendment No. 87 makes it clear that, although paragraph 4(3) of the schedule deals with the case in which a treaty firm already has a Part IV permission, the firm will not commit an offence if it carries on the activity for which it has the Part IV permission during the seven-day period. Amendments Nos. 90 to 92 are consequential amendments.

Amendment No. 89 is also a technical change The existing sub-paragraph (2) of paragraph 5 applies various parts of Clause 49, which applies to applications under Part IV of the Bill, to a notice given to the FSA under that paragraph. Sub-paragraph (2) requires the notice to state the regulated activities to be carried on and to give an official UK address for the service of notices, and allows the FSA otherwise to direct the manner and content of the application, and to require verification of information contained in it. Amendment No. 89 removes the incorrect reference to subsection (4) of Clause 49, which would enable the FSA to require additional information. Given that the person's right is exercisable at the end of the seven-day period without FSA approval, that reference is redundant. Such further information as is required by the FSA to fulfil its ongoing supervisory functions as host state regulator can be obtained through rules and the exercise of powers under Part XI. I beg to move.

4.45 p.m.

Lord Stewartby

My Lords, perhaps I may ask the Minister to explain a point relating to the consequences of Amendment No. 80, which replaces paragraph 12 of Part II of the schedule. Subparagraph (1) refers to establishment conditions. In that case, the overseas regulator will have given the firm consent to establish a branch in the UK and so it will then satisfy the establishment conditions. That is perfectly straightforward. The service conditions are listed under subparagraphs (a), (b) and (c) of paragraph 14, but it is not clear to me that, if the firm concerned wishes to provide different services in the UK from the ones that it provides in its home state, it would really be properly authorised.

Amendment No. 80 sets out that once a firm satisfies the service conditions, it automatically qualifies for authorisation, but the service conditions as set out appear to relate to any services in the firm's home state for which it may have authorisation, whereas it may want to do something else in the United Kingdom. It may be that I have misunderstood that point, but I read it through once or twice and I still do not find it easy to see what protection there is against a firm which might want to do something different. Technically, it might qualify automatically, even if the home state regulator said that it did not authorise it in respect of those particular services and that it would not indeed do so.

Lord McIntosh of Haringey

My Lords, that is an interesting point. I believe that the answer is that Amendment No. 80 provides equality for establishment and the provision of services, whereas paragraph 12, which Amendment No. 80 replaces, does not make that distinction. My understanding is that the directives only provide the right to cross-border services which are carried on in its own home state. Paragraph 14 reflects the narrower scope of the European Union directives. If I have got that wrong or not made it clear, I shall certainly be pleased to write to the noble Lord.

On Question, amendment agreed to.

Lord Kingsland

My Lords, I wish to speak to this group of amendments.

The Deputy Speaker (Lord Brougham and Vaux)

My Lords, if the Minister moves Amendment No. 81, the noble Lord, Lord Kingsland, can speak.

Lord McIntosh of Haringey

moved Amendment No. 81: Page 244, line 19, leave out ("inform the firm concerned") and insert ("give written notice"). The noble Lord said: My Lords, I had already spoken to this amendment with Amendment No. 80. I beg to move.

Lord Kingsland

My Lords, as I understand the procedure, the Minister opens; and if no other noble Lord wishes to speak, the Opposition reply. I am simply exercising that right. Perhaps I may put it another way: I am performing that duty.

Lord McIntosh of Haringey

My Lords, I am sure it is my fault. The noble Lord, Lord Stewartby, spoke to Amendment No. 80 and I replied immediately without giving the noble Lord, Lord Kingsland, the opportunity to contribute. I apologise to him. It is entirely legitimate for him to make his points on Amendment No. 81 instead.

Lord Kingsland

My Lords, I thank the noble Lord very much indeed for his apology. I was not suggesting that he had done anything wrong. I am simply saying that the procedure had unfolded in such a way that I had not had the opportunity to speak. It now transpires that I can.

As regards the amendments to Schedule 3, they are mostly drafting amendments and do not change the substance of the existing provisions. The one point of note is that, as the Government have indicated, the amendment to line 39, on page 245 of the Bill, makes it clear that, in the normal way, the authority merely decides to refuse consent rather than actually refusing it. At the decision stage, although it does not issue a decision notice, the authority notifies the firm that it has decided to refuse consent and the firm may then appeal to the tribunal.

In the Government's Explanatory Notes they say that they are making it clear that the decision to issue a decision notice is not the final determination of the matter because the firm has the right to refer the matter to the tribunal and the normal provisions suspending the effect of the decision notice come into play.

However, in our view, that is not expressly stated in the amendment. Amendment No. 85 relates to paragraph 20. It provides that the authority's consent is required for specified changes to the firm or to an activity that it carries on. Neither Amendment No. 85 nor paragraph 20, as amended, provide that the authority must issue a decision notice when the firm applies for consent. All that is said is that, if the authority decides to refuse consent, the firm concerned can refer the matter to the tribunal. Presumably, the authority must notify the firm of its decision to refuse consent, but as it is not by way of a decision notice, the protective provisions in Clause 130, as amended, which refer to the procedures originating with the decision notice, never come into play.

Accordingly, in our view, Amendment No. 85 should be amended so that it requires the authority, when it decides to refuse consent, to issue a decision notice and then go on to say that the firm concerned may refer the matter.

I believe that this is just a problem of clarification. I do not believe that there is a difference of substance between us. However, it is an important matter and I hope that the Government can suggest another solution to this if our suggestion is not palatable.

As regards Schedule 4, in principle, the amendments are only drafting amendments. The Minister has explained that the reason for the reorganisation is that the present provisions of paragraph 5 require a treaty firm to issue a new notice to the authority each time it wants to begin a new regulated activity. As I understand these amendments, therefore, they provide that only one notice is needed.

I say this with great respect. Perhaps the Government will make it clear that the permission to which Amendment No. 87 refers is a permission granted under paragraph 4 of Schedule 4—in other words, a passported permission. I believe that that is what is intended; but because the amendment refers merely to a permission, and does not limit it to a Schedule 4 permission, it also covers Part IV permissions.

The fact that it could be read that way is made clear by the terms of paragraph 4(3). The notice that the authority requires is a notice that the treaty firm intends to use its Treaty of Rome passport under Schedule 4. The present wording of Amendment No. 87 does not achieve that.

Perhaps a solution would be to refer in Amendment No. 87, heading (11), to "permitted" instead of "regulated" in both places. Another potential solution would be that after the word "permission" in heading (b) we could insert "under paragraph 4(1)".

Lord McIntosh of Haringey

My Lords, I am grateful to the noble Lord for explaining his concerns. I deal first with Amendment No. 85. The noble Lord is quite correct. The point is that it is a decision to issue a decision notice—in this case, a decision notice refusing an application—which is the trigger for the right to refer the matter to a tribunal. Therefore, instead of saying that a person refused consent may refer the matter to the tribunal, if the authority decides to refuse consent without necessarily implementing that decision, there is reference to the tribunal and there is no interruption of the business involved. That should be an improvement.

However, in case we have misunderstood each other we shall look at the points the noble Lord has raised and write to him about it and, if necessary, make an amendment. It seemed clear enough to me that we were doing what the noble Lord wanted. As regards the amendments to Schedule 4, I am less clear about the very abstruse point which the noble Lord has made. Again, I shall have to write to him on that subject.

On Question, amendment agreed to.

Lord McIntosh of Haringey

moved Amendments Nos. 82 to 85: Page 244, line 20, at end insert ("to the firm concerned"). Page 245, line 14, leave out ("inform the firm concerned") and insert ("give written notice"). Page 245, line 15, at end insert ("to the firm concerned"). Page 245, line 39, leave out ("a person refused consent") and insert ("if the Authority decides to refuse consent, the firm concerned"). On Question, amendments agreed to.

Schedule 4 [Treaty Rights]:

Lord McIntosh of Haringey

moved Amendments Nos. 86 to 92: Page 246. line 30, leave out paragraph 2 and insert— ("2. Once a Treaty firm which is seeking to carry on a regulated activity satisfies the conditions set out in paragraph 3(1), it qualifies for authorisation."). Page 247, line 20, leave out from beginning to second ("the") in line 22 and insert ("Sub-paragraph (1A) applies to a Treaty firm which—

1. (a) qualifies for authorisation under this Schedule, but
2. (b) is not carrying on in the United Kingdom the regulated activity, or any of the regulated activities, which it has permission to carry on there.

(1A) At least seven days before it begins to carry on such a regulated activity, the firm must give"). Page 247, line 23, at end insert— ("( ) If a Treaty firm to which sub-paragraph (1A) applies has given notice under that sub-paragraph, it need not give such a notice if it again becomes a firm to which that sub-paragraph applies."). Page 247, line 24, leave out(",(4)"). Page 247, line 25, leave out ("(1)") and insert ("(1A)"). Page 247, line 27, leave out ("the prohibition imposed by paragraph 5(1)") and insert ("paragraph 5(1A)"). Page 247, line 33, leave out ("5(1)") and insert ("5(1A)"). On Question, amendments agreed to.

Clause 31 [Withdrawal of authorisation by the Authority]:

Lord Kingsland

moved Amendment No. 93: Page 14, line 33, leave out ("This section applies") and insert ("A person ceases to be an authorised person"). The noble Lord said: My Lords, in moving this amendment I shall speak also to the other amendments in this group. Amendments Nos. 93 to 95 relate to Clause 31. The Minister will recall that these amendments were tabled in Committee. They remove what we believe is the unnecessary requirement for the authority to give a direction formally withdrawing a person's status as an authorised person. The Minister declined to accept the amendments on the basis that, in certain circumstances, they would make a person's status unclear. If my memory serves me correctly, he gave examples of EEA or treaty firms qualifying under Schedule 3 or Schedule 4.

Having reflected on the matter, we continue to believe that the amendments are justified. The formal withdrawal of a person's status as an authorised person is both unnecessary and confusing. In the case of an EEA or treaty firm, such a firm either qualifies for authorisation under Schedule 3 or Schedule 4 or it does not. If a firm qualifies, it is authorised for the purpose of the Bill under Clause 29(1). If it does not qualify, or ceases to qualify, it should not be, or should cease to be, an authorised person automatically. Therefore, the authority is not required to give a direction to that effect.

Take the case of an EEA firm that qualifies for authorisation under Schedule 3 and also has a Part IV permission. Assume that the Part IV permission is withdrawn and in the mean time the firm has ceased to qualify under Schedule 3. Under Clause 31 the authority has to give a direction withdrawing the person's status as an authorised person. Suppose the authority fails to do so for some reason. It seems that the firm continues to be authorised, when clearly it has ceased to qualify for authorisation.

That does not seem to be right. It would be both preferable and clearer to avoid the bureaucratic requirements of the direction and rely on the provisions of the Bill to determine whether or not the firm is authorised.

I do not have sight of the correct paper. Perhaps I may ask the Minister whether Clause 42 is dealt with in this group.

Lord McIntosh of Haringey

My Lords, yes.

Lord Kingsland

My Lords, I am much obliged. The purpose of the amendments to Clause 42 is to allow the authority to refuse an application to vary or cancel a permission in "the interests of consumers" or "potential consumers" rather than, consumers, or of a group of consumers". Presumably, that provision was originally required because it was thought that the interests of consumers can be affected even in relation to some consumers only. Meanwhile, potential consumers have been omitted altogether. I beg to move.

5 p.m.

Lord McIntosh of Haringey

My Lords, when proposing similar amendments in Committee the noble Lord, Lord Kingsland, explained that he was concerned about the possibility that the FSA may try to continue to authorise someone inappropriately. I hope I can offer him some assurance on that point so that he may feel able to withdraw the amendments.

The purpose of Clause 31 is to provide certainty as to whether or not a person continues to have the status of an authorised person following the cancellation of a Part IV permission. That is necessary because, as Clause 29 indicates, a person may have permission to carry on regulated activities other than under Part IV. When the FSA cancels a Part IV permission it will have to decide whether other permissions carry on. If it concludes that they do not, it will be obliged to give a direction under Clause 31(2). That will put the status of the person concerned beyond doubt.

I want to emphasise that the clause does not offer the FSA an alternative means of prolonging authorisation. Subsection (2) clearly states that where the cancellation of a Part IV permission means that an authorised person no longer has a permission for any regulated activity, the FSA, must give a direction withdrawing that person's status as an authorised person". Clause 31 simply provides certainty as to the effect of the cancellation of a Part IV permission on the status of the person involved. Although subsection (1)(b) makes it clear that the clause applies only when the cancellation of a Part IV permission means that the person has no permission by virtue of any other provisions of the Bill, we believe that it is helpful to have a distinct administrative act that confirms that the result of the cancellation is that the person's authorisation has been withdrawn.

I now turn to Amendments Nos. 98 and 100 which concern Clause 42. These amendments are concerned with cases where the FSA has varied a person's Part IV permission with the result that there are no longer any regulated activities which that person is permitted to carry on. Once the FSA is satisfied that it is no longer necessary to keep the permission in force, it must cancel it. We believe that is an appropriate test which ensures that the FSA cannot keep a permission in force unnecessarily.

We also believe, and the FSA believes, that it places a more stringent test on the FSA than the one proposed in these amendments. There are, of course, various reasons why it may be necessary for the FSA to keep a permission in force. A firm may, for example, have contravened a requirement and so be subject to some form of investigation or to enforcement or to disciplinary proceedings. Alternatively, the FSA may be concerned that a firm may have contravened a requirement and, therefore, needs to satisfy itself that the firm is not trying to hide something. Clearly, the FSA's ability to protect consumers would be seriously undermined if it were unable to deal with issues such as these merely because a person had ceased to be authorised.

It is important that we should bear in mind that almost throughout the Bill we have succeeded in including provisions to deal with former authorised persons. If we had to deal with former authorised persons in every regulatory provision of the Bill, we could easily extend the length of it by 50 per cent. There are all sorts of additional complications that arise when seeking to regulate somebody who is no longer a regulated person. In this part of the Bill we keep them in membership so that they can be regulated and disciplined, rather than let them out and have to bring them back again for disciplinary purposes.

The effect of Amendments Nos. 98 and 100 would be to undermine the rigour of the test that is applied. If the amendments were accepted, the FSA would be able to keep a permission in force by relying on the fact that it was unable to satisfy itself that there was "no good reason" why the person should not continue to be subject to its control. That is a difficult test for any regulator. How can it ever be sure that there is no good reason for continuing to be able to exercise control over a person? The test in the Bill as it stands, on the other hand, would require the FSA to cancel permission if it is satisfied that it is no longer necessary for permission to be continued.

In turn, that requires the FSA to address the situation that had led it to conclude that permission should be continued and ask itself the question whether the situation is still such that it is necessary that permission should be continued. If it has no reasonable grounds for concluding that it is necessary, the effect of the Bill is that permission should be cancelled. I believe that is where we started and that that is the intention of the noble Lord. We do not believe that the test is sufficiently stringent. It would not give firms certainty that they will not be the subject of unnecessary regulation. I hope that these amendments will not be pressed.

Lord Kingsland

My Lords, I thank the Minister for the tone, if not the content, of his response. From the fact that these amendments have been retabled after much debate in Committee, he will have concluded that we regard them as, although superficially technical, of considerable importance. I should like to reflect on what the Minister said. We can come back to the amendments at Third Reading. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 94 and 95 not moved.]

Clause 40 [Giving permission]:

Lord Fraser of Carmyllie

moved Amendment No. 95A: Page 17, line 44, leave out from beginning to ("as") in line 45. The noble and learned Lord said: My Lords, at an earlier stage I tabled a number of amendments which were prompted by the Law Society of Scotland. In this group are two of my amendments, to which I can speak briefly.

Amendment No. 95A relates to Clause 40. The proposal is that the wording given as an example of the limitation that the authority might incorporate into the description of a regulated activity should be deleted. The point is a short one. If those words remain in, the concern is that, applying one of the principal canons of construction, there may be a limit on the limitations that the authority could impose. It may be dangerous to do that and, accordingly, the words ought to be deleted. It does not seem to me that that can do any damage to the statute and it will certainly have the effect of simplifying it in an appropriate fashion.

Amendment No. 95B relates to Clause 41. As your Lordships will have observed, this is a short but possibly rather startling provision that the authority can include a requirement which extends to, activities which are not regulated activities". We have already spent some considerable time this afternoon discussing what might be included in "regulated activities". It is clear from some of the earlier clauses that we debated that the Treasury has wide powers to specify what may and may not be regulated. It is surprising therefore that this requirement can go beyond regulated activities.

It may be that the Minister has already explained why the provision is necessary. But it seems to the Law Society and to me that it goes further than necessary. Accordingly, we should simply delete subsection (3). But I shall listen with interest to discover whether or not there is a sound basis for its inclusion. I beg to move.

Lord Brightman

My Lords, Amendments Nos. 96 and 97, which relate to Clause 42, are grouped with Amendments Nos. 95A and 95B. It is therefore my duty to speak now rather than later.

As we are looking at Clause 42 for a second time, perhaps I may mention a point of drafting of some importance which occurred to me rather late in the day. I do not expect the Minister to deal with this point in any substance because I did not give him notice in advance that I was going to raise it.

So far as I can discover, there is no definition of "consumer" in Part IV of the Bill. I may be wrong; I may have overlooked it somewhere, in which case I hope I shall be stopped. If there is no definition, then there seem to be four choices. Choice number one: there is a definition of "consumer" in Clause 135. That definition is adopted in Schedule 4. Choice number two: Clauses 5 and 12 use the Clause 135 definition, but add a few more persons as consumers. Choice number three: in Clause 9 we have the same definition as in Clauses 5 and 12, but excluding "authorised person" who is defined in Clause 407. Choice number four: we could have no special definition so that the dictionary definition applies. That, I believe, was the course advocated by the noble Lord, Lord Peston, on the second day of Committee when he said, I have lectured on consumer theory for about 40 years and believed that I understood what a consumer was".—[Official Report, 20/3/00; col. 45.] As I said, I do not expect the Minister to deal with this point in substance now, but perhaps it could be considered before Third Reading.

Perhaps I may mention an allied point. There are some 280 pages to this Bill. Is it necessary to read every single line in order to see whether or not the word "consumer" is used again and to check that it has been defined; or is there some electronic equipment available in the House to those who wish to study the Bill, which will indicate where the word "consumer" is used? There are more than 7,000 lines in the Bill. I have reason to believe, which I shall not go into now, that the word "consumer" is used in other places in the Bill without definition. It would be too big a job for me to go through the Bill line by line. But perhaps I can be informed whether or not there is some equipment which will do it for me.

5.15 p.m.

Lord Kingsland

My Lords, as I understand it, Amendments Nos. 96 to 101 are intended to tidy up Clause 43 and refer to the power the authority uses, on "its own initiative", to vary the Part IV permission to carry on specific regulated activities. Part IV is the normal permission for which firms apply.

We had thought, in another place, to make it clear that Clauses 43 and 44 were indeed the exercise of the authority's own initiative power. The revised subsection (1) covers exactly the same ground as cases (a) to (c) except that, as mentioned in the Explanatory Notes, it is not linked to specific activities.

Lord Jenkin of Roding

My Lords, I wish to say a few words in support of Amendment No. 95B in the name of my noble and learned friend. Perhaps one should have paid more attention to this. But, on reflection, it is a surprising provision to find in a Bill that requirements that may be imposed, may extend to activities which are not subject to regulation under the Bill. It would be helpful if the Minister could give some indication of what the provision is aiming at.

Reverting to the earlier amendment on which the House divided, let us suppose that we have a regulated firm of insurance brokers or financial advisers and the authority decides, as a condition of the authorisation, that it is going to impose requirements in relation to that firm's giving of advice on mortgage products. Is there anything in the clause which would prevent that being done? It seems to me it is entirely open to the authority to do it. Yet the Government say that they do not intend the Bill to extend to that activity in the early stages. My noble and learned friend raises a good point and we need an explanation.

Lord McIntosh of Haringey

My Lords, I cannot resist the temptation to respond to the noble and learned Lord, Lord Brightman, first. I love that kind of point and he raised it in his characteristically lucid way. The answer to his question is case four; in other words, it is the dictionary definition. My noble friend Lord Peston was right in saying that, in general terms, if one has lectured on something for 40 years without anybody ever questioning what was meant by "consumer", it is probably better to leave it that way unless we intend the word to be used in a different way in legislation.

However, as I explained when responding to the noble Lord, Lord Elton, earlier this afternoon, there are many instances where words are used in a special case in this Bill. Indeed, as I said, we set out a glossary in the Explanatory Notes, which is now out of date as regards its references as to where to find the definitions. There are plenty of definitions; in fact, the Bill is overflowing with definitions of words that are used other than in their normal dictionary sense. But this is not one of them.

The noble and learned Lord, Lord Brightman, also asked me whether there was any electronic equipment that would enable him to detect other cases where the word is used. I assume that this legislation, like all legislation, is in electronic form on the Treasury's website, or on an equivalent website. If that is the case, it can be subject to key word searching in the same way as any other electronic file. However, if I am wrong about that, I shall write to the noble and learned Lord. It would certainly be absurd for us to engage in 19th-century pursuits, such as concordances carried out manually by scholars or rather by the unfortunate research assistants of scholars. I believe that we are entitled to better than that in the 20th century. My noble friend reminds me that I should refer to the 21st century; that is indeed correct. Well, I have been too busy to catch up.

I turn now the amendments tabled in the name of the noble and learned Lord, Lord Fraser. Amendment No. 95A would simply remove the example of the sort of limitation that could be imposed on the carrying on of a "regulated activity". I can assure the noble and learned Lord that the inclusion of a single example, which is intended to be a helpful illustration, is not something that will give rise to the restraints of the normal canons of construction to which he referred. That is certainly not the intention; nor is it the effect of the phrase. It has been included to make it clear that the power can be exercised in this important way. There are other examples of exemplifications that do not invoke the Latin clause from which he spared us; namely, inclusio unus exclusio alterius—I hope that I said that correctly.

In granting permission to carry on an activity, it is vital that we should be clear that the FSA can specify circumstances in which it may or may not be carried on. Without the ability to make such restrictions, the FSA would be required to err on the side of caution in borderline cases and to withhold permission to carry on the regulated activity. I cannot believe that that is what the noble and learned Lord intended.

In deciding whether to impose such limitations, perhaps I may reassure the noble and learned Lord that the FSA must have regard to what is necessary to satisfy it that the threshold conditions are met and that consumers are adequately protected. If the applicant feels that the FSA has not been reasonable in imposing the limitation, he has recourse to the tribunal.

Amendment No. 95B seeks to prevent the FSA imposing requirements on the way in which how an authorised person conducts his unregulated activities. This, too, is essential if we are to have an effective and proportionate regulation. Let us take a simple example: how would banking supervision work if requirements could not be imposed on the way or the extent to which they lend? Given that the "own initiative power" is such an important tool in dealing with systemic issues—I shall deal with the genesis of that power when I describe our amendments—it is vital that it should be capable of addressing the problems that arise in the conduct of authorised persons' unregulated activities.

The noble Lord, Lord Jenkin of Roding, also referred to Amendment No. 95B. Of course, any requirements imposed by the FSA in relation to unregulated activities must be proportionate and relevant to the FSA's objectives under the Bill. That is the overall constraint with which we are working. The FSA can impose a requirement on conduct of unregulated activities only if the grounds set out in Clause 43(1) are satisfied. However, this is not a backdoor approach, as feared by the noble Lord, to the regulation of unregulated activities. It is essential that the FSA should be able to impose requirements on unregulated activities; for example, any financial resources requirements would need to extend to the whole of a firm's business. They could not be restricted to those parts of the business that are regulated because that would be like the judgment of Solomon; if we tried to make that distinction, the baby might die as a result of being cut in half. It is only possible to impose a requirement having regard to the need to meet the threshold conditions and the need to protect consumers. That, of course, takes us back to Clause 37.

I shall now deal with the Government's amendments in this group. Amendments Nos. 96, 97 and 99 clarify the grounds on which the FSA may refuse permission or exercise its own initiative power under Clause 43. The aim is to ensure that these powers can properly be exercised in order to minimise wider systemic risks. Amendments Nos. 96 and 97 clarify the ability of the FSA to take account of the interests of potential as well as actual consumers in deciding whether to refuse an application for a Part IV permission.

The amendments also remove the possible and unintended implication of the reference to "a group of consumers" that the FSA is bound only to consider the interests of specific consumers or groups of consumers, and not those of consumers generally. The purpose of that reference was to give the FSA the necessary discretion to refuse an application on the grounds that granting it would have an adverse impact on the interests of a broad group of consumers; for example, depositors. But given the nature of systemic risk, we believe it is desirable to make it clear that this discretion would apply where the adverse impact was to the interest of consumers and potential consumers generally.

Amendment No. 99 is similar in intent. The power under Clause 43 to vary or cancel a person's Part IV permission, which is referred to as the FSA's "own initiative power", is a critical part of the authority's range of powers to deal with a wide range of regulatory concerns, including systemic threats. Therefore, it is vital that this power should be exercisable when necessary in the interests of consumers generally, and not just those who are consumers of the regulated activities for which the authorised person has permission.

Before I forget, perhaps I may interrupt myself at this point and tell the noble Lord, Lord Jenkin, that, when I referred to the reference back to Clause 37, I should have said Clause 39. I am sure that the noble Lord noticed that error and that he would have picked me up on it later.

Amendment No. 99 also removes the words, in relation to one or more, or all, of the regulated activities for which he has a Part IV permission", from the end of case A. The amendment also takes the opportunity to reorganise the drafting of Clause 43(1) so that the three grounds appear as separate subsections (a), (b) and (c) rather than cases A, B and C.

Amendment No. 101 is also a drafting device. It defines the term "own initiative power" to which I referred earlier and which is already used elsewhere in this part of the Bill; for example, in Clause 45(6) and Clause 48(2). Amendments Nos. 102 and 103 incorporate the new defined term in Clause 44(1) and Clause 45(1).

Before I conclude, I should also give your Lordships notice that, following some discussion in another place of the head office requirements imposed by paragraph 2 of Schedule 6, we have been considering whether these requirements may bite a little too hard on some overseas firms, including some from elsewhere in the European economic area. We are checking to ensure that Schedule 6 is completely consistent with our Community obligations and with the need to maintain the openness of the UK financial markets. If necessary, we may table amendments at Third Reading. If we are in a position to lighten the regulatory burden in some way at that stage, I hope that noble Lords will feel able to indulge us.

Lord Fraser of Carmyllie

My Lords, the first amendment that I moved was simply a drafting one. There might he some argument as to whether the subsection contains just one example or perhaps two, but it was a small risk about which I thought the Government ought to be aware. It seems to me that the removal of such words would have done nothing to restrict what the authority might he able to do. However, I shall obviously not be pressing it.

As far as concerns Clause 41(3), I believe I understood what the Minister said in his response. I shall read most carefully in Hansard the examples that he gave. Nevertheless, this still seems to me to be a point to which we may wish to return. Under subsection (2), the authority can impose a requirement on a person which will require him "to take specified action" or, to refrain from taking specified action". If the FSA does that and the person concerned says that it is outside the regulated activities, and the FSA then says that it has the right to require that of the person, whether or not it is regulated, that is precisely the area of controversy that I should have thought this House would wish to avoid the authority becoming involved in. The greatest criticism of the USA at the present time is that it will clumsily or unnecessarily trespass into matters that are not within those areas which we all acknowledge and recognise ought to be regulated. If the measure we are discussing is to have a narrow remit, I can understand how it might emerge as an ancillary power, as it were, but it seems to me, and, I believe, to my noble friends, to be expressed in the widest possible terms. Some restriction may be desirable. But, having said that, I have no intention of pressing Amendment No. 95B either. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 41 [Imposition of requirements]:

[Amendment No. 95B not moved.]

5.30 p.m.

Clause 42 [Variation etc. at request of authorised person]:

Lord McIntosh of Haringey

moved Amendments Nos. 96 and 97: Page 18, line 34, leave out ("of a group of") and insert ("potential"). Page 18, line 36, leave out ("of that group of') and insert ("potential"). On Question, amendments agreed to.

[Amendment No. 98 not moved.]

Clause 43 [Variation etc. on the .Authority's own initiative]:

Lord McIntosh of Haringey

moved Amendment No. 99: Page 19, line 3, leave out subsection (1) and insert— ("(1) The Authority may exercise its power under this section in relation to an authorised person if it appears to it that—

1. (a) he is failing, or is likely to fail, to satisfy the threshold conditions;
2. (b) he has failed, during a period of at least 12 months, to carry on a regulated activity for which he has a Part IV permission; or
601
3. (c) it is desirable to exercise that power in order to protect the interests of consumers or potential consumers.

(1A) The Authority's power under this section is the power to vary a Part IV permission in any of the ways mentioned in section 42(1) or to cancel it."). On Question, amendment agreed to.

[Amendment No. 100 not moved.]

Lord McIntosh of Haringey

moved Amendment No. 101: Page 19, line 24, at end insert— ("( ) The Authority's power under this section is referred to in this Part as its own-initiative power."). On Question, amendment agreed to.

Clause 44 [Variation of permission on acquisition of control]:

Lord McIntosh of Haringey

moved Amendment No. 102: Page 19, line 28, leave out ("acting under section 43") and insert ("exercising its own-initiative power"). On Question, amendment agreed to.

Clause 45 [Exercise of powers in support of overseas regulator]:

Lord McIntosh of Haringey

moved Amendment No. 103: Page 19, line 38, leave out from ("Authority's") to ("may") in line 40 and insert ("own-initiative power"). On Question, amendment agreed to.

Clause 46 [Prohibitions and restrictions]:

Lord Kingsland

moved Amendment No. 104: Page 21, line 15, after ("A") insert ("or contravene any other obligation or duty the institution may owe A"). The noble Lord said: My Lords, as I said at Committee stage of the Bill, Clause 46 gives the authority power to impose requirements on authorised persons and to give notice of these requirements to any institution with whom the authorised person keeps accounts. The institution does not act in breach of any contract with the authorised person if, having been instructed by the authorised person to transfer any sum or otherwise make any payment out of the authorised person's account, the institution refuses to do so in the reasonably held belief that complying with the instruction would be incompatible with a requirement imposed by the authority.

However, if the institution complies with the instruction from the authorised person, it is liable to pay to the authority an amount equal to the amount transferred. It does not seem reasonable that the institution must be automatically liable when complying with such an instruction when it appears that the requirement imposed by the authority is not an absolute requirement. Therefore, to balance the approach adopted in Clause 46, it would be reasonable to include the words, "without reasonable excuse". I beg to move.

Lord Stewartby

My Lords, I may be making the same point as my noble friend, but on reading Clause 46(5)(b) I wondered whether, if the institution complies with such an instruction that institution has had to go through the process of assessing whether complying with the instruction would or would not be incompatible with the requirement. It is not clear whether there is an assumption in Clause 46(5)(b) that it will have made such an assessment because the instruction of itself may not put the institution on notice that it ought to consider whether complying with the instruction would infringe the requirement. Perhaps that matter should be spelt out in paragraph (b).

Lord McIntosh of Haringey

My Lords, subsection (5)(a) of Clause 46 provides for notification of other institutions, such as a bank, where the person subject to an assets restriction has an account. It protects those institutions from action for breach of contract if they comply with the terms of the restriction.

Amendment No. 104 seeks to extend this protection to other obligations or duties to which the institution may be subject, such as a fiduciary duty or a duty of care. As I said in Committee, we understand fully the intention of the amendment. Subsection (5)(a) already recognises the need for a bank to be able to rely on the restriction as a defence to an allegation that it has acted in breach of such a duty. The provision is drafted in the way it is in response to comments made in our public consultation on the draft Bill. A number of people thought that the form of the provision in the draft Bill was confusing. We came forward with this wording to make clear that, after an assets requirement had been imposed, the institution would continue to hold A's property on the terms that had previously applied, except that it could legitimately forbear to make transfers in accordance with A's instructions.

In response to the comments made by the noble Lords opposite in Committee, we have considered whether the drafting should be further amended. We have consulted parliamentary counsel on that issue. It is our clear view that the amendment is unnecessary. It seems implausible that a court would hold that the institution was in breach of a fiduciary duty it may owe the authorised person, A, given the existence not only of an express prohibition or restriction on, the disposal of, or other dealing with, any of A's assets". but also an express provision that there is no breach of contract if a person refuses to do what his contract with A would otherwise have obliged him to do. We are satisfied that it is clear that a person who complies with a requirement imposed on him under statute cannot at the same time be liable to actions in the civil courts. This would fundamentally undermine the effect of the requirements for which Parliament itself has made provision.

In this particular case we have included express provision about breach of contract in order to make it clear that the terms on which the institution holds A's property are the same as those that applied before the assets requirement was imposed—with the very important exception that, so long as the assets requirement is in place, the institution is no longer obliged under its contract with A to comply with A's directions.

We are doubtful of the value of trying to go further in this particular instance because we do not think that it is necessary to go beyond the specific case we have dealt with here—which is necessary for the simple mechanics of this particular requirement. We do not want to run the risk of creating doubt about the position in other areas where there may be an explicit statutory requirement but there is no express provision about civil duties and liabilities. In those cases no provision is required because those duties and liabilities are displaced by the requirements imposed under the statute. Nevertheless, as I say, we have consulted parliamentary counsel on this matter and we think that we are on safe ground here.

Amendment No. 105 concerns the liability which is imposed under subsection (5)(b) on a financial institution which acts in breach of a requirement notified to it by the authority. It would give the financial institution a defence to that liability if it could show that it had a "reasonable excuse" for having paid out or transferred any part of the account. As I said in Committee, we must remember that we are not dealing here with punishment of the institution for an offence or other misconduct, but with safeguarding assets which may be owed to consumers or to other creditors. The effect of a breach of the requirement may well be to allow the authorised person subject to the restriction to dissipate its assets in a way that puts them out of reach of the firm's customers or creditors. It is only right that an institution which has notice of the requirement should comply with it.

Clearly, there may be circumstances in which the notification has been garbled or not received, but in those circumstances no liability would attach to the institution in any event. It is difficult to imagine any other circumstances in which the institution would have a reasonable excuse for having failed to comply with a requirement. However, even if it did, we do not think that it would be right to deprive the firm's creditors and other persons to whom the assets may properly belong. And to allow, indeed encourage, institutions to look for excuses for failing to comply with requirements could seriously undermine their effectiveness. It might also expose smaller institutions to undue pressure from unscrupulous and perhaps desperate firms.

Amendment No. 106 is a drafting amendment. I do not think that the noble Lord referred to that amendment and therefore the House can be spared the pain of hearing me speak to it.

Amendment No. 106A concerns the position of a trustee appointed to hold assets pursuant to an assets requirement. Subsection (8) provides that assets will be treated as being held in accordance with such a requirement only if the authorised person has instructed the trustees to do so by written notice. The amendment, which we considered in Committee, would require that notice to come from the FSA rather than from the authorised person. Again, as we said in Committee, we can appreciate the thinking behind it, but it would cause more problems than it would solve.

The obligation to transfer the assets to the trustee is imposed on the authorised person, although it must be approved by the FSA. The authorised person will have failed to comply with the requirement—and will therefore be exposing himself to possible disciplinary' proceedings—if he fails to notify the trustee that those assets are held in accordance with the requirements. I think these two go together.

The noble Lord, Lord Stewartby, raised a point similar to that of the noble Lord, Lord Kingsland. The institution should be on notice that there are restrictions in dealing with A's property This will mean that the authority will have given the institution a notice of the restriction in dealing with A's assets by virtue of Clause 46(4)(b). So it is not necessary to spell this out in subsection (5)(b).

On that basis, I hope that the noble Lord will not press the amendment.

Lord Kingsland

My Lords, I thank the Minister for what he has said. If I understood him correctly, he has gone some way towards giving me some comfort on these matters. I shall of course read the text of Hansard carefully before deciding whether to return to this matter at Third Reading. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 105 to 106A not moved.]

5.45 p.m.

Clause 50 [Determination of applications]:

Lord McIntosh of Haringey

moved Amendment No. 107: Page 23, line 19, leave out subsection (4) and inset:— ("(4) If the Authority grants an application for, or For variation of, a Part IV permission, it must give the applicant written notice. (5) The notice must state the date from which the permission, or the variation, has effect. (6) If the Authority proposes—

1. (a) to give a Part IV permission but to exercise its power under section 40(7)(a) or (b) or 41(1), or
2. (b) to vary a Part IV permission on the application of an authorised person but to exercise its power under any of those provisions (as a result of section 42(5)),

it must give the applicant a warning notice. (7) If the Authority proposes to refuse an application made under this Part, it must (unless subsection (8) applies) give the applicant a warning notice. (8) This subsection applies if it appears to the Authority that—

1. (a) the applicant is an EEA firm; and
2. (b) the application is made with a view to carrying on a regulated activity in a manner in which the applicant is, or would be, entitled to carry on that activity in the exercise of an EEA right whether through a United Kingdom branch or by providing, services in the United Kingdom.

(9) If the Authority decides—

1. (a) to give a Part IV permission but to exercise its power under section 40(7)(a) or (b) or 41(1),
2. (b) to vary a Part 1V permission on the application of an authorised person but to exercise its power under any of those provisions (as a result of section 42(5)), or
3. (c) to refuse an application under this Part,

it must give the applicant a decision notice."). The noble Lord said: My Lords, in moving Amendment No. 107, I shall speak also to Amendments Nos. 108 to 110; to the amendment of the noble and learned Lord, Lord Fraser, Amendment No. 110A; to government Amendments Nos. 111 and 112; to Amendments Nos. 163 to 166; and to Amendments Nos. 168 to 170. These amendments are all part of the package of procedural amendments, of which we gave notice some time ago.

Amendment No. 107 establishes the procedures for granting or refusing applications for a new permission or variation of an existing permission under Part IV. If an application is granted, the applicant receives written notice which states the date on which the new permission takes effect. If the FSA proposes to grant or vary a permission in accordance with an application, but to impose limitations or requirements under Clauses 40, 41 or 42, it must follow the warning and decision notice procedure.

The warning and decision notice procedure also applies if the FSA proposes to refuse an application—unless the reason for refusal is that the applicant should properly notify under Schedule 3 in accordance with the directives, in which case we would expect the question of which route was correct to be sorted out in discussion with the home state regulator.

The first new clause after Clause 51 (Amendment No. 109) applies the flexible, supervisory-type decision procedure to the exercise of the FSA's own initiative power to vary an authorised person's permission under Part IV. The own initiative power is, as I have explained, one of the key tools in the FSA's regulatory toolbox; a power that needs to be exercised in different ways according to the circumstances of each case.

Where action needs to take effect immediately or at some date prior to the full process having been completed, it is important that the action can and does take effect then. That is provided for by subsection (2), as qualified by subsection (3) which requires the FSA reasonably to consider it necessary for the action to take effect immediately or while the decision is open to review, having regard to the grounds on which the action is being taken.

On the other hand, where the power is being exercised to apply relatively routine requirements—for example, adjusting the premium income limit for an insurance company or setting a new capital ratio for a bank—to reflect new aspects of that authorised person's business, there may be no need for the requirement to take effect before the person concerned has had the opportunity to refer the matter to the tribunal, in which case the requirement will not take effect while the matter is open to review.

The second new clause after Clause 51 (Amendment No. 110) deals with the procedure for cancellation of permission. As I made clear when introducing the changes in Committee, we are applying the full warning and decision notice procedures to those decisions, in effect treating them in the same way as disciplinary-type cases. This reflects the seriousness of this kind of regulatory action. It is possible to adopt this process only on the basis that if protective action is required in the meantime, the own initiative power is there for that purpose.

These new clauses replace Clauses 51, 52 and 53, which we are omitting under Amendments Nos. 108, 111 and 112.

Amendments Nos. 163, 164 and 165 remove the requirement under Clause 253 for the direction to specify the date on which a requirement takes effect, and replaces this with a requirement for the notice under Clause 255 to specify when the requirement takes effect. This removes an element of duplication—as it stands, both the direction and the notice would appear to specify these dates—and aligns the provisions more closely with others in the Bill.

As with subsection (12) of the second new clause after Clause 51 (Amendment No. 110), Amendments Nos. 166, 168 and 170 introduce new subsections into clauses setting out the supervisory procedures for giving directions under Clause 253 to authorised collective investment schemes; for giving directions under Clause 263 to recognised overseas collective investment schemes; and for giving directions under Clause 277 to overseas collective investment schemes authorised by virtue of Clauses 266 or 268.

These new subsections define what is meant by a decision being "open to review" by reference to the new subsection (6A) to Clause 386, to which we will come in due course. This therefore determines the basic presumption about when a decision takes effect in the absence of any need for the supervisory action to take effect any earlier.

Amendment No. 169 is a consequential change which makes clear that a decision to refuse an application for variation or revocation of a direction made under Clause 263 can be referred to the tribunal.

Some of the amendments to Part XVII reflect the fact that we can now introduce a common definition of what is "open to review" for the purposes of supervisory decisions. This is the effect of Amendment No. 193, to which we shall come in due course. The others are directed at slight technical points—duplicative requirements to set dates in one case and the omission of an explicit provision about references to the tribunal in another.

The amendment of the noble and learned Lord, Lord Fraser, Amendment No. 110A, seeks to amend Clause 52, which we propose to omit. I shall respond in terms of the replacement clause rather than the clause as printed. The noble and learned Lord seeks to introduce a minimum period of 14 days before the issue of a written notice under Clause 52 before a decision can take effect. Clause 52 currently deals with the authority's exercise of its own initiative power in cases other than those where it is necessary for the authority's action to take immediate effect.

As we have proposed an amendment to omit Clause 52, it might be helpful if I respond in terms of its replacement. By virtue of subsection (2) of the new clause, a supervisory decision could take effect immediately it is given or on a specified date. But this can happen only if the FSA considers it necessary that it should happen. Even in such cases, we would expect that an authorised person would be given the maximum possible notice before any action were to take effect. It would be in only relatively rare cases—for example, where it is necessary to protect consumers—that anything less than 14 days' notice should be given. I hope that that will satisfy the noble and learned Lord, Lord Fraser. I beg to move.

Lord Fraser of Carmyllie

My Lords, I had observed that my amendment sought to amend a clause which the noble Lord intended to delete. If he had not been so obviously enjoying giving the answer he gave, I might have interrupted him to tell him that it was an unnecessary response.

Lord McIntosh of Haringey

My Lords, I cut it down very substantially.

Lord Fraser of Carmyllie

My Lords, I am delighted to hear that. Perhaps I may say to the Minister that I understood the point that he was making. My point about notice is not only covered in subsection (2) but, presumably, if the notice has to give notice of his right to refer a matter to the tribunal and must give an indication of the procedure, doubtless within that there would be some indication of the time limits to which that reference would be subjected. When it comes to my moment of glory, I intend not to move the amendment.

Lord Jenkin of Roding

My Lords, I am sure that the whole House is indebted to the noble Lord, Lord McIntosh, for the care with which he has explained this very large group of amendments which covers some pages of the Marshalled List. I should also like to say that those of us who have been seeking to follow the proceedings on the Bill and have had advance notice with explanations of the amendments very much appreciate that. The noble Lord is doing his best to make an extremely unpalatable mess of pottage possibly a little more palatable than it otherwise would be.

I shall not detain the House long on this point, but, here we are, nearing the end of a long legislative process. It has spread over two Sessions of Parliament. The Bill was carried over and the noble Lord, Lord Burns, who is no longer in his place, chaired the Joint Committee of both Houses on the Bill. It has proceeded through all its stages in another place and then it came to this House. It has been through several days of Committee and we are now on the second day of Report. But we still find ourselves facing page after page after page of amendments. I really must once again make a protest that this is no way to legislate.

Those outside who have tried to follow the proceedings have been dismayed at the way in which things have been done. One of the things of which one has also become aware is that many of them are keeping their heads well below the parapet because they do not wish to get into the bad books of the Financial Services Authority. There have been several examples of that. It may be appropriate at a later stage to draw attention to the article in today's Daily Telegraph saying that there must not be an unofficial blacklist of people. The powers being given to the authority, which no doubt under this sheaf of amendments may be exercised a little more logically and with a little more regulation, as it were, than had originally been provided, are immense. That we are at this very late stage making this whole sheaf of amendments to the Bill demonstrates how unsatisfactorily this whole process has been carried on.

I have made my protest about this before and I feel that it is appropriate to do so again. When we have this group of amendments, with new clauses coming in and with existing clauses being taken out and whole parts of the Bill being effectively rewritten at this late stage, I must once again protest and say that this is a disgraceful way of proceeding.

Lord Peyton of Yeovil

My Lords, I should like briefly to apologise for the fact that it was not possible for me to get here earlier. I had no intention of rising to my feet until I heard the contribution made by my noble friend Lord Jenkin. My noble friend lost nothing by his restraint as it was a very effective protest. I should like particularly to echo what he said in tribute to the noble Lord the Minister, who has the embarrassing task of defending the really messy conduct of the Bill. I just wish I knew who really is responsible; if anyone has been the pilot—p-i-l-o-t, not spelt the other way—behind the scenes.

I shall not detain the House any longer except to say that if I were given a single wish now it would be that the noble Lord who is conducting proceedings on the Bill would so far forget himself as to forget where he is and think that he was sitting, as he was a couple of years ago, on the Opposition Front Bench. I do not believe for one moment that he would be quite so restrained in his condemnation of the Government's conduct as, on the whole, we on this side of the House have been. I want to ask one question. Is it possible to identify anyone who has been more responsible than most for the ghastly mess in which we find ourselves?

Lord McIntosh of Haringey

My Lords, I have to say to the noble Lords, Lord Jenkin and Lord Peyton, that flattery will get them nowhere. I have listened to these complaints. I thought that the thrust of the complaints at the Committee stage had some justification and I apologised; indeed, I think I used the word "grovel". But I do not think that I am in that position now. What we doing with the Bill is consistently, deliberately and carefully improving it. I do not believe that we are being helped particularly by the Opposition.

Perhaps I may just say this to noble Lords. Have they looked at the Marshalled List? Have they looked at the fact that 40 of the amendments on the Marshalled List being debated today are starred? In other words, they were put down only at midday on Friday, so that I had no opportunity to consider briefing on them over the weekend, which is what I would otherwise have expected. Have they looked at the fact that, in addition to those 40 starred amendments, there are 14 on a supplementary Marshalled List, tabled by the noble and learned Lord, Lord Fraser, which I saw for the first time at ten o' clock this morning? How am I expected to respond to amendments of that kind at such an interval?

If it comes to accusations of—

Lord Fraser of Carmyllie

My Lords, I thank the noble Lord for giving way. Am I correct in understanding that not so long ago the noble Lord made a proud boast in the Dining Room of your Lordships' House that the first time he read the notes for the amendments was when he got up to read them?

Lord McIntosh of Haringey

My Lords, I would be very surprised if the noble and learned Lord was right in saying that; and, if he were, it would be entirely improper for him to quote in the House anything that I said in the Dining Room. I do not know what kind of a club this is, but it certainly is not the club in which one quotes what other people say in a dining room and attribute that quote.

I was not going to say anything about these matters until I was attacked—until the Government were attacked—but now I have been attacked I shall respond to that. I shall respond to the noble Lord, Lord Jenkin, who made a most outrageous statement. He said that there were people in the City who had objections to the Bill but were not prepared to raise those objections for fear of being victimised by the Financial Services Authority. If there are such people, let the noble Lord name them. If there are not such people, let him not make such an accusation, which is damaging to the reputation both of the City and of the Financial Services Authority.

I turn to the issue of powers under the Bill. I have already made the point several times today—it applies to previous stages of the Bill—that in the Bill the Government are limiting the powers of the Financial Services Authority, to create greater certainty about those powers and to make the Bill easier to operate. The only amendment on which the Opposition have chosen to divide the House is an amendment which would increase the scope of the Financial Services Authority's activities to the extent of encompassing another 60,000 people and employing another 200 staff. I ask the world outside to judge who is complicating the Bill and who is attempting to improve it.

Finally, I was asked by the noble Lord, Lord Peyton, how I should feel if I were on the Opposition Benches, faced with government amendments, and whether I should have been as restrained as he has been. The Financial Services Act was introduced by the noble Lord's government in 1986. It was a smaller Act; it was not concerned with banking or insurance, or with the European economic area, Lloyd's or the treaty obligations. It was necessarily a smaller Act because it was dealing with a simpler financial community. At the Bill's Report stage in the Lords, after the Bill had completed its passage in the Commons, there were 400 government amendments and there were 70 government amendments at Third Reading.

6 p.m.

Lord Peyton of Yeovil

My Lords, I am obliged to the noble Lord for giving way. He refers to my government. It was not exactly my government. Indeed, if the noble Lord would care to do me the favour of exercising his considerable memory, he will remember that my relations with what he calls "my government" were not all that warm at the time.

Lord McIntosh of Haringey

My Lords, I do not deny that the noble Lord was in opposition to the government of the party of which he is a member and whose Whip he takes. I do not deny that he was, in many cases, an outstanding opponent when they were doing things that were particularly wrong. But there is an element of collective responsibility. We are talking about the Conservative Party, which put through defective legislation to a much greater degree than we have done, to which we responded with considerable restraint—much more restraint than was shown by the noble Lords, Lord Jenkin and Lord Peyton.

The only response that I have received to these government amendments has been a very friendly one from the noble and learned Lord, Lord Fraser. I therefore commend the amendment to the House.

The Deputy Speaker (Lord Strabolgi)

My Lords, the Question is that Amendment No. 107 be agreed to. As many as are of that opinion shall say "Content"—

Lord Kingsland

My Lords, we have not spoken to the amendments.

The Deputy Speaker

—to the contrary, "Not-Content". The "Contents" have it.

On Question, amendment agreed to.

Clause 51 [Refusal of application for permission]:

Lord McIntosh of Haringey

moved Amendments Nos. 108 to 110 en bloc: Leave out Clause 51. After Clause 51, insert the following new clause— EXERCISE OF OWN-INITIATIVE POWER TO VARY PART IV PERMISSION:PROCEDURE (" .—(1) This section applies to an exercise of the Authority's own-initiative power to vary an authorised person's Part IV permission. (2) A variation takes effect—

1. (a) immediately, if the notice given under subsection (4) states that that is the case;
2. (b) on such date as may be specified in the notice; or
3. (c) if no date is specified in the notice, when the matter to which the notice relates is no longer open to review.

(3) A variation may be expressed to take effect immediately (or on a specified date) only if the Authority, having regard to the ground on which it is exercising its own-initiative power, reasonably considers that it is necessary for the variation to take effect immediately (or on that date). (4) If the Authority proposes to vary the Part IV permission, or varies it with immediate effect, it must give the authorised person written notice. (5) The notice must—

1. (a) give details of the variation;
2. (b) state the Authority's reasons for the variation and for its determination as to when the variation takes effect;
3. (c) inform the authorised person that he may make representations to the 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 when the variation takes effect: and
5. (e) inform him of his right to refer the matter to the Tribunal.

(6) The Authority may extend the period allowed under the notice for making representations. (7) If, having considered any representations made by the authorised person, the Authority decides—

1. (a) to vary the permission in the way proposed, or
2. (b) if the permission has been varied, not to rescind the variation,

it must give him written notice. (8) If, having considered any representations made by the authorised person, the Authority decides—

1. (a) not to vary the permission in the way proposed,
2. (b) to vary the permission in a different way, or
3. (c) to rescind a variation which has effect,

it must give him written notice. (9) A notice given under subsection (7) must inform the authorised person of his right to refer the matter to the Tribunal. (10) A notice under subsection (8)(b) must comply with subsection (5). (11) 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. (12) For the purposes of subsection (2)(c), whether a matter is open to review is to be determined in accordance with section 386(6A)."). After Clause 51, insert the following new clause—